MUHAMMAD ASHRAF HASHMI, ADVOCATE, PRESIDENT ALL PAKISTAN TAX BAR ASSOCIATION, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 271 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 5‑‑‑Establishment of Officer of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 10(4)‑‑‑Jurisdiction of Income‑tax Authorities‑‑‑Creation of Special Zone in Lahore and Karachi for assessment of cases of Textile and Cement Industries‑ Plea taken was that creation of Special Zones in Lahore and Karachi for the assessment of cases of Textile and Cement Industries was without any justification as it would badly affect the, members of the Bar as well as the taxpayers besides creating inconvenience and hardship in addition to increase in expense as well as wastage of time‑‑‑Further contention was that decision was meant to serve ulterior motives of senior officers either to remain posted at Lahore and Karachi instead of moving out to centers of the industry outside the two aforementioned cities or aspiring to be posted there because they have established their relations with the big business and their children had opportunities to have quality education in those cities‑‑‑Income of nine out of eleven cement units had been assessed by Special Zone, Lahore at net loss‑‑‑Specialists, Assessing Officer have failed to detect that the cement units were showing lower rate of sales to customers who were not registered under Sales Tax Act as compared to the rates at which cement was being sold to registered customers‑‑ Validity‑‑‑Allegation of ulterior motive of senior officers to stay at Lahore and Karachi hardly had any substance on the foregoing facts‑‑ Continuous stay for periods over three years in certain cases at multi‑zonal stations was not unusual particularly in cases of rankers and female officers/staff‑‑‑Besides, none of the allegations had any relevance to the Special Zones set up for the areas falling in Sindh and Balochistan Provinces based at Karachi because the total cases pertaining to mills/factories locate outside Karachi ate 22 only which included five cases of Directors‑‑‑Five companies out of 17 had their Head Officer at Karachi and one out of five Directors, lived in Karachi one having its factory located at Nooriabad‑‑‑Seven out of remaining 12 were located at Kotri and five were located at Hyderabad ‑‑‑Lapses in examination of accounts were not expected even normally‑‑‑Nevertheless, such instances were not enough to deny the benefits of adopting the policy of specialization‑‑‑Comparative improvement reflected by the figures of disposal and . collections submitted by the two zones supported the wisdom of the policy‑‑‑Wisdom of the choice of Lahore as the base of Special Zone for textile and cement industry of Punjab and N.‑W.F.P. was certainly questionable considering the locations of mills/factories and their head offices as reflected from the statement‑‑‑Allegation, on the facts and figures that the obvious choice for locating the base of such a specialized zone had been ignored denying the officials chosen for specialization, the benefit of first hand direct interface with the industry on the one hand and jeopardizing the professional interests of the members of tax bar belonging to the areas where textile and cement industry was located had substance‑‑‑Besides, the representatives of the industry were also not happy with the choice of Lahore as the base for specialized zone for obvious reasons‑‑‑Regarding the written submissions made on behalf of the Revenue Division, merit had been found in the policy of creating ‑specialized cadres to improve standard of audit and assessment based on better understanding of specialized officers handling such cases‑‑‑Decision to choose Lahore as the base of specialized zone for textile and cement industry in Punjab and N.‑W.F.P. were found arbitrary unreasonable, unjust, biased and discriminatory, falling under the definition of maladministration ‑‑‑Federal Tax Ombudsman recommended that Central Board of Revenue review the decision and shift the base to Faisalabad in order to give impetus to specialization policy.

Muhammad Ashraf Hashmi for the Complainant.

M. Abdul Rauf, C.I.T. Special Zones for Respondent.

FINDINGS/DECISION

The complainant in Complaint No. 188 of 2001 is the President of All Pakistan Tax Bar Association (APTBA). The association comprises of Advocates, Chartered Accountants as well as Income Tax Practitioners. All the major Tax Bar Associations of the country right from Peshawar to Karachi are duly enrolled with APTBA as members.

2. It was alleged that creation of Special Zones in Lahore and Karachi for the assessment of cases of Textile and Cement Industries was without any justification; it would badly affect the members of the Bar as well as the taxpayers. Inconvenience and hardship in addition to increase in expense as well as wastage of time was alleged.

3. It was further alleged that the decision was meant to serve ulterior motives of senior officers either to remain posted at Lahore and Karachi instead of moving out to centers of the industry outside the two aforementioned cities or aspiring to be posted there because they have established their relations with the big business and their children had opportunities of quality education in those cities.

4. Thus the complainant precisely alleged maladministration on the part of Revenue Division by giving preference to the convenience of their functionaries over the convenience of members of tax bar and the taxpayers in the textile industry.

5. Another complaint has been filed against the aforementioned decision on behalf of All Pakistan Textile Processing. Milling Association. Another allegation in this complaint besides the foregoing allegations, was that it was discriminative. Discrimination was alleged on the ground that the newly constituted Tax Zones covered only the Limited Companies as if Limited Companies alone constituted "Textile Industry" while all other units run by registered firms, URFs, AOPs and individuals engaged in similar business activity whose number was much larger than the Limited Companies were to "textile" and had, therefore, been left out, howsoever, large their assets and turnover may be. Processing Units for Knitting Industry, too, were being left out, as if they were not a part and parcel of Textile Industry. However, this complaint is not verified on Oath and the Signatory has clarified that it is merely an application to supplement the allegations made in Complaint No. 188 of 2001 filed by the President, All Pakistan Tax Bar Association. Accordingly the Complaint No.751 of 2001 does not qualify for investigation hence filed.

6. Notice under section 10(4) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance 2000 has been served upon the Revenue Division in Complaint No. 188 of 2001. It is submitted on behalf of the Revenue Division that in view of small revenue contribution by textile/cement industries given their size and, revenue potential and to benefit from the modern trend of specialization, special income tax zones both at Karachi and Lahore were created in July, 2000 with the approval if Finance Minister. It was stated on behalf of the Revenue Division that the Assessing Officer dealing with such cases at various stations were not fully equipped with specialized skills necessary for unearthing tax evasion in the textile sector.

7. It was submitted that the two zones had been created vide order C. No.2(1) Assessment/2000, dated 30th June, 2000 whereby the C.B.R. assigned the jurisdiction in respect of the cases or classes of cases, persons or classes of persons shown in column‑II of the Schedule below to the Commissioners of Income Tax/Wealth Tax shown in Column‑I of the said Schedule:‑‑

SCHEDULE

8. Further, it was submitted on behalf of Revenue Division that by the end of the year 2001 only 31 cases were transferred from other stations to the Special Zone, Karachi while 782 cases were transferred from other stations to Special Zone, Lahore.

9. This was a first step towards functional specialization and it was going to be replicated in other sectors also. It was further submitted that the cases of textile/cement companies were represented by Chartered Accountants and tax advisors of repute who could easily look after the problems. However, for any specific problem being faced by any textile/cement company, the concerned RCIT or the Board could be approached for immediate redressal.

10. Regarding the matter of transfer of officers who have long stay at a certain place, it was submitted that the rotation of the officers/officials was certainly useful and had been the part of the posting policy and was applied as far as administratively possible. The Board had already devised a policy of rotation of the officers whose continuous stay at one station was more than three years. However, due to involvement of officers in the survey exercise, implementation of this policy had been deferred to next financial year i.e. 2001‑2002.

11. Since the issues raised in the foregoing paragraphs warranted further clarification from the Revenue Division, following information was called for vide notice, dated 22‑3‑2002:

"(i) List of outstation cases transferred to special zones created at Karachi and Lahore with complete names and addresses of their respective head offices and manufacturing units;

(ii) Complete lists of officers posted in the two special zones with (a) names (b) designations (c) date of joining service (d) date of promotion to present basic scale (e) dated of posting in special zone 1(f) date since the officer is posted at the 'station of present posting (g) number of assessments pending with each Assessing Officer on 15‑3‑2002 (h) number of assessments mane by each Assessing Officer the date of posting (i) amount of additional demand created by each officer (j) number of tax evasion cases detected by each officer (k) any other tangible improvement in the quality of assessment and quantity of collection."

12. The location‑wise cases transferred to Special Zones are as under:‑‑‑

13. Regarding the allegation that the Special Zones had been created with the ulterior motive of senior officers either to remain posted at Lahore and Karachi or of those who were aspiring pasting in the two mega cities where they had established relations with big business and where their children had opportunities of quality education, the statistical data is as under:

14. The CIT Special Zone, Lahore has submitted the following statement reflecting comparative improvement since establishment of the Zone:

15. Mr. Ashraf Hashmi has added, as a rejoinder to the information submitted by the Commissioner of the Special Zones, that on a closer look, the performance of the specialists is not impressive. He referred to the admitted fact that income of nine out of eleven cement units has been assessed by Special Zone, Lahore at net loss. Mr. Hashmi has submitted that these specialists, however, have failed to detect that the cement units are showing lower rate of sales to customers who are not registered under Sales Tax Act as compared to the rates at which cement is being sold to registered customers. He has cited the example of sales recorded by Lucky Cement Factory vide Invoice No.20754, dated 15‑11‑2001 at Rs.3447.29 per ton to unregistered customer against sale vide Invoice No.20614 of the same date at Rs.3529.59 per ton to a registered customer. These manipulations are being done, according to Mr. Hashmi, to defect the objective of the amendment in law to encourage the purchasers to get themselves registered under Sales Tax Act by prescribing General Sales Tax @ 15% in the case of sales to registered persons and @ 18% in the cases of sale to unregistered persons. Mr. Hashmi has suggested that in this way, the cement units are not only depriving the State of Rs.14.82 per ton on account of Sales Tax and concealing income of Rs.82.30 per ton by such underhand deals but also reducing the incentive for registration.

16. The allegation of ulterior motive of senior officer to stay at Lahore and Karachi hardly has any substance on the foregoing facts. Continuous stay for periods over three years in certain cases at multi -zonal stations is not unusual particularly in cases of rankers and female officers/staff. Besides, none of the allegations has any relevance to the Special Zone set up for the areas falling in Sindh and Balochistan Provinces based at Karachi because the total cases pertaining to mills/factories located outside Karachi are 22 only. These include five cases of Directors. Five companies out of 17 have their head offices at Karachi and one out of five directors, lives in Karachi, one having its factory located at Nooriabad. Seven out of remaining 12 are located at Kotri and five are located at Hyderabad.

17. Lapses in examination of account such as the one pointed out by Mr. Muhammad Ashraf Hashmi are not expected even normally. Nevertheless, such instances are not enough to deny the benefits of adopting the policy of specialization. The comparative improvement reflected by the figures of disposal and collections submitted by the two zones supports the wisdom of the policy.

18. However, wisdom of the choice of Lahore as the base of Special Zone for textile and cement industry of Punjab and N.W.F.P. is certainly questionable considering the locations of mills/factories and their head offices as reflected from the statement (supra). It reflects that 385 units out of total of around 750 units including cement industry are located only at Faisalabad. Besides, following areas and zones as well, are closer to Faisalabad as compared to Lahore.

(i) Peshawar Zone and whole N.‑W.F.P;

(ii) Rawalpindi Zone;

(iii) Sargodha Zone consisting of Mang, T.T. Singh, Bhakkar, Mianwali etc;

(iv) Multan Zone consisting of Muzaffargarh, D. G. Khan etc;

(v) Bahawalpur Zone consisting of Rahimyar Khan etc; and

(vi) Sahiwal Zone.

Only Gujranwala and Sialkot Zones having only 10% of the total units in the Special Zone, are comparatively closer to Lahore.

19. Thus there is substance in the allegation, on the fats and figures supra, that the obvious choice for locating the base of such a specialized zone has been ignored denying the officials chosen for specialization, the benefit of first hand direct interface with the industry on the one hand and jeopardizing the professional interests of the members of tax bar belonging to the area where textile and cement industry is located. Besides, the representatives of the industry as well are not happy with the choice of Lahore as the base for specialized zone for obvious reasons.

20. Regarding the written submissions made on behalf of the Revenue Division, merit has been found in the policy of creating specialized cadres to improve standard of audit and assessment based on better understanding of specialized officers handling such cases. However, the decision to choose Lahore as the base of specialized zone for textile and cement industry in Punjab and N.W.F.P. is found arbitrary unreasonable, unjust, biased and discriminatory, falling under the definition of maladministration.

20. It is recommended that Central Board of Revenue review the decision and shift the base to Faisalabad in order to give impetus to specialization policy.

21. Compliance may be reported in 120 days from date of this order.

C. M. A./511/FTO Order accordingly.