BOARD OF INTERMEDIATE AND SECONDARY EDUCATION, BANNU VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 9 (2001)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.52‑A, 52, 50(2A), 56, 138 & Second Sched., Part I, Cl. (86)‑‑ Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑S.R.O. 594(I)/91, dated 30‑6‑1991‑‑‑C. B. R. Letter C. No. (37)/WHT/91, ‑dated 2‑6‑2002‑‑‑Recovery from the person from whom tax was not deducted or collected‑‑‑Assesses; in default‑‑ Exemption‑‑‑Deduction of tax at source‑‑‑Exemption certificate was issued by the Commissioner of Income‑tax in terms of S.R.O. 594(I)/91 dated 30‑6‑1991 to assessee/Board of Intermediate and Secondary Education‑‑‑Assessee's tax was not deducted by the National Saving Centre on profits paid on its deposits on the basis of such exemption certificate‑‑‑Subsequently, exemption certificate was withdrawn by the Commissioner of Income‑tax and Assessing Officer was directed to recover the tax that was deductible under S.50(2A) of the Income Tax Ordinance, 1979‑‑ Validity‑‑‑Maladministration was evident on several counts, firstly it was advisable for the Central Board of Revenue to follow the ratio of the decision of the apex Court in Central Insurance Co. and others v. C.B.R. 1993 SCC 1049 and to abstain from issuing directives based on their interpretation ,of law; secondly, the Commissioner of Income‑tax had no authority under law to withdraw the certificate issued in pursuance of S.R.O. 594(I)/91, dated 30‑6‑1991 retrospectively and it amounted to gross injustice to the payer‑‑‑Issuance of a certificate by the Commissioner of Income‑tax that any provision of S.50 of the Income Tax Ordinance, 1979 was inapplicable to the payee did not amount to grant of exemption from tax to the income from‑such receipts‑‑‑During the course of assessment proceedings it was the exclusive discretion of the Assessing Officer to decide whether receipts from a particular source was exempt or not‑‑‑Neither the payer nor the payee had committed any default under S.50(2A) of the Income Tax Ordinance, 1979 because payments had been made without deduction of tax on the authority of the Commissioner of Income‑tax who certified that no tax was deductible‑‑‑Either no action had been taken under S.52 of the Income Tax Ordinance, 1979 against the National Saving Centre or proceedings initiated against them had not been pursued and concluded‑‑‑Assessing Officer by pursuing recovery of alleged liability under S.50(2A) of the Income Tax Ordinance, 1979 against the complainant/payee, had foreclosed the proceedings under S.61 of the Income Tax Ordinance, 1979 conferring the legal right to an assessee to present his case, for exemption under Cl. (86) of Part I of the Second Sched. to the Income Tax Ordinance, 1979 in a proper manner‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income‑tax, to invoke jurisdiction under S.138 of the Income Tax Ordinance, 1979 to allow appropriate relief to the complainant/assessee suo motu; and that notices may be issued to the complainant/assessee under S.56 of the Income Tax Ordinance, 1979 requiring them to submit their returns of incomes and to consider their claim of exemption of their incomes under Cl. (86) of Part I of the Second Sched. to the Income Tax Ordinance, 1979 in the course of assessment proceedings.

Central Insurance Co. and others v. C.B.R. 1993 SCC 1049 ref.

S. M. Sibtain, Secretary, Dealing Officer.

DECISION/FINDINGS

The complainant has alleged maladministration on the part of functionaries of the Revenue Division posted at Bannu, and Peshawar for holding the Chairman, Board of Intermediate and Secondary Education, Bannu to be an assessee in default under section 52A of the Income Tax Ordinance, 1979.

2. The facts briefly are that the Board of Intermediate and Secondary Education, Bannu has received profits amounting to Rs.2,099,000 on its deposits with the National Saving Centre, Bannu for the years ending 30‑6‑1998, 30‑6‑1999 and 30‑6‑2000. Deduction of tax under subsection (2A) of section 50 from such profits by National Saving Centre, Bannu has not been made because the C.I.T., Peshawar has been issuing certificates in terms of S.R.O. 594(I)/91, dated 30‑6‑1991 that the provisions of subsection (2A) of section 50 are not applicable to the Board of Intermediate and Secondary Education, Bannu. S.R.O.594(I)/91 specifies certain classes of recipients to whom subsection (2A) of section 50 shall not apply, namely:

(i) Federal Government;

(i.a) Provincial Government;

(ii) Local Authority;

(iii) Recipients who qualify for exemption under clauses (78), (78A) and (79) of the Second Schedule to the Ordinance;

(iv) Banking Companies receiving incomes on Inter‑Bank deposits from another Banking Company; and

(v) Any person who produces a certificate from the C.I.T. to the effect that the recipient's income during the income year is exempt from tax under the Ordinance or any other law for the time being in force.

3. The C.I.T., subsequently, has withdrawn/cancelled all the exemption certificates issued to the Board subsequent to 30‑6‑1997, vide his Letter No.J/50 (2A)/1811, dated 30‑6‑2001 and the D.C.I.T. has been directed to recover the tax that was deductible under sub section (2A) of section 50; hence the instant proceedings against the Board under section 52A of the Income Tax Ordinance.

4. The complainant has duly apprised the Special Officer that exemption is claimed by the Board of Intermediate and Secondary Education on its profits from chargeability of Income‑tax under clause (86) of Part I to the Second Schedule to the Income Tax Ordinance, 1979.

5. The R.C.I.T., Northern Region, Islamabad, responding to the allegations in the complaint on behalf of the Revenue Division, has admitted the aforementioned facts to be true. However, the departmental view, according to the R.C.I.T., regarding claim of exemption under clause (86) (ibid) has been conveyed by the C.B.R. C.B.R. vide C. No.1(37)/WHT/91 dated 2‑6‑2001 in response to letter of R.C.I.T. NO.SO‑1‑4(6)/00‑01/5203 dated 21‑4‑2001 in the case of Board of Intermediate and Secondary Education, Gujranwala.

6. The R.C.I.T. has submitted that in view of the C.B.R.'s decision in the aforementioned parallel case; the claim for exemption under clause (86) of Part I of Second Schedule to the Income Tax Ordinance cannot be entertained as B.I.S.E., Bannu is neither an educational institution (imparting education) nor an organ or Department of Provincial Government. He has, therefore, supported the action of the Special Officer.

7. Mr. Sher Mast Khan, Advocate appearing on behalf of the B.I.S.E., Bannu has submitted that, firstly, the C.I.T., Peshawar is not justified in cancelling the certificates issued by him with retrospective effect on the directions of the Central Board of Revenue. The cancellation and that too retrospectively is against the principle laid down by the Supreme Court of Pakistan in the case: Central Insurance Co. and others v. C.B.R. 1993 SCC 1049 that Officers performing quasi‑judicial functions shall exercise their discretion by application of their minds independently. Secondly and without prejudice to the foregoing, he submits that it is the legal obligation of the payer to make payment after deducting tax at the prescribed rate from such payment and to deposit it into the treasury. This obligation can he waived by the Commissioner by certifying that provisions of subsection (2A) are inapplicable to the payee. Thus the precondition to invoke the provisions of sections 52 and 52A is the failure of the payer to fulfil his legal obligation unless it is proved that the certificate of the C.I.T. produced by the payee was forged. Thus normally, initiation of proceedings under section 52 should precede action against the payee under section 52A.

8. The learned counsel submits that on facts and circumstances supra even if the cancellation of certificates by the C.I.T. retrospectively is found valid, National Saving Centre, Bannu on account of failure to fulfil the obligation to withhold tax as required under subsection (2A) of section 50 is the defaulter for any payment made without deduction of tax. Besides, they are already holding huge amount of deposits of the Board of Intermediate and Secondary Education, Bannu and can easily make up the default, if any. The Assessing Officer, according to the counsel, was required under the law to hold them as an assessee in default in the first instance.

9. He further submits that without prejudice to the claim that the profits received from National Saving Centre are exemption in the hands of B.I.S.E., Bannu under clause (86), if the Assessing Officer had a different view, he should have issued, notice/notices to the B. I. S. E. under section 56 of the Ordinance for filing of returns of incomes. It would have provided the Board proper opportunity to make submissions under the law regarding their claim of exemption from income‑tax. Instead, the Assessing Officer has preferred to pursue an arbitrary course under the direction of superior authorities without exercising his discretion independently and judiciously which is against the well‑settled principles of law.

10. Further, it is submitted that opinion of the C.B.R. regarding chargeability or otherwise of any receipt of income‑tax is not binding upon the Assessing Officers and they are required to exercise their discretion independently in accordance with law as applicable to the facts and circumstances of the case.

11. I find that in the instant case, maladministration is evident on several counts. Firstly, it is advisable for the Central Board of Revenue to follow the ratio of the decision of the apex Court (ibid) and to abstain from issuing directives based on their interpretation of law. Secondly, the Commissioner of Income‑tax, Peshawar has no authority under the law to withdraw the certificate issued in pursuance of S.R.O. 594(I)/91 retrospectively. and it amounts to gross injustice to the payer. As for the payee, the issuance of a certificate by the Commissioner that any provision of section 50 is inapplicable to the payee does not amount to grant of exemption from tax to the income from such receipts. It is the exclusive discretion of the Assessing Officer, during the course of assessment proceedings, to decide whether receipts from a particular source are exempt or not.

12. It is found that neither the payer nor the payee have committed any default under section 50(2A) because payments have been made without deduction of tax on the authority of the Commissioner who certified that no tax was deductible. Further, it is found that either no action has been taken under section 52 against the National Saving Centre, Bannu or proceedings initiated against them have not been pursued and concluded.

13. The Assessing Officer by pursuing recovery of alleged liability under subsection (2A) of section 50 against the complainant/payee, has foreclosed the proceedings under section 61 conferring the legal right to an assessee to present his case for exemption under clause (86) of Part I of the Second Schedule to the Ordinance in a proper manner.

14. It is now recommended:

(i) That the C.I.T., Peshawar Zone, to invoke jurisdiction under section 138 to allow appropriate relief to the complainant suo motu; and

(ii) That notices may be issued to the complainant under section 56 requiring them to submit their returns of incomes and to consider their claim of exemption of their incomes under clause (86) in the course of assessment proceedings.

(iii) Compliance to be reported within 45 days.

C. M. A./476/FTOOrder accordingly.