MASOOD & COMPANY, MIANWALI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1150 (2004)

Income Tax Ordinance (XXXI of 1979)---

----Ss.96, 102 & 66A---Income Tax Ordinance (XLIX of 2001), S.221---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(a) & (b)---Refund---Self Assessment---Show-cause notice---Maladministration---Complainant alleged non-payment of refund for years 1994-95, 1995-96, 1996-97 and issuance of notice on baseless grounds just to harass the complainant---Department, in reply had asserted that tax was not paid in the name of the firm it was paid in the name of partners---Refund was wrongly created and show cause under S.221 of the Income Tax Ordinance, 2001 was issued for rectification---Validity---Assessments for the years 1994-95 and 1995-96 were made under Ss. 62 and 59(1) on 30-6-1997 and 23-6-1996 respectively---Show-cause notice dated 28-5-2003 being beyond 5 years time limit was barred by time and therefore of no legal effect---Return for assessment year 1996-97 was filed under Self-Assessment Scheme before the fixed time, was accepted on 30-6-1999 and full credit for tax paid/deducted was given---Passing of order under section 59A dated 30-6-1999 and alleged rectification order under section 156 of the Income Tax Ordinance, 1979 were illegal---Return filed in time was deemed to be accepted on 30-6-1997 by operation of law under section 59(4) of Income Tax Ordinance, 1979---Notice issued after 30-6-2002 thus became time barred---Federal Tax Ombudsman recommended that show cause notice under section 221 of Income Tax Ordinance, 2001 for the assessment years 1994-95 to 1996-97 be withdrawn and refunds due to the complainant for the said years be issued along with compensation under the law.

Muhammad Anwar Consultant, (Dealing Officer) Naik Muhammad Malik for the Complainant.

Masood Aslam Taxation Officer, Sargodha for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The main points in the complaint are as follows:

(i) The complainant, a registered firm, derived income as octroi contractor. The assessment for the years 1994-95 to 1996-97 resulted in refunds as detailed below:

(ii) The complainant made several verbal requests for issuance of refund, and filed written requests on 20-3-2000, 12-11-2001 and 14-7-2003 but no refund has so far been issued.

(iii) Instead the Taxation Officer issued notice under section 221 of the Income Tax Ordinance, 2001 for rectification of the assessments which notice is illegal and barred by time. The issue raised in this notice has already been settled in the assessment year 1993-94 wherein the proceedings initiated on the basis of notice under section 66A of the repealed Ordinance, 1979 were dropped after the complainant's explanation and the refund due was issued.

(iv) Non-payment of refund and issuance of notice on baseless grounds was illegal, unjust and was misuse of power by the respondent just to harass the complainant and to deprive it of its legal right.

It is prayed that the respondent be ordered to issue refund along with compensation @ 15% for the period of delay and the notice issued under section 221 of the Ordinance 2001 be declared as illegal.

2. In reply the respondent has stated as follows:---

(i) Examination of record of tax payments/proofs thereof revealed that none of the tax payments, has been made on behalf of the firm M/s. Masood & Company, and instead tax had been deposited to the credit of various persons/partners in their own capacity against lease contracts awarded to them, hence the firm does not seem to be entitled to the refund claimed.

(ii) Certain tax payment has been made in the name of one Mr. Abdul Majeed who is not even a partner of the firm. Hence the order resulting in creation of refund also appears to be of no legal effect.

(iii) The Honourable F.T.O. in a similar situation in his findings dated 26-3-2003 in Complaint No. 695 of 2002 decided the matter in favour of the Department with the following observations:

" .Unless such a documentary evidence is on record, amounts received from the members of complainant in their individual names or in the name of another smaller A.O.P. of such individual members and tax withheld thereof cannot be charged and credited respectively in the hands of complainant A.O.P.".

(iv) As the refund was wrongly created, a show-cause notice under section 221 of the Income -Tax Ordinance, 2001 for assessment years 1994-95 to 1996-97 was issued to the complainant for 'rectification of mistake in order to safeguard the interest of revenue.

(v) The contention of the complainant that the show-cause notice was illegal or barred by time, is based on misconception because section 221(1A) empowers the Commissioner to amend any order passed under the repealed Ordinance by the D.C.I.T.

(vi) The tax payments can be claimed for credit by the persons to whom these relate.

(vii) No maladministration is involved in the case.

3. The representatives of both sides attended and reiterated their contentions, which were considered, and relevant record was examined. It is Seen that the assessment for the years 1994-95 and 1995-96 were made under sections 62 and 59(1) on 30-6-1997 and 23-6-1996 respectively. The intended action under section 221 for rectification of the assessments vide show-cause notice dated 28-5-2003 is thus obviously barred by time because according to subsection (4) of section 221, an order cannot be rectified under that section after five years from the date of the said order. The assessment orders for the years 1994-95 and 1995-96 could, therefore, be rectified by 30-6-2002 and 23-6-2001 respectively at the latest. The show-cause notice dated 28-5-2003 being time barred is, therefore, of no legal effect.

4. As regards the assessment year 1996-97 it is seen from the record that return for this year was filed in time under the Self-Assessment Scheme. An order, under section 59A of the repealed Ordinance was later passed on 30-6-1999 accepting the declared income but without giving full credit for tax paid/deducted. This assessment was subsequently rectified under section 156 on 14-6-2002 to give credit of tax payments resulting in a refund of Rs.216,317. The contention of the department was that the intended action for rectification relating to this year was not barred by time in view of the date of the order under section 59A viz 30-6-1999 which was rectified on 14-6-2002. The argument of the complainant's learned Advocate, however, was that return for the assessment year 1996-97 was filed under S.A.S. and since no assessment order was passed till 30-6-1997 it was deemed to have been passed on 30-6-1997 by operation of law as laid down in section 59(4) of the repealed Ordinance. It was argued that the order passed under section 59A on 30-6-1999 was, therefore, illegal and rectification of an illegal order would in itself be an illegal action. The contention of the learned Advocate has been found to be quite valid as it is actually the assessment deemed to have been made under section 59(4) on 30-6-1997 which holds the field and this assessment could be rectified within 5 years i.e. by 30-6-2002. The intended action for rectification in respect of the assessment year 1996-97 has also thus become time barred.

5. In the right of the above, the action of the assessing officer in issuing a time barred notice dated 28-5-2003 under section 221 of the Income Tax Ordinance, 2001 is contrary to law and is perverse, arbitrary and unjust and thus falls within the definition of maladministration as contained in section 2(3)(i)(a) and (b) of the Ordinance No.XXXV of 2000.

6. It is therefore recommended that:---

(i) The show-cause notice under section 221 dated 28-5-2003 for the assessment years 1994-95 to 1996-97 be withdrawn and refunds due to the complainant for the said years be issued along with compensation under the law.

(ii) Compliance be reported within 30 days.

M.I./255/F.T.O.Order accordingly.