Messrs METLA ASSOCIATES (PVT.) CO. LTD. CARE OF MIAN ASHIQ HUSSAIN, ADVOCATE
VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2003 P T D 2151
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs METLA ASSOCIATES (PVT.) CO. LTD. CARE OF MIAN ASHIQ HUSSAIN, ADVOCATE
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 1334-L of 2002, decided on /01/.
th
June, 2003. (a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 86 & 52---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Additional tax---Liability of payment---Liability of additional tax could not be passed on to the parties from whom the assessee had failed to recover tax.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 96, 52, 52A 86, 50 (7A) & 62---Income Tax Rules, 1982, R.49---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Department by resort to S.52 of the Income Tax Ordinance, 1979 passed order determining tax and additional tax against Civil Aviation Authority for non-deduction and payment of tax from various parties---Civil Aviation Authority deducted' such tax from the security deposited by the assessee---Assessee already assessed under S.62 of the Income Tax Ordinance, 1979, and paid his tax liability---Claim of refund from Income Tax Department by the assessee-- Department refused to pay such refund on the ground that it had created demand against the Civil Aviation Authority and not against the assessee---Validity---Demand payable was not relevant to the complainant/. assessee alone ---Complainant/assessee may claim damages from Civil Aviation Authority for unauthorized recovery from its security, deposits---Application for refund was to be processed-- Taxation Officer was to ascertain how much amount deposited related to the complainant/assessee---Association of the Civil Aviation Authority was necessary as the arrears created against them under S.52 of the Income Tax Ordinance, 1979 were to be recovered from the Civil Aviation Authority alone---Federal Tax Ombudsman recommended that the challan for Rs.53,822 may be verified to determine as to how much of this amount pertain to deduction from the security deposit of the complainant/assessee so that credit under S.50(8) of the Income Tax Ordinance, 1979, be given, while disposing of the refund application and that the arrears on the basis of order, dated, 20-5-1995 should be recovered from the Civil Aviation Authority keeping in view that there should be no double recovery of tax in respect of complainant/assessee .i.e. tax actually paid by them.
1997 PTD (Trib.) 1771 and , PLD 1990 SC 1156 = 1990 PTD 768 ref.
Mian Ashiq Hussain for the Complainant.
Karamatullah Chaudhry, D-CIT for Respondent.
DECISION/FINDINGS
The complainant is aggrieved by non-issuance of refund for the aggregating at Rs.538,222. It prays for orders for its issuance alongwith compensation for delay in payment.
2. The facts leading to the dispute are that the complainant-Company acted as 'parking' contractors at Lahore Airport. Assessments under section 62 of the Income Tax Ordinance (hereinafter called the repealed Ordinance) were framed for 1993-94 and 1994-95 on 24-4-1994 and 14-2-1995 respectively. After payment of demand, a 'clearance certificate' was obtained on 23-5-1996. Discovering that at the time of awarding the contract through auction, the Civil Aviation Authority (hereafter referred as the CAA), had failed to deduct tax under section 50(7A) of the repealed Ordinance, in the period relevant to the assessment years 1993-94 and 1994-95, the Assessing Officer, after issuing statutory notice to the Senior Accounts Officer of CAA, raised a demand of Rs.538,22 (Rs.24,904 and Rs.320,511 respectively) vide order, dated 20-5-1995 passed under section 52 of the repealed Ordinance for which challan was issued as under:--
Assessment year 1993-94Rs.24,904
Assessment year 1994-95320,511
Rs.345,415
Additional Tax for 2 years192,805(no IT-30 available)
Total DemandRs.538,222
It appears that the above demand remained in arrears, till the complainant approached the CAA for release of security deposit at the termination of contract. The CAA promptly deducted the entire amount of Rs.538,233 from the complainant's security and deposited it on 26-3-1997 in the treasury vide challan showing particulars as under:--
Nature of Payment2 Arrears
52/50(4)
Asst. Years 1993-94 & 1994-95
Name of AssesseeMessrs Metla Associates & Others
Contractor Civil Aviation Authority,
Lahore Airport, Lahore.
(here underlined for emphasis)
When protested, the complainant was told to claim refund of this amount from the Income Tax Department. The Department also refused to issue refund on the plea that order under section 52 was passed against an official of the CAA "on account of his failure to collect and deposit Income Tax in terms of section 50(7A) read with rule 49 of the Income Tax Rules, 1982". This is the cause of grievance because requests vide letter, dated 12-8-1997 and reminder, dated 19-2-2001 have remained unattended despite the CAA having issued two certificates on 28-11-1998 and 3-8-2002 admitting that deduction/deposit of Rs.538,222 was out of the funds of the complainant. It is prayed that the respondent be directed to issue refund voucher for Rs.538,222 alongwith compensation for illegally depriving them of lawful use of their funds.
3. Parawise comments, dated 2-12-2002 by R-CIT, Lahore deny maladministration' contending that--
(i)demand created under section 52 was recovered from CAA and not from the complainant,
(ii)the default of non-deduction of which cognizance was taken related to 28 contractors and not the complainant alone,
(iii)the challan of payment by the CAA does not indicate the NTN of any party leave alone the complainant, and
(iv)it was the CAA who was 'deemed to be an assessee in default' for levy of additional tax under section 52 of the repealed Ordinance.
Therefore, according to, the respondent, complainant's claim for refund is not valid.
4. Mian Ashiq Hussain (Advocate) learned counsel for the complainant argued that the CAA admitted having recovered the tax from the complainant by issuing a very clear and unambiguous certificate in this behalf. Therefore, neither the factum of payment nor its quantum is in doubt. However, as the financial burden has fallen on the complainant resulting in recovery of the tax twice for these two years-firstly when demand was raised under section 62 and now again when recovery has been made through the CAA. It was emphasized that double jeopardy by way of extracting tax twice on the same income and for the same assessments years, was against law and against judicial propriety. Referring to section 50(8) of the repealed Ordinance and decision reported as 1997 PTD (Trib.) 1771 and PLD 1990 SC 1156 = 1990 PTD 768 , it was argued that whatever was deducted by the Payer-CAA in its capacity as a "Collecting agent of the Government", was to be grossed up as the Income of the Recipient-Complainant and credit allowed for an equal amount against tax liability for the year. Moreover, the Department could not demand further tax by recourse to the provisions of section 52, once original liability was discharged fully, rendering the transaction 'past and closed'.
5. Mr. Karamatullah Chaudhry (D-CIT) representing the Revenue drew attention to the last paragraph of order passed under section 52 on 20-5-1995 which reads--
"In view of the facts detailed above, the reply of the Senior Accounts Officer is held to be unsatisfactory and as such he is being treated as an assessee in default in
terms of section 52 ....on account of his failure to collect and deposit Income Tax in terms of section 50(7A) read with rule 49 of the Income Tax Rules. 1982 ".
(Here: italics for emphasis).
According to the DR, the Department consciously penalised the official of the CAA to make him realise the responsibility to deduct tax as per law, and if the CAA has passed on the burden to the complainant, the amount should be recovered from CAA leaving the Department out of the dispute.
6. In order to comprehend the legal position; as argued by the two learned representatives, it seems appropriate to have a quick look at the sections of the repealed Ordinance to which reference was made during the discussion i.e. sections 52, 52A and section 86 which read as under:--
Section 52. Liability of persons failing to deduct or pay tax. Where any person fails to duct or collect ....tax as required by or under section 50, he shall without prejudice to any other liability which he may incur under this Ordinance be deemed to be an assessee in default in respect of such tax.
Explanation: For the purposes of this section, the Deputy Commissioner having jurisdiction ....over the case of the assessee in default may initiate action.
(Here underlined for emphasis)
Section 52A. Liability of persons failing to deduct or pay tax.---Where any person fails to deduct or collect, or having deducted or collected, as the case may be, fails to pay the tax as required by, or under, section 50 he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax.
Section 86. Charge of additional tax for failure to deduct and pay tax.---Where any person fails to deduct or having deducted, fails to pay any tax, as required by section 50, such person shall, without prejudice to any other liability which he may incur, be liable to pay additional tax at the rate of (twenty four) per cent per annum on the amount not paid for the period commencing from the date on which he was required to pay such tax to the date of the payment thereof.
It follows that the Collecting Authority is to deduct/collect tax under section 50 at the relevant time. If it is not done, such authority becomes "deemed assessee in default" and tax can be recovered from it under the provisions of section 52. It is to be further burdened with the liability of additional tax under section 86 for not deducting/collecting and depositing tax as prescribed. However, the original taxpayer is not absolved of the responsibility of paying tax under section 50. The same could be recovered from him by resort to section 52A. In any case the taxpayer is liable to pay tax under the relevant provisions of the repealed Ordinance.
7. In case it is proved to the Taxation Officer that the taxpayer had duly paid tax which could have been deducted/recovered under section 50, he should riot resort to collect the same under section 52 or 52A as it will amount to double taxation.
8. In the present case the Taxation Officer noticed that for the assessment years 1993-94 and 1994-95, the CAA had not collected/ deposited tax under section 50(7A) read with rule 49 of the Income Tax Rules, 1982 in respect of 28 parties. Therefore, by resort to section 52 he passed order on 20-5-1995 determining tax at Rs.345,415 and additional tax Rs.192,805 (Total Rs.538,222) for recovery from the CAA. The CAA had a.1good chance and made deduction of Rs.538,222 (equal to the amount payable by it to the Tax Department under sections 52 and 86) from the security deposit payable to the complainant. The said amount was deposited on 26-3-1997 vide challan referred to above. Somehow the said sum of Rs.538,222 was posted in the registers of Tax Department against payment of arrears by the CAA. Simultaneously, the CAA issued certificate (in fact two certificates) that a sum of Rs. 538,222 has been recovered from the complainant. Obviously, the recovery was illegal as no tax demand was payable by the complainant because the full amount of tax for the assessment years 1993-44 and 1994-95 had been duly paid, the CAA directed the complainant to approach the Tax Department. The Tax Department also refused to oblige the complainant because:--
(i)the challan (presented by the CAA) on the basis of which the refund is claimed bears the name of Metla Associates and others, Contractor Civil Aviation, Lahore. It does not contain Tax Number of any party;
(ii)contention of the complainant that the tax was paid on his behalf, was not considered tenable; and
(iii)the demand was created against the CAA under sections 52 and 86, and not against the complainant under section 52A and 62. Moreover the sum of Rs.538,222 has been posted against the arrears due from the CAA.
(iv)as per challan the amount deposited under section 50(7A) was in respect of 28 parties and not the complainant alone.
It was not appreciated that the liability of additional tax was on the CAA which in the normal course could not be passed on to the parties from whom the CAA had failed to recover tax. It follows that the demand payable was not relevant to the complainant alone. The complainant may claim damages from the CAA for unauthorized recovery of Rs.538,222 (less any tax recoverable from him) from its security deposits.
9. The application of the complainant for refund is, however, to be processed. It is for the Taxation Office to ascertain how much amount deposited as per challan, dated 26-3-1997, relates to the complainant. The association of the CAA is necessary as the arrears of Rs.538, 222 created against them under section 52 are to be recovered from the CAA alone.
10. To remedy the situation it is recommended that:--
(1)The challan for Rs.538,222 may be verified to determine as to how much of this amount pertains to deduction from the security deposit of the complainant so that credit under section 50(8) of the repealed Ordinance be given to them, while disposing of the refund application.
(2)The arrears on the basis of order, dated 20-5-1995 should be recovered from the CAA keeping in view that there should be no double recovery of tax in respect of the complainant (=i.e. tax actually paid by them).
11. Report be submitted within 30 days of the receipt of this Order.
C.M.A./816/FTOOrder accordingly.