Messrs MUSSAIREE HOTEL (PVT.) LTD., MURREE VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2007 P T D 963
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs MUSSAIREE HOTEL (PVT.) LTD., MURREE
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 975 of 2003, decided on 14/06/2004.
Income Tax Ordinance (XXXI of 1979)---
----Ss.52, 62, 86 & 156---Establishment of Office of Federal Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(a) & (b)---Additional tax---Limitation---Maladministration---Assessment for assessment year 1996-97 was made under section 62 of the Income Tax Ordinance, 1979 on 30-6-1998---Notice under sections 52/86 was issued by assessing office on 26-11-1998 alleging default for not deducting tax under section 50(4)---Such notice was responded on 5-12-1998---Second notice issued under sections 52/86 on the same issue and consequent assessment order passed under section 52/86 of the Income Tax Ordinance, 1979, amounted to harassment of the complainant as it was beyond the time allowed under section 156 of the Income Tax Ordinance, 1979---Action taken after the lapse of 4 years was totally invalid---Case involved definite maladministration---Federal Tax Ombudsman therefore recommended that order under sections 52/86 be cancelled by Commissioner of Income Tax under section 122-A of the Income Tax Ordinance, 2001.
CIT v. Agha's Super Market, Karachi 2003 PTD 1571 ref.
Aurangzeb, ITP for the Complainant.
Khalid Javed, DCIT for Respondent.
FINDINGS/DECISION
The complainant is a private limited company deriving income from running a hotel. The main points as per complaint are as follows:
(i) For the assessment year 1996-1997, assessment was made under section 62 of the repealed Income Tax Ordinance, 1979 on 30-6-1998 at an income of Rs.321,910 against declared loss of Rs.412,751.
(ii) The Assessing Officer issued notice under sections 52/86 on 26-11-1998 showing his intention to treat the complainant as an assessee in default for not deducting tax under section 50(4) from payments made on account of purchases of building material and furniture and fixtures.
(iii) The complainant responded to the above notice on 5-12-1998 stating that the company had not received supplies from any supplier but had made purchases of goods at the counter against cash payment on the spot. It was also stated that for the construction of the hotel building payments were made to various parties including payments made on account of labour charges which were not subject to deduction under section 50(4).
Further, the payments made to individual parties did not exceed Rs.25,000.
(iv) After a lapse of five years the complainant again received a notice, dated 1-2-2003 under sections 52/86 on the same issue. This notice was also responded to on 26-2-2003. The complainant however received an assessment order under sections 52/86, dated 26-2-2003 raising a demand of Rs.489,454 against the complainant for default of section 50(4). This order is contested on the following grounds:---
(a) That proceedings in the case were initiated by the then Taxation Officer through notice under sections 52/86 dated 26.11-1998, which was complied with by the complainant on 5-12-1998. No further correspondence or requirement was made for 5 years which indicated that the officer had dropped the proceedings after being satisfied with the complainant's explanation. Now issuance of notice on the same issue is against the basic principle of natural justice.
(b) That, action of the Taxation Officer is hit by limitation in view of the case-law reported as (2003) 87 Tax 89 (Trib.), wherein it was held that the Assessing Officer has to proceed under section 52 before the end of the financial year following the assessment year.
(c) That, the complainant made purchases on cash payment and the provisions of section 50(4) do not apply in this case. The explanation added in section 50(4) vide Finance Act, 1998 to clarify that supply of goods included both cash and credit purchases was not retrospectively applicable as held by the Supreme Court in the case of Messrs Ellahi Cotton Mills.
3. In reply the respondent has raised the preliminary objection that since remedy of appeal was available to the complainant, the case tails outside the jurisdiction of the Federal Tax Ombudsman. It is further stated that:
(i) Show-cause notice under sections 52/86 was issued on 26-11-1998 followed by another notice on 1-2-2003. The order was passed on 26-2-2003 after giving proper opportunity of hearing to the complainant. The order passed under sections 52/86 is a speaking order.
(ii) The plea of the complainant that the proceedings initiated under section 52. were dropped, is not correct. The contention of the complainant with regard to limitation of section 52 has been rebutted in the light of judgment of the Supreme Court of India. Further, the statute does not provide any limitation either.
(iii) A company is not absolved from its liability to withhold tax under section 50(4) on the purchase of capital assets.
4. Representatives of the two sides attended. They were heard and relevant record was examined. The basic issue stressed by the learned counsel of the complainant is that the order of the Assessing Officer for levying addition tax under sections 52/86 of the repealed Income Tax Ordinance, 1979 was time barred. The AR of the complainant referred to the judgment of the Karachi High Court in CIT v. Agha's Super Market, Karachi reported as 2003 PTD 1571. In that case action under sections 52/86 of the repealed Income Tax Ordinance was taken after six years from the end of the financial year when' the default in deduction of tax under section 50(4) was made. The Hon'ble Court agreed with the contention of the taxpayer that although no period of limitation was provided for passing of an order under sections 52/86 but in all such cases the principle of applicability of reasonable period of limitation would be attracted. The Hon'ble Court also referred to the Singh High Court's judgment in CIT v. Kamran Model Factory reported as 2002 PTD 14 in which it was held that the time limit available under section 156 of the repealed Ordinance would be applicable in such cases. The reference application filed by department was thus dismissed.
5. The contentions of the AR of the complainant regarding limitation have been considered and are found to find support from the Karachi High Court judgment referred to by him. In fact in the complainant's case clear maladministration is involved because the first show-cause notice under section 52 was issued on 26-11-1998 to which a reply was given by the complainant on 5-12-1998. No further action was taken by the Assessing Officer and it was only after the lapse of more than 4 years that another show-cause notice under section 52, dated 1-2-2003 was again issued to the complainant and an order under sections 52/56 was passed on 26-1-2003. The complainant is justified in the contention that after a timely reply was made to first show-cause notice the matter was presumed to have been settled in its favour and the issue of a subsequent notice after more than 4 years amounted to harassment of the complainant. As held by the Karachi High Court action under sections 52/56 could at best have been taken within the time allowed under section 156 of the repealed Income Tax Ordinance i.e. 4 years from the end of the financial year in which default under section 50(4), if any, took place. The actual action taken by the Assessing Officer was much after the lapse of said 4 years and was totally invalid. The case thus involves definite malaministration as defined in section 2(3)(i) (a) and (b) of the Ordinance No. XXXV of 2000.
6. In the light of the above it is recommended that:
(i) The order under sections 52/86 of the repealed Ordinance be cancelled by the Commissioner of Income Tax under section 122A of the Income Tax Ordinance, 2001.
(ii) Compliance be reported within 30 days.
M.I./283/FTOOrder accordingly.