AAMIR HASSAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1513 (2005)

Income Tax Ordinance (XLIX of 2001)---

----S. 236---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Telephone users---Purchase of tole-connection activation `chip' for Rs.2,999 which, as printed on its folder, included Rs.2000 as Tax---Company issued a certificate only iu respect of tax deduction/collection on sale of "calling cards" but not for the activation of the 'connection'-Central Board of Revenue had not prescribed any procedure for accounting of deductions on activation of cellular phones despite mentioned by the Finance Minister in his Budget speech for 2004-2005 about reduction in tax for this service from Rs.2,000 to Rs.1,000 and complainant could not claim adjustment/ refund of the prepaid tax---Complaint against ---Validity---Regional Commissioner of Income Tax as also the Central Board of Revenue were supposed to explain the procedure, if any, through which collection was being made and through which credit/refund/adjustment could be claimed---Since this was a matter of public importance and enormous revenue was likely to be lost to Government in case no procedure was prescribed for securing the deposits in the Government account of the collection made by the withholding agent---Federal Tax Ombudsman recommended that Central Board of Revenue to make necessary amendment in S.236 of UN Income Tax Ordinance, 2001 by enlarging its scope which presently is restricted to `prepaid cards' only, so that amount of Tax collected on sales of chips (activation charges) is also deposited in the Government account and make proper announcement for the guidance of the withholding agent as also for Public at large.

Complainant present in person.

Mumtaz Ahmad, (A-CIT) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN).---This complaint alleges "maladministration" represented by absence of procedure for the claim of refund in respect of withholding through collection on Cell Phones.

2. Briefly the facts are that the complainant purchased a tele-?connection activation `chip' known as JAZZ for Rs.2,999 which, as printed on its folder, included Rs.2,000 as Tax (brought on record). When asked, the Company issued a certificate only in respect of Tax deduction/collection under section 236 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) on Sale of "calling cards" but not for the activation of the `connection'. It is alleged that the C.B.R. has not prescribed any procedure for accounting of deductions on activation of cellular phones despite mentioned by the Finance Minister in his Budget speech for 2004-2005 about reduction in the Tax for this service from Rs.2,000 to Rs.1,000. Consequently, the complainant cannot claim adjustment/refund of the prepaid Tax.

3. Respondents have forwarded para-wise comments by RCIT, Central Region, Multan which deny "maladministration" pointing out: "the amount deducted at the time of activation of a new mobile connection apparently has no relevance with Income tax Law". and no cellular phone company is being assessed and paying tax in Central Region, Multan. It is suggested by the RCIT that clarification sought by the complainant may kindly be issued at Board's level.

4. The complainant who personally appeared, pleaded that as per Finance Minister's speech the phone companies were authorized to collect Tax along with activation charges. Thus entitlement to claim credit/refund accrued to all persons purchasing Phones. It was clearly the responsibility of the Government and the C.B.R. to specify the Section under which collection was to 'be made and to prescribe the procedure for the same. The failure is clearly. "maladministration" which is causing huge loss of revenue to the Government because phone companies deduct tax but issue no certificate in respect of `activation charges' for the 'chip' thus depriving the Government of enormous amount of revenue and the taxpayer also suffer as they have no certificate to claim refund/adjustment.

5. Mr. Mumtaz Ahmad (A-CIT) representing the Respondents adopted the same line of arguments as conveyed through para-wise comments by the R-CIT.

6. Arguments of the parties have been heard and record examined. Although refund was not claimed, nor could be claimed under the circumstances mentioned by the complainant, the matter has been highlighted and has come to the notice of the Department. Therefore, the argument of the RCIT that clarification be sought from the Board are not understandable. In fact the para-wise comments have come to this Office through the C.B.R. and it was the RCIT as also the C.B.R. to explain the procedure, if any, through which collection is being made and through which credit/refund/adjustment can be claimed. Since this is a matter of public importance and enormous Revenue is likely to be lost to Government in case no procedure is prescribed for securing the deposits in the . Government account of the collection made by the withholding agent, it is Recommended:--?????

(i) C.B.R. make necessary amendment in section 236 by enlarging its scope which presently is restricted to `prepaid cards' only so that amount of Tax collected on sale of chips (activation charges) is also deposited in the Government account.

(ii) Make proper announcement for the guidance of the withholding agent as also of Public at large.

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

C.M.A./413/FTO??????????????????????????????????????????????????????????????????????????????? Order accordingly.