FATEH TEXTILE INDUSTRY (PVT.) LTD., FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2004 P T D 1750
[Federal Tax Ombudsman]
Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman
FATEH TEXTILE INDUSTRY (PVT.) LTD., FAISALABAD
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 763‑L of 2003, decided on /01/.
th
October, 2003. Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 138‑E(4)(5), 89 & 85‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Disposal of application by the Settlement Commission ‑‑‑Maladministration‑‑‑After settlement of disputed issues by the Settlement Commission, Complainant/assessee withdrew appeal but did not pay tax on the ground that Assessing Officer did not give effect to the order of Settlement Commission and issued demand notice and challan on the basis of Income determined by the Commission and committed serious malad ministration as Assessing Officer was duty bound to issue demand notice on the basis of order of Settlement Commission as envisaged under S.85 of the Income Tax Ordinance, 1979‑‑‑Assessing Officer on the contrary, levied additional tax under. S.89 of the Income Tax Ordinance, 1979 on the original demand on the basis of income assessed by the Assessing Officer, completely ignoring the order of Income Tax Settlement Commission‑‑‑Department contended that since the Complainant/assessee did not fulfill the necessary condition of payment of tax on the basis of income settled by the Settlement Commissioner by the date prescribed in the order of Settlement Commission the order of Settlement Commission stood automatically cancelled and that of Assessing Officer restored‑‑ Val.idity‑‑‑S.138‑E(5) of the Income Tax Ordinance, 1979 made it mandatory that‑ the order passed under S.138‑E(4) of the Income Tax Ordinance, 1979 shall provide for the terms of settlement including any demand of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective‑‑‑Commission did not state the tax to be paid by the Complainant/assessee‑‑‑Was not possible for the complainant to calculate and pay the tax on his own‑‑‑As the copy of order was sent to Assessing officer it was his duty to follow up the matter by issuing demand notice but it was not done‑‑‑Assessing Officer instead of calculating tax on the income determined by the Commission and issuing demand notice wrote to the Complainant/assessee that since it had not made payment of tax on income determined by the Commission, the order of Settlement Commission stood automatically vacated‑‑‑This communication was contrary to law‑‑‑Assessing Officer did not take any action for notifying the tax due and its recovery and thus committed serious `maladministration'‑‑‑Assessing Officer committed negligence and issued illegal order under S.59 of the Income Tax Ordinance, 1979 charging additional tax on income assessed by the Assessing Officer instead of income settled by the Commission and by refusing to give effect to the order of Settlement Commission‑‑‑Order of Assessing Officer was illegal, unjust, arbitrary and perverse which fell under mal administration‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income Tax cancels the order under S.89 of the Income Tax Ordinance, 1979 made by the Assessing Officer on 8‑6‑2001; give effect to the order of Income Tax Settlement Commission and get the demand notice issued and challan on the basis of income determined by the Settlement Commission vide its order, dated 13‑11‑1999.
2002 PTD 1918 and Complaint No. 1438 of 2002 ref.
Ch. Manzoor Ahmad for the Complainant.
Mehmood Jaffari, D.‑C.I.T. for the Revenue.
FINDINGS/DECISION
Maladministration is alleged in the instant complaint on the part of DCIT Circles 2 and 3 Special Zone Lahore for arbitrarily refusing to give effect to the order of Income Tax Settlement Commission and issue demand notice and challan on the basis of the decision of Income Tax Settlement Commission for the assessment year 1996‑97.
2. The Complainant a (Pvt.) Ltd. Company earns its income from dying and printing of cloth. For the assessment year 1996‑97 it filed its Income Tax Return declaring income at Rs.1,001,086. The DCIT assessed income of the complainant vide his order, dated 31‑5‑1999 at Rs.2,595,203. The complainant filed appeal before the CIT(A) and also moved an application before Income Tax Settlement Commission for settlement of the disputed issues. The Settlement Commission vide its order, dated 13-11‑1999 determined The income at Rs.1,750,000 and directed the complainant to withdraw its appeal before the CIT(A) and make the payment of tax on income settled by 27‑11‑1999. The, complainant withdrew the appeal but did not pay the tax by 27‑11‑1999 because the DCIT concerned did not give effect to the order or Settlement Commission and issued demand notice and challan on the basis of determined by the Commission as above and thus committee serious 'maladministration' although it was the duty of DCIT as f' envisaged under section 85 of the Income Tax Ordinance to issue demand notice on the basis of order of Settlement Commission. On the contrary the DCIT vide his order, dated 8‑6‑2001 levied additional tax under section 89 on the original demand on the basis of Income assessed by the DCIT, completely ignoring the order of Income Tax Settlement Commission. The complainant filed appeal against order under section 89, dated 8‑6‑2001. The CIT(A) vide his order, dated 13‑5‑2002 directed the DCIT to charge the additional tax on the basis of order of Settlement Commission but the DCIT did not give appeal effect. The complainant made an application for rectification on 7‑5‑2002 but this was rejected by the DCIT vide his letter, dated 9‑5‑2002. The complainant again filed appeal before the CIT(A) who ignoring the order of the Settlement Commission and earlier order of his predecessor, dated 13‑5‑2002 rejected the appeal of the complainant. This is the cause of grievance.
3. Respondent has forwarded parawise comments from the R‑CIT Eastern Region Lahore as well as from CIT(Appeals) Zone III Lahore. The RCIT has raised preliminary objection that the complaint relates to assessment, which is a quasi judicial function hence it does not fall in the jurisdiction of the Federal Tax Ombudsman. Other allegations of maladministration have been denied. The RCIT has submitted that the order of Settlement Commission was conditional. Since the complainant did not fulfill the necessary condition of payment of tax on the basis of income settled by the Settlement Commission by the date prescribed in the order of Settlement Commission the order of Settlement Commission stood automatically cancelled and that of the Taxation Officer restored. The RCIT has pleaded that the contention of the complainant that ii could not pay the tax without assistance of the Taxation Officer was a lame excuse to cover the default of non payment of tax. The complainant was well versed with the tax calculation. In any case ignorance of law was no excuse. The RCIT has submitted that there was no direction from the Settlement Commission to the Assessing Officer to give effect to the order of Commission rather the Commission directed the complainant to make payment of tax on the income determined by it. The RCIT has further submitted that the Taxation Officer was justified to refuse to carryout the rectification as requested by the complainant. Lastly it was submitted by the RCIT that appeal filed by the complainant against refusal to rectify the demand notice and challan on the basis of order of Settlement Commission was rejected by the CIT(A).
4. The CIT(A) Zone III Lahore in his parawise comments has also justified rejection of appeal on the ground that since the order of Settlement Commission was conditional on payment of tax which condition was not fulfilled by the complainant hence appeal of the complainant was rightly rejected.
5. The complainant and respondent's reply have been carefully examined, arguments of two sides have been considered and relevant provisions of law examined with reference to averments of the two sides. The RCIT has raised a preliminary objection and submitted that the matter under consideration relates to assessment, which is a quasi judicial function hence falls outside jurisdiction of Federal Tax Ombudsman. The contention made by the RCIT is not correct. The matter under consideration relates to the implementation of order of Settlement Commission. The RCIT has raised this objection without considering the facts. Similar objection to jurisdiction has been examined in detail in C. No. 1250 of 2001 reported in 2002 PTD 1918 and Complaint No. 1438 of 2002 and rejected. Following these decisions the objection is overruled.
6. Now coming to the facts of the case, the Commission vide its order, dated 13‑11‑1999 determined the income at Rs. 1,750,000. The operative part of the order of Commission is reproduced as under:‑‑
"After discussion with the assessee the disputed issues are settled as under:‑‑
(i)Total income is fixed at Rs.1,750,000.
(ii)Appeal filed by the assessee before the learned CIT(A) shall be withdrawn. The assessee has agreed to above. The above settlement is subject to following conditions:‑‑
(a)Income Tax, if any, on the basis of above settlement will be paid by the assessee and a copy of the challan shall be furnished in the Regional Office of I.T.S.C. by 27‑11‑1999.
(b)A letter addressed to the learned CIT(A) for withdrawal of appeal filed by the assessee will be furnished in the Regional Office of the I.T.S.C. Lahore by 27‑11‑1999.
This order however will not be made precedent for any subsequent order in this case or an order in any other case.
If any or all of the, above terms is not complied with by the assessee the I.T.S.C. reserved the right to take appropriate
7. From the above order it is quite evident that in case of non fulfillment of conditions of settlement the Income Tax Settlement Commission had reserved the right to take action. It is pertinent to note that section 138(5) makes it mandatory that the order passed under section 138(4) shall provide for the terms of settlement including any demand of tax, penalty or interest,, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective. The Commission did not state the tax to be paid by the complainant. It was therefore, not possible for the complainant to calculate and pay the tax at his own. As the copy of the order was sent to DCIT it was his duty to follow up the matter by issuing demand notice. But it was not done.
8. The Taxation Officer instead of calculating tax on the income determined by the Commission and issuing demand notice wrote to the complainant that since it had not made payment of tax on income determined by the Commission, the order of Settlement Commission stood automatically vacated. This communication was contrary to law. The concerned Taxation Officer did not take any action from 28‑11‑1999 to 8‑6‑2002 for notifying the to due and its recovery and thus committed serious maladministration.
9 It is quite evident that DCIT committed negligence as discussed above and issued illegal order under section 89, dated 8‑6‑2001 charging additional tax on income assessed by the DCIT instead of income settled by the Commission and by refusing to give effect to the order of Settlement Commission. The action of DCIT is illegal, unjust, arbitrary and perverse which falls under maladministration.
10. It is recommended.
(i)The Commissioner of Income Tax cancels the order under section 89 of the Repealed Ordinance made by DCIT on 8‑6‑2001.
(ii)Give effect to the order of Income Tax Ordinance Settlement Commission and get the demand notice issued and challan on the basis of Income determined by the Settlement Commission vide its order, dated 13‑11‑1999,
(iii)Compliance report be furnished within 45 days of receipt of these recommendations by Revenue Division.
C.M.A./4/FTOOrder accordingly.