DIAMOND POLYMERS (PVT.) LTD., LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 68 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50(5)‑‑‑C.B.R. Circular No.13 of 1998, dated 2‑10‑1998‑‑‑Establishment of Office of Federal Tax Ombudsman. Ordinance (XXXV of 2000), S.9‑‑‑Deduction of tax at source‑‑‑Import‑‑‑Tax deducted on import from assessee of Azad Jammu and Kashmir had not been transferred to the Government of Azad Jammu and Kashmir‑‑‑Tax authorities of Azad Jammu and Kashmir refused to give credit of such tax deducted being not credited in the Treasury of Government of Azad Jammu and Kashmir‑‑‑Complaint for either to refund the same or to transfer the said amount to Government of Azad Jammu and Kashmir‑‑ Validity‑‑‑As far as quantum of tax collected under S.50(5) of the Income Tax Ordinance, 1979 was concerned, there was no dispute and the only problem was with, regard to the obtaining of credit for this amount in Azad Jammu and Kashmir which according to the authorities there was only possible when the amount was remitted by the Government of Pakistan to Azad Jammu and Kashmir‑‑‑Such was a matter between the two Governments who had to take steps to resolve the problem relating to tax collection made under S.50(5) of the Income Tax Ordinance, 1979 from assessees from Azad Jammu and Kashmir' prior to the Central Board of Revenue Circular No. 13 of 1998, dated 2‑10‑1998‑ Tax had been collected from assessees of Azad Kashmir under S.50(5) of the Income Tax Ordinance, 1979 and they were entitled to the credit in one way or the other‑‑‑Federal Tax Ombudsman recommended that Revenue Division may take up the matter with the concerned Ministry so that the problem of Azad Jammu and Kashmir importers relating to collection under S.50(5) of the Income Tax Ordinance, 1979 prior to Central Board of Revenue Circular No.13 of 1998, dated 2‑10‑1998, is solved satisfactorily.

Shahbaz Butt and Nazir Ahmad, General Manager for the Complainant.

Muhammad Tahir, D.C.I.T., Companies Zone I for Respondent.

FINDINGS/DECISION

This is a complaint by a limited company which is resident in Azad Jammu and Kashmir and is not assessed to Income‑tax in Pakistan. The company manufactures foam and foam products and imports its raw material through Karachi Port. The matter relates to an amount of Rs.4,690,206 deducted under section 50(5) of the Income Tax Ordinance by the Customs Authorities at Karachi. It is stated in the complaint that the Income‑tax Authorities in Azad Kashmir are not giving credit for the tax paid at source as the amount collected under section 50(5) has not been transferred to the Azad Jammu and Kashmir Government. It is contended tat the C.B.R. is wilfully withholding the remittance of the aid amount to the Azad Jammu and Kashmir Council and that the C.B.R. may be directed to refund the amount directly to the Complainant or to make necessary arrangements for remittance of the amount to Azad Jammu and Kashmir Council so that credit is given to the complainant by the Income‑tax Authorities at Mirpur, Azad Jammu and Kashmir.

2. The respondent's reply has been received and the representatives of the complainant and the respondent have attended and have been heard. The main points in the respondent's reply are as under:

(i) the complainant does not fall within the jurisdiction of C.B.R. and is assessed by the Income‑tax Authorities at Mirpur, Azad Jammu and Kashmir.

(ii) It is correct that the amount stated in the complaint was deducted under section 50(5).

(iii) C.B.R. has been trying to get the problems of Azad Jammu and Kashmir importers solved through a policy decision and under an agreed procedure notified through C. B. R. Circular No. 13 of 1998 dated 2‑10‑1998, it has been decided that Azad Jammu and Kashmir importers should deposit an amount of tax equal the tax collectable under section 50(5) in a designated branch of National Bank of Pakistan in Azad Jammu and Kashmir and that on the basis of this tax deposit, the Commissioner of Income tax, Azad Jammu and Kashmir would issue a certificate to the importer. This certificate, together with a copy of challan, would be presented to the Customs Authorities in Pakistan who would honour the same and would not make any further deduction under section 50(5).

(iv) After issuance of Circular No. 13 of 1998 no collection under section 50(5) is being made from Azad Jammu and Kashmir entities, which fulfil the requirements of the Circular but as regards collection under section 50(5) made prior to the Circular, the C.B.R. can only verify the amount of tax collected but the actual remittance can only be done by the Ministry of Finance.

(v) Under the procedure the Tax Authorities in Pakistan cannot refund tax directly to Azad Jammu and Kashmir assessees.

3. It is evident from the above that as far as the quantum of tax collection under section 50(5) in Pakistan is concerned, there is no dispute and the only problem is with regard to the obtaining of credit for this amount in Azad Jammu and Kashmir which according to the A Authorities there, is only possible when the amount is remitted by the Government of Pakistan to Azad Jammu and Kashmir. This obviously is a matter between the two Governments who have to take steps to resolve the problem relating to tax collection made under section 50(5) from Azad Jammu and Kashmir assessees prior to the C.B.R. Circular No.13 of 1998 dated 2‑10‑1998. Needless to say as far as these Azad Jammu and Kashmir residents are concerned tax has clearly been collected from them under section 50(5) and they are entitled to the credit in one way or the other.

4. It is, therefore, recommended that Revenue Division may take up the matter with the concerned Ministry so that the problem of Azad Jammu and Kashmir importers relating to collection under section 50(5) prior to C.B.R. Circular No.13 of 1998 dated 2‑10‑1998, is solved satisfactorily.

C. M. A./482/FTOOrder accordingly.