(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)-----

----S. 2(3) --- Maladministration --- Definition of---'Maladministration' is inclusive and exhaustive in nature which covers irregularities, illegalities and mismanagements.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)-----

----Preamble---Object of the Ordinance---Interpretation---Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 is a welfare legislation to diagnose, rectify and redress injustice done to a person through maladministration by functionaries administering tax laws, its provisions must be interpreted liberally and principles of purposive interpretation should be applied to advance the object of the statute and not to frustrate it.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 93---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000) S. 2(3)---Recovery of tax by Tax Recovery Officer---Attachment of complainant's property (belonging to some one else) by treating the same of assessee in default on the basis of agreement without any verification of title/ownership of such property-- Validity---Department relied on the assessment order which was confirmed by Appellate Authority, Tribunal, High Court and Supreme Court---On the basis of such assessment order the property had been i treated to be property of the assessee---Department did not make any proper, comprehensive and legal inquiry to determine the title and ownership of the said property---Department entirely relied on the agreement produced by the assessee but it seemed to be a self-serving document which the assessee did not contest at any form---None of the income-tax authorities and the Tribunal entered into the question of title and ownership of the property as it was never contested---Action taken by the department in issuing notice under S.93 of the Income Tax Ordinance, 1979 in circumstances, was contrary to law, illegal, arbitrary, unreasonable, perverse and based on irrelevant grounds which it also demonstrated negligence, inattention, inefficiency and inaptitude in discharge of duties by the tax functionaries---Finding was forwarded to the Registrar High Court, Secretary Revenue Division and parties to the complaint.

Tufail H. Ibrahim for the Complainant.

Sajid Nazir Malik, DCIT and Misri Ladhami, ACTT for Respondents Nos. 1 & 2.

Amin Uddin Ansari for Respondent No.3,

DECISION/FINDING

The Hon'ble Judge of the High Court of Sindh by the following order, dated 21-4-2003 referred the matter to the Federal Tax Ombudsman on the issue specified therein:

"21-4-2003: Mr. Tufail H. Ibrahim, advocate

Mr. Nasurallh Awan, Advocate.,

Mr. Aminuddin Ansari, advocate.

According to the counsel appearing for the plaintiff the dispute in the suit emerges out of a clear cut misappreciation of the facts and misuse of jurisdiction which has resulted in the relief not being granted to him. He makes an oral statement at the bar specially in connection with C.M.A. No. 1387 of 2003 whereas he states that the action of the defendant would amount to maladministration as defined in the Federal Tax Ombudsman Ordinance, 2000.

A reference can be made to the Federal Tax Ombudsman under section 9 of the Ordinance to the effect that he should look into this case and decide the following points:

(1)As to whether the notices of attachment issued under section 93 of Income Tax Ordinance, 1979 by the defendant No.1 are fraudulent, illegal and without jurisdiction so fall within the scope of maladministration.

(2)As to whether the above two documents belonging to the defendant No. 1 were not taken into accounts by the Income Tax Department misleading of evidence on record of the Income Tax Department and fall within the scope of mal administration?".

2. A certified copy of the order was sent by Mr. Aminuddin Ansari, Advocate for Muhammad Aqil with statement, dated 4-6-2003 which was delivered in the office on 5-6-2003. Consequently, notices were issued to the respondents and the Secretary, Revenue Division. The official respondents applied for extension of time for submitting reply which was allowed and the case was fixed for hearing on 22-7-2003. On the date of hearing, no reply was submitted by the Department which was filed during the course of hearing the next day.

3. This is a reference by the High Court of Sindh in which the Court has referred two issues for determination. The learned counsel and the parties agree and have stated that Issue No.1 relates to Suit No.539 of 2000 while Issue No.2 relates to Suit No.635 of 2000. In Suit No.539 of 2000 Al-Riaz (Pvt.) Ltd. the plaintiff/complainant alleged that it owns plot No.2-K/28-C Trans Lyari near PIB Colony, Sabzi Ma ndi, Karachi and runs business of cold storage and export of perishable items on the said plot which was purchased from KMC by Agreement, dated 1-7-1970. A lease for 99 years has been executed by the KMC in favour of plaintiff/complainant. Mst. Nisar Begum is the. owner of House No.2072, PIB Colony, Karachi which was purchased by her on 31-7-1983 from Sabir Hussain for a consideration of Rs.215,000 and has been transferred in her name by PIB Society. It has been alleged that the ACIT (Defendant No. 1) on the instructions of the CIT (Defendant No.2) in collusion with Muhammad Aqil (Defendant No.3) mala fide and illegally treated .the above properties as owned by Muhammad Aqil (Defendant No.3) without any show-cause notice. The ACIT illegally issued notice of attachment of properties under section 93 of the Income Tax Ordinance, 1979 to Bank AI-Falah, Ltd. (Defendant No.5 which name has been deleted) and to the Sub-Registrar. The complainant sought declaration that it is the owner of Property bearing No.2-K/C-28 Trans Lyari, PIB Colony, Karachi and action taken by the income-tax authority is illegal, arbitrary and without jurisdiction. A declaration has been sought that the notice issued under section 93 of the Income Tax Ordinance, 1979 is illegal. Damages have also been claimed with cost.

4. The CIT filed reply stating that Property No. 2-K/28-C Trans Lyari was purchased by Messrs Saka Enterprises during assessment year 1983-84 from Messrs Al-Riaz (Pvt.) Ltd. through one of its directors Mr. Shahid Ishtiaq Khan for a consideration of Rs.10,00,000 under an agreement, dated 9-9-1982. An amount of Rs.750,000 was paid through Pay Order, dated 9-9-1982 and the balance amount of Rs.250,000 was paid in cash. This property was valued by the Income-tax Department at Rs.41,99,400 and the differential amount of Rs.31,99,400 was added to the income of Muhammad Aqil under section 13(1)(aa)/13(2) of the repealed Income Tax Ordinance, 1979. This addition as modified by the Commissioner (Appeals) was upheld by the Tribunal which has been confirmed by the High Court of Sindh and Supreme Court of Pakistan. Muhammad Aqil has mortgaged the property with the bank as collateral security to avail the facility of bank loan. According to the original documents deposited with the bank he was the owner. Following the order of the Tribunal a notice was issued by ACIT in respect of the property in accordance with section 93 of the repealed Ordinance. The ALIT had exercised powers as provided by law. It has been further pleaded that the complaint has no merit.

5. Muhammad Aqil in his written statement filed in the High Court of Sindh stated that he has no title or right in the afore-stated properties and denied to have entered into any purchase agreement or that any payment was made by him towards the immovable properties. It has been pleaded that the income-tax authorities in collusion with Abdul Khaliq and his two sons have raised false demand of Rs. 810,000 towards income-tax dues and have treated the said two properties as owned by him on the basis of forged documents. He denied having entered into any agreement.

6. It may be reiterated that for the purpose of this reference in this matter, question arises whether notice of attachment issued under section 93 of the Income Tax Ordinance, 1979 was illegal and without jurisdiction. Mr. Tufail Ibrahim, the learned counsel for the plaintiff/complainant has contended that Al-Riaz (Pvt.) Ltd., is the owner of property No.2-K/28-C Trans Lyari, Near PIB Colony hereinafter referred as the `property'. He has produced the agreement, dated 24-4-1971 by which the complainant had purchased the property from KMC. Thereafter it has been in its possession. He has also produced a copy of Lease Deed, dated 13-7-1973 executed by KMC in favour of Al-Riaz (Pvt.) Ltd. He has further stated that a public notice was published by the Recovery Officer for auction of this property in which defaulter's name was given as Muhammad Aqil. This notice, dated 4-3-1996 invited objections within 7 days. On 9-3-1996 a detailed objection was filed by the complainant/plaintiff in which it was categorically stated that Muhammad Aqil has no concern with the property but no reply was given by the Department. In fact, after this objection, dated 9-3-1996 it seems that no further action was taken. He further stated that the said property was mortgaged to BCCI as collateral security for loan taken by Muhammad Aqil, the assessee. In the year 2000 when complainant asked for release of the property title documents it was informed that the Income-tax Department has ordered not to release them whereupon Suit No. 539 of 2000 was filed. It has further been stated that on 17-9-2001 during the pendency of suit the bank released the title documents to the complainant/plaintiff. In order to show mala fide and illegal action on the part of the Department, the learned counsel filed a copy of the letter issued by the office of the Sub Registrar, Central Record, City Court, dated 2-5-2001 addressed to one Abid Raza, Special Officer, Circle D-15, Zone-D, Karachi and copy endorsed to the complainant/plaintiff by which he had directed that query regarding lease deed registered on 14-7-1993 may be made from the Sub Registrar; T-Division, having registration jurisdiction in respect of the said property. He has also produced a letter, dated 17-5-2001 of the Additional Director Land, KMC addressed to the Special Officer confirming that the lease of the said plot of land was executed in favour of the complainant on 14-7-1993 the learned counsel also produced photocopy of the advice of Legal Advisor of Income Tax Department who had given his opinion that the title documents established the ownership of the complainant. He advised that dispute may be resolved in favour of complainant and suitable reply should be sent so that Suit No. 539 of 2000 may be withdrawn by the complainant/plaintiff to avoid any damage. I would trot have referred to this letter as it seems to have been obtained improperly from the records of the Income Tax Department. It is referred to demonstrate the irregularities and maladministration in the Income Tax Department to the extent that even the opinion of the Legal Adviser, a privileged document, is made available to the opponent.

7. The learned representative for the Department stated that on information received that the said property and the Property No.2072 PIB Colony were purchased by Muhammad Aqil, an assessee who has mortgaged them with the bank as collateral security for the loan, a notice under section 86 of the Income Tax Ordinance, 1979 was issued to the assessee on 28-8-1996. It seems that during the proceeding before the income tax authorities Muhammad Aqil produced an agreement of sale executed by Muhammad Aijaz Haroon together with a coy of resolution, dated 24-6-1982 to show that executant had the authority as one of the directors to sell the said property. However, it seems that no further investigation into the title of the said property was made by the department in a serious manner. The letter written to the Registrar shows that some efforts were made .but no attempt was, made to get a clear picture of title to the property. The Department has relied on the assessment order which was confirmed by Appellate Authority, Tribunal. High. Court of Sindh and the Supreme Court of Pakistan. On the basis of this assessment order the property has been treated to be property or Muhammad Aqil, the assessee. The Department did not make any proper, comprehensive and legal inquiry to determine the title andlA ownership of the said property. They entirely relied on the agreement produced by Muhammad Aqil but it seems to be a self-serving document which the assessee did not contest at any forum. None of the income tax authorities and the Tribunal entered into the question of title and ownership of the property as it was never contested. The issue regarding ownership was not under consideration before the High Court in reference proceedings because it had never arisen during the proceeding before the income-tax authorities and the Tribunal as well. Therefore, at no stage of the proceedings of assessment the question of ownership was raised, considered, contested or decided. It seems that the issue came to light when notice was issued on 4-3-1996. However, the complainant/ plaintiff raised objection about title of the said property. It was stated that Muhammad Aqil has no concern with the property directly or indirectly. After issuance of notice, a letter was written by the Department to the Sub-Registrar. No further inquiry was made or taken to its logical end. It was necessary for the Department to have properly investigated the title to -the property by associating the complainant/ plaintiff who had in clear terms notified that it was the owner. When the complainant/plaintiff went to get the property released it was told that an attachment order had been issued and notice under section 93 of the Income Tax Ordinance, 1979 was served on 16-11-1998. The complainant has produced title documents released by the bank which was delivered to it after the decretal amount had been paid. In view of these facts it is to be considered whether the Department has committed maladministration. The term 'maladministration' has been defined is subsection (3) of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 which reads as follows:--

2. (3) "maladministration" includes,

(i)a decision, process, recommendation, act of omission or commission which--

(a)is contrary to law, rules or regulations or is a departure from established practice or procedure, unless it is bona fide and for valid reasons:

(b)is perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory;

(c)is based on irrelevant grounds; or

(d)involves the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives, such as bribery, jobbery, favouritism, nepotism and administrative excesses;

(ii)neglect, inattention, delay, incompetence, inefficiency and inaptitude, in the administration or discharge of duties and responsibility;

(iii)repeated notices, unnecessary attendance or prolonged hearings while deciding cases involving -

(a)assessment of income or wealth;

(b)determination of liability of tax or duty;

(c)classification or valuation of goods;

(d)settlement of claims of refund, rebate or duty drawback; or

(e)determination of fiscal and tax concessions or exemptions;

(iv)wilful errors in the determination of refunds, rebates or duty drawbacks; .

(v)deliberate withholding or non-payment of refund, rebates or duty drawbacks already determined by the competent authority;

(vi)coercive methods of tax recovery in cases where default in payment of tax duty is not apparent from record; and

(vii)avoidance of disciplinary action against an officer or official whose. order of assessment or valuation is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal.

8. It can be observed that the definition of 'maladministration' is inclusive and exhaustive in nature which covers irregularities, illegalities and mismanagements. As the FTO Ordinance is a welfare legislation to diagnose, rectify and redress injustice done to a person through maladministration by functionaries administering tax laws, its provisions must be interpreted liberally and principles of purposive interpretation should be applied to advance the object of the statute -and not to frustrate it.

9. From the fact stated above, it may be observed that the action taken by the Department in issuing notice under section 93 of the Income Tax Ordinance, 1979 was contrary to law, illegal, arbitrary, unreasonable, perverse and based on irrelevant grounds. It also demonstrates negligence, inattention, inefficiency and inaptitude in discharge of duties by the tax functionaries.

10. This finding be forwarded to the Registrar High Court of Sindh Secretary, Revenue Division and the parties to the complaint.

C.M.A./1003/FTOReference answered.