Mian MUHAMMAD ARSHAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 289 (2002)

(a) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.35‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Wealth Tax Rules, 1963, R.8(2)‑‑‑Rectification of mistake‑‑‑Valuation of shares‑‑‑Private Limited Company‑‑‑Face value was accepted‑‑‑Assessing Officer subsequently initiated proceedings under S.35 of the Wealth Tax Act, 1963 to determine the higher of the break up value or face value‑‑‑Validity‑‑‑Action under S.35 of the wealth Tax Act, 1963 for assessment years 1999‑2000 and 2000‑2001 as correct as the Assessing Officer had to adopt the higher of the break up value or face value in case of shares of private limited companies‑‑Assessing Officer was justified in ascertaining the break up value of these shares, which in fact he should have done at the time of assessments‑‑‑Assessment order showed that the relevant balance sheets sere available with the Department the process should not have taken up‑‑‑Federal Tax Ombudsman recommended that action under section 35 of the Wealth Tax Act for assessment years 1999‑2000 and 2000‑2001 be finalized within 30 days.

(b) Wealth Tax Act (XV of 1963)‑‑‑

‑‑Ss.13‑D, 31‑B & 35‑‑‑Establishment ,of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Advance payment of ax‑‑‑Rectification of mistake‑‑ ‑Additional wealth tax‑‑‑Refund‑‑assessee adjusted determined refund for the previous year against the tax payable for the current year 2000‑2001 and claimed balance amount of refund ‑‑‑Assessing Officer charged additional tax under S.31‑B of the Wealth Tax Act, 1963 for non‑payment of admitted tax liability‑‑C omplaint for non‑payment of refund amount and levy of additional tax under S.31‑B of the Wealth Tax Act, 163‑‑‑Validity‑‑‑As‑ regards the charge of additional tax under S.31‑B for assessment year 2000‑2001, it was seen that original wealth tax assessment for the year 1998‑59 was made under S.16(3) on as far back as 14‑4‑1999 and it was not the complainant's fault if despite filing an application for rectification dated 9-6‑1999 no credit was given for the total payment of Rs.350,000 made under S.13‑D of the Act on 15‑11‑1997, 30‑4‑1998 anal 12‑6‑1998 till 21‑6‑2001 when finally a refund of Rs.200,000 was created vide order under S.35 of the Wealth Tax Act, 1963‑‑‑Perusal of wealth tax return for assessment year 2000‑2001 showed that complainant had claimed in it refund adjustment for assessment year 1998‑99‑‑‑No justification was available for levying additional tax for alleged short payment/non payment of admitted tax liability with the wealth tax return for the assessment year 2000‑01‑‑‑Federal Tax Ombudsman recommended that (i) the wealth tax refund if (any) found still due after the completion of the said proceedings under S.35 of the Wealth Tax Act, 1963 be issued within 15 days of the finalization of the proceedings under S.35 of the Wealth Tax Act, 1963; (ii) additional tax under S.31‑B of the Wealth Tax Act, 1963 be deleted by the Commissioner under S.25 of the Wealth Tax Act, 163 and (iii) as regards the refund of income‑tax for assessment year 2000‑01, the Inspecting Additional Commissioner may consider the Income‑tax Appellate Tribunal's decision in the complainant's case for the years 1998‑99 and 1999‑2000 before taking further action under S.66‑A of the Income Tax Ordinance, 1979.

Malik Muhammad Naeem, Deputy Chief Accountant, A.R. for the Complainant.

Naseer Butt, DCIT for Respondent.

DECISION/FINDINGS

Complainant has submitted that a sum of Rs.181,599 Wealth Tax and Income tax is refundable to him as per assessment orders issued by the Deputy Commissioner of Income‑tax, Coys Circle 2 , Faisalabad.

Details are given as follows;

It is further submitted that the DCIT has charged additional tax under section 31B of the Wealth Tax Law amounting to Rs.20,647 in his assessment order dated 21‑6‑2001 in spite of the fact that a sum of Rs.440,029 for assessment year 1999‑00 and a sum of Rs.350,000 for the assessment year 1998‑99 were paid as Advance wealth tax which are appearing in the relevant assessment orders and this amount remained with the Department for three years in case of 1998‑99 and two years in case of 1999‑2000. It is pleaded that in spite of giving the credit of these amounts the DCIT Coys Circle 2 has charged additional tax which is unjustified. Despite repeated requests and personal visits to the DCIT and appeal to the Commissioner of Income tax, Coys Zone, Faisalabad no refund voucher has yet been issued. It is, therefore, requested to order the DCIT and the Commissioner to issue refund order and pay the over due refund of Rs.181,599.

2. The respondent's reply is as follows:

(i) According to record the total amount of refund due to the complainant is Rs.126,048.

(ii) The draft refund orders were returned by the Commissioner to the IAC, firstly, because it was observed that Zakat of Rs.125,519 deducted from dividend and interest income was wrongly subtracted from total income. Secondly it was observed that valuation of shares was not made properly in the Wealth Tax assessments and that value be adopted after verification of the balance sheets of the concerned companies. The Assessing Officer has accordingly initiated proceedings under section 35 of the Wealth Tax Act to determine the break‑up value (BUV) of the shares.

(iii) Additional tax under section 31B of the Wealth Tax Act was charged in the wealth tax assessment order for the assessment year 2000‑2001 dated 21‑6‑2001. On the same date, final effect of advance wealth tax paid for assessment years 1998‑99 and 1999‑2000 was given and the wealth tax refund1vas created on 21‑6‑2001. There was thus no refund available when advance tax under section 13D of Wealth Tax Act became due. It is thus claimed that additional tax was correctly charged.

3. During the hearing it was explained on behalf of the respondent that in the assessment orders for .the years 1999‑2000 and 2000‑01 the value of shares of private limited companies had been accepted by the Assessing Officer at the face value declared by complainant subject to action under sections 17/35 of the Wealth Tax Act. It was stated that since under the rules while valuing the shares of private limited companies, it is the higher of the face value or the break up value (BUV) which is to be adopted the Department is quite justified in determining the break‑up value of these shares in order to ascertain whether the BUV is higher than the face value in which case valuation will be made at BUV. With regard to charge of additional tax the contentions contained in the respondent's reply were repeated. Regarding the allegedly wrong deduction of Zakat it was stated that action under section 66A had been initiated.

4. The complainant on the other hand stated that the proposed action under section 35 of the Wealth Tax Act was merely a device to delay the issuance of refund, which had been adopted after the complaint was filed in this office. With regard to charge of additional tax it was contended that the complainant had paid excess advance wealth tax (later resulting in refund) well in time and that it was not the complainant's fault if the credit of the advance tax was given as late as on 21‑6‑2001. It was also submitted that the action under section 66A of the Income Tax Ordinance initiated in the context of Zakat deducted from dividend and interest income and claimed as deduction from other income is illegal, as the Income Tax Appellate Tribunal, Lahore in its order dated 11‑1‑2002 for the assessment years 1998‑99 and 1999‑2000 in the complainant's own case has accepted the appeal that Zakat can be deducted from total income.

5. The contentions of the two sides have been considered and as far as the action under section 35 of the Wealth Tax Act for assessment years 1999‑2000 and 2000‑01 is concerned it is correct that the Assessing Officer has to adopt the higher of the break up value or face value in case of shares of private limited companies. The Assessing Officer is, therefore, justified in ascertaining the BUV of these shares, which in fact he should have done at the time of the assessments. In any case since according to the assessment order the relevant balance sheets are available with the Department the process should not take long.

6. As regards the charge of additional tax under section 31B for assessment year 2000‑01 on 21‑6‑2001 it is seen that original wealth tax assessment for the year 1998‑99 was made under section 16(3) as far back as on 14‑04‑1999 and it is not the complainant's fault if despite filing an application for rectification dated 9‑6‑1999 no credit was given for the total payment of Rs.350,000 made under section 13D on 15‑11‑1997, 30‑4‑1998 and 12‑6‑1998 till 21‑6‑2001 when finally a refund of Rs.200,000 was created vide order under section 35. Furthermore, perusal of Wealth. Tax return for 2000‑2001 show that complainant had claimed in it the refund adjustment for assessment year 1998‑99. There is thus no justification for levying additional tax for alleged short payment non‑payment of admitted tax liability with the wealth tax return for the assessment year 2000‑01.

7. In the light of the above it is recommended that:

(i) Action under section 35 of the Wealth Tax Act for assessment years 1999‑2000 and 2000‑01 be finalized within 30 days.

(ii) The wealth tax refund if (any) found still due after the completion of the said proceedings under section 35 be issued l within 15 days of the finalization of the proceedings under section 35.

(iii) Additional tax under section 31B of the Wealth Tax Act be deleted by the Commissioner under section 25 of the Wealth Tax Act, 1963.

(iv) Compliance report be submitted in respect of (i). and (ii) above within 60 days and in respect of (iii) above within 15 days.

(v) As regards the refund of income tax for assessment year 2000‑01, the IAC may consider the ITAT decision in the complainant's case for the years 1998‑99 and 1999‑2000 before taking further action under section 66A.

C.M.A./467/FTO Order accordingly.