MUHAMMAD YOUNAS VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2954 (2002)

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

‑‑‑‑Ss. 12(1) & 50‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑C.B.R. Circular No.1(41)IT‑J/94, dated 28‑11‑1994‑‑‑Income deemed to accrue and arise in Pakistan‑‑‑Salary income‑‑Deduction of Tax from salaries of employees of National Fertilizer Marketing Ltd, working in Gilgit as their pay and allowances were prepared and issued from Head Office at Lahore‑‑‑Complainant contended that there was no legal or moral sanctity for imposition of any tax in the Northern Area territory as all private institutions working in such areas have been exempted from paying income tax on their salaries ‑‑‑Validity‑ Contentions of the Department were based on the assertion that salaries paid by National Fertilizer Marketing Ltd., a State enterprise, were covered by the provisions of S.12(1) of the Income Tax Ordinance, 1979 and thug even if the Income Tax Ordinance, 1979 was not applicable to the Northern Areas, salaries paid by the State enterprise would be taxable in view of the S.12(1) of the Income Tax Ordinance, 1979‑‑‑In the absence of the complaints the employer's view that payment of salaries by National Fertilizer Marketing Ltd, amounts to payment by the Government had remained uncontroverted‑‑‑No adequate reason had been found for intervention‑‑‑Complaint was dismissed by the Federal Tax Ombudsman.

Nemo for the Complainants.

Malik Ghulam Rasool, DCIT, Circle 15, Zone `B', Lahore for Respondent.

FINDINGS/DECISION

This is a complaint by two residents of Northern Areas regarding deduction of income tax at source from their salaries. The main points in the complaint are as follows:

(i) The complainants are bona fide residents of Northern Areas, Gilgit and are employees of National Fertilizer Marketing Ltd. Headquarter, Lahore presently working at the Regional Office, Northern Areas, Gilgit.

(ii) The Northern Areas are not constitutionally a part of Pakistan and are hence outside the ambit of the Constitutions of both Pakistan and Azad Jammu and Kashmir.

(iii) The Northern Areas have been exempted from income tax and other taxes by the Government of Pakistan and the Wafaqi Mohtasib in an order passed on 16‑6‑1992 has also held that there is no legal or moral sanctity for imposition of any tax in the territory.

(iv) According to the order of the Government of Pakistan as all employees of Government or private institutions working in Northern Areas have been exempted from paying income tax on their salaries.

(v) The complainants are employees of National Fertilizer Marketing Ltd. Lahore presently working in Gilgit and their pay and allowances are prepared and issued from Head Office, Lahore. In the circumstances explained above the complainants are exempt from deduction of income tax from their salaries and allowances. The concerned ‑officials of NFML, Lahore are, however, making deduction of income tax from the pay and allowances of the complainants on the unlawful directions of the respondent which act is ab initio void.

(vi) The complainants have repeatedly requested the concerned officials of the respondent that no deduction of tax be made from their salaries but without any result.

(vii) The petitioners are entitled to exemption from income tax and are also entitled to refund of the amounts already deducted from their salaries.

It has been prayed that the respondent may be restrained from enforcing deduction of income tax from the pay and allowances of the complainants and all sums already deducted unlawfully be ordered to be refunded. A copy of the order of Government of Pakistan dated 3‑4‑1999 has also been enclosed with the complaint which inter alia withdraws the Income Tax Ordinance (Adaptation) Order, 1981, dated 3‑2‑1981.

3. The respondent's reply has been received and on the date of hearing the representative of the respondent attended. No one, however, appeared on behalf of the complainants. The main points in the respondent's reply are as under:

(i) The complainants are employees of National Fertilizer Marketing Ltd. a state owned enterprise with head office at Lahore.

(ii) The complaint involves interpretation of law and. is, therefore, outside the jurisdiction of the Federal Tax Ombudsman in the light of section 9(2) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

(iii) The complainants are employees of NFML and the salary income of all such employees is taxable.

(iv) Section 12(1) of the Income Tax Ordinance relates to the chargeability of tax on salary income and it reads as under:

"Income which would be chargeable under the head `salary' shall be deemed to accrue or arise in Pakistan, wherever paid, if it is earned in Pakistan, or if it is paid by, or on behalf of, the Government or a local Authority in Pakistan to a person in the service of such Government or authority, as the case may be."

(v) Reference is also to be made to CBR Circular. C. No.I(41)IT J/94, dated 28‑11‑1994 which reads as under:‑

"Salaries in Tribal areas. The undersigned is directed to state that the Honourable High Court has held that under section 12(l) of the Income Tax Ordinance, 1979 the salaries received by Government employees who are working/posted in Tribal areas are liable to tax irrespective of the fact whether the Income Tax Ordinance, 1979 is applicable .in that area or not. It has been held that 'once Government employee is receiving his salary from state exchequer, he automatically becomes liable to pay tax on his income, without any barrier of locality, place of service or nature of duties unless specially exempted."

It has been stated that in the light of the above, the complaint may be rejected on merits also.

4. During the hearing it was stated on behalf of the respondent that the complainants never made any representation to the department in the matter. It was further stated that in any, case, regardless of the question of applicability of the Income Tax Ordinance to the Northern Areas, in the instant case since NFML is a state enterprise and since all salaries paid by the Government of Pakistan are subject to tax irrespective of where these are paid, tax is being rightly deducted from the salaries of the complainants.

5. The contentions of the respondent are thus based on the assertion that salaries paid by NFML, a state enterprise, are covered by the provisions of section 12(1) of the Income Tax Ordinance and thus even if the Income Tax Ordinance is considered to be not applicable to the Northern Areas, salaries paid by the state enterprise would be taxable in view of the said section 12(1). In the absence of the complainants the respondent's view that payment of salaries by NFML amounts to payment by the Government has remained uncontroverted. No adequate reason has, therefore, been found for intervention in the case and the complaint, therefore, stands dismissed.

C.M.A./M.A.K./430/FTO Complaint dismissed.