MUHAMMAD TARIQ VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2453 (2006)

Income Tax Ordinance (XLI of 2001)---

----Ss. 153 & 170---Refunds, claim for---Complaints against denial of refunds---Complainants had alleged that they had filed applications for refund on prescribed format with Taxation Officer, but no action was taken by him within prescribed period of 45 days and said act of Taxation Officer fell within definition of maladministration and insubordination---Complainants had requested that investigation might be conducted in the matter and Taxation Officer be directed to issue refund vouchers---In parawise comments it was submitted by the Department that complainants who derived income from labour contract and filed return claiming refunds, did not file applications for refund and that in absence of any application by complainants, statutory period of 45 days for passing refund orders, was not attracted and that complaints being devoid of any merit, could be rejected---Complainants had firmly stated that refund applications had been duly filed on the prescribed format which were received by Taxation Officer---Authorities having avoided to address the queries raised in the case, it was inferred that complainants did file refund applications which were not disposed of by Taxation Officer---Inaction of Taxation Officer in that regard amounted to maladministration---Ombudsman recommended that concerned Taxation Officer be advised to determine and issue refund amount due to the complainants as per law and that compliance report be submitted within 30 days from the date of receipt of the findings.

Muhammad Arif Malhi for the Complainants.

M. Ghiasuddin, (DCIT) for Respondents.

DECISION/FINDING

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.---Complaints Numbers 94, 95 and 96-L/06 have been filed by Mr. Muhammad Tariq, Proprietor Tariq and Company, Jhang Road, Sheikhupura and Complaints Numbers 97 and 98-L/06 by Mr. Umar Khan Proprietor Messrs Mahmood and Company. As common questions of law and fact are involved in all the 5 complaints so these are being disposed of by this single consolidated finding/decision.

2. The Complainant of C. Nos. 94, 95 and 96-L/06 filed returns for tax years 2003, 2004 and 2005 claiming refunds as under:

Likewise complainant in complaints Nos. 97 and 98 claimed refund of Rs.3,38,555 in tax year, 2003 and Rs.4,16,620 in tax year 2004. They filed applications for refund on the prescribed format with the Taxation Officer, but no action was taken by him within the prescribed period of 45 days. So inaction of the Taxation Officer falls within the definition of maladministration and insubordination. They have requested that investigation may be conducted in the matter and the Taxation Officer be directed to issue the refund vouchers.

3. In the parawise comments submitted by RCIT, Eastern Region, Lahore it is stated that the complainants derive income from labour contract and filed returns claiming refunds but did not file applications for refund. As per Circular No.11 of 1991, dated 1-7-1991 of the C.B.R., the supplies of labour falls under the `presumptive tax regime hence question of issuance of refund does not arise. However an amendment to the extent of providing of services has been made in section 153(i)(b) and (c) of the Income Tax Ordinance, 2001 effective from tax year, 2006. As there were no refund applications, therefore, the statutory period of 45 days for passing the refund orders is not attracted. The complaints being devoid of any merit may be rejected.

4. In the hearing of the case on 15-3-2006 Mr. M. Arif Malhi, Advocate represented the complainant. Mr. M. Ghiasuddin (DCIT) appeared for the respondent. The AR submitted that he wanted adjournment of hearing of the complaints for filing rejoinder on the parawise comments. He also produced receipts of filing of the refund applications which the respondent had denied. The DR was given copies of the receipts in order to ascertain the veracity of their filing. He was also asked to have the views of the respondent on decision of the ITAT in I.T.A. No.2668 reported as (2003) 88 Tax 12 (Trib.) in which it was held that the services rendered whether through contract or otherwise were not covered by the `presumptive tax regime' of the repealed Income Tax Ordinance, 1979. In order to furnish comments of the respondent on these points the case was adjourned to 27-3-2006. On this date the AR of the complainant filed rejoinder to the parawise comments in which it was submitted that the respondents had misstated the nature of the business of the complainants. The correct nature of business was to provide services to the principal by supplying the skilled labour. He argued that the refund applications had been duly filed on the prescribed format which were received by the Taxation Office. He also relied on a number of authorities of the ITAT and Circular No.1 of 2005, dated July 5, 2005 which clarified the amendment in section 153(i)(b) and (c) inserting the words "or providing of". The effect of this amendment was to make withholding tax of all types adjustable for all the years mentioned in the complaints and not w.e.f. 2006 as alleged by the respondent. The DR relied on C.B.R.'s Circular No.11 of 1991 stating that all the gross receipts of the taxpayer being contractual in nature fell within the `presumptive tax regime'. The tax deducted was final discharge of tax liability of the taxpayer. He cited a number of decisions of the ITAT in support of the respondent's contention. Reference was also made to a decision of President of Pakistan in Complaint No.150-L/04 in which it was held that where a person's income from business is taxable under the `presumptive tax regime' the FTO has no jurisdiction to make recommendations. He however failed to admit or deny the filing of the refund applications by the complainants and to comment upon decisions of the ITAT relied upon by the complainants.

5. It has been observed that the DRs are not fully briefed in the cases and they invariably fail to respond to the queries put to them. So proper assistance is not being rendered to the FTO in decision of the complaints. It has also been observed that in a number of cases the respondent denies the receipt of refund applications, but the complainants produce their valid receipts. This situation arises because the refund applications are not diarized and put before the concerned Taxation Officer.

6. The core issue determinable in the complaints is whether services rendered by the complainants fall within the `presumptive tax regime' and are to be considered as final discharge of tax liability. This issue has been dealt with at length by the ITAT in ITA No.2668-LB in which it has been held that services rendered whether through contract or otherwise are not covered by the `presumptive tax regime'. In the circumstances of the case the decision of the President of Pakistan referred to by the DR is not applicable. So the objection to the jurisdiction of the FTO to make recommendations in the case is over-ruled.

It appears that the respondent has avoided replies to the queries raised in the case. So it is inferred that the complainants did file the refund applications which were not disposed of by the Taxation Officer. Therefore, the inaction of the Taxation Officer in this regard amounts to maladministration.

7. In view of the finding in the preceding para; it is recommended that: --

(i) the concerned Taxation Officer be advised to determine and E issue refund of due amount to the complainants as per law.

(ii) compliance report be submitted within 30 days from the date of receipt of the finding.

H.B.T./126/FTOOrder accordingly.