Messrs AL-MAKKAH PRESS PVT. LTD., LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1580 (2004)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 170(4), 171, 161 & 205---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---C.B.R. Circular No.5 of 2003, dated 30-6-2003---Refund---Additional payment for delayed refund---Withholding of tax at source resulting in excess payment for which application was attached with the Return---Although refund was to be issued within 45 days of the receipt of application, even then reminders sent remained un-responded---Department contended that verification of tax payment was obligatory on the Taxation Officer and mere fact that Return qualifies under Universal Self-Assessment Scheme, did not bar the Department from invoking the provisions of Ss.161/205 of the Income Tax Ordinance, 2001 for determination of default of tax withholdings---Show-cause notice to determine the exact quantum of default of withholdings under Ss. 161/205 of the Income Tax Ordinance, 2001 had been issued---Alternate remedy was also available inasmuch as appeal in term of S. 170(5) of the Income Tax Ordinance, 2001 could be filed for failure of the Commissioner to pass an order under S.170(4) of the Income Tax Ordinance, 2001---Validity---Department was sleeping over the matter and the application attached with the Return and two reminders were ignored till such time as comments were called for through communication on receipt of complaint by the Federal Tax Ombudsman---Department seemed to have awakened to the reality of the situation and hurriedly issued letters to DPC and show-cause notice under Ss.161/205 of the Income Tax Ordinance, 2001 to the complainant on the same date---Maladministration was evident inasmuch as no steps to fulfil the legal obligation cast by S.120(4) of the Income Tax Ordinance, 2001 was taken for over 11 months since the filing of the Return and its acceptance on the same date, as per the provisions of S.120(1) of the Income Tax Ordinance, 2001---To turn back to say that verification of challan was necessary and that the exact quantum of default under Ss.161/205 of the Income Tax Ordinance, 2001 was yet to be determined, was clearly and afterthought because the law had already provided a period of 45 days for such exercise---Default of non-collection of tax on sale of machinery was on the part of seller of the machinery, for which failure, he, being the "withholdings agent" should be penalized but the Department leaving him scot-free, claimed to have issued a show-cause notice to the complainant, who had voluntarily surrendered the amount out of the total refund due to them, by claiming only the net refund---Incompetence, inefficiency and ineptitude in the discharge of duties and responsibilities being manifest, same fell under the definition of "maladministration"---Commissioner failed to carry out his mandatory duty for issuing the refund of overpaid tax, the failure was cognizable as maladministration---Federal Tax Ombudsman recommended that whatever verification is necessary, be carried out within 10 days of the receipt of this order and refund due to the complainants under S.170(3) in respect of Tax year, 2003 along with Additional Payment under S.171 of the Income. Tax Ordinance, 2001 be issued counting three months from the date on which the assessment became final by operation of law and that the Taxation Officer having failed to take cognizance of failure to collect tax on sale of machinery, and the Assessing Officer who wrongly reported facts to the Regional Commissioner of Income Tax about show-cause notice having been issued to the complainant be subjected to enquiry under the relevant Rules for misreporting because nothing had been served on the complainant as there was no affidavit nor there was any proof on record.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss. 170 & 120---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---As soon as an assessment attained finality under S.120 of the Income Tax Ordinance, 2001, the Commissioner was competent to demand only the "tax due on the taxable income" and `shall' refund the tax overpaid to the taxpayer---Application under Subsection (1) of 5.170 of the Income Tax Ordinance, 2001 would be necessary only when a refund is determined on an assessment under Total Audit or when giving effect to appellate order etc. because subsection (3) of S.170 of the Income Tax Ordinance, 2001 is independent of the other subsections of S.170 of the Income Tax Ordinance, 2001 and the use of world "shall" made it mandatory for the Commissioner to determine the tax overpaid; to apply the excess in reduction of tax liabilities or other taxes due, and to issue reminder to the taxpayer---No reference in subsection (3) to subsection (1) existed whereas subsection (2) and subsection (4) of S.170 of the Income Tax Ordinance, 2001 were inter-linked with subsection (1) of section 170 of the Income Tax Ordinance, 2001. (2004) 90 Tax 351 FTO rel.

(c) Income Tax Ordinance (XLIX of 2001)---

---Ss. 170(5)(b) & 127(1)---Establishment of Office of Federal Tax Ombudsman Ordinance(XXXV of 2000), S.2(3)---Refund---Filing of application---Combined reading of S.170(5)(b) of the Income Tax Ordinance, 2001 with S.127(1) of the Income Tax Ordinance, 2001 presents a contradiction because whereas to invoke S. 127 of the Income Tax Ordinance, 2001 existence of an order was necessary to express `dissatisfaction' with an act of commission, S.170(b) of the Income Tax Ordinance, 2001 dealt with an act of omission in not passing an order---To achieve harmonious interpretation and also to avoid difficulty to the subject, it could be safely inferred that refund automatically emerging under S.170(3) of the Income Tax Ordinance, 2001 was to be issued mandatorily requiring no filing of application---Application under S.170(1) of the Income Tax Ordinance, 2001 would only be necessary in such : 2ges Return undergoes a process of assessment/amendment/rectification/appeal/revision resulting in refund for which application under S.170(1) of the Income Tax Ordinance, 2001 would be necessary allowing a period of 45 days to the Department to act.

Abdul Waheed Ch. for the Complainant.

Ch. Jafar Nawaz DCIT for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN).---This complaint agitates `against non-issuance of refund for the Tax year, 2003 aggregating at Rs.4,797,500 despite reminders, dated 27-9-2004 and 6-10-2004.

2. The relevant facts are that the complainant-Company runs a Printing Press. Return for the Tax year, 2003 was filed on 31-12-2003 declaring Total Income at Rs.141,639. Tax payments by way of withholdings at source came to Rs.6,393,955 whereas the tax liability aggregated at Rs.1,414,454 resulting in excess payment at R'.4,979,500 for which application was attached with the Return. Although as per subsection (4) of section 170 refund was to be issued within 45 days of the receipt of application even reminders sent on 27-9-2004 and 6-10-2004 remained unresponded. This is the cause grievances and the Complainant further claims additional payment for delayed refund as per the provisions of section 171 of the Ordinance.??

3. Respondents have forwarded para-wise comments by RCIT, Eastern Region, Lahore which deny "maladministration" stating that as per C.B.R. Circular 5 of 2003 verification of tax payment is obligatory on the Taxation Officer and "mere fact that Return qualifies under Universal Self-Assessment Scheme, does not bar the Department from invoking the provisions of sections 161/205 of the Ordinance for determination of default of tax withholding". It is further conveyed that show-cause notice to determine the exact quantum of default of withholdings under sections 161/205 has been issued on 3-12-2004. The RCIT has finally pointed out that an alternate remedy is available inasmuch as appeal in term of subsection (5) of section 170 can be filed for failure of the Commissioner to pass an order under subsection (4) of section 170.

4. Mr. Abdul Waheed Ch. (Advocate) appearing for the complainant argued that although subsection (5) of section 170 provides: "a person aggrieved by failure of the Commissioner to pass order under subsection (4) within the time specified under that subsection may prefer an appeal", but appeal under section 127 can be filed to CIT(A) against an "order passed by the Commissioner or a Taxation Officer". Therefore, in the absence of an order no appeal can possibly be filed because the required "dissatisfaction" can be expressed when findings/conclusion are communicated to a person. The learned counsel further pointed out that the application for refund having been moved along with the Return on 31-12-2003, the mandatory period for action by the Department expired on 14-2-2004. Consequently, the complainant had no alternative but to approach the FTO.

5. As respects the adjustment under sections 161/205, the AR explained, the complainant had purchased some machinery on which the seller failed to deduct tax under section 153 of the Ordinance. Therefore, "as gesture of cooperation and to fully qualify under USAS", they had voluntarily calculated not only the amount of withholdings Tax (at Rs.662,750) on the purchase worth Rs.30,255,000 but also additional tax under section 205 at Rs.237,500. These aggregating at Rs.900,250 were adjusted against the refund which was due to the complainant, thus leaving a net refund of Rs.4,979,500. It was emphatically asserted that no show cause notice under sections 161/205 to determine the quantum of withholdings, was even served on the complainant. An affidavit in this respect was brought on record.

5A. Ch. Jafar Nawaz (D-CIT) appearing for the Revenue on his turn insisted that after the amendment in the Ordinance vide Finance Act, 2003, the failure of the Commissioner to pass an order under sub-section (4) of section 170 has become appealable thus ousting the jurisdiction of the FTO as per Clause (a) of subsection (2) of section 9 of the FTO Ordinance. It was admitted that the application for refund was moved along with the Return which stood accepted by operation of law as' per section 120 of the Ordinance yet, according to the DR, it was essential to determine the extent of liability calculated by the complainant under sections 161/205 and also to ascertain whether other tax withholdings were duly deposited in the Government treasury for which verification through Challan was necessary for which DPCs Lahore and Karachi were approached vide letter, dated 3-12-2004.

6. A consideration of rival arguments by the two Representatives reveals that the Department was sleeping over the matter and, the application attached with the Return, as also the two reminders, dated 27-9-2004 and 6-10-2004, were ignored till such time as comments were called for through communication, dated 19-11-2004 on receipt of complaint by the FTO. The Department seems to have awaken to the reality of the situation and hurriedly issued letters to (i) DPC on B 3-12-2004, and (ii) show-cause notice under sections 161/205 to the complainant on the same date. Therefore, "maladministration" is evident inasmuch as no steps to fulfil the legal obligation cast by subsection (4) of section 120, was taken for over 11 months since the filing of the Return and its acceptance on the same date, as per the provisions of section 120(1). To turn back now to say that verification of Challan is necessary and that the exact quantum of default under sections 161/205 is yet to be determined, is clearly an after-thought because the law has already provided a period of 45 days for such exercise, which expired on 14-2-2004 counting from the date of filing of Return on 31-12-2003. The DR failed to dislodge the vehement denial, supported by an Affidavit, about the receipt of any such communication. It is significant that the default of non-collection of tax on sale of machinery was on the part of Seller of the machinery, for which failure, he being the "withholdings agent" should be penalized but the Department leaving him scot-free, claims to have issued a show-cause notice to the complainant, who have voluntarily surrendered the amount out of the total refund due to them, by claiming only the net refund. The incompetence, inefficiency and ineptitude in the discharge of duties and responsibilities being manifest, falls under the definition of "maladministration" as per Clause (3)(ii) of section 2 of the FTO Ordinance.

7. It is worthwhile to recall that as soon as an assessment attains finality under section 120, the Commissioner is competent to demand only the "tax due on the taxable income" and `shall' refund the tax overpaid to the taxpayer. An application under subsection (1) would be necessary only when a refund is determined on an assessment under Total Audit or when giving effect to appellate order (etc.). This is because subsection (3) of section 170 is independent of the other subsections of section 170 and by the use of word "shall" makes it mandatory for the Commissioner to (i) determine the tax overpaid, apply the excess in reduction of tax liabilities or other taxes due, and to issue reminder to the taxpayer. There is no reference in subsection (3) to subsection (1) whereas subsection (2) and subsection (4) are inter-linked with subsection (1). This aspect has already been discussed in detail in C. No.148-L/04, dated 16-8-2004 reported as (2004) 90 Tax 351 (FTO).

8. Coming to the issue concerning the competence of the complaint for admission in view of Clause (b) of subsection (5) of section 170, a combined reading of this section with subsection (1) of section 127 presents a contradiction because whereas to invoke section 127, existence of an order is necessary to express `dissatisfaction' with an act of commission, section 170(b) deals with an act of omission in not passing an order. So as to achieve a harmonious interpretation with a view to carry out the intent of the Legislature and also to avoid difficulty to the subject, it can be safely inferred that whereas refund automatically emerging under subsection (3) of section 170 is to be issued mandatorily requiring no filing of application, and the failure by the Commissioner to issue the same would amount to "maladministration". On the other hand, an application under section 170(1) would only be necessary in such cases whether Return undergoes a process of assessment/amendment/rectification/appeal/revision resulting in refund for which application under subsection (1) would be necessary. allowing a period of 45 days for the Department to act. Since in the case-in-hand, the Commissioner failed to carry out his mandatory duty for issuing the refund of overpaid tax, the failure is cognizable as "maladministration" as per Clause (3) of section 2 of the FTO Ordinance. It is, therefore, Recommended that:

(i) Whatever verification is necessary, be carried out within 10 days of the receipt of this order and refund due to the complainant under section 170(3) in respect of Tax year, 2003 along with Additional Payment under section 171 of the Ordinance be issued counting 3 months from the date on which the assessment became final by operation of law.

(ii) The Taxation Officer having failed to take cognizance of failure to collect tax on sale of machinery, and the Assessing Officer who wrongly reported facts to the RCIT about show-cause notice having been issued to the complainant vide No.183, dated 3-12-2004, be subjected to enquiry under the relevant Rules for misreporting because nothing has been served on the Complainant as per Affidavit nor there is any proof on record.

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

C.M.A./401/FTO(L)??????????????????????????????????????????????????????????????????????????? Order accordingly.