Dr. KHALID KAMAL, JACK AND JILL NURSERY SCHOOL LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1044 (2007)

2007 P T D 1044

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Dr. KHALID KAMAL, JACK AND JILL NURSERY SCHOOL LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complainant No. 570-L of 2004, decided 14th September, 2004.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 59(1) & 62---C.B.R. Circular No.4 of 2001, dated 18-6-2001---C.B.R. Circular letter C. No.7(7) S. Asst/2001, dated 14-5-2002---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-assessment---Salary income represented over 50% of the total income---Selection of case for total audit was claimed as illegal and against the facts of the case on the ground that case fell under `salary class'---Selection of case was confirmed by the First Appellate Authority in view of Central Board of Revenue Circular letter C. No.7(7) S. Asst/2001, dated 14-5-2002 that only those cases were immune from audit where income from 'salary alone' was over 50% of the total income and not those who, in addition to Salary, enjoyed income from some 'other head'---Validity---When reading para. 9 of the Self-Assessment Scheme dealing with Selection of cases for total audit, it was to be kept in mind that the selection was to be made "from among the Returns filed under Self-Assessment Scheme (Excluding Salary and only Property income cases)"---Since the Note to para. 1 of the Scheme was restricted only to the extent of eligibility for acceptance under Self-Assessment Scheme and had not been specifically extended to para. 9, it was difficult to ignore the relevance of the explanation by the Central Board of Revenue---Central Board of Revenue's Circular letter C. No.7(7) S. Asst/2001, dated 14-5-2002 unequivocally declared that the concession/immunity in the 'Note' appended to para. 1 of the Self-Assessment Scheme "did not extend immunity from audit to those who declared 'other income' alongside salary income"---To suppose that the concession in the 'Note' appended to para. 1 of the Self-Assessment Scheme, extends to para. 9 of the Scheme as well, was grave misreading of the Scheme---First Appellate Authority did not appear to have committed any act of "maladministration" by relying on Central Board of Revenue Circular and the Self-Assessment Scheme for the assessment year 2001-2002---Case was closed by the Federal Tax Ombudsman.

(1976) 33 Tax 1; 2004 PTD 200 and 2004 PTD 1470 ref.

2002 PTD 1895 rel.

Sirajuddin Khalid for the Complainant.

Ms. Raana Mirza CIT (Appeals) for Respondent.

FINDINGS/DECISION

This complaint alleges errors of law amounting to `maladministration' committed by the CIT(A) in the adjudication of appeal against assessment for the year, 2001-2002.

2. The relevant facts are that the complainant-Individual exists on NTN 07-20-0441374. In addition to Salary as a doctor in Fatima Jinnah Medical College, Lahore, she derives income from Consultation. Return for the assessment year 2001-2002 was filed declaring income at Rs.190,000 comprising of Salary at Rs.125,1.50 and Rs.64,850 as medical consultant. Since Salary represented over 50% of the Total Income the case was claimed to be falling under `salary class'. When the Return was selected for Total Audit through computer draw on 21-2-2002, and assessment proceedings initiated on 5-3-2002, objections were raised on 11-4-2002, 8-5-2002 and 24-9-2002 characterizing the selection as "illegal and against the facts of the case". The assessment proceedings then resulted in an ex parte assessment under section 63 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) on 27-10-2002 as under:--

On contest the learned Commissioner (Appeals) by her decision, dated 9-6-2004 confirmed the selection for Audit through computer ballot but remanded the case to the Assessing Officer to complete assessment after providing reasonable opportunity of hearing because service of statutory notices were not made in the proper manner. This decision, the complainant characterizes as infested with "maladministration" as defined under section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance).

3. Respondents have forwarded para-wise comments by Commis sioner of Income Tax and Wealth Tax (Appeals), Zone-I, Lahore which deny "maladministration". It is contended that the case law relied upon by the complainant's counsel was distinguishable as immunity from selection for Total Audit did not extend to those cases who declared "other income" along with Salary income. The para-wise comments conclude by submitting that remedy of filing of appeal is available with the Complainant, therefore, the complaint is not maintainable under section 9(2) of the FTO Ordinance.

4. Mr. Sirajuddin Khalid (Adv.) appearing for the complainant pleaded that as per para. 9 of the C.B.R. Circular No.4 of 2001, dated 18-6-2001 `salary cases' are immune from selection for Total audit. Therefore, the feeding of complainant's return for computer draw was itself an act of "maladministration": Decision/Findings by the FTO reported in various journals were referred to build up the argument that even when an order has been passed by CIT(A), the FTO can still exercise jurisdiction in appropriate cases of "maladministration". Reliance by the learned counsel was placed on LHC decision reported as (1976) 33 Tax 1 disproving lump sum additions. Drawing support from FTO Findings/Decision reported as 2004 PTD 200 and Appellate Tribunal decision reported as 2004 PTD (Trib.) 1470, the learned counsel canvassed that where Income from Salary is more than 50% of the Total Income, the Return is to be treated as a `salary case' hence ignoring binding judgment was "maladministration" by the CIT(A).

5. Ms. Raana Mirza, CIT(A) appearing for the Revenue submitted that examining the issue of service of notice she adjudged that these were not served according to law and rules, hence there was no justification for an ex parte assessment for which the case was remanded so that opportunity of hearing is extended to the complainant. She placed reliance on Circular No.7(7)S. Asst/2001, dated 14-5-2002 (copy on record) in support of her view that only those cases were immune from Audit where income from `salary alone' was over 50% of the Total income and not those who, in addition to Salary, enjoyed income from some `other head' like Medical Consultation in the present case. She attempted to distinguish the FTO Findings/Decision by contending that it related to the year 2002-2003 and not to 2001-2002. For that year, according to the CIT(A), no such clarification was available as Circular, dated 14-5-2002 (ibid). The learned Counsel for the complainant interjected to submit that C.B.R. Circular are not binding on CIT(A) moreso when SAS is part of law by virtue of section 59 of the repealed Ordinance. The learned counsel in the end placed reliance on Appellate Tribunal decision 2004 PTD (Trib.) 1470.

6. The arguments of the contending parties have been heard and record examined. A careful reading of the Scheme for Self-Assessment for the year, 2001-2002 issued vide C.B.R: Circular No.4 of 2001, dated 18-6-2001 reveals that:--

It is evident that para. 1 dealing with the "Scope of the Scheme" details five conditions for Returns which qualify for acceptance under section 59. Among these Serial (e) deals with `persons not being companies' from whom "tax payable on income declared" is expected to be higher by 20% (or mere) compared to the past. However, through a "Note", those enjoying income from Salary and those whose Total Income consists of more than 50% of Salary have been exempted from the requirement declaring such Income as required the tax payable higher by 20% (or more) compared to the past. The net result is that taxpayers declaring Salary income, or those whose share of salary income is more than 50% of the Total Income, qualify for acceptance of Returns provided other conditions as respects deposit of tax under section 54 or filing of Return within the prescribed period are fulfilled.

7. It is significant that this `Note' is part of para. 1 concerning Scope of the Scheme and has not been repeated in para. 9 dealing with Selection of case for Audit. The concession in the `Note' is, therefore, restricted to para. 1 for becoming eligible for acceptance under SAS even if the tax payable is not higher compared to the past. Similar separate `notes' appended to para. 2(A), para. 2(D), and para 6; all have restricted application to the requirement of each para.

8. When reading para. 9 dealing with Selection of Cases for Total Audit, it is to be kept in mind that the selection is to be made "from among the Returns filed under SAS (excluding Salary and only Property income cases)". Since the `Note' to para.1 of the Scheme is restricted only to the extent of eligibility for acceptance under SAS and has not been specifically extended to para. 9, it is difficult to ignore the relevance of the explanation by the C.B.R. circulated among the Regional Commissioner on 14-5-2002 (ibid). This, Circular unequivocally declares that the concession/immunity in the `Note' appended to para. 1 of the SAS "does not extend immunity from audit to those who declared `other income' alongside Salary income". Therefore, to suppose that the concession in the `Note' appended to para. 1 of the SAS, extends to para. 9 of the Scheme as well, is grave misreading of the Scheme. As respects the validity of the Circular, dated 14-5-2002 reliance with advantage be placed on Lahore High Court decision reported as 2002 PTD 1895 where the learned Judges, inter alia, observed:

"C.B.R. which is a apex body in revenue collection and under the Income Tax Ordinance is authorized to frame Self-Assessment Scheme notified for every assessment year. Every instruction issued by the Board in furtherance of that Scheme is, therefore, to be read as part of the Scheme."

7. On the above visualization the learned Commissioner (Appeals) does not appear to have committed any act of "maladministration" when relying on C.B.R. Circular and the Scheme of SAS for the assessment year 2001-2002. The complaint is consequently FILED and the case is CLOSED.

C.M.A./299/FTOOrder accordingly.