B.P. INDUSTRIES (PVT.) LTD., KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2008 P T D 1162
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs B.P. INDUSTRIES (PVT.) LTD., KARACHI
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.1505-K of 2003, decided on /01/.
18th
June, 2004. (a) Income Tax Ordinance (XXXI of 1979)---
----Ss.62, 50 & 156---Income Tax Ordinance (XLIX of 2001), S.122---Establishment of Office of Federal tax Ombudsman Ordinance (XXXV of 2000), Ss.9(2) & 2(3)---Deduction of tax at source---Assessment on basis of evidence---Rectification---Amendment of assessment---Jurisdiction---Maladministration---Complainant Company was aggrieved by issuance of notice under section 122 of the Income Tax Ordinance, 2001 by the Additional Commissioner/Taxation Officer Audit Division---Allegation of the Complainant was that the return of year (1998-99) was filed declaring loss; assessment was completed under S.62 of the Income Tax Ordinance, 1979 which was rectified under S.156 of the Ordinance and credit of tax paid under section 50 of the Ordinance was allowed---Feeling dissatisfied complainant filed appeal against the assessment order and Commissioner of Income Tax by his Appellate Order had remanded the case to Assessing Officer with certain directions---Such order was challenged by the complainant by filing second appeal before the Income Tax' Appellate Tribunal who confirmed the orders of commissioner Income Tax---Case was transferred to Large Taxpayers Unit and Additional Commissioner/Taxation Officer issued notice under section 122 of the Income Tax Ordinance, 2001 along with notice under Rule 68 of Income Tax Rules 2002---Complainant alleged that it was maladministration---Departmental Representative had asserted that since Commissioner of Income Tax and Income Tax Appellate Tribunal had confirmed the order of the Assessing Officer, no appeal effect was required to be given under Ss.132 and 135 of the Income Tax Ordinance, 1979---Validity---Complainant's appeals before Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal had partly succeeded and appeal effect had to be given under section 132 and 135 of the Income Tax Ordinance, 1979---Jurisdiction under S.122(1) of the Income Tax Ordinance, 2001 could be invoked to correct or amend assessment orders issued under Ss.120 and 121 of the Income Tax Ordinance, 2001 or issued under Ss.59, 59-A, 62, 63 or 65 of the Income Tax Ordinance, 1979---Since S.132 or 135 was not included in S.122 of the Income Tax Ordinance, 2001, action of Additional Commissioner/Taxation Officer of issuing notice under S.122(1) of Income Tax Ordinance, 2001 was not in accordance with law.
Messrs Hirjina & Co. Pakistan, Karachi v. Commissioner of Sales Tax Central, Karachi quoted.
Commissioner of Agriculture Income Tax East Bengal v. B.W.M. v. Abdur Rehman 1989 PTD 909 rel.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss.122 & 127---Establishment of Office of Federal tax Ombudsman Ordinance (XXXV of 2000), S.9(2)(b)---Jurisdiction---Amendment of Assessment---Reopening of Assessment---Issuance of notice under S.122 was an independent proceedings for reopening assessment---No provision of appeal under S.127 of the Income Tax Ordinance, 2001 against the issuance of notice under S.122 was provided in law---Notice issued was illegal without jurisdiction and not in accordance with law, was void and all proceedings in pursuance of such notice were vitiated---Federal Tax Ombudsman had jurisdiction to investigate whether notice under section 122 was according to law.?
(c) Income Tax Ordinance (XL1X of 2001)---
----S. 122(1)---Establishment of Office of Federal tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Amendment of Assessment---Maladministration---Additional Commissioner/Assessing Officer had proceeded to issue notice under S.122(1) of the Income Tax Ordinance, 2001 and proceeded to re-assess the assessments made/adjudicated under sections 131 and 134 of the Income Tax Ordinance 1979 and required to be acted upon under Ss.132 and 135 of the said Ordinance---Federal Tax Ombudsman found such action to be contrary to law and declared the same as maladministration and recommended the Central Board of Revenue to direct Commissioner of Income Tax to cancel the assessment order made in consequence of illegal notice.?
(d) Income Tax Ordinance (XLIX of 2001)---
----S. 122(1)---Interpretation---Tax statute should be interpreted by the words used in the statute and in the light of what is clearly expressed, as enunciated by the Supreme Court of Pakistan.?
S. Asghar Abbas, Consultant.
Rehan Hasan Naqvi and Miss Lubna Pervez for the Complainant.
Tariq Mehmood Khan, DCIT LTU, Karachi for Respondents.
FINDINGS/DECISION
JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The complainant a private limited company derives income from manufacturing and sale of sweets, toffees and bakery items etc. and is an existing income tax assessee of L.T.U., Karachi on National Tax Number 34-01-0709820. The complainant company is aggrieved by issuance of notice under section 122 of the Income Tax Ordinance 2001 by the Additional Commissioner/Taxation Officer Audit Division L.T.U., Karachi relating to the assessment year 1998-99. The facts of the case are briefly stated as under.
2. The return of income for the assessment year 1998-99 was filed declaring loss of Rs.(5,64,731) in Circle-A-7, Companies-3, Karachi. The assessment was completed under section 62 of the repealed Income Tax Ordinance, 1979 on an income of Rs.19,41,897. The assessment order was however, rectified under section 156 of the repealed Ordinance on application of the complainant dated 13-9-1999 whereby credit of tax paid under section 50 of the aforesaid Ordinance was allowed. The complainant company filed appeal against the assessment order passed under section 62 before the Commissioner of Income Tax (Appeal-III), Karachi who vide Appellate Order dated 30-11-1999 remanded the case to the assessing officer with certain directions on the issue of addition made under the head exchange loss claimed at Rs.(1,24,902). The other additions were however, confirmed. The complainant filed Second Appeal against the appellate order of the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal who vide I.T.A. No.1384/KB of 1999/2000 dated 23-8-2000 confirmed the orders of the Commissioner of Income Tax (Appeals-III), Karachi. The impugned assessment order was twice rectified under section 156 of the repealed Ordinance on 4-10-2000 and 18-5-2002 for allowing credit of tax deducted under section 50 of the repealed Ordinance and carrying forward the loss of previous year.
3. Thereafter the case was transferred to L.T.U., Karachi and the Additional Commissioner/Taxation Officer issued notice under section 122 of the Income Tax Ordinance 2001 along with the notice under rule 68 of Income Tax Rules, 2002 on 1-10-2003 which were served on the counsel of the complainant on 2-10-2003 through courier service. It is further stated that in the aforesaid notice the Additional Commissioner/ Taxation Officer L.T.U. referred to the notification of the Commissioner Audit Division, bearing No.C.I.T.(Audit)/L.T.U. 2002-2003/18792 dated 4-3-2002 whereby the powers/functions under section 122 of the Income Tax Ordinance, 2001 were delegated to the Additional Commissioner. The complainant's A.R. sought clarification from the C.I.T. concerned as to how the aforesaid notification dated 4-3-2002 could be issued when the Income Tax Ordinance, 2001 was made effective from 1-7-2002 and the jurisdiction of the complainant's case was assigned to the Large Taxpayers Unit from the same date i.e. 1-7-2002 vide intimation letter bearing No. L.T.U.-2001-2002/dated 5-6-2002. The apparent discrepancy was explained by the Additional Commissioner, L.T.U. vide his letter dated 16-10-2003 wherein it was stated that the correct date of the notification was 4-3-2003 and not 4-3-2002 as' incorrectly mentioned in the notice referred above.
4. It is further stated that, the original assessment order under section 62 of the Income Tax Ordinance 1979 for the assessment year 1998-99 was subject of appeal before the Commissioner of Income Tax (Appeals) under section 132 of the Income Tax Ordinance 1979 and also before the learned Income Tax Appellate Tribunal under section 135 of the said Ordinance. It is alleged that in section 122(1) of the Income Tax Ordinance 200.1 there was no mention of sections 132, 135 and 156 of the repealed Ordinance, 1979 and therefore issuance of notice under section 122 of the Income Tax Ordinance, 2001 suffered from mal?administration as defined in subsection (3) of section 2 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. This was not only without jurisdiction but was also contrary to law. The complainant has relied upon the decision of this forum on identical issue in Complaints Nos.1073, 1074, 1075-K/2003 dated 17-9-2003. The complainant has prayed for redressal of the aforesaid grievance.
5. The respondents have forwarded the parawise comments prepared by the concerned Commissioner of Income Tax, Audit Division, L.T.U., Karachi. It is pleaded therein that since the Commissioner of Income Tax (Appeals) Zone-III and Income Tax Appellate Tribunal confirmed the order of the assessing officer, no appeal effect was required to be given under sections 132 and 135 of the repealed Income Tax Ordinance 1979. As regards the mistake referred by the complainant's Authorized Representative that order under section 210 was dated 4-3-2002, it has clarified that in fact that order was passed on 4-3-2003 and the aforesaid date was inadvertently mentioned. It is further pleaded that the Additional Commissioner/ Taxation Officer was competent to issue notice under section 122 of the Income Tax Ordinance, 2001 because the Commissioner of Income Tax, L.T.U., Karachi vide his notification dated 4-3-2003 and 3-10-2003 had delegated powers to him under section 210 of the Income Tax Ordinance, 2001 to make amended assessment under section 122 of the said Ordinance. It is further, stated that under the provisions of section 132 or 135 only appeal effect was given and these provisions were not meant for making assessments, hence their mention in section 122 was not warranted. Similarly section 156 of the repealed Income Tax Ordinance, 1979 was rectificatory in nature and this was not a section for passing any assessment order, therefore, its mentions in section 122 was not required. The respondents have also stated that 'the complaint cases referred by the complainant bearing Nos.1073, 1074, 1075-K/2003 dated 17-9-2003 were identical as in the said cases action under section 66A was taken and appeal effects under sections 132 and 135 were given which was not the position in the case of complainant. Moreover in that case the department had made representation before the President of Pakistan under section 32 of the Federal Tax Ombudsman Ordinance, 2000. It is further, stated that in the case under consideration action under section 122(5A) of the Income Tax Ordinance, 2001 had already been taken vide D.C.No.4/182 dated 24-10-2003 and therefore complaint against the show-cause notice under section 122(5A) being infructuous may be dismissed. It is further, pleaded that the expenses related to export sales on prorata basis were wrongly and illegally allowed by the assessing officer against normal law income thereby causing a loss to the revenue. The assessment was thus erroneous in law and prejudicial to the interest of revenue and was liable to be amended under subsection (5A) of section 122 of the Income Tax Ordinance 2001 as per decision of ITAT reported as (1997) 79 Tax 69 (TRIB). Since the order has already been passed on 24-10-2003, the complainant may, avail the "normal judicial channels. It is further, stated that in section 122 only those sections have been mentioned under which an assessment order was to be passed. Since the amendment was made under subsection (5A) of section 122, hence complainant's objection that assessment for the year 1998-99 had been subject of rectification or subject of appeal under section 132 or 135 and therefore it could not be amended was without any basis and was accordingly rejected.
6. The respondents have also raised objection regarding jurisdiction in terms of section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. It is also pointed out that on a representation in a complaint No.845 of 2001 the President of Pakistan was pleased to observe as under:---
"The role of the Federal Tax Ombudsman (P.T.O.) is to identify maladministration as defined in section 2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, and not to provide an appeal on merits against an un-favourable decision made by the Revenue Division or any tax employee. The jurisdiction of the F.T.O. is further restricted in matters relating to assessment of income, interpretation of law, rules and regulations in respect of which legal remedies of appeal, review or revision are available under the relevant tax law...."
In view of the above the Federal Tax Ombudsman could not exercise his jurisdiction over the matters related to interpretation of law.
7. The complainant's A.R. in his rejoinder to the parawise comments dated 11-12-2003 has stated that the respondents have admitted that the order for the assessment year 1998-99 had been subject of appeal under sections 132 and 135 of the repealed Income Tax Ordinance 1979 and therefore it was established that the said order had already been merged with the order of the Commissioner of Income Tax (Appeals) as well as with the order of the learned Income Tax Appellate Tribunal. He has placed reliance in this regard on a decision of the Honourable Supreme Court of Pakistan re: Glaxo Laboratories Limited v. Inspecting, Additional Commissioner of Income Tax and others reported as (1992) 66 Tax 74 (SC Pak).
8. It is pleaded that the order passed under section 62 of the repealed Income Tax Ordinance, 1979 for the assessment year 1998-99 was no longer in existence and therefore the provisions of section 122(5A) of the Income Tax Ordinance, 2001 could not be invoked. The Authorized Representative has argued that reference to section 122 of the Income Tax Ordinance, 2001 would show that sections 66A, 132, 135 and 156 of the repealed Income Tax Ordinance, 1979 were not incorporated in the said section and therefore the proceedings under section 122 could be initiated in cases where orders had been passed under the aforesaid sections of the repealed Income Tax Ordinance, 1979. The complainant's A.R. has also referred to a decision of the Honourable Supreme Court of Pakistan of Messrs Hirjina & Co., (Pakistan) Ltd. v. C.S.T. reported 1971 SCMR 128 wherein it has been held that "while interpreting the taxing statute the Court must look to the words of the statute and interpret it in the light of what is clearly expressed." He further, argued that the action of the learned Additional Commissioner/Taxation Officers was contrary to law which amounted to maladministration as defined under section 2(3) of the F.T.O. Ordinance 2000.
9. The Departmental Representative referred to the decision of the President of Pakistan in complaint No.1377/2001 dated 27-10-2003 in support of the objection raised by the respondents regarding jurisdiction in terms of section 9(2)(b) of the Federal Tax Ombudsman Ordinance 2000. He also argued that the theory of merger was not applicable in this case because the provisions of section 122(5A) of the Income Tax Ordinance 2001 were different from those of section 66A of the repealed Income Tax Ordinance 1979. The decision relied upon by the A.R. of the complainant in case of Messrs Glaxo Laboratories Limited did not apply to the case of the complainant. The Departmental Representative has also pointed out that the complainant had filed Constitutional petition in the Honourable High Court of Sindh bearing Nos.1343 & 1344/2003 for the assessment years 1999-2000 and 2001-2002 on similar issues which were later on withdrawn by the complainant. This showed that the complainant had lost its case in the High Court of Sindh on similar issues. The Departmental Representative has further, argued that the concept of merger under the repealed Ordinance did not extend to the new Income Tax Ordinance, 2001. This was a departure from the repealed Ordinance. Hence the original assessment order treated as issued under section 120 or issued under section 121 of the Income Tax Ordinance, 2001, or issued under sections 59, 59A, 62/63 or 65 of the repealed Income Tax Ordinance, 1979 could be amended under subsection (4) of section 122. He reiterated that sections relating to appeal i.e. 132, 135 or section 66A or section 156 were only mechanical and the assessment order remained an assessment order under section 62. The D.R. further pleaded that the case referred by the complainant's A.R. of Messrs Hirgina & Co. ?Pakistan) Ltd., v. C.S.T. was in favour of the department because the order under section 122(5A) was strictly in accordance with the provision of the said section and the complainant had failed to prove that its case was not erroneous in law and prejudicial to the interest of revenue.
10. The complainant's A.R. strongly controverted the observations of the D.R. that Constitutional petitions Nos. 1343 and 1344 were filed in this case on the same issues by stating that the aforesaid Constitutional petitions for the years 1999-2000 and 2001-2002 were filed on the issue of delegation of powers under section 210 of the Income Tax Ordinance, 2001. The issues involved in this case are absolutely different from the issues raised in the said constitutional petitions. The Authorized Representative of the complainant also referred to another decision of the Honourable Supreme Court of Pakistan re: Commissioner of Agriculture Income Tax East Bengal v. B.W.M. Abdur Rehman reported as 1989 PTD 909 (SC Pak) wherein it was held as under:
"But indeed, in determining whether or not a particular matter comes within a taxing statute, it is only the letter of the para which must be looked to. There is ample authority for the proposition that in a fiscal case, form is of primary importance, the principle being that' if the person sought to be taxed comes within the letter of the law, he must be taxed, however great hardship may thereby be involved but on the other hand if the Crown cannot bring the subject within the letter of the law he is free, however apparent it may be that his case is within what might be called the spirit of the law. As was said by Rowlatt, J, in
In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
He further argued that the plea taken by the Departmental Representative that subsection (5A) had no relation with the main section 122(1) of the Income Tax Ordinance 2001 had no sanctity of law.
11. The arguments of both the sides have been considered and the records of the case produced by the D.R. have also been examined. The observations of the respondents in the parawise comments that since the Commissioner of Income Tax (Appeals) Zone-III and Income Tax Appellate Tribunal confirmed the order of the assessing officer, no appeal effect was required to be given under sections 132 and 135 of the repealed Income Tax Ordinance, 1979 have not been found correct, as already referred above. The C.I.T. (Appeal) in his order dated 30-11-1999 remanded the case to the assessing officer on the issue of claim of exchange loss with the direction to pass a speaking order. The relevant portion of the Appellate Order is reproduced hereunder:---
"Insofar as the claim of exchange loss is concerned, the appellant has referred to a decision of the `Honourable High Court of Sindh (Karachi) viz. Abbol Laboratories Ltd. v. C.I.T. reported as. (1989) 60-Tax-75. However, no copy has been made available for ready reference nor any analogy has been drawn with his this case in hand. The approach of the worthy officer is no less wanting in substance. Under the attending circumstances, the only way out is to remand the issue back to the Department with direction to pass a speaking order."
The aforesaid findings of the C.I.T. (Appeals) were confirmed by the Income Tax Appellate Tribunal vide order dated 23-8-2000. It is therefore, confirmed that the complainant's appeal before the C.I.T. (Appeals) and Income Tax Appellate Tribunal partly succeeded and appeal effect had to be given under sections 132 and 135 of repealed Ordinance in the light of directions issued by the appeal authorities.
12. The contention of the complainant's A.R. that the Commissioner can amend the assessment orders which are specifically provided in subsection (1) of section 122 of the Income Tax Ordinance 2001 is convincing and well founded. The jurisdiction under the aforesaid section can only be invoked to amend the assessment orders treated as issued under section 120 or issued under section 121 of the Income Tax Ordinance, 2001 or issued under sections 59, 59A, 62, 63 or 65 of the E repealed Income Tax Ordinance. Since section 132 or 135 are not included in the aforesaid section i.e. 122, the action of the Additional Commissioner/Taxation Officer of issuing notice under section 122(1) of the Income Tax Ordinance for the assessment year 1998-99 in the case of the complainant was not in accordance with law. It is also settled and resolved issue that tax statute should be interpreted by the words used in the statute and in the light of what is clearly expressed, as enunciated by the Honourable Supreme Court of Pakistan in the case of Messrs Hirjina & Co. Pakistan, Karachi v. Commissioner of Sales Tax Central, Karachi. The relevant extract is reproduced hereunder:---
"We may here observe that interpreting the taxing statute the Courts must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it can not import provisions in the statute so as to support assumed deficiency."
13. The same views have been expressed by the Honourable Supreme Court of Pakistan in the case of Commissioner of Agriculture Income Tax East Bengal v. B.W.M. Abdur Rehman as already referred above. The language of section 122(1) of the Income Tax Ordinance, 20.01 does not suffer from any obscurity or ambiguity. A plain reading of the said section makes it clear that sections 132 and 135 of the repealed Ordinance were not included in the scope of section 122(1). The notice issued by the Additional Commissioner in this case for the assessment year 1998-99 was therefore apparently contrary to the provision of relevant law and this amounted to maladministration.
14. The objection raised by the respondents regarding jurisdiction in terms of section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 is misconceived and misplaced. It is to be pointed out that issuance of notice under section 122 is an independent proceeding for reopening the assessment. There is no provisions of appeal under section 127 of the Income Tax Ordinance 2001 against the issuance of notice under section 122. If the notice is illegal without jurisdiction and not in accordance with law it is void and all proceedings in pursuance of such notice are vitiated. The Federal Tax Ombudsman has the jurisdiction to investigate whether notice under section 122 is according to law. It is also pointed out that in complaint No.474-K/2002 on representation of the department under section 32 of the Federal Tax Ombudsman Ordinance 2000, the President of Pakistan, in his order dated 11-11-2003 has confirmed the "Jurisdiction" of the Federal Tax Ombudsman to decide what the language of a section connotes.
15. In view of the above stated facts it is established that the notice issued by the Additional Commissioner under section 122 of the Income Tax Ordinance, 2001 for the assessment year 1998-99 was contrary to law and therefore, the order passed in pursuance thereof on 24-10-2003 has no legal sanctity. This is a case of maladministration and therefore it is recommended as under:
(i) The C.B.R. to direct the Commissioner of Income Tax to cancel the order dated 24-10-2003 for the assessment year 1998-99 in the case of the complainant under section 122A of the Income Tax Ordinance, 2001 within 30 days of the receipt of this order.
(ii) The compliance be reported within a week thereafter.
M.I./342/F.T. O.????????????????????????????????????????????????????????????????????????????????? Order accordingly.