SHAUKAT HAYAT BALOCH VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1603 (2005)

Income Tax Ordinance (XLIX of 2001)---

----Ss.122, 170(4) & 15(2)---Income Tax Ordinance (XXXI of 1979), S.96---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---C.B.R. Circular No. 5 of 2003, dated 30-6-2003---Amendment of assessment---Tax year 2004--Claim of refund--Proceedings for amendment of assessment were initiated on the ground of definite information that property income was not declared in the return and payments would be adjusted against the tax demand---Complainant/assessee contended that it was his wife who received the rent of subject property and she had filed a separate return and paid income tax on declared income and also conceded that property in question had not been formally transferred in the name of his wife---Validity---Complainant/assessee admitted that property in question had not been formally transferred in the name of his wife and complainant/assessee continued to hold the property in his own name---Department issued notice for amending the `assessment' on the basis of definite information that complainant/assessee had rented out property but had failed to declare the rental income in his own return---Notice issued had only asked the complainant/assessee to give his reply to the notice and also to produce relevant accounts/documents before the competent authority to enable it to determine the correct income and the amount of tax actually payable---Same was merely a show-cause notice---Complainant/assessee would have the right to defend his position---No 'maladministration' was found---Complainant/assessee should join the proceedings initiated under S.122 of the Income Tax Ordinance, 2001 before the competent authority---Complaint was disposed of accordingly.

Muhammad Akbar, Advisor (Dealing Officer).

Rana Mushtaq Ahmad Toor, ITP for the Complainant.

Muzammil Hussain, DCIT, Lahore for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).----It is alleged by the complainant that despite completion of his assessment and creation of refund the respondents had committed `maladministration' by failing to issue refund, in response to application dated 21-10-2004, within 60 days stipulated under law. The respondents may be directed to pay refund applied for.

2. In reply, the respondents have submitted that complainant's assessment record indicated that he had been deriving income from two sources namely from salary and house property. He had rented out a 10 Marla house in Faisal Town owned by him. If income from his property was added to his salary, his tax liability exceeded the tax deducted from his salary. In tax year 2004, the complainant did not declare income from house property but paid tax of Rs. 14,725 with the return despite the fact that the tax deducted from his salary was higher than the tax admitted to be payable by him. He was now claiming refund of the same. Spot inquiry had revealed that Property No.154-D, Faisal Town, Lahore, was still rented out to Mr. Muhammad Azhar Sajjad and his brother. Mr. Azhar Sajjad, an employee of Provincial Government, had acquired the said house through Provincial Estate Office. Based on this definite information, the proceedings for amendment of complainant's assessment were initiated under section 122 of the Income Tax Ordinance, 2001 for the tax year 2004. The payments would be adjusted against the tax demand. The complaint, which was devoid of merit, may be rejected.

3. During the hearing, the A. R. submitted that his client was entitled to refund of Rs.14,900 for Tax Year 2004 for which an application, dated 21-10-2004 was submitted to the Commissioner. The return, he added, was filed under section 114 of the Income Tax Ordinance, 2001 under USAS, which was deemed to have been `assessed' by operation of law. The return had, therefore, attained the status of assessment order. He further stated that whereas overall tax due from the complainant worked out to Rs.9,800, an amount of Rs.9,975 had been deducted at source from salary. The complainant had also separately deposited income tax of Rs.14,735. Asked as to why the complainant had deposited so much tax, the A.R. submitted that it was a mistake. No property income had accrued to the complainant during the period from July, 2003 to June, 2004. He explained that after arbitration by complainant's family members and consequent agreement between husband and wife it was complainant's wife Ms. Akhtar Zohra who received income from the subject property. The A.R. placed on record copy of an affidavit, dated 15-10-2004 showing that it was complainant's wife who was to receive the rent of subject property. He added that complainant's wife had filed a separate return on 16-3-2005 depositing Rs.4,607 as income tax on declared income of Rs.141,922 vide challan dated 15-4-2005. Asked whether the property in question had been formally transferred in the name of complainant's wife the A.R. submitted that it had not been. The D.R. stated that the return was due to be filed by 30-9-2004 but complainant's wife filed it on 16-3-2005. The A.R. argued that the show-cause notice, dated 17-3-2005 issued by the respondents under section 122 of the Income Tax Ordinance, 2001 on grounds of `concealment' of property income was illegal because the tax having been paid there was no question of any concealment. As per Circular No.5 of 2003, dated 30-6-2003 refund should have been paid to the complainant within 45 days from the date of receipt of application.

4. The D.R. submitted that declaration of property income in a separate return filed by complainant's wife in March, 2005 was nothing but an afterthought. He pointed out that the A.R. had himself admitted that there was no formal transfer of property in the name of complainant's wife. Subsection (2) of section 15 of the Income Tax Ordinance, 2001 defined `rent' as an amount received or receivable by owner of land or a building. Complainant's wife being not the owner of the subject property could not be treated as such. It was a case of simple concealment of income on the part of the complainant. The A.R., however, argued that his client had saved income tax and not evaded it. The D.R. pleaded that the case being one of concealment of income the complainant may be directed to associate himself with the proceedings under section 122 of the Income Tax Ordinance, 2001 for which a show-cause notice had been issued. He added that if the competent authority accepted complainant's version, the refundable amount of tax, if any, would indeed be refunded. However, if, as a result of competent authority's decision, any amount of income tax because recoverable the same would be recovered from the complainant. Asked to explain delay in disposal of complainant's application the D.R. submitted that some delay that had occurred due to transfer of assessment records, on point of jurisdiction, to MTU (Medium Taxpayers Unit), Lahore on 21-2-2005 could not be avoided. Once the records were consulted it was found that the complainant had concealed income from property. The A.R. stated that even if the record was transferred on 21-2-2005 the respondents had enough time to process the application within the stipulated time period. The D.R. argued that although the complainant had paid income tax he did not declare property `income' in his own returns. It was case of tax evasion.

5. The arguments of the parties and record of the case have been considered and examined. It is true that the complainant had submitted an application to the Commissioner/Taxation Officer for payment of refund on 21-10-2004. According to para. 7(v) of Circular No.5 of 2003, dated 30-6-2003; the Commissioner is required to pass the 'necessary refund order and serve it on the taxpayer within 45 days from the date of receipt of refund application. A similar provision exists in subsection (4) of section 170 of the Income Tax Ordinance, 2001 according to which the Commissioner is required to decide the refund case and issue an order in writing within 45 days of the receipt of refund application after providing the complainant an opportunity of being heard. Clearly, no such order was passed within 45 days as stipulated under law. However, according to clause (b) of subsection (5) of section 170; any person aggrieved by the failure of the Commissioner to pass an order under subsection (4) of section 170 could within the specific time prefer an appeal under appropriate provisions of law. The complainant could have filed an appeal but he did not. The D.R. explained that some delay had occurred due to transfer of case records. According to affidavit (on record) it was complainant's wife who was to receive rental income and also pay tax. The A.R. during the complaint proceedings admitted that the property in question had not been formally transferred in the name of complainant's wife. Thus the complainant continued to hold the property in his own name. The respondents have issued a notice to the complainant under section 122 of the Income Tax Ordinance, 2001 for amending the `assessment' on the basis of definite information that the complainant had rented out property to one Mr. Azhar Sajjad during the tax year 2004 but had failed to declare the rental income under the head `income from property' in his own return for tax year 2004. The complainant's plea that the show-cause notice issued under section 122 of the Ordinance is illegal is not tenable. The notice dated 17-3-2005, issued under section 122 of the Income Tax Ordinance, 2001; only asks the complainant to give his reply to the notice and also to produce relevant accounts/documents before the competent authority to enable it to determine the correct income and the amount of tax actually payable. It is merely a show-cause notice. The complainant would have the right to defend his position. There is no `maladministration'. The complainant should, therefore, join the proceedings initiated under section 122 of the Ordinance, 2001 before the competent authority. The Authority is expected to decide the case on its merit after providing the complainant full opportunity of both written and oral defence.

6. The complaint is disposed of with observations made above.

C.M.A./571/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.