Messrs SKY STAR TRAVELS, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2005 P T D 1451
[Federal Tax Ombudsman)
Before Justice (Retd.) Munir A. Sheikh, Federal Tax Ombudsman
Messrs SKY STAR TRAVELS, LAHORE
versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 421-L of 2004, decided on 14/12/2004.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss. 170 & 164---Income Tax Ordinance (XXXI of 1979) Ss. 59A & 50(4)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Assessment was finalized under Self-Assessment Scheme by operation of law---IT-30 and demand notice were issued showing refund---Refund was not issued despite reminder and furnishing of challans/certificate on the ground that 'withholding agents' had not responded to the communications by the Assessing Officer seeking verification of payment---Validity---Admittedly neither notices under S.161/205(3) of the Income Tax Ordinance, 2001 were issued nor any action was contemplated against withholding agents---Department made no meaningful effort to verify the genuineness of the certificates---Simple belated enquiry by the Department could not be made an excuse to withhold issuance of refund, moreso when the Refund Voucher should had accompanied the IT-30 and the Demand Notice---Maladministration was proved---Federal Tax Ombudsman recommended that rectification as sought by the complainant may be carried out and refund issued along with additional payment for delay in issuing refund as per S.171 of the Income Tax Ordinance, 2001; that all Regional Commissioners of Income Tax and Commissioners of Income Tax be instructed to ensure compliance by the withholding agents, of the provisions of Chapter X in the Income Tax Ordinance, 2001 particularly sections 160,161,164(1), 165 and 182(2) and that the Assessing Officer who signed the IT-30 be issued a warning (and placed in PER) for not having verified the payment before preparing IT-30 and entering the same in the DCR.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss.164(2) & 170---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Certificate of collection or deduction of tax---Refund---Department refused to allow refund on the basis of photocopies of non-prescribed tax deduction certificate---Validity---Law did not require a taxpayer to furnish a "prescribed tax deduction certificate", the absence of which had been made an excuse for non-issuance of refund by the Regional Commissioner of Income Tax---Responsibility to provide "a certificate setting out the amount of tax collected or deducted and other particular as may be prescribed" was cast on "the very person collecting or deducting tax" under S.164(1) of the Income Tax Ordinance, 2001---If withholding agent failed to provide to the taxpayer the 'prescribed certificate' the taxpayer could annex to thereturn "any certificate" provided to him by the collecting/deducting agency---To call upon taxpayer to furnish a certificate from the withholding agent on the prescribed form was glaring "maladministration" especially when it was mandatory for the Assessing Officer to accept "any certificate" in terms of compelling provisions of S.164(2) of the Income Tax Ordinance, 2001 whereby "such certificate shall be treated as sufficient evidence of the collection or deduction for the purpose of S.168 of the Income Tax Ordinance, 2001.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.59A---Income Tax Ordinance (XLIX of 1979), S. 170---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-Assessment---Refund---If the claim for refund was not properly documented with the Return, a 'short document' notice was necessary.
(d) Income Tax Ordinance (XLIX of 2001)---
----Ss. 164(2) & 170---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Certificate of collection or deduction tax---Refund---Issuance of refund is delayed on the pretext that certificate of deductions filed by the taxpayer is being referred to the 'withholding agent' or to the DPC, for verification---Such practice is contrary to the requirements of law as per provisions of S.164(2) of the Income Tax Ordinance, 2001.
(e) Income Tax Ordinance (XLIX of 2001)---
----Ss.170, 160, 161(1), 165 & 182(2)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Verification of payments---Department's insistence to furnish proof about the deducted amount having been deposited by the withholding agent in the Treasury, betrays shirking of its own responsibility for initiating action under S.160 of the Income Tax Ordinance, 2001 of mandatory deposit by the withholding agent of tax collected or deducted and action under S.161(1) of the Income Tax Ordinance, 2001 for failure of the withholding agent to pay tax collected or deducted (iii) under Ss.165/182(2) of the Income Tax Ordinance, 2001 for mandatory filing of statement by the withholding agent of tax collected or deducted---FailureoftheDepartmentinfulfillingtheresponsibilityentrustedtoit by law could not be an excuse to compel taxpayers to run from pillar to post begging for refund, which wastheirs as a lawfulright.
Jamil Akhtar Baig (FCA) for the Complainant.
S.A. Masood Raza (IAC) and Muzammil Hussain, D-CIT for Respondent.
FINDINGS/DECISION
This complaint alleges delay in issuance of refund of Rs.789,671 for the assessment year 2002-2003 which was allowed at Rs.785,712 on IT-30 and communicated vide Demand Notice, dated 31-1-2004.
2.The relevant facts are that the Complainant AOP is an IATA approved Travel Agent. Return for 2002-2003 filed under SAS declaring Income at Rs.831,252cametobeacceptedbyoperationoflawon30-6-2003 though order under section 59A was conveyed through IT-30 and Demand Notice, dated 31-1-2004. An alleged clerical mistake in the IT-30 showing refund at Rs.785,712 instead of the claimed figure of Rs.789,671 was pointedout by the Complainant on 25-5-2004. The latter figure was worked out on the basis of figures adopted in IT-30 itself. This matter remained unattended. The refund was not issued either despite reminder and furnishing of challans/certificate in respect of deductions under section 50(4). This is the cause of grievance.
3.The Respondents have forwarded para-wise comments by RCIT, Eastern Region, Lahore that refund could not be allowed "at the time of original assessment on the basis of photocopies of non-prescribed tax deduction certificates" and on 11-12-2003 the taxpayer was asked"to furnish original challan/certificate in respect of deductions of tax on payment of Commission". It is admitted by the RCIT that the Complainant moved an applicationfor rectification on 25-5-2004 on which the IAC directed the Assessing Officer to ask for proof of tax deductions for the purpose of verification. According to the RCIT, since so far "no refund order has been passed, therefore, the assessee is not entitled to anycompensation". Maladministration has been denied by the RCIT.
4.Mr. Jamil Akhtar Baig (FCA), the learned counsel for thecomplainant, submitted that whatever proof was available in the shape of original challans/certificates has been tendered and now onus is on the Department to either disprove the evidence or to issue the refund. The learned counsel strongly relied on section 100 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) which clearly provided that when refund becomes due to the Deputy Commissioner must issue the amount to the taxpayer irrespective of the fact whether application has or has not been made in that behalf.
5.S.A. Masood Raza (IAC) was at the ouset reminded that in an earlier hearing of the complaint on 29-6-2004, at the request of the D.R. (Mr. Muzammil Hussain, DCIT), time ofone month was allowed to carry out whatever verification of evidence tendered by the Complainant was necessary and to issue the refund. On this the IAC pleaded that communications were addressed to the persons from whom certificates were filed but no reply has been received and, therefore, refund could not be issued. Mr. Masood Raza emphasized that verification wasnecessary because in another case when reference was made to the withholding agent, they admitted having made the deductions but could not provide copy of challan whereupon the taxpayer/claimant abandoned his claim.This, according to the IAC, confirmed the suspicion of theDepartment that at times false claims are preferred. Hence the need for caution to ascertain the factum of deposit of deducted amount in the Government treasury.
6.The rival arguments have been considered and the record examined. It emerges that the demand for furnishing the deduction certificates was made on 11-12-2003 after the Complainant's application, dated 30-9-2003 for issuance of refund. In case the claim for refund was not properly documented with the Return, a 'short document' notice was necessary but none was served and the Return was accepted under section 59A of the repealed Ordinance.
One noteworthy point of the RCIT's report is that the Taxation Officer requested the Complainant to furnish original challans/ certificates in respect of withheld tax on 11-12-2003. The assessment was finalized on 31-1-2004. The finalization of the assessment on a date subsequent to the one on which the aforesaid request was made implies that the Taxation Officer either got the verification he was seeking or did not consider it ecessary any longer. In either case his passing the order is a clearevidence of the acceptance of the claim of the withheld tax. There is no convincing explanation of questioning the veracity of the deduction certificates when IT-30 showed the refund at Rs.785,712 afteradmitting the 'deductions at source' at Rs.956,104 and 'tax liability' at Rs.166,438. This is a glaring instance of mala fide and "wilful error in the determination of refund" defined as "maladministration" as per Clause (3)(v) of section 2 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance).
7.It was pleaded that 'withholding agents' have not responded to the communications by the Assessing Officer seeking verification of payment. But admittedly neither notices under sections 161/205(3) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) were issued nor any action was contemplated against the withholding agents. It is evident that the Department made no meaningful effort to verify the genuineness of the certificates submitted by the Complainant. Therefore, a simple belated enquiry by the Department cannot be made an excuse to withhold issuance of refund, moreso when the Refund Voucher should have accompanied the IT-30 and the Demand Notice on 31-1-2004.
8.It has been noticed in innumerable complaints that issuance of refund is delayed on the pretext that certificate of deductions filed by the taxpayer is being referred to the 'withholding agent' or tothe DPC, for verification. It seems expedient to categorically affirm that this practice is contrary to the requirements of law. Subsection (2) of section 164of the Income Tax Ordinance, 2001 reads as under:--
"A person required to furnish a return of taxable income or a tax year shall attach to the return any certificate provided to the person under this section in respect of tax collected or deducted in that year and such certificate shall be treated as sufficient evidence of the collection of deduction forthe purposes of section 168". (Emphasis added)
It is beyond doubt that the law does not require a taxpayer to furnish a "prescribed tax deduction certificate", the absence of which has been made an excuse for non-issuance of refund by the RCIT. As specifically laid down in subsection (1) of section 164 the responsibility to provide "a certificate setting out the amount of tax collected or deducted and other particulars as may be prescribed" has been cast on "every person collecting or deducting tax". Therefore, if the withholding agent fails to provide to the taxpayer the 'prescribed certificate' the taxpayer can annex to the return "any certificate" provided to him by the collecting/ deducting agency. On this view, to call upon a taxpayer to furnish a certificate from the withholding agent on the prescribed form (or otherwise) is glaring "maladministration" especially when it ismandatory for the Assessing Officer to accept "any certificate" in terms of the compelling provisions of subsection (2) of section 164 whereby "such certificates shall be treated as sufficient evidence ofthe collection or deduction for the purpose of section 168 ("Credit for tax collected or deducted"). In fact the Department's instance to furnish proof about the deducted amount having been depositedby the withholding agent in the Treasury, betrays shirking of itsown responsibility for initiating action:--
(i)Under section 160 for mandatory deposit by the withholding agent of tax collected or deducted.
(ii)Under section 161(1) for failure of the withholding agent to pay tax collected or deducted.
(iii)Under sections 165/182(2) for mandatory filing of Statement by the withholding agent of tax collected or deducted.
The failure of the Department in fulfilling the responsibility entrusted on it by law cannot be an excuse to compel taxpayers to run from pillar to post begging for refund, which is theirs as a lawful right.
9.The foregoing lapses represent "maladministration" as defined in clause (3) of section 2 of the FTO Ordinance. It is, consequently, recommended that:--
(i)Rectification as sought by the Complainant may be carried out and refund issued alongwith additional payment for delay in issuing refund as per section 171 of the Ordinance.
(ii)All RCITs and CITs instructed to ensure compliance by the withholding agents, of the provisions of Chapter X in the Ordinance particularly sections 160, 161, 164(1), 165 and 182(2).
(iii)The Assessing Officer who signed the IT-30 be issued a warning (and placed on PER) for not having verified the payment before preparing IT-30 andentering the same in the DCR.
10.Compliance report be submitted within 30 days of receipt of this order.
C.M.A./354/FTO(L)Order accordingly.