Income Tax Ordinance (XXXI of 1979)---

----Ss. 52 & 86---Second Sched: Cl. 118C---Income Tax Ordinance (XLIX of 2001), S.161 & 239(7)---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Initiation of proceedings under S.52 & 86 of the Income Tax Ordinance 1979 as on 19-7-2002 (after the repeal of the Income Tax Ordinance, 1979)-- Validity---S. 161 of the Income Tax Ordinance, 2001 was almost identical to S.52 of the Income Tax Ordinance, 1979 with certain limitation ---S.39(7) of the Income Tax Ordinance, 2001 provided that any income-tax, super tax, surcharge, penalty, additional tax, or other amount payable under the Income Tax Ordinance, 1979 may be recovered under the Income Tax Ordinance, 2001 but without prejudice to any action already taken for the -recovery of the amount under the Income Tax Ordinance, 1979---Notice under Ss. 52 & 86 of the Income Tax Ordinance, 1979 was issued on 19-7-2002 under the Income Tax Ordinance, 1979 was illegal and void as these provisions did not exist at that time---If it is established that tax under S.50 and additional tax under S.86 of the Income Tax Ordinance, 1979 was payable, proceeding under S.239(7) of the Income Tax Ordinance, 2001 could be initiated for their recovery---Federal Tax Ombudsman recommended that the proceedings initiated by issuing notice, dated 19-7-2002 under 5.52/86 of the Income Tax Ordinance, 1979 be dropped and appropriate action may be taken under the Income Tax Ordinance, 2001 and the case be decided after considering the plea raised by the complainant/assessee and providing proper- opportunity of being heard.

Liaqat Ali ITP for the Complainant.

Muhammad Ramzan Awan (A-CIT) for Respondent.

DECISION/FINDINGS

This complaint relates to the assessment year 1996-97 and has been filed by a Company who run a Cotton Ginning and Pressing Unit. They are aggrieved by initiation of proceedings under section 52/86 of the income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance).

2. The facts in brief are that the complainant-Company was granted exemption from tax under Clause 118C of the Second Schedule of the repealed Ordinance for and from the year 1996-97 as per assessment framed under section 62 on 15-12-1996. Assessment for subsequent years also stand completed, the latest being for the year 2001-2002. On 19-7-2002 they were served with a show-cause notice under section 52/86 of the repealed Ordinance for the assessment year 1996-97 alleging non-deduction of tax from payments made in respect of (i) Machinery worth Rs.2,333,642 and (ii) Electrical Fittings worth Rs,1,512,045. They were required to explain as to why, for failure of deduction of tax under section 50(4), they should not be "declared an assessee to default under section 52 and tax alongwith additional tax under section 86 be recovered". With this the complainant is aggrieved.

3. The respondent has forwarded R-CIT, Multan parawise comments, dated 1-1-2002: denying "maladministration". It is submitted that the complainant had failed to furnish proof of deduction made out of payments for purchases of certain assets with tae result that they are liable for imposition of additional tax under section 86 having failed to deduct tax as required by subsection (4) of section 50 of the repealed Ordinance. Support for this action is derived by a decision by Appellate Tribunal reported as 2000 PTD (Trib.) 2883.

4. The AR of the complainant contended that (i) the limitation for taking action under section 52/86 has already run out because the assessment proceedings in respect of assessment year 1996-97 could at best be taken upto 30-6-1999 as per limitation prescribed in section 64(1) of the repealed Ordinance. It was pleaded that the Assessing Officer should have taken cognizance of the default, if any, at the time of the original assessment and should have expressed his intention to initiate action in this behalf. This having not been done, the assessment had attained finality and belated action was not legally 'possible now. Referring to C.B.R. S.R.O. 368(1)/94, dated 7-3-1994 it was contended that the paid-up capital, as per the balance-sheet, vas below Rs.1.5 (M), therefore, the provision of subsection (4) of section 50 were not .attracted hence no default could be said to have been committed. The action was thus characterized "maladministration" as per clause (3) of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance.

5. The representative of the Revenue on his turn submitted that merely a show-cause notice had been issued and the complaint is pre mature because if no default is noticed the proceedings would, in all probability, be dropped. The contention is misconceived as even a process which is contrary to law amounts to maladministration. Where the action, notice or process is illegal, contrary to law, void ab initio or without jurisdiction it suffers from maladministration and it will not be just and proper to allow a party to suffer the rigor of such proceeding.

6. So far question of limitation under section 64 of the repealed Ordinance is concerned it has no merit as it (section 64) relates to Assessment under sections 59A, 62, or 63 and not to the recovery of amount payable under sections 52 and 86 of the repealed Ordinance.

7. During investigation the DR was confronted with the fact that the notices were issued by him on 19-7-2002 under section 52/86 of the repealed Ordinance whereas on this date Income Tax Ordinance, 1979 stood repealed. Therefore, the notice issued by him was a nullity in law. In response the DR submitted that in the Ordinance of 2001 the provision parallel to the section 52 of the repealed Ordinance, is section 161. This section authorizes action for "Failure to pay tax, collected or deducted" only when the default is under the Ordinance and does not cover the default committed by infringing the provisions of the repealed Ordinance. Thus, according to the DR there was no option but to resort to sections 52/86 of the repealed Ordinance.

8. The confusion and anomaly has arisen because of the repeal or Income Tax Ordinance, 1979, and promulgation of Income Tax Ordinance, 2001 (hereinafter referred as the Ordinance). It may be notes that section 161 of the Ordinance is almost identical to section 52 of the repealed Ordinance with certain limitation as pointed out by the DR. However, subsection (7) of section 239 of the Ordinance provides that any income tax, super tax, surcharge, penalty, additional tax, or other amount payable under the repealed Ordinance may be recovered under the Ordinance but without prejudice to any action already taken for the recovery of the amount under the repealed Ordinance. It is obvious that notice under sections 52 and 86 was issued on 19-7-2002 under the repealed Ordinance which is illegal and void as these provisions did not exist at that time. However in the facts and circumstances of the case if it is established that tax under section 50 and Additional Tax, under section 86 of the repealed Ordinance is payable proceeding under subsection (7) of section 239 of the Ordinance can be initiated for their recovery.

9. It is therefore, recommended that:--

(i)The proceedings initiated by issuing notice, dated 19-7-2002 under section 52/86 of the repealed Ordinance be dropped.

(ii)Appropriate action may be taken under the Income Tax Ordinance 2001 and the case be decided after considering the plea raised by the complainant and providing proper opportunity of being heard.

(iii)Compliance be reported within 30 days.

C.M.A./795/FTOOrder accordingly.