FAKIR S. AYAZUDDIN, PARAMOUNT AVIATION (PVT.) LTD., KARACHI VS COMMISSIONER OF INCOME-TAX, COMPANIES-I, KARACHI, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2603 (2002)

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

‑‑‑‑Ss.9(2)(b) & 2(3)‑‑‑Income Tax Ordinance (XXXI of 1979), S.138‑‑Jurisdiction‑‑‑Maladministration‑‑‑Jurisdiction was ousted in respect of matters which related to assessment of income in respect of which legal remedies of appeal, revision or review were available‑‑ Complaint in the present case related to an order passed under S.138 of the Income Tax Ordinance, 1979 against which no such remedy was available‑‑‑Where allegations of maladministration had been made the Federal Tax Ombudsman will have the jurisdiction to investigate into the allegations of maladministration independent of the proceedings relating to assessment ‑‑‑Maladministration had not only been established but impliedly admitted by the Department complaint in circumstances, could be entertained and investigated‑‑ Objection in respect of jurisdiction was thus overruled by the Federal Tax Ombudsman.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Additional assessment‑‑‑Definite information‑‑‑Suit for recovery of amount of sale of Air tickets against complainant‑‑‑Assessing Officer, on such information, issued notice under S.65 of the Income Tax Ordinance, 1979 alleging that commission had been received on such amount‑‑‑Complainant contended that cheques were neither. encashed nor credited to his account but were returned to the Airline to be subsequently managed for deposit, withdrawal and get it remitted through General Sales Agent i.e. the company‑‑‑Assessing Officer, however, made addition in the income of the complainant‑‑‑Validity‑‑‑Evidence on which proceedings under S.65 of the Income Tax Ordinance, 1979 were initiated related to income alleged to have been received through cheque‑‑‑No proof existed to show that the cheques were encashed and the proceeds were received by the complainant‑‑‑Only a presumption was available that the cheques were received by the complainant and were encashed in USA which could hardly be treated a "definite information" ‑‑‑Assessing Officer added income on the basis of photocopy of cheques alone which was not a sound basis or evidence for such treatment‑‑‑Department had rightly commented that the remittance could not be held as income, unless it was proved that it was encashed or appropriated by General Sale Agent‑‑‑No such proof was available on record‑‑‑Federal Tax Ombudsman appreciated the frank and honest opinion expressed by he Commissioner‑‑‑Before any action was taken against the complainant, it should have been established that he had received the alleged amount in his personal capacity and appropriated the same‑‑‑Any amount received on behalf of company should not be treated as his personal income‑‑‑No enquiry seemed to have been made in that regard as well‑‑‑Patent illegality in the entire proceeding was clear and obvious on the face of the record‑‑‑No definite information was found on record to justify action under S.65 of the Income Tax Ordinance, 1979‑‑‑Such illegality was neither noticed nor a proper investigation was made to bring the case within the four corners of the provision of S.65 of Indian Income Tax Ordinance, 1979‑‑‑Absence of jurisdictional facts rendered the entire proceedings null and void‑‑‑Impugned proceedings taken under S.65 of the Income Tax Ordinance, 1979 and orders made by the Commissioner and Assessing Officer were arbitrary, illegal and with no evidence on record‑‑‑Proper course for the Department should. have been to wait for the final judgment of the High Court wherein the rights and liabilities of the complainant and the Airline were to be decided‑‑‑Mistake being apparent from record, Federal Tax Ombudsman recommended the Commissioner to rectify the impugned order in the light of the aforestated observations; all proceedings, orders leading to the order passed by the Commissioner of Income‑tax under S.138 of the Income Tax Ordinance, 1979 being arbitrary, illegal, null and void could not be enforced against the complainant and fresh proceedings if permissible under law may be initiated in the light of the final judgment in the suit pending before the High Court.

Athar Saeed for the Complainant.

Basharat Ahmed Qureshi, I.A.C.

Dr. Nasir Gunjua, DCIT.

DECISION/FINDINGS

The complainant is a Director and Chief Executive of Messrs Paramount (Pvt.) Ltd., and is being assessed to tax. The complainant filed his Return of Income for the assessment years 1993‑94 declaring income of Rs.1,63,732 which was assessed by the respondent No.2 at an income of Rs.1,83,732 under section 62 of the Income Tax Ordinance.

2. Messrs Paramount Aviation (Pvt.) Limited was engaged in Air Travel Ticketing business and in the year 1977 it was appointed General Sales Agent of Philippine Airline which Agency continued till the year 1995 as Philippine Airline' discontinued its flights to .and from Karachi in the year 1993. In the year 1997 Philippine Airline filed Suit No. 1246 of 1997 in the High Court Sindh at Karachi against Messrs Paramount Aviation (Pvt.) Ltd. and the complainant of recovery of amount of sales of tickets which according to them were not received from the company. The suit is still pending before the High Court in which company and the‑ claimant have filed written statement and counterclaim. On receipt of information that the suit has been filed, respondent No.2 issued notice dated 26‑5‑1999 under section 65 of the Income Tax Ordinance against the complainant alleging that the complainant has received commission amounting to US$ 15,57,057. The complainant filed a reply stating that the information on the basis of which respondent No.2 has taken action under section 65 of the Income Tax Ordinance does not fall within the category of "definite information" as required by law. It was further submitted that unless respondent No.2 could establish by evidence that the cheques were deposited in the bank account of the complainant or were encashed by him no action can be taken for treating the same as income of the complainant. Respondent No.2, however, finalized the assessment adding an amount of Rs.3,95,97,115 as concealed commission to the income of the complainant and levying tax of Rs.1,52,45,455. The complainant filed' an appeal before respondent No.1 who by order dated 4‑3‑2000 set aside the order of respondent No.2 to be made de novo after giving the complainant reasonable opportunity of being heard. He also ordered for probe to meet the ends of justice. Respondent No.2 finalized the assessment by order dated 13‑1‑2001 on the same income without undertaking further probe as directed by respondent No.1. The complainant challenged this order by filing Revision Petition under section 138 before respondent No.1 who dismissed it holding that the burden of proof lay on the complainant and the same was not discharged by him. According to the complainant the order is arbitrary, illegal and is based on .no evidence. He has prayed for cancellation of the said order.

3. In reply the Department has submitted that Messrs Paramount Aviation (Pvt.) Ltd. was General Sales Agent of non‑resident airline, and was allowed 12% commission on sales of tickets according to IATA Rules. However, in order to be competitive higher discounts were allowed to the customers, resulting in substantial difference between the face value of the ticket and the sale price. The IATA and State Bank of Pakistan require that face value of ticket minus 12% commission be remitted to Manila through State Bank of Pakistan. Since actual sales proceeds fell much shorter than required remittances the GSA. of the Airline arranged for the funds to be remitted. This is an admitted, position that such funds were arranged by the Airline itself and cheques to the tune of 1.5 million Dollars amounting to Rs.39,592,634 were handed over to the complainant which was admitted by him but contended that he did not cash them into his account but returned back to the Airline to be subsequently managed for deposit, withdrawal and get it remitted through GSA i.e. the company. It was pleaded that this statement is self‑contradictory as in his affidavit filed in the, High Court he admitted to receive the cheque but not to have returned back because the matter was time‑barred. According to the Airline the said amount was deducted by GSA and inadvertently the accountant of the Airline issued cheques thus making double payment for the difference. In reply statement the Department has stated as follows:

"(4) The issue before the Assessing Officer was that cheques were issued in the name of Mr. Fakir S. Ayazuddin. Initially the receipt of cheques was accepted, but encashment was delayed, rather it was submitted that the cheques were returned back. At the same time it was admitted that these cheques were encashed and transferred to Pakistan and remitted back to Manila. In all previous remittance statement the signature is of Mr. Fakir S. Ayazuddin. The Assessing Officer held it as income on the basis of photocopies of cheques alone. This was perhaps not a very sound basis or evidence for such treatment.

As records of Paramount Aviation do not show___________a commission earned, nor any effort was made to establish as commission in the assessment order, at the same time the balance‑sheet does not show any amount receivable from the Philippine Airline as commission. Since the Airline had stopped its operations, closed its offices, there was no representative to answer the question as to why the amount was remitted and for what, but the invoices enclosed with the cheques show it as_________which is the Aviation Terminology for Discount and Kickbacks. Question, therefore, arises whether compensation, allowance, whatever name it is given on account of discounts allowed could be held as income, particularly when such compensation had not been retained but remitted out to the Airline.

(6) The simple case is, therefore, that Airline remitted certain amount in Pakistan and took it back to its own account in Manila. Such remittance could not ordinarily be held as income unless it was proved that it was encashed or appropriated by the GSA of the Airline."

(The omission in the above passage as indicated have occurred as copy of the reply supplied by C.B.R. is blurred, at places blank and illegible).

The Department has also objected to the jurisdiction to entertain this petition in view of section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

4. Mr. Muhammad Ather Saeed has contended that there was no definite information to initiate action under section 65 of the Ordinance and further, that the amount added to the income of the complainant is under litigation between the company and complainant and the Philippine Airline. So far the claims of either the complainant or the Airline have not been determined. The learned counsel further contended that objection regarding jurisdiction cannot be entertained.

5. The jurisdiction is ousted in respect of matters which relate to assessment of income in respect of which legal remedies of appeal, revision of review are available. Firstly the complaint relates to an order passed under section 138 of the Income Tax Ordinance against which no such remedy is available. Secondly where allegations of maladministration have been made the Federal Tax Ombudsman will have the jurisdiction to investigate into the allegations of maladministration independent of the proceedings relating to assessment. In the present case as it will be seen in the following discussion, maladministration has not only been established but impliedly admitted by the Department. In these circumstances the complaint can be entertained and investigated. The objection is thus overruled.

6. Mr. Basharat Ahmad Qureshi has contended that in the facts and circumstances of the case it would have been proper if protective assessment had been made leaving the execution after the judgment of the High Court in the pending suit. This is one aspect of the case but where the proceeding is initiated under section 65 of the Income Tax Ordinance it is necessary that it should be based on a definite information. The evidence on which proceeding under section 65 was initiated relate to income alleged to have been received through cheques as discussed above. On quarry Mr. Basharat Qureshi the learned representative stated that there is no proof to show that the cheques were encashed and the proceeds were received by the complainant. He further stated that it is only a presumption that the cheques were received by the complainant and were encashed in USA. This can hardly be treated a definite information. The reply of the Department is also very clear as reproduced above. It has been admitted that Assessing Officer added income on the basis of photocopy of cheques alone which was not a sound basis or evidence for such treatment. The Department has rightly commented that the remittance cannot be held as income unless it was proved that it was encashed or appropriated by GSA. No such proof is on record. I appreciate the frank and honest opinion expressed by, the learned Commissioner.

7. The next aspect is that before any action was taken against the complainant it should have been established that he had received the alleged amount in his personal capacity and appropriated it. As he is the Chief Executive and Director of Messrs Paramount (Pvt.) Limited, any amount received on behalf of company should not be treated as his personal income. No enquiry seems to have been made in this regard as well.

8. The patent illegality in the entire proceedings is clear and obvious on the face of the record. As pointed out by the Department in reply there is no definite information on record to justify action under section 65. This illegality was neither noticed nor a proper investigation was made to bring the case within the four corners of this provision. The absence of jurisdictional facts renders the entire proceedings null and void. The impugned proceedings under section 65 of the Income Tax Ordinance taken and orders made by the Commissioner and Deputy Commissioner Income Tax are arbitrary, illegal and on no evidence on record. The proper course for the Department should be to wait for the final judgment of the High Court in which the rights and liabilities of the complainant, Paramount (Pvt.) Ltd. and the Airline, will be decided.

9. In the circumstances as the mistake is apparent from the record it is recommended that:‑‑

(i) The Commissioner to rectify the impugned order in the light of the aforestated observations.

(ii) All proceedings, orders leading to the order passed by the Commissioner of Income Tax under section 138 are arbitrary, 'illegal, null and void and be not enforced against the complainant.

(iii) Fresh proceedings if permissible under law may be initiated in the light of the final judgment in the suit pending before the High Court of Sindh.

(iv) Compliance be reported within 30 days.

C.M.A./M.A.K./394/PTO

Order accordingly.