FEDERAL CHEMICAL CERAMICS CORPORATION (PVT.) LTD., LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2005 P T D 1052
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
FEDERAL CHEMICAL CERAMICS CORPORATION (PVT.) LTD., LAHORE
versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 296-K of 2004, decided on /01/.
2nd July, 2004. (a) Income Tax Ordinance (XLIX of 2001)---
----Ss.114, 122, 170, 171, 141(1) & Second Sched., Cl. 73---S.R.O. No.1012(I)/99 dated 3-9-1999---IncomeTaxRules,2002,R.71---EstablishmentofOfficeofFederalTaxOmbudsmanOrdinance(XXXV of 2000), Ss.2(3) & 10(3)---Notices to file return and amendment of assessment---Refund---Additional payment for delayed refund---Liquidator---Maladministration---Limitation---Complainant was appointed as liquidator of corporation placed under voluntary winding up---Complainant alleged that claims for determined refund had been unlawfully withheld---Department alleged that complaint was time-barred and notices were issued to determine tax liability and notices were also issued to file return and also for amendment of assessment as exemption on deposits with the National Saving Centre under clause 73 of the Second Schedule annexed to the Income Tax Ordinance, 1979---Since the clause was omitted by S.R.O. No.1012(I)/99 dated 3-9-1999 the chargeability of the said income for the assessment years 2000-2001 & 2001-2002 was established and the exemption was wrongly allowed---Contention was that anticipated liability exceeded the claim of refund---Notice under section 141(1) of the Ordinance was not given and return was not filed---Validity---Clause 73 of the Second Schedule was inserted by clause 77(D) vide S.R.O. 1343(I)/99 dated 16-12-1999 which again provided exemption of the withdrawn clause 73---Continuity to exemption was provided---Taxation Officer was duty bound to issue refund as soon as it was determined---Complainant was neither required to file any application nor to issue reminders in this behalf---Objection regarding limitation of time in terms of section 10(3) of the Federal Tax Ombudsman Ordinance, 2000 was rejected--Notices under section 122 of the Ordinance were issued in utter disregard of rules and clarifications---Federal Tax Ombudsman recommended the Central Board of Revenue to direct the Taxation Officer to withdraw and cancel notices under section 122 of Income Tax Ordinance, 2001 and issue the determined refund and to admonish the Taxation Officer to be careful infuture.
(b) Income Tax Ordinance (XLIX of 2001)---
----S. 122---Civil Procedure Code (V of 1908), O.V, Rr.17 & 20---Amendment of assessment---Notice---Service of notice---Corporation was placed under voluntary winding up---Liquidator was appointed---Liquidationnoticewasservedonthedepartmentwhichcontainedthe identifiable address of the liquidator---Alleged service by affixture wasnotinaccordancewithrules17and20ofOrderV, C.P.C.
(c) Income Tax Ordinance (XLIX of 2001)---
----S.170---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.10(3)---Refund---Limitation---Taxation Officer was duty bound to issue the refund as soon as it was determined--Complainantwasneitherrequiredtofileapplicationforrefundnorissueremindersanditwasfutileattempttojustifytheunlawfuldelayin issuing the determined refund---Applications for refund were not responded---Objection regarding limitation of time in terms of section 10(3) of the Federal Tax Ombudsman Ordinance, 2000 was rejected.
Muhammad Aslam, Director (F&A) Liquidator for the Complainant.
Nadeem Ahmed Farooqi, IAC and Dr. Muhammad Abbas, DCIT for Respondent.
FINDINGS/DECISION
ThecomplainantisacorporationoperatingunderMinistryofIndustriesandProductionGovernmentofPakistan,havingitsheadofficeatNewGardenTown,Lahore.TheCorporationhasbeenanexistingIncomeTaxAssesseeofCircle09,CompaniesZone-II, Karachi on National Tax Number 13-09-0823806.
2.Thecorporationwasplacedundervoluntarywindingupon28-3-2003 and the complainant Mr. Muhammad Aslam wasappointedas liquidator of the corporation under section 358 of the Companies Ordinance 1984. The complainant is aggrieved by non-issuance of determined refund of Rs.4.06 (M) with compensation admissible under section 171 of the Income Tax Ordinance, 2001 for the assessment years 1990-91 to 1996-97.
3.(sic)
4.The details of refund have been provided as under:--
| S. No. | Assessment year | Refund (Rs) | Annexure |
| 1 | 1990-91 | 489110 | Annexure-A |
| 2 | 1992-93 | 1397850 | Annexure-B |
| 3 | 1993-94 | 367948 | Annexure-C |
| 4 | 1994-95 | 34949 | Annexure-D |
| 5 | 1995-96 | 447953 | Annexure-E |
| 6 | 1996-97 | 1279834 | Annexure-F |
| Total | | | 4107644 |
The copies of demand notice, assessment order and I.T-30 have been furnished in support of the claim of refunds. It is alleged that since the determined refund have been unlawfully withheld for a long time, the 15%asprovidedinsection 171 of the Income Tax Ordinance, 2001. It is further alleged that the complainant vide his letter, dated 19-12-2002 addressed to the Deputy Commissioner of Income Tax, Circle-9, Companies Zone-II, Karachi and copy endorsed to the Commissioner of Income Tax, Companies Zone-II, Karachi requested for issuance of already determined refund but no response was made by the Taxation Officer or the Commissioner of Income Tax. Thereafter thecomplainantwasobligedtoaddressaletteron22-7-2003 to the Commissioner of Income Tax Companies-II, requesting him to look into the matter personally and direct the concerned officer to issue the cheques for determined refunds without further delay. It was specifically stated in the said letterthat the Corporation was facing serious financial problems and was unable to pay the salaries of the staff for the last two months. This letter was also not responded by the Commissioner of Income Tax, Companies Zone-II, Karachi. The jurisdiction of the case was transferred to CompaniesZone-III, Karachi and the complainant addressed another letter to the concerned CIT on 10th March, 2004 but failed to receive the cheques for the refunds due since long. It is alleged that the complainant made numerous visits to the offices of the concerned officers and requested for issuance of refund but the department resorted to delaying tacticsandwithheldtherefundononepretextortheother.Itisfurther, alleged that the concerned officers were informed repeatedlythat the corporation was under liquidation and it had to wind up, up to 28th March, 2004 but his request for issuance of refunds was not accededto.Thecomplainanthasprayedforissuanceofdirectionsto the Regional Commissioner of Income Tax, Corporate Region, Karachi,theCommissionerofIncomeTaxCompanies-IIandtheDCIT concerned to release the amount of refund along with the mark up @ 15% as provided in the section 171 of the Income Tax Ordinance, 2001.
5.The respondents have forwarded parawise comments prepared by the concerned Commissioner of Income Tax and endorsed by the Regional CommissionerofIncomeTax,CorporateRegion,Karachi.ItisreportedthatthecomplainantCorporationwaspreviouslyassessedin Companies Zone-II, Karachi and was transferred to CompaniesZone-III, in consequence of C.B.R. s Order C. No.2(1)S. Asstt/2002-2001, dated 13-9-2003. The respondents have raised preliminaryobjectionregardinglimitationoftimeintermsofsection 10(3) of the Federal Tax Ombudsman Ordinance, 2000 and in support of thereof have provided the following data regarding dates of creation of refunds etc.
| S. No. | Asstt. year | Section | Date of Order | Amount of Refund | Limitation under section 10(3) of the FTO Ordinance 2000. |
| 1 | 1990-91 | 156/89 | 27-2-2002 | Rs.489,110 | 27-12-2002 |
| 2. | 1992-93 | 62/132 | 31-10-2001 | Rs.1,397,850 | 30-4-2002 |
| 3 | 1993-94 | 156 | 27-6-2002 | Rs.367,948 | 27-12-2002 |
| 4 | 1994-95 | 156 | 2-1-2002 | Rs.34,949 | 1-7-2002 |
| 5 | 1995-96 | 156 | 12-12-2002 | Rs.447,953 | 12-6-2003 |
| 6 | 1996-97 | 156 | 12-12-2002 | Rs.1,279,834 | 12-6-2003 |
| Total | | | | | 4,017,644 |
6.It is pleaded that in view of provisions of section 10(3) of the aforesaid Ordinance the complaint was beyond the legitimate jurisdiction being barred by limitation of time. It is further, stated that the application for issuance of refund filed on 10-3-2004 was not on the prescribed form as provided in Part-VIof the First Schedule to the IncomeTaxRules,2002readwithRule71oftheIncomeTaxRules, 2002 and the Income Tax Ordinance, 2001. It is further, reported that the taxation officer/IAC Range-II, Companies Zone-III, Karachi examined the file and discovered that the complainant had claimed exemption on deposits with the National Saving Centre under clause 73 oftheSecondScheduleannexedtotherepealedOrdinance.SincetheclausewasomittedbyS.R.O.No. 1012(I)/99,datedSeptember 3, 1999 the chargeability of the said income for the assessment years 2000-2001 and 2001-2002 was established and the exemption was wronglyallowedtothecomplainantinrespectofthefollowingincome:--
| S. No. | Asstt. Year | Amount of interest granted exemption | Anticipated tax liability |
| 1 | 2000-2001 | Rs.13,720,768 | Rs.5,899,930 |
| 2. | 2001-2002 | Rs.5,135,000 | Rs.2,208,050 |
| | | Total | Rs.4,017,644 |
It is pleaded that the above anticipated liability exceeded the claim of refund. It is also pointed out that it was obligatory on the part of the liquidator to give the notice to the department for ascertaining the tax liability under section 141(1) of the Income Tax Ordinance, 2001 which he failed to do. In addition to that return for the years, 2002-2003 and tax year, 2003 had not been filed by the company as the company did not stand liquidated up to 28-3-2003. In order to ascertain the tax liability the complainant was required to file its return of income for the said years for which notices under section 114 had been issued and served by affixture as the complainant was not traceable on latest address provided on the return for the assessment year 2001-2002. The notices had not been complied with so far. It is further stated that to charge the wrongly allowedexemptionnoticesundersection122forassessmentyears2000-2001 and2001-2002 were issued on 25-3-2004 which were served by affixture on 30-3-2004. No compliance was made onthe due datei.e. 5-4-2004 and the present complaint wasfiledbytheliquidatoron6-4-2004. It is stated that complainant s obligation for payment of income-tax could only be satisfied after entire aforesaid pendency was liquidated and tax demand if any was paid or adjusted as the recovery after liquidation of the company would not be possible.
7.The respondents have reiterated that refund application on prescribed form was not filed and there was no evidence on record that the liquidatorever visited the office of the Taxation Officer in connection with the issuance of refund. The respondents have prayed for rejection of the complaint being barred by time and for non-compliance of statutory notices.
8.The case has been discussed with the representatives of both the sides and the records produced by the departmental representative have also been examined.
9.The complainant has filed rejoinder, dated 13-5-2004 on the parawise comments of the respondents. As regards the objection regarding the limitation of time for filing the complaint as provided under section 10(3) of the Federal Tax Ombudsman 2000, it is stated that the objection of the department is absolutely misconceived and misplaced. It is pleaded that he was not aggrieved on the dates, the refundswere created. In fact the grievance had arisen when the department failed to respond to his applications for issuance of determined refund. The complainant wasaggrieved at time when he was convincedthatthedepartmentwasreluctanttoissuetherefunddespite numerous applications and personal visits to the Assessing Officer. He was aggrieved when his last application, dated 10-3-2004 acknowledged by the CIT office, was not entertained. Thus the provision of section 10(3) of the aforesaid Ordinance was not applicable in his case as erroneously stated by the respondents in the parawise comments. He has further, pleaded, if the application for refund was not in the prescribed format, he should have been informed by the department to make up the deficiency. He addressed three letters referred above to the concerned authorities but was never asked by the department to remove the shortcomings of the refund application. He has also controverted the objection of the department that exemption was wrongly allowed on the profits of Special Saving Accounts under Clause 73 of the Second Schedule of repealed Ordinance, 1979 as the said provision was omitted vide S.R.O. No.1012(I)/99, dated 3rd September, 1999. It is stated by the complainant that the Inspecting Additional Commissioner, Range-II, Companies Zone-III, Karachi issued show-cause notices for amending the assessments for the years, 2000-2001 and 2001-2002 vide his letter No.491, dated 25-3-2004 on the aforesaid ground. The said notices were received by him through fax on 7th May, 2004. It is stated that he submitted detailed reply to the IAC Range-II, Companies Zone-III, Karachi vide his letter, dated 14-5-2004 and 18-5-2004. He has further, stated that the objection of the department thatcorrect address was not provided by him was absolutely unfounded. It is pointed out that liquidation notice was served on the department on 8-4-2003 which contained the identifiable address of the liquidator. It is also stated that the objection of the respondents that notice of liquidation was not given to the department, was absolutely incorrect. The liquidator had sent notice regarding the placement of FCCCL on liquidation to all concerned. The required notice was also made available to the concerned Circle of the Income Tax Department personally by the liquidator, which was duly acknowledged. He has furnished photocopy of the said notice, which bears the initial of the recipient. It is also reported that income tax return for the assessment year 2002-2003 was submitted to the Taxation Officer and a photocopy of the acknowledgment receipt has been provided in this regard. The complainant has alleged that the address of the complainant was available with the respondents but the department had fabricated the notice in the previous dates to indicate that the department had already initiated action against FCCCL before the corporation filed its complaint to the Tax Ombudsman. If the notices had been issued on the correct addressavailable with the department the same would have been received by FCCCL and the proper compliance would have been made.
10.The complainant argued that the Central Board of Revenue subsequent to the omission of Clause 73 of the Second Schedule inserted, Clause 77(D) vide S.R.O. 1343 (I)/99, dated 16-12-1999 which again provided the exemption of withdrawn Clause 73. The C.B.R. further, issued Circular No.31 of 1999, dated28-12-1999 clarifying therein that the notification through S.R.O. 1343(I)/99, dated 16-12-1999 was effective from 3-9-1999 in order to provide continuity to exemption available under the amended Clause 73 of repealed Ordinance. He also pleaded that the issue was again clarified by C.B.R vide Circular No.5 of 2001 which provided as under:--
The income from investments made up to 30th June, 2001 in Defence Saving Certificates, Special Saving Certificates Accounts, Mahana Amadani Account where monthly contribution does not exceed Rs.1000 and in Post Office Saving Bank or National Saving Centres under National Saving Schemes, would remain exempt and shall not be subject to withholding .
The Authorised Representative also stated that the objections of the respondents regarding refund application, return of income for the year 2002-2003 and notice with regard to the appointment of the liquidator have been removed although the said documents had already been filed earlier.
11.The Authorized Representative reiterated during the course of hearing of the case that all the shortcomings and deficiencies pointed out by the respondents have been removed and the taxation officer has even worked out the anticipated liabilities for the years 2002-2003 and tax year 2003-2004 at Rs.7,38,065 which would be paid shortly by the corporation. He has also withdrawn the claim of compensation/mark-up admissible under section 171 of the Income Tax Ordinance, 2001 vide his application, dated 9-6-2004.
12.Thepreliminary objection regarding limitation of time for filing complaint in terms of section 10(3) of the Federal Tax Ombudsman Ordinance, 2000 is absolutely misconceived and misplaced. It is rather a futile attempt to justify the unlawful delay in issuing the determined refund of the complainant. It is distressing to observe that instead of realizing that withholding of refund without any justification had not only created financial problems to the complainant but would also result in extra burden on the exchequer due to the provision of section 102 of the repealed Ordinance and section 171 of the Income Tax Ordinance, 2001. The Taxation Officer concerned was duty bound to issue the refund as soon as it was determined after the amendment of section 100 of the repealed Ordinance by the Finance Act, 1985. The Central Board of Revenue issued directions to the Assessing Officer through various circulars time and again that refund vouchers should be issued along with the assessment order and demand notice and extract from C.B.R. s letter, No. ITB-3(5)/86, dated 3rd July, 1994 is reproduced hereunder in this regard:--
Section 100 of the Income Tax Ordinance, 1979 was amended through Finance Act, 1985 whereby the condition of filing refund application was dispensed with the cases where refund is created by the Assessing Officer on IT-30. Refund Voucher is, therefore, to be issued along with the assessment order/demand notice in all such cases .
The complainant was therefore neither required to file any application for refund nor issue reminders to the Assessing Officer in this behalf. The complainant corporation however, addressed letters on 19-12-2002, 22-7-2003 and 10-3-2004 to the DCIT, Circle-09, Commissioner of Income Tax, Companies Zone-II and CIT Companies Zone-III, requesting them to issue the determined refund as the Corporation was facing financial problems and was unable to pay salaries to the staff. It is also established from record that none of the said applications was responded by the addressee. In the circumstances stated above the objection regarding limitation of time in terms of section 10(3) of the Federal Tax Ombudsman Ordinance, 2000 is rejected and the complaint is entertained for investigation.
13.The perusal of record shows that notices under section 122 of the Income Tax Ordinance, 2001 were issued by the Taxation Officer for the assessment years 2000-2001 and 2001-2002 on 25-3-2004 without carefully examining the relevant provisions of law and theC.B.R. s Circulars on the issue of exemption provided by Clause 73 of Second Schedule of the Income Tax Ordinance, 1979 which was withdrawn w.e.f. 3rd September, 1999. The complainant s reply, dated 18-5-2004 in response to the show-cause notices issued by the Taxation Officer is quite convincing and well-founded. The said Clause 73of Second Schedule was omitted by S.R.O. 1012(I)/99, dated 3rd September, 1999. The omitted Clause provided exemption to profit on deposits in the Post Office Savings Bank or National Saving Centres under the National Saving Schemes. The Federal Government however, issued Notification S.R.O. 1343(I)/99, dated 16-12-1999 inserting Clauses 77(C), 77(D) and 77(E) in part one of Second Schedule of repealed Ordinance, 1979. Clause 77(D) restored the exemption to profit on deposit in the Post Office Saving Bank or National Saving Centre under the National Saving Schemes. S.R.O. 1343(I)/99, dated 16-12-1999 was made effective from 3-9-1999. Thus exemption which was provided by omitted Clause 73 continued without any break. The Central Board of Revenue clarified the issue elaborately in Circular No.31 of 1999, dated 28th December, 1999. The relevant extract therefrom is reproduced hereunder:--
The Notification S.R.O. 1343(I)/99, dated 16-12-1999 was made effective from 3-9-1999 in order to provide continuity to exemption available under omitted Clause 73 of repealed Ordinance. Therefore, the provisions of Clauses (72), (73) and (160) of Part 1 of the SecondSchedule to the Ordinance, stand reintroduced through identical Clauses (77C), (77D) and (77E) in the said Part, from the said date i.e. 3-9-1999. The effect of this notification is that the exemption to aforementioned National Savings Schemes remains unaffected .
Itistherefore established that the notices under section 122wereissued by the Taxation Officer for the assessment years, 2000-2001 and 2001-2002 in utter disregard of the insertion of Clause 77(D) through S.R.O. 1343, dated 16-12-1999 and the clarifications issued by the C.B.R. vide Circular No.31, dated 28-12-1999 referred above.
14.It is also established from record that there was no necessity of serving the notice under section 122, dated 25-3-2004 by affixture when the latest address of the complainant Corporation was available on record.ThenoticeofliquidationhadbeenservedontheDCITCircle-09, Companies Zone-II, Karachi on 8-4-2003. A photocopy showing the acknowledgement of the said notice has been filed by the complainant. Moreover the alleged service by affixture was not in accordance with Rules 17 and 20 of Order-V of the Code of Civil Procedure, 1908. Maladministration is established and therefore the following recommendations are made;--
(i)The C.B.R. direct the Taxation Officer to withdraw and cancel the notices issued under section 122 of the Income Tax Ordinance, 2001fortheassessmentyears2000-2001and2001-2002.
(ii)The determined refund for the assessment years 1990-1991,1992-93 to 1996-97 be issued after adjustment of anticipated liability.
(iii)The Taxation Officer be admonished to be careful in future.
(vi)The compliance be made within 30 days of receipt of this order and reported within a week thereafter.
M.I./339/FTOOrder accordingly.