Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 12(18)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Deemed income‑‑‑Gift‑‑‑Cash payment‑‑‑Claim that genuineness of transaction of gift could not be doubted‑‑‑Validity‑‑‑Any payment of loan/advance/gift, not made through a cross cheques on any Bank, or through banking channel by a NTN holder was to be treated as income chargeable to tax in the hands of recipients‑‑‑Contention that the brothers were identifiable persons, holding NTN's, lends no strength to the case of the complainant because the very purpose of the enactment was to compel the payment `through banking channel even by those who held NTN‑‑‑Insistence of Income Tax Authorities for adherence to the provisions of a valid enactment could not be characterized as "maladministration" under S.2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Complaint was without merit and the same was closed by the Federal Tax Ombudsman:

2002 PTD 63 and 2000 PTD 2594 distinguished.

1971 PTD 200; 1973 SCMR 445 and 1962 SCMR 663 ref.

Sirajuddin Khalid for the Complainant.

Qaiser Mehmood for Respondent.

DECISION/FINDINGS

The Complaint protests against resort to section 12(18) of the Income Tax Ordinance, 1979 (hereinafter called repealed Ordinance) for inclusion to his total income of gifts aggregating Rs.950,000 made to him by his real brothers. It is prayed that the Federal Tax Ombudsman may be pleased to declare (i) order, dated 30‑4‑2002 levying tax on such gifts is without lawful authority, and (ii) declare that "paragraph 3 of Circular No. 11 of 1998 (Income‑tax), dated 25‑7‑1998 is beyond the powers of the C.B.R.'s on the grounds:‑‑‑

(i) The genuineness of transaction of gifts was not doubted hence provisions of section 12(18) of Income Tax Ordinance could not be invoked only because the gifts were not received through crossed cheques.

(ii) Gifts were made by blood relations (real brothers) for immediate and spot necessity hence channelising the crossed cheques would have created hardships defeating the purpose of making and receiving the gifts.

(iii) The C.B.R. in its various Circulars has expressed that this provision should not be invoked in respect of genuine transactions.

(iv) The donor as also the donee were not aware of the provisions of section 12(18) as amended in 1998 when the gifts were given.

(v) The C.B.R. do not have power to interpret the law. It is prayed that FTO declare order, dated 30‑4‑2002 levying tax on cash gifts worth Rs.950,000 as without lawful authority and declare para. 3 of Circular 11 of 1998, dated 5‑7‑1998 is beyond the powers in the C.B.R.

2. Respondent's reply, dated 15‑8‑2002 has forwarded parawise, comments by R‑CIT, Multan where the resort to section 12(18) of the Income Tax Ordinance has been defended against 'maladministration' because:‑‑‑

‑‑Irrespective of the fact whether gifts were genuine or otherwise, section 12(18) can be invoked as it does not discriminate between the genuine or ingenuine transactions.

‑‑The principle of interpretation of tax statutes demands that due regard must be given to the letters of law used in provisions without stretching it either in favour of assessee or the Revenue.

‑‑The position in the case of the complainant was such as gift was to be treated as admitted income under the provisions of section 12(18) of the Ordinance. The course have been approved "purposive" interpretation of Fiscal Institute.

3. The background in which the complaint has been filed is that for the assessment year 1999‑2000 return w1s filed as an `individual' declaring Total income at Rs.369,619 comprising of "(a) Business Income as share from an RF and an AOP", "(b) Income from Property", and "(c) Income from other Sources (Agriculture)". An increase ofRs.950,000 detected on scrutiny of Wealth Statement, .was attributed to be Cash Gifts from four real brothers of the Complainant. These, the Assessing Officer thought, were hit by the provisions of section 12(18) repealed Ordinance hence after a show‑cause notice, he included these in the Total Income. This dispensation has aggrieved the complainant.

4. The learned counsel for the Complainant referring to case reported as 2002 PTD 63 made out the case that the spirit of the law was to ensure that the `loan, advance or gift', as is received by a taxpayer, is genuine and not fictitious. In the present case the bona fide was established inasmuch as (i) all the four donors were real brothers, (ii) they admitted having given the gifts, and above all, (iii) they were existing taxpayers whose NTNs were very much provided to the Department. Mr. Sirajurddin Khalid, the AR, brought on record FTO decision reported as 2000 PTD 2594 where in paragraph 8 it has been categorically held: "...in order to properly understand the provisions of section 12(18) it is necessary to consider that .....the intention behind the provisions was to check the introduction of fictitious loans ...and the scope was later expanded to fictitious advances and fictitious gifts also". It also was canvassed that the provisions of section 12(18) of the repealed Ordinance were repugnant to Article 2A and Article 227 of the Constitution of Pakistan and be declared as such.

5. The representative of Revenue in his submissions emphasized that due regard has to be given to the words used in the provision without stretching these either in favour of the taxpayer or the Revenue. Reference was made by the DR to cases reported as 1971 PTD 200, 1973 SCMR 445 and 1962 SCMR 663 laying down that where the language of law is clear, effect must be given to it. According to Mr. Qaiser Mehmood, the DR, the amounts were admittedly not paid through crossed cheques and therefore, were hit by the mischief of section 12(18) leaving no choice with the Taxing Authorities than to deem these as income of the taxpayer. The contention that the gift was made in accordance with the Islamic law, was countered by the DR by pointing out that the gifts were not oral but regular deeds were drawn hence the requirement of payment through crossed cheques also should have been fulfilled.

6. The rival arguments have been heard and consideration given to the record presented by two sides. It is felt, by placing reliance on FTO's decision reported as 2002 PTD 2594 in re: Fateh Food (Pvt.) Ltd. the learned counsel of the Complainant has overlooked that the decision was based on the prime consideration that‑‑‑

(a) "Sum" which was the subject‑matter of dispute was not claimed or shown as `advance' but was designated as "share deposit money";

(b) the transaction did not represent "any sum" but a fixed assets and capitalized expenses.

In the Complainant's case these two aspects which had taken the transaction out of scope of section 12(18) are totally missing. Here the disputed "sum" was 'claimed and shown' as a gift from the four brothers of the Complainant. Reliance on this decision is, therefore, misplaced. The other decisions in re: Usman Ghee industries 2002 PTD 63 also does not advance the case of the Complainant because it relates to assessments years earlier than the assessment year 1998‑99. It is significant that for 1998‑99 and succeeding years, the substituted and redrafted section 12(18) vide Finance Act, 1998 is to apply which reads as under:‑‑‑

"Where any sum, or the aggregate of sums, claimed or shown, to have been received as loan advance or gift by an assessee during any income year commencing on or after the first day of July, 1988, from any person, otherwise than by a crossed cheque drawn on a bank, or through banking channel from a person holding a Notional Tax Number the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance."

The conclusion is inescapable that on and from 1‑7‑1998 any payment of loan/advance/gift, not made through

(i) a crossed cheque on any bank, or

(ii) through banking channel by a NTN holder.

is to be treated as income chargeable to tax in hands of recipients.

7. Therefore, the emphasis that the brothers were identifiable persons holding NTN's, lends no strength to the case of the Complainant because the very purpose of the enactment is to compel the payment through banking channel even by those who hold NTN. The insistence of the Income Tax Authorities for adherence to the provisions of a valid enactment cannot be characterized as "maladministration" under subsection (3) of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance. The complaint is thus held to be without merit, hence filed and the case is closed.

C.M.A./585/FTO.Order accordingly.