SHAHID CABLES INDUSTRY through Chaudhry Shahid Latif VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1210 (2005)

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

----Ss.170, 171, 177, 122(5A) & 239(8)---Income Tax Ordinance (XXXI of 1979), Ss.143-B, 80C & Second Sched., Part-IV, Cl.(9)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Tax year 2003-2004---Permission for issuance of refund was not granted by the Commissioner of Income Tax on the ground that taxpayer had filed statement under S.143 of the Income Tax Ordinance, 1979 for assessment year 1996-97 to 2002-2003 and by filing such statement from 1996-97 to 2002-2003, he was legally obliged to file statement under S.143-B of the Income Tax Ordinance, 1979 in respect of supplies for the tax year 2003-2004 also in view of Cl. (9) of Part-IV of the Second Schedule of the Income Tax Ordinance, 1979 which had been saved through S.239(8) of the Income Tax Ordinance, 1979---Assessee contended that he had rightly filed regular returns of total income for both the years and had not filed declaration in writing to opt for presumptive tax regime---Validity---Mere filing of statement under S.143B of the Income Tax Ordinance, 1979 did not lead to the conclusion that the assessee had filed a declaration in writing which was a condition precedent to opt for presumptive tax regime---Taxation Officer instead of the Commissioner had rejected the refund application after a period of 18 months---Such order was coram non judice and nullity in the eye of law---Taxation Officer ignored the judgment of High Court reported as 2004 PTD 1994---Order was liable to be set aside and due refund was to be issued---Federal Tax Ombudsman recommended that the order of Taxation Officer, should be set aside by the Commissioner of Income Tax and the due refund be issued to the complainant/legal representatives of the deceased without any further delay.

2004 PTD 1994 rel.

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

----Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Refund application was filed by one of the legal heirs of the deceased assessee---Taxation Officer rejected the application for refund on the ground that invalid refund application for the tax year 2003-2004 was filed without obtaining power of attorney of all the legal heirs of the deceased assessee---Validity---Assertion that since the complainant did not file the refund application with power of attorney of all the legal heirs of the deceased therefore the application of refund was invalid, shows ignorance of law of the officer---If his position is accepted then it would mean that if one of the legal heirs did not give power of attorney to the applicant then no refund would ever be issued---Under the law any of the legal representatives could apply for the refund of his share and the other legal heirs would be impleaded as parties and the refund could be issued apportioning their shares of inheritance/entitlement---Rejection of application on this score was not based on any legal provision---Apparently Taxation Officer was oblivious of the definition of "legal representative" in S.87(4) of the Income Tax Ordinance, 2001.

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

----S. 170(4)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Limitation---Under S.170(4) of the Income Tax Ordinance, 2001, the Commissioner within 45 days of the receipt of refund application had to serve on the person applying for refund an order in writing of the decision after providing an opportunity of being heard.

Muhammad Sirjees Nagi, Advisor, (Dealing Officer)

Muhammad Shahid Baig for the Complainant.

Naureen Yaqoob (DCIT) and Muzammil Hussain (IAC) for Respondents.

DECISION/FINDING

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN),---The complainant filed Income Tax return for tax year 2003 declaring total income of Rs.3,85,500. It was selected for audit under section 177 of the Income Tax Ordinance, 2001. The return was revised to pay 20% more tax as compared to tax already paid as per original return. So the total income was declared at Rs.4,21,280. Consequently audit proceedings were closed by the C.I.T. under intimation to the complainant.

2. The return for tax year 2004 was filed on 30-9-2004 declaring total income at Rs.3,93,520. The complainant was entitled to refund of Rs.3,20,946. As per section 120 of the Income Tax Ordinance, 2001, the assessment for tax years 2003 and 2004 should be considered to have been made by the C.I.T. on 4-11-2004 and 30-9-2004. According to the revised return for the tax year 2003, a refund of Rs.5,23,260 is due to the complainant so a total amount of Rs.8,44,206 is due for tax years 2003 and 2004.

3. On 6-12-2004 the complainant filed refund application to the Taxation Officer, Circle 7, Zone C, Lahore. Since no action was taken, he submitted applications to Regional Commissioner of Income tax, Eastern Region, Lahore and C.I.T., Zone C, Lahore as well. The inordinate delay and deliberate non action by the respondents reflects the mala fides to deprive the complainant from his legal right of refund. The act of deliberate withholding and non-issuance of refund is perverse, arbitrary and tantamounts to `maladministration'. The complainant has requested that the respondents be directed to issue refund of Rs.8,44,206 along with compensation as per section 171 of the Income Tax Ordinance, 2001.

4. In the parawise comments submitted by Regional Commissioner of Income Tax, Eastern Region, Lahore it is submitted that the taxpayer claimed refund of Rs.8,44,206 for tax years 2003 and 2004. As per record the refund comes to Rs.7,63,361 which was determined by the concerned Taxation Officer vide D.C.R. entries No.C/100 and 101, dated 13-5-2005. It is also admitted that the return for tax year 2003 selected for audit was revised by the taxpayer on 4-11-2004. Therefore it would be deemed to have been accepted under section 122 of the Income Tax Ordinance, 2001. On receipt of the refund application the respondents issued letters to the concerned persons for verification of deductions claimed at Rs.5,72,580 for the tax year 2003 and Rs.3,63,650 for tax year 2004, out of which verifications of Rs.4,97,000 and Rs.3,71,000 were respectively made. The Taxation Officer sought approval of the C.I.T., Zone C, Lahore for issuance of refund of Rs.7,75,966 but permission was not granted and it was pointed out to the I.A.C. that certain legal infirmities appeared in the case which warranted action under section 122(5A) of the Income Tax Ordinance, 2001 for the tax years 2003 and 2004. The taxpayer had also filed statement under section 143B of the repealed Ordinance for the assessment year 1996-97. So by filing statement from 1996-97 to 2002-03 he was legally obliged to file statement under section 143-B in respect of supplies for the tax years 2003 and 2004 also, in view of clause 9 of part IV of the second schedule of the repealed Ordinance which has been saved through section 239(8) of the Income Tax Ordinance, 2001. The record reveals that the taxpayer had exercised his option for Presumptive Tax Regime since assessment year 1999-2000 and the last statement filed under section 143-B is for the assessment year 2002-03 in which the supplies were made to Messrs Bahawalpur Engineering Ltd., 123A, Industrial Triangle Kahuta Road, Islamabad. Therefore the tax deducted thereon constituted as full and final discharge of tax liability. The taxpayer did not claim any deduction on electricity consumption and telephone bills for tax year 2003. However, tax on this account was claimed for tax year 2004. So the receipts of Rs.1,59,00,000 and Rs.99,00,000 are contractual in nature which fall within the presumptive tax regime and liable to be taxed under section 169 of the Income Tax Ordinance, 2001.

5. For the tax years 2003 and 2004 the taxpayer filed normal law returns claiming refund which are ultra violation of law. The taxpayer's once exercise of the option far presumptive tax regime cannot change hisposition and same is irrevocable for three years as provided in the law. Itis pointed out that the return for tax year 2003 was filed by Mr. Hashmat Ali who died on 6-6-2004. The return for 2004 was filed by one Mr. Shahid Igbal while the complaint has been filed by Mr. Shahid Latif for issuance of refund. Therefore, the locus standi of Mr. Shahid Latif is to be determined by the respondents. The refund will be settled according to the legal position of the case. The complaint being without jurisdiction and devoid of merit may be dismissed.

6. In the hearing of case on 15-8-2005 the complainant was represented by Mr. Muhammad Shahid Baig, Advocate whereas the respondents were represented by Mr. Muzammil Hussain (I.A.C.) who reiterated the arguments contained in the parawise comments: In the discussion it transpired that during pendency of the complaint Mr. Muhammad Ashraf (Taxation Officer), Circle 7, Zone C, Lahore had rejected the complainant's application for refund vide order, dated 26-7-2005. The concluding para of the order is as under:

"Considering all the facts discussed above invalid refund applications for tax years. 2003 and 2004 filed by Mr. Shahid Iqbal without obtaining power of attorney of all the legal heirs of the deceased assessee Mr. Hashmat Ali is hereby rejected".

The AR of the complainant submitted written reply to the objections of the respondents in the parawise comments. He submitted that the Taxation Officer had totally ignored the evidence produced by the complainant. The succession certificate and affidavit of the complainant proved that Shahid Iqbal and Shahid Latif were one and the same person and copies of revised application of refund contained correct name of the complainant. It was pointed out that 'the first refund application was made on 6-12-2004 which was to be decided under section 170(4) within 45 days whereas the order had been passed on 26-7-2005 after a lapse of 18 months as such it was an ultra vires order. The respondents' objection, that the assessee had filed statement under section143-B of the repealed Ordinance for the assessment years 1996-97 to 2002-03 so he had exercised option for presumptive tax regime for 1999-2000 being manufacturer which is irrevocable for three years, is misconceived as clause (9) of part IV of the second schedule of the repealed Ordinance, 1979 is not relevant for tax years 2003 and 2004. The assessee had rightly filed regular returns of total income for both the years. The deceased assessee did not file declaration in writing to opt for the presumptive tax regime as admitted by respondent No.4 in his letter, dated 6-7-2005. Mere filing of statement under section 143B does not lead to the conclusion that an assessee has filed a declaration in writing which is a condition precedent to opt for presumptive tax regime. Reliance was placed on judgment of the Peshawar High Court reported at 2004-PTD 1994. The relevant observation is as under:--

"The provision of the law has to be interpreted and applied in substance and not in form. Merely because the assessee filed a regular return form, and not the statement under section 143B of the Ordinance, would not mean that it had opted out of the presumptive tax regime. It must be kept in mind that the assessee had to file an "irrevocable" option to opt out of the presumptive tax regime. Since the option was not exercised by the assessee, he has to be taxed under section 80C of the Ordinance."

It was further argued that the assessee was not required to file statement under section 115(4) instead of regular returns for tax years 2003 and 2004 when he did not opt for presumptive tax regime. The respondents have failed to produce any document in which the deceased assessee had exercised option for the presumptive tax regime. The Taxation Officer had made a clumsy attempt to confuse the identity of the complainant. From the return of assessment year 2004 which was filed on behalf of Shahid Cable Industries it would transpire that it bears the same signature which are on the complaint and other document. The AR admitted that Shahid Latif's name sometimes was also typed as Shahid Iqbal.

7. The Taxation Officer in his order, dated 26-7-2005 has repeated the position taken by the respondents in the parawise comments. It appears that in his keenness to decline the refund he has ignored the law and evidence produced by the complainant. His assertion that since the complainant did not file the refund application without power of attorney of all the legal heirs of the deceased therefore the application of refund was invalid shows his ignorance of law. If his position is accepted then it would mean that if one of the legal heirs does not give power of attorney to the applicant then no refund would ever be issued. Under the law any of the legal representatives can apply for the refund of his share and the other legal heirs would be impleaded as parties and the refund could be issued apportioning their shares of inheritance/entitlement. So the rejection of the application on this score is not based on any legal provision. It appears that he is oblivious of the definition of "legal representative" in section 87(4) of the Income Tax Ordinance, 2001. Moreover the complainant has produced copies of succession certificate, affidavit that Mr. Shahid Iqbal and Mr. Shahid Latif are one and the same person, revised refund applications, authorization by other legal representatives which do not find any mention in the impugned order.

8. Under section 170(4) of the Income Tax Ordinance, 2001 the Commissioner has within 45 days of the receipt of refund application to serve on the person applying for refund on order in writing of the decision after providing an opportunity of being heard. It is surprising that Taxation Officer instead of the Commissioner has rejected the refund application after a period of about 18 months. Thus this order is coram non-judice and nullity in the eyes of law.

9. The Taxation Officer has also ignored the judgment of Peshawar High Court reported as 2004 PTD 1994. Therefore this order is liable to be set aside and due refund to be issued to the complainant/legal representatives of Hashmat Ali deceased.

10. In view of the findings in the preceding pars, it is recommended that: ---

(i) The order, dated 26-7-2005 passed by Mr. Muhammad Ashraf, Taxation Officer, Circle 7, Zone C, Lahore should be set aside by the C.I.T.

(ii) The due refund he issued to the complainant/legal representative of Hashmat Ali deceased without any further delay.

(iii) Compliance to be reported within 30 days from the date of receipt of the finding.

C.M.A./504/F. T.O.Order accordingly.