Messrs AWAIS LAW ASSOCIATES, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2098 (2001)

(a) Income Tax Rules, 1982‑‑‑

‑‑‑R.158‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Appointment of Receiver ‑‑ Remuneration of the Receiver is payable by the defaulter‑‑‑Where the Receiver runs the business, makes transactions and recover money he is entitled to deduct expenses and charges and in such situation remuneration is borne by the defaulter but in the present case the Recovery Officer negotiated with the assessee and compromised by recovering Rs. 20 millions‑‑‑Recovery Officer at such a situation was obliged to consider the payment of fee of the Receiver/complainant, which should have been either separately recovered or included in the amount received by the Department‑‑‑Department contended that in recovery process and obtaining the amount, Receiver had no role to play, therefore, the responsibility lay on the Department to have included the remuneration of the Receiver while fixing the amount to be paid by the defaulter‑‑‑Contention that the Receiver may pursue his claim with the defaulter/assessee did not stand to reason and justice, particularly when the department had excluded the complainant/Receiver while settling the matter with the assessee/defaulter.

(b) Income Tax Rules, 1982‑‑‑

‑‑‑‑R.158‑‑‑Contract Act (IX of 1872), S.70‑‑‑Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Appointment of Receiver‑‑‑Remuneration‑‑‑Certificate of com mendation was issued but no remuneration was paid on the ground that no role was played by the Receiver/complainant for recovery of dues‑‑ Validity‑‑‑Claimant (Receiver) had rendered services for which the Commissioner of Income‑tax had issued certificate .of commendation‑‑ Such certificate was not issued for ineffective service or role played by any person for recovery of dues‑‑‑If Rules did not permit for payment to the claimant, as a Receiver, then under general principles of law a person who had lawfully rendered service and not gratuitously or voluntarily, was entitled to compensation for the services rendered by him‑‑‑Section 70 of the Contract Act, 1872 provided that where a person lawfully did anything for another person, not intending to do gratuitously and such other person enjoyed the benefit thereof, the latter was bound to make compensation to the former in respect of the thing so done‑‑‑Receiver, in circumstances, was entitled to remuneration for the service rendered as commended and acknowledged by the Commissioner of Income‑tax.

(c) Income Tax Rules, 1982‑‑‑

‑‑‑‑R.160‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Powers and remuneration of Receiver‑‑‑Fixation of‑‑‑Rule 160 of the Income Tax Rules, 1982 provides that the Tax Recovery Officer may by general or special order, fix the amount to be paid as remuneration for the services of the Receiver which should be commensurate to the service rendered by the Receiver‑‑‑Instead of fixing a uniform formula for the fee of the Receiver, in the present case, everything had been left to the discretion of Recovery Officer which was an undesirable method which could lead to favouritism, improper exercise of discretion and open the door for serious irregularity‑‑‑Receiver was appointed by the Court, which have uniform Rules for determining the fee of the Receiver unless it was a case of special nature‑‑‑Central Board of Revenue was directed to look into the matter and instead of fixing a flat rate of 5% should fix the remuneration commensurate to the service rendered for which a scale be provided fixing the maximum amount.

(d) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.2(3)‑‑‑Maladministration‑‑‑If in the procedure or process adopted by Central Board of Revenue for recovery of tax there exists any illegality or irregularity causing prejudice or injustice depriving a person of his legitimate right it will amount to maladministration committed by the Revenue Authorities while administering tax laws.

(e) Income Tax Rules, 1982‑‑‑

‑‑‑‑R.158‑‑‑Establishment of Officer of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2 (10) & 9(3)‑‑‑Appointment of Receiver‑‑‑Tax employee‑‑‑Jurisdiction of Federal Tax Ombudsman‑‑ Claim of remuneration by Receiver‑‑‑Complaint to Federal Tax Ombudsman‑‑‑Department contended that complainant who was appointed as receiver was an employee of the department, and therefore, his claim was barred under S.9(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑Validity‑‑ Provision of S.9(3) prohibited exercise of jurisdiction in case of a complaint by or on behalf of a Tax Employee in respect of any personal grievance relating to his service‑‑‑Tax Employee has been defined in S.2(10) of the Ordinance which means an employee of the Revenue Division and includes an officer and any other functionary serving in, or any office subordinate to, the said Division‑‑‑Receiver, in the present cases did not fall in the definition arid could not be termed as a Tax Employee‑‑‑Complainant/Receiver had been resorting to various remedies and had even approached Supreme Court, from where he withdrew his petition for filing the suit‑‑‑Valid reasons did exist to entertain the complaint of the Receiver for remuneration in circumstances.

(f) Income Tax Rules, 1982‑‑‑‑

‑‑‑‑Rr.158, 159, 161 & 117‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Receiver was appointed on remuneration @ 5% of the amount recovered from the defaulter‑‑ Defaulter was detained in jail for payment of utilities bills‑‑ Receiver/complainant served warrant of arrest on the Superintendent, Jail for detention of the defaulter for payment of income‑tax‑‑‑Tax was recovered after negotiations between the defaulter and the Tax Authorities‑‑‑Receiver claimed remuneration of the recovered amount on the ground that if he would have not made these efforts, defaulter would have been released as he had paid the utility bills‑‑‑Department denied that complainant/Receiver had played any role for recovery and thus he was not entitled to receive any remuneration from the Department and further, pleaded that his appointment was not made under 8.159 of the Income Tax Rules, 1982‑‑‑Validity‑‑‑Complainant was entitled to remuneration for service he had rendered‑‑‑Federal Tax Ombudsman recommended that: the Central Board of Revenue should pay. Rs.25,000 to the complainant/Receiver for the service rendered by him and that Central Board of Revenue to frame fresh Rules relating to the remuneration of the Receiver providing therein a scale of such remuneration/fee etc.

Awais Sheikh for the Department.

DECISION/FINDINGS

This is a complaint filed by Mr. Awais Sheikh, Advocate who was engaged by the Department as a Receiver under Rules 158, 159 and 161 of the Income Tax Rules, 1982 to ensure recovery of the amounts from Nadia Ghee Mills (Pvt.) Ltd. and its Directors. The total recoverable amount against them is stated to be up to Rs.9,97,01,097. In discharge of his duties the, complainant executed the warrant of attachment by sealing the factory as no business was run. He delivered letter to S.H.O. of the concerned police station for help of the police force for execution of order of attachment of business under rule 117. It has been claimed that he was appointed Receiver on remuneration at the rate of 5% of the amount recovered payable by the defaulter to the Receiver. It has further been stated that on the reverse side of the warrant of attachment of movable property it is mentioned that the complainant would be entitled to remuneration at the rate of 10% of the amount recovered by him or deposited by the defaulter during his Receivership. It has been claimed that after sealing the Nadia Ghee Mills (Pvt.) Ltd. On 6‑6‑1998 the complainant made efforts and found out that Seth Muhammad Yaqoob had been detained in Central Jail, Kot Lakhpat, Lahore for default in payment of utility bills. The complainant after obtaining a letter of request from respondent No.2 for detention of Seth Yaqoob for payment of Rs.8,51,11,377 towards arrears of income tax and warrant of arrest served then on the Superintendent, Jail on 15‑6‑1998 who refused to accept stating that he could not arrest any person who was already under arrest. This followed interaction between complainant and respondent 2 who has advised him to ring the Superintendent. Ultimately at the instance of the Superintendent Jail the complainant endorsed on the back of the warrant that order of detention was in the nature of a judicial order. The Superintendent then agreed to keep Seth Yaqoob in detention. It has been claimed that if he would have not made these efforts Seth Muhammad Yaqoob would have been released as he had paid the utility bills. The next day Seth Muhammad Yaqoob was produced before the Regional Commissioner of Income‑tax in whose office a meeting was held in which the complainant and respondent No.2 participated. After negotiations, Seth Muhammad Yaqoob agreed to pay Rs.2,00,00,000 immediately and furnish a Bank Guarantee in the sum of Rs.1,00,00,000 provided he was released from detention. Under this agreement with the Department, he deposited the said amount and furnished Bank Guarantee as stated above. After recovery of the amount the complainant approached for remuneration at the rate of 5% amounting to Rs. 1 million. As this amount was not paid to the complainant he filed Writ Petition in the High Court of Lahore, which issued direction to respondent No.2 to decide the matter within three weeks. Respondent No.3 decided though late, that recovery of Rs.20 million was because of the efforts of the departmental officers and the complainant had not made any efforts in the capacity as Receiver and was not entitled to any payment. The Commission in recognition of the services of the complainant issued a commendation certificate on 31‑5‑1999. The complainant challenged this order by filling another Writ petition, which was disposed of by order dated 14‑1‑2000 holding that since the controversy is factual Constitution petition would not be the proper remedy and other alternative remedies should be availed. The complainant challenged this order before Division Bench of the Lahore, which upheld the order of the learned Single Judge. The complainant filed a petition for leave to appeal before the Supreme Court which was disposed of on 3‑7‑2001 permitting the complainant to withdraw the petitioner for filing civil suit for the recovery of his remuneration as Official Receiver of Income Tax Department.

2. The Department has submitted reply and denied the claim. It has been admitted that the claimant was appointed as receiver. Challenging the jurisdiction of the Federal Tax Ombudsman it has been pleaded that the claim is barred by time and that the matter has been disposed of by the High Court and the Supreme Court on factual plea. It was pleaded that no appointment was made under rule 159. In general it has been denied that recovery though made the complainant had no role of play and he is not entitled to recover any amount from the Department. The remuneration was payable by the defaulter and not by the department.

3. It may also be noted that in pursuance of the judgment in Writ Petition No.12359 of 1999, dated 14‑10‑2000 a High Powered Committee was formed by the C.B.R. to examine the complainant's claim and the circumstance under which Seth Yaqoob Was allowed to go out of Pakistan and point the officers responsible for not sending the name of Seth Yaqoob to the relevant authority for placing it on exit control list. The High Powered Committee in its report dated 5‑6‑2000 mainly concentrated on the claim of the complainant and without debating upon the other question held that as the complainant "in his capacity as Official Receiver (appointed under rules 158, 159 and 161 of the Income Tax Recovery Rules, 1982) was unable to make any significant contribution towards realization of Government dues his claim for remuneration @ 5% is not admissible under the Rules". Earlier the complainant had filed Writ Petition No.14884 of 1998 in which by judgment dated 15-3‑1999 direction was issued to the Regional Commissioner of Income‑tax, Lahore which post at that time was held by Mr. Vakeel Ahmed Khan (stow the Member, C.B.R.) to decide the matter of the petitioner. This direction was complied with and after hearing by an exhaustive report the claimant's claim was rejected. However, the Commissioner of Income‑tax/Wealth Tax Company Zone‑1, Lahore was directed to issue a letter of commendation to the complainant for his efforts and help provided by him "in service of arrest/production warrants on the Superintendent of Jail".

4. After hearing the case considering the nature of issues involved it was though proper to invite a Member of C.B.R. so that if possible the matter may be sorted out under section 33 of the Ordinance XXXV of 2000 by resorting the procedure provided for informal resolution of dispute.

5. Mr. Vakeel Ahmed Khan appeared and during discussion it transpired that there was no way out for informal resolution of dispute as the learned Member insisted on what he had decided earlier. He further submitted that there is no head of account and no money is available for payment of remuneration to the complainant.

6. It is an admitted fact that the complainant was appointed as a Receiver under rule 158 to manage the business. The assessee was running a Ghee Factory but according to the complainant when he was appointed Receiver the same was not in operation and was closed. He therefore, as a Receiver sealed the premises so that it may remain safe and secure. The efforts made by him in serving the warrant has been admitted by the department. The plea that the complainant had voluntarily offered to render this service which according to the department was not the job or responsibility of the Receiver, he was not entitled to any remuneration, did not find favour with the High Powered Committee. It may be noted that the decision of Mr. Vakeel Ahmed Khan and the report of the High Powered Committee, both have concentrated on the claim of the claimant under the rules as he was appointed a Receiver. There is no denial of the fact that as a Receiver the claimant had rendered service, which may not have been so effective, or of such a nature as to justify the claim of 5% of the amount recovered which in fact was a condition of appointment. The fact cannot be ignored that the complainant was associated with the Recovery Officer till such time the assessee paid Rs.20 millions and deposited a cheque for Rs.10 million. The complainant had played role successfully by serving the warrant of arrest of the assessee on the Superintendent of Jail. It has been contended on behalf of the department that the Recovery Officer and other officials of the department had in fact taken steps to persuade the Superintendent of Jail to keep Seth Yaqoob in detention for non payment of taxes although he had settled his dues in respect of utility bills but for the service of the warrant issued by the Recovery Officer he would have been released. Therefore, at that point of time the situation which had developed should be taken into consideration while assessing the role and efforts made by the complainant. Although the officers take credit for convincing the Superintendent Jail to accept the grant of arrest but he did accept it till such time the complainant made endorsement on the reverse of the warrant that proceedings under which arrest is being made are judicial proceedings. If the contention of the department is correct that the arrest warrant was accepted due to the entire efforts of the departmental officers then there was no need for obtaining the afore-stated endorsement on the back of the challans by the complainant. This shows that the Superintendent Jail was convinced and accepted only after endorsement was obtained from the complainant who was a Receiver at that time or acting on behalf of the department. However, efforts of the department cannot be denied but fact remains that under the rule the departmental officers are bound to provide aid and assistance to the Receiver. However, if the service of warrant and efforts made by the complainant in this regard may be treated not falling within the duty of the Receiver then at least it can be concluded that this service was rendered by the claimant with the consent of the department which has resulted in substantial benefit to the department. Further that he service was neither voluntary nor gratuitous.

7. Another contention raised by the department is that under the rule the remuneration of the Receiver is payable by the defaulter. In cases where the receiver runs the business, makes transactions and recovers money he is entitled to deduct expenses and charges. In this situation it is borne by the defaulter. But in the present case the Recovery Officer negotiated with the assessee and compromised by the recovering Rs.20 millions. At that time it was the duty of the Recovery Officer to have considered the payment of fee of the complainant, which should have been either separately recovered or included in the amount received by him. According to the department in recovery process and obtaining the amount, complainant had no role to play, therefore, the responsibility lay on the department to have included the remuneration of the Receiver while fixing the amount to be paid by the defaulter. At that time it was not at all on the surface that the complainant as a Receiver was not entitled to any remuneration. Therefore to say that the Receiver may go and peruse his claim with the defaulter/assessee does not stand to the reason and justice, particularly in the circumstance that the department had excluded the complainant while settling the matter with the assessee/defaulter.

8. From the above discussion it is clear that the claimant has rendered services for which the Commissioner had issued certificate of commendation. Such certificates are not issued for ineffective service and role played by any person for recovery of dues. Therefore, if for argument sake rule does not permit for payment to the claimant, as al Receiver then under general principle of law a person who has lawfully rendered service not gratuitously or voluntarily is entitled to compensation for the services rendered by him. Section 70 of the Contract Act provides that where a person lawfully does anything for another person, not intending to do gratuitously and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of the thing so done. The claimant is, therefore, entitled to the service rendered as commended and acknowledged by the Commissioner.

9. Rule 160 of Income Tax Rules, 1982 provides that the Tax Recovery Officer may by general or special order fix the amount to be paid as remuneration for the services of the receiver. Receivers play an important role in recovery of dues. However, the remuneration should be commensurate to the service rendered by the Receiver. It is strange that instead of fixing a uniform formula for the fee of the receiver everything has been left to the discretion of the Recovery Officer. It is an undesirable method as it leads to favouritism, improper exercise of discretion and opens door for serious irregularity. Receivers are appointed by the Court, which have uniform Rules for determining the fee of the receiver unless it is a case of special nature. The C.B.R. should look into the matter and instead of fixing a flat rate of 5% should fix the remuneration commensurate to the service rendered for which a scale be provided fixing the maximum amount. To some extent the instruction dated 31‑11‑1999 issued by the Additional Commissioner Headquarters is on the same lines.

10. Now the question arises whether the C.B.R. committed any maladministration. If in the procedure or process adopted by C.B.R. for recovery of tax there exists any illegality or irregularity causing prejudice or injustice depriving a person of his legitimate right it will amount to maladministration committed by the Revenue Authorities (Division) while administering tax laws.

11. One of the contentions of the department is that the complainant appointed as receiver was an employee and, therefore, his claim is barred under section 9(3) of the Ordinance XXXV of 2000. This provision prohibits exercise of jurisdiction in complaint by or on behalf of a Tax Employee in respect of any personal grievance relating to his service, Tax Employee has been defined in, section 2(10), which means an employee of the Revenue Division and includes an officer and any other functionary serving in, or any office subordinate to, the said division. The receiver does not fall in this definition and cannot be termed as a Tax Employee.

12. The other objection is that‑claim .is barred by time. The complainant had been resorting to various remedies and had even approached Supreme Court, from where he withdrew his petition for filing suit. The Supreme Court ‑ passed the order on 3‑7‑2001. This complaint was filed on 12‑9‑2001. In these circumstances there are valid reasons to entertain the petition. Now having held that the claimant is entitled to remuneration for service he has rendered I find that in the facts and circumstance of the case reasonable remuneration be awarded. I, therefore, .recommended that:‑‑‑

(i) The C.B.R. pay Rs.25,000 to the complainant for the service rendered by him.

(iii) Compliance of para. (i) be reported within

(ii) C.B.R. to frame fresh Rules for remuneration of the Receiver providing a scale of such remuneration/for 30 days and para. (ii) within 4 months.

C.M.A./M.A.K./283/FTO Order accordingly.