(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50‑‑‑Sales Tax Act (VII of 1990)‑‑‑Deduction of tax at source‑‑ Complainant/assessee objected to the deduction of income‑tax on the amount which included sales tax and contended that as such deduction was unauthorized, illegal and unreasonable, the Directorate be directed to stop deducting of income on the amount inclusive of general sales tax‑‑‑Validity‑‑‑Withholding tax had to be deducted on payment of supply of goods and on the payment made for services rendered‑‑‑Tax was to be deducted at the rate calculated on the amount of payment mentioned in the bill‑‑‑Amount of payment included sales tax‑‑ Deduction made was correct and, according to law‑‑‑No relief was granted and complainant/assessee, case was closed by the Federal Tax Ombudsman.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 50‑‑‑Sales Tax Act (VII of 1990)‑‑‑Deduction of tax at source‑‑ Complainant/assessee's income tax was being deducted inclusive of sales tax by Controller of Military Accounts‑‑‑Complaint against‑‑‑Central Board of Revenue was asked to reply that matter of complaint did not relate to Central Board of Revenue but to Controller of Military Accounts and comments could not be offered‑‑‑Validity‑‑‑Every person deducting withholding tax was agent of the Central Board of Revenue for collecting the tax under the Income Tax Ordinance, 1979‑‑‑Ultimate responsibility was of the Central Board of Revenue to see whether the tax had rightly been deducted according to law‑‑‑Person deducting tax under S. 50 of the Income Tax Ordinance, 1979 acts under the provisions of law, instructions, directions and rules issued by Central Board of Revenue‑‑‑Relationship between Central Board of Revenue and the person deducting the withholding tax was that of a principal and agent who had been authorized to deduct withholding tax as specified‑‑‑If any objection to deduction of withholding tax was made it was the responsibility of the Central Board of Revenue to explain and reply‑‑ Stand taken by the Central Board of Revenue was completely devoid of any force amounting to negligence in performance of its duty‑‑‑How can Central Board of Revenue deny its responsibility in matters relating to federal tax particularly the act of its agents‑‑‑'this attitude of the Central Board of Revenue was regretted by the Federal Tax Ombudsman as it was expected of its officers to act in a proper and responsible manner.  

Muhammad Sharif for the Complainant.

Nemo for Respondent.

FINDINGS/DECISION

The complainant is engaged in business inter alia supply of goods to ISI Directorate General Islamabad. While making payments the authority deducted income tax @ 3.5 % on supplies and 5% on services on the actual amount of invoices plus general sales tax. The complain and objected to the deduction of income‑tax on the amount which included sales tax as well. According to the complainant such deduction is unauthorized illegal and unreasonable. It has been prayed that the CMA (ISO) of the directorate be directed to stop deducting of income‑tax on the amount inclusive of general sales tax.

2. Notice was issued to the respondent who submitted the following reply:‑‑

It is submitted that the complaint pertains to income‑tax withheld at source by Controller of Military Accounts. There is nothing relating to any maladministration by any employee of C.B.R. The Honourable Federal Tax Ombudsman, if so desired may ask the office of Controller of Military Account to file parawise comments on the complaint.

Again in response to notice fixing date for hearing on 9‑10‑2003 the Secretary (TO‑I) C.B.R. responded as follows:‑‑

The matter of complaint does not relate to C.B.R. but to Controller of Military Accounts and the comments could not be offered. However, again a notice of hearing has been received. It is requested that it may please be informed, what action is due with this office.

3. On the date of hearing no one appeared on behalf of the respondent. The complainant has been heard.

4. At the outset it may be stated that the stand taken by the C.B.R. that the matter relates to Controller Military Accounts is incorrect and is based on misapprehension or misappreciation of law involved in the case. When any complaint is received in respect of any federal tax the main responsibility to reply lies with the Revenue Division. It is incorrect to say that the C.B.R. has nothing to do with it as the tax has been withheld at source by Controller of Military Accounts who is responsible for any maladministration. This submission by itself amounts to avoidance of duty as discussed below.

5. The main grievance of the complainant is that the withholding tax should not be deducted on payment including price and sales tax. It means that his stand is that withholding tax should be deducted from the price of the goods which should be exclusive of sales tax. The merit of this contention will be discussed later. At the moment it is pointed out that withholding tax was deducted under section 50 of the repealed Income Tax Ordinance, 1979. In this particular case section 50(4A) of the repealed Ordinance was applicable. The Controller of Military Accounts deducted the withholding tax under the repealed Ordinance and deposited the same in Government treasury which is accountable to C.B.R. Every person deducting withholding tax is agent of the C.B.R. for collecting the tax under the repealed Ordinance. Therefore, the ultimate responsibility is of the C.B.R to see whether tax has rightly been deducted according to law. The person deducted tax under section 50 acts under the provisions of law, instructions, directions and rules issued by C.B.R. in this regard. The relationship between C.B.R. and the person deducting the withholding tax is that of a principal and agent who has been authorized to deduct the withholding tax as specified. Therefore, if any objection to deduction of withholding tax is made it is the responsibility of the C.B.R. to explain and reply. The. stand taken by the C.B.R is completely devoid of any force amounting to negligence in performance of its duty. How can C.B.R. deny its responsibility m matters relating to federal tax particularly the act of its agents. This, attitude of the C.B.R. is regretted as it is expected of its officers to act in a proper and responsible manner.

6. Now coming to the merit of the case the withholding tax was deducted on supplies under section 50(4A) of the repealed Ordinance. The rate of deduction is mentioned in Part 1 of the First Schedule para. (e) clauses (c) and (d) reproduced as follows:‑‑

From the above it is clear that the withholding tax has to be deducted ail the rate of three and one half per cent on payment of supply of goods and 5 per cent of the amount of payment made for services rendered;

Therefore, the tax is to be deducted at the above rate calculated on the amount of payment mentioned in the bill. It is clear that the amount of payment includes sales tax as well. Therefore, the deduction made by the Controller of Military Accounts was correct and according to law. In these circumstances no relief can be granted to the complainant and the case is closed.

C.M.A./7/FTO Order accordingly.