MCC RESOURCES DEVELOPMENT COMPANY (PVT.) LTD., KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2079 (2004)

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

----Second Sched.---Income Tax Ordinance (XXXI of 1979), S.13---Constitution of Pakistan (1973), Arts. 246 & 247---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Exemption---Project of the complainant/assessee was located at Taftan Tehsil of Chagai District, in the Province of Balochistan which is "Tribal Area" and production/commercial activity carried on in that project area was not liable to the provisions of the Income Tax Ordinance, 2001 while the Government of Pakistan is deducting tax on the export proceeds as presumptive tax under the Income Tax Ordinance, 2001---Deduction was illegal in view of provisions of Articles 246 and 247 of the Constitution---Complainant/assessee sought confirmation of the correctness of the views from Member Income Tax, Central Board of Revenue and also prayed that the Central Board of Revenue be directed not to deduct any taxes from proceeds of export of sales of goods and to refund the amount of tax already deducted at source but no reply was given in spite of several reminders---Validity---Complainant/assessee company was owned by the Government of People's Republic of China--involvement and investment was involved from China which was engaged in an important project beneficial for the country's economy---Non-response and delay became a serious maladministration committed none else but a Member of C.B.R.---Negligent and non-serious approach of the Member was exhibited by the fact that the reply was asked to be filed by the Regional Commissioner of Income Tax who did not have any paper and information about the case---All allegations were related to the Member who was duty bound to reply but it was avoided---Such negligent and arbitrary attitude and behaviour shake the confidence of the investors particularly the foreign investors, which brings bad name to the country---Maladministration had been established---Federal Tax Ombudsman recommended that the Central Board of Revenue to decide the issue raised by the complainant in his letter dated 24th September 2002 within 30 days of the receipt of this decision/recommendation and that the decision be placed before the Chairman Central Board of Revenue for information and necessary action.

Syed Ahmed, Chartered Accountant Present.

None present for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The complainant has pleaded that Sandak Copper Gold (Project) area is located at Taftan Tehsil of the Chagai Distt, in the Province of Balochistan. At the time the Constitution of Pakistan 1973came into force the areas now comprising the Tarfan Tehsil, were part of the Dalbandin Tehsil. It is further stated that Article 246 of the Constitution provided that "Tribal Areas" meant the areas in Pakistan which immediately before the commencing day (of the Constitution), were Tribal Areas and included (i) Tribal Areas of Balochistan (ii) Dalbandin Tehsil of Chagai District. The Project continued to tall within the definition of Tribal Areas of Balochistan. It is pleaded that on no point of time the Governor of Balochistan has extended the application of either the Income Tax Ordinance, 2001 and Rules framed thereunder or any former enactment on the subject to any part of the Dalbadin Tehsil including the Project site.

2. It is further stated that by an agreement executed in Beijing on 30th November, 2001 between the China Metallurgical Construction (Group) Corporation (MCC) which is fully owned by the Government of the People's Republic of China and Sandak Metals Ltd., a company wholly owned by the Government of Pakistan (GOP) through the administrative Ministry of Petroleum &Resources, MCC was allowed to re-start and operate the Project on lease, for a period of ten (10) years from a date to be mutually agreed between the two parties, .either by MCC or through a wholly owned subsidiary. Metallurgical Construction (Group) Corporation (MCC) arranged for incorporation of the MCC Resources Development Co. Ltd (MRDL) in Pakistan as its wholly owned subsidiary on 27th March, 2002 under the Companies Ordinance, 1984 with its Registered Office at Quetta. However, as all the senior Management staff were to be stationed at the Project site to supervise and monitor its activities, the Registered Office of MRDL was shifted Prom Quetta to the Project site office on 16th September, 2002 and the prescribed Form 21 was filed with the Dy. Registrar of Companies at Quetta on 9th September, 2002.

3. In the above stated circumstances neither MRDL nor any other production/commercial activity carried on in the project area was liable to the provisions of the Income Tax Ordinance, 2001 and the predecessor enactments and Rules framed there under.

4. MRDL sought confirmation of the correctness of the above views from the Member/(Income Tax), C.B.R. vide its letter, of 24th September, 2002 followed by several reminders. It is alleged that the C.B.R. has not responded so far. It is further stated that the project started commercial production from 1st September, 2003 and GOP is deducting 1.25% of the export proceeds as presumptive tax raider the Income Tax Ordinance, 2001. It is alleged that the deduction was illegal in view of the provisions of Articles 246 and 247 of the Constitution. The complainant has prayed that the CBR be directed not to deduct any taxes from proceeds of export sales of goods produced by MRDL at the Project site and to refund the amount of tax already deducted at source.

5. The respondents have forwarded the reply prepared by the Regional Commissioner of Income Tax, Southern Region, Karachi. It is stated therein that the Commissioner concerned had reported that M/s MCC Resources Development Company (Pvt.) Ltd. never filed return of income in Sukkur Zone. No record, papers or documents pertaining to the complainant were available anywhere in the Region. It is concluded that in such circumstances it was not possible to submit any report or parawise comments.

6. Syed Ahmed, Chartered Accountant has filed a letter of authority from Mr. Zou Jianhui CEO & President of MCC Resources Development Company (Pvt.) Limited dated 9th May 2004. He has requested to substitute his name as the complainant instead of Syed Ahmed, Chartered Accountant who has been authorized to represent the company before the Federal Tax Ombudsman, Government of Pakistan. The request is misplaced. The complainant MCC Resources Development: Company (Pvt.) Limited (MRDL) as it is the aggrieved party. Mr. Syed Ahmed is merely its representative. He cannot be a complainant. Correct name of the complainant has. been mentioned in the title.

7. Mr. Syed Ahmed has pleaded that the observations of the learned Regional Commissioner of Income Tax, Southern Region, Karachi that no record, papers or documents were ever, filed by the complainant in his Region are not well founded. He stated that this issue had been taken up by the concerned ACIT, Quetta and the Inspecting Additional Commissioner of Income Tax Quetta Range on the directions of the higher authorities of the department. He has produced copies of letter bearing No.784 dated 21-11-2002 from the Inspecting Additional Commissioner of Income Tax, Quetta, Range Quetta and No.249 dated 19-12-2002 from Taxation Officer Circle-I, Quetta. The Authorized Representative also stated that on receipt of parawise comments dated 14-4-2004 from Regional Commissioner of Income Tax, Southern Region, Karachi, he provided copies of all the relevant documents including lease contract, incorporation certificate and correspondence with the DCIT, Additional Commissioner of Income Tax Quetta and the Regional Commissioner of Income' Tax, Southern Region, Karachi vide his letter dated 21-6-2004. The copies of all the said documents were also endorsed to the member (legal CBR Islamabad). The documents were dispatched through Courier Service and photocopy of the: receipt issued by the TCS has been furnished in this regard.

8. The copies of documents furnished by the complainant's A.R. show that a letter dated. 24th September, 2002 was addressed to Mr. Vakil Ahmed Khan, Member Income Tax, C.B.R. Islamabad, seeking clarification and confirmation from him regarding exemption from payment of Income Tax to persons resident in District Chagai located in the Tribal Area of Balochistan and also from filing any Returns under the Income Tax Laws and Rules framed there-under. Thereafter the member C.B.R. wits reminded vide A.R's letters dated 21st October, 2002 and 21st June, 2004. It is established from records that the Member Income Tax, C.B.R. did not respond to the aforesaid letters of the complainant's Authorised Representative, which is in violation. of the instructions of CBR and the decision of the Federal Tax Ombudsman. The matter was kept pending without any response from September 2002. It was the duty of the Member to hive acknowledged, replied and apprised the complainant of the final decision/opinion on the issues raised in the letter dated 24.9.2002 within a reasonable time. In spite of reminders there was complete silence. The complainant is a subsidiary company of China Metallurgical Construction (Group) Corporation (MCC) which is wholly owned by the Government of People's Republic of Chula and Sandak Metals Limited, a company wholly owned by Government of Pakistan. There is involvement and investment from China which is engaged in an important project beneficial for country's economy. In this background the non-response and delay becomes a serious maladministration committed none else but a Member. The negligent and non-serious approach of the Member is exhibited by the fact that the reply was asked to be filed by the Regional Commissioner of Income Tax who did not have any paper and information about the case. In fact all allegations related to the Member who was duty bound to reply but it was avoided. Such negligent and arbitrary attitude and behaviour shake the confidence of the investors particularly the foreign investors, which brings bad name to our country.

9. As maladministration has been established it is recommended that---

(i) The C.B.R. to decide the issue raised by the complainant in his letter dated 24th September 2002 within 30 days of the receipt of this decision/recommendation.

(ii) The decision be placed before the Chairman C.B.R. for information and necessary action.

(iii) Compliance be reported within one .week of the compliance period.

C.M.A./314/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.