Messrs LAHORE CONTINENTAL HOTEL,LAHORE CANTT. VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1486 (2005)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 140 & 146A(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(vi)---Recovery of tax from persons holding money on behalf of taxpayers---Initiation, validity, etc., of recovery proceedings---Recovery in violation of agreement---It was decided with the Commissioner of Income Tax and the Regional Commissioner of Income Tax to keep the attachment of the account intact but not to recover the tax till the decision of appeal---Appeal was heard of which the decision was yet to be announced---Recovery of the whole amount due was made on the next day of the date of hearing of appeal---Validity---In a meeting in the Regional Commissioner of Income Tax office it was decided that the Bank may retain "a minimum balance of Rs.500,000 which shall remain payable to the Tax Department" of which an intimation was sent to the Bank-Expression "shall remain payable" clearly supported the complainant's contention---Fairness and justice demanded that before any request for its appropriation to Government account was made, a prior Notice should have been sent to the complainant---Such having not been done and recovery made on the very next day of hearing of complainant's appeal by the Commissioner of Income Tax, amounted to arbitrary conduct falling within the scope of Cl. 3(vi) of S.2 of the Federal Tax Ombudsman as `maladministration'---It should be a matter of concern for the high bosses of the Central Board of Revenue that a Commissioner (Appeal) was not pronouncing decision on a matter heard almost 10 months back---Such indifferent attitude was in sharp contrast to the proclamations in the Press/Media about efforts aimed at liquidating arrears of appeals for which more temporary posts of Commissioners (Appeals) were said to have been created---Federal Tax Ombudsman recommended that the Commissioner of Income Tax (Appeals) who heard the complainant's appeal for the.year, 2000-2001 on 28-6-2004 be advised to release the order forthwith and that the reason for keeping the decision pending for over 10 months may be ascertained from the concerned Commissioner of Income Tax (Appeals) for action under the E & D Rules.

Azhar Ehsan Sheikh for Complainant.

Abdul Rehman Warriach DCIT for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.---This complaint alleges maladministration by way of recovery of Tax in respect of assessment years 2000-2001, 2001-2002 and 2002-2003 by resort to section 140 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance).

2. The facts (in brief) are that the Complainant AOP runs a Hotel and exist at NTN 06-06-2007828. Books of account are maintained. On the basis of Returns filed on due dates, a consolidated assessment for the three years was framed on 30-6-2003 determining Income as under:--

The Complainant preferred appeal and as required by law deposited 15% of the' aggregate demand at Rs.90,000. During the pendency of the appeal the case was transferred to MTU who issued a- Notice under section 140 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) on 25-6-2004 requiring the Bank of the Complainant to recover a sum of Rs.494.750 from the account of the Complainant and to deposit it in the Government account. Complainant then approached the Commissioner to hold the recovery process in abeyance till decision by the CIT(A). A meeting in this connection is stated to have been held in the office of the R-CIT which was attended by the AR of the Complainant, the CIT (MTU) and the R-CIT himself where it was decided to keep the attachment of the account in tact but not to recover the Tax till the decision of the appeal. The appeal was then heard A by the CIT (A) on 28-6-2004 of which the' decision is yet to be announced. However, the recovery of the whole amount due was made on 29-6-2004. This is the cause of grievance.

3. The Respondent has forwarded parawise comments by the R-CIT, Eastern Region, Lahore conveying that the action by CIT (MTU) "is absolutely according to law to recover the outstanding Taxes". It is submitted by the R-CIT that an exact amount of Tax due at Rs.494,365 was withdrawn through Pay Order and no breach of contract, abuse of power or violation of Board's instructions were committed.

4. Mr. Azhar Ehsan Sheikh, (Advocate), the learned counsel of the complainant submitted that an agreement to withhold recovery action till the decision by the CIT(A) was in fact made, is evident from the letter; dated 25-6-2004 addressed by the Taxation Officer, Enforcement-IV Unit, which unequivocally conveyed:---

"as agreed by the Taxpayer with the Department the attachment of the third account titled (Mian Pervaiz-ur-Rehman, Account No. 7501-080673-090, Member Lahore Continental Hotel, Lahore) shall remain in force till further orders" and further "this amount shall remain payable to the Tax Department as and when requested."

Therefore, soon after the delivery of this letter, dated 25-6-2004, recovery of Tax on 29-6-2004 was a clear violation of the agreement with the R-CIT/CIT showing `maladministration', because the reputation of the complainant was damaged and his dignity compromised for which suitable action be taken against `Tax functionaries', and the complainant be compensated to redress the distress caused due to irreparable injury to the reputation, dignity and goodwill.

5. Mr. Abdul Rehman Warriach (D-CIT) representing the Respondent pleaded that the agreement not to recover the Tax was operative till the closing of the financial year or the receipt of the decision by the CIT(A) whichever was earlier. Since no decision even after hearing of the case by the CIT(A), was received by the end of financial year, recovery action proceeded. The DR was emphatic that the C.B.R.'s Circular, dated 10-5-2004 to which reference is made by the complainant prohibits coercive action for recovery of demand which is `not clear or is partly clear'. In the complainant's case, according to the DR, no coercive action such as arrest was taken. Moreover, the demand was `clear' inasmuch as the assessment had been framed after due opportunity as required by law. in the opinion of the DR, the pendency of appeal did not make the demand "not clear" moreso when the assessments were in consonance with the Turnover agreed before the Survey Team.

6. The argument by the contesting parties have been heard and record examined. The legal position as canvassed by the DR is in favour of the Department inasmuch as subsection (1) of section 146A specifically lays down that "any recovery proceedings for the recovery of tax under this part may be initiated, at any time". Since Part IV of Chapter X includes section 137 to section 146A, no legal infraction in the realm of `maladministration' as defined in Clause (3) of section 2 of the FTO Ordinance is discernible. However, there is evidence to support the plea of the learned counsel for the complainant that in a meeting in the RCIT office it was decided that the Bank may retain "a minimum balance of Rs.500,000 which shall remain payable to the Tax Department" of which an intimation was sent to the Bank on 25-6-2004 (obtained for record). The expression "shall remain payable" clearly supports the complainant's contention. Therefore, fairness and justice demanded that before any request for its appropriation to Government account was made, a prior Notice should have been sent to the Complainant. This having not been done and recovery made on the very next day of hearing of complainant's appeal by the CIT(A) (28-6-2004 vis-a-vis 29-6-2004), amounts to arbitrary conduct falling within the scope of Clause 3(vi) of section 2 of the FTO Ordinance as 'mal administration'.

7. It should be a matter of concern for the high bosses of the C.B.R. that a Commissioner (Appeal) is not pronouncing decision on a matter heard almost 10 months past. This indifference is in sharp contrast to the proclamations in the Press/Media about efforts aimed at liquidating arrear of appeals for which more temporary posts of Commissioners (Appeals) are said to have been created. In the final analysis, it is Recommended that:

(i) The CIT(A) who heard the complainant's appeal for the year, 2000-2001 on 28-6-2004 be advised to release the order forthwith.

(ii) The reason for keeping the decision pending for over 10 months may be ascertained from the concerned CIT(A) for action under the E&D Rules.

8. Compliance report be submitted within 30 days of the receipt of this Order.

C.M.A./414/FTOOrder accordingly.