GREEN GRO (PVT.) LTD. through Chief Executive VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1618 (2005)

Income Tax Ordinance (XLIX of 2001)---

----S. 122(5A)---Income Tax Ordinance (XXXI of 1979), Ss.50(2A), 80-B(5), 143B & 59-A----Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Amendment of assessment---Issuance of notice, inter alia, on the ground that taxpayer being a company was not justified to claim tax deduction under S.50(2A) of the Income Tax Ordinance, 1979 as final discharge of tax liability as scope of S.80-B(5) of the Income Tax Ordinance, 1979 had not been extended to a "company" and tax deducted was not full and final discharge of tax liability to the extent of income earned from Bank profits---Assessee averred that assessments finalized before 1-7-2003 could not be reopened/revised/amended in exercise of jurisdiction under the provision of S.122 of the Income Tax Ordinance, 2001 and initiation of proceedings which . were contrary to law amounted to `maladministration'---Validity---Section 122(5A) of the Income Tax Ordinance, 2001 was effective from 1-7-2003 and was not applicable to a matter decided and closed prior to enactment of Finance Act, 2003---Proceedings initiated against the complainant/assessee under S.122 of the Income Tax Ordinance, 2001 were without jurisdiction, illegal and void ab initio---Federal Tax Ombudsman recommended that proceedings initiated against, the complainant under S.122 of the Income Tax Ordinance, 2001 by issue of notices be dropped/withdrawn and cancelled.

ITAT in ITA No.833/LB of 1982-83 and Writ Petition No.7788 of 2003 ref.

Messrs Monnoo Industries Ltd. v. The Commissioner of Income Tax, Central Zone, Lahore 2001 PTD 1525 and 2007 PTD 2051 rel.

Muhammad Sirjees Nagi, Advisor (Dealing Officer).

Iqbal Haider, A.R. for the Complainant.

Chaudhry Mubarik Ali (ACIT), Bahawalpur.

DECISION/FINDING

JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).----This complaint has been lodged by Mr. Tanveer Mahmood who is a Chief Executive of Messrs Green Gro (Pvt.) Ltd., Bahawalpur. The company is engaged in the business of import and sale of pesticides. It earned profit on Bank accounts at Rs.6,03,340 and Rs.2,99,879 during the assessment years 2000-01 and 2001-02, respectively. Tax under section 50(2A) of the repealed Income Tax Ordinance, 1979 was deducted at 10% as final tax liability under section 80-B(I) and (4). The afore-mentioned amounts of Bank profit and tax deduction were declared in the statement under section 143-B for the relevant assessment years. So an order under section 59-A would be deemed to have been passed for these tax years as provided by section 80-B(5) of the repealed Income Tax Ordinance (XXXI of 1979).

2. The Income Tax Officer Circle 20, Bahawalpur issued a notice, dated 14-3-2005 under section 122 of Income Tax Ordinance (XLIX of 2001), for amendment of assessments for both the years on the ground that the tax deducted on Bank profits was not a final discharge of tax liability in the case of Companies. The complainant asked him to quote the relevant provisions of law in support of his contention. Respondent No.2 stated that Company "is excluded from section 80(b)" and as such the tax deduction under section 50(2A) of the repealed Ordinance in the case of a Company is not discharge of the final tax liability.

3. The complainant contends that the proceedings initiated by respondent No.2 are illegal, and fall within the definition of `maladministration'. He has requested that an enquiry be held into the legality of issue of notices by respondent No.2 and he be advised to refrain from taking any illegal action and creating tax liability.

4. In the reply the Regional Commissioner of Income Tax, Central Region, Multan raised preliminary objection that the complaint pertains to assessment of income of the company which falls within the ambit of section 9(2) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance (XXXV of 2000). Regarding merits of the case it is inter alia submitted that taxpayer being a company is not justified to claim tax deduction under section 50(2A) of the repealed Ordinance XXXI of 1979 as final discharge of Tax liability. Scope of section 80B(5) of the repealed Ordinance has not been extended to a "company" and tax deducted under section 50(2A) from a company was not full and final discharge of tax liability to the extent of income earned from Bank profit. This fact was brought to the notice of the complainant.

5. The complainant submitted additional grounds of complaint urging the respondents were not justified in initiating proceedings in a case in which assessment had been made or deemed to have been made before 1-7-2002 under the repealed Income Tax Ordinance as the same was closed and attained finality. Moreover, respondent No.2 was not authorized to initiate proceedings under section 122 of the Income Tax Ordinance, 2001 and it was only the Commissioner of Income Tax who was empowered to initiate action or proceedings under the said section by application of his own mind. It was reiterated that the proceedings initiated by respondent No.2 fell within the definition of 'maladministration'.

6. In the reply the respondents reiterated the pleas taken in the parawise comments. It was pointed out that the CIT, BWP Zone, Bahawalpur had delegated powers and functions under section 122 to the Taxation Officer vide order, dated 1-7-2002 under section 210 of the Income Tax Ordinance, 2001.

7. In the hearing of the complaint on 25-5-2005 the complainant was represented by Mr. Iqbal Haider, A.R. The Arespondents were represented by Chaudhry Mubarik Ali (ACIT) Bahawalpur. The A.R. apart from reiterating the contents of the complaint relied upon a decision of the ITAT in ITA No.833/LB of 1982-83 in which it was held that a company was a juridical person and as such was not excluded from the purview of section 80(B) for final discharge of tax liability. He referred to a judgment of Lahore High Court in Writ Petition No.7788 of 2003 in which it was held that section 66-A did not have retrospective application as it was not of procedural nature. He averred that assessments finalized before 1-7-2003 could not be reopened/revised/amended in exercise of jurisdiction under the said provision. Hence initiation of proceedings which are contrary to law amount to `maladministration'.

8. The D.R. reiterated the arguments contained in the replies. He submitted that issue of notices do not come under the ambit of `misadministration'. Subsection (I) of section 122 of the Income Tax Ordinance, 2001 was amended through Finance Ordinance, 2002 to extend its applicability to an assessment order issued under sections 59, 59-A, 62, 63 and 65 of the repealed Income Tax Ordinance, 1979. So an assessment order under the repealed Ordinance can be amended within 5 years after the Commissioner had issued or is treated as having been issued the assessment order on the taxpayer.

9. The respondents objection that the complaint pertains to assessment of income of the company and falls within the ambit of section 9(2) of Ordinance (XXV of 2000) is misconceived. The impugned action of respondent No.2 is contrary to law enunciated in the case Messrs Monnoo Industries Ltd. v. The Commissioner of Income Tax, Central Zone, Lahore reported as 2001 PTD 1525. Moreover this objection has been set at rest in FTO's finding in Complaint No.502 of 2004 reported at 2007 PTD 2051. So the objection is overruled.

10. It is an admitted fact that the impugned notices dated 14-3-2005 and 22-3-32005 under section 12 of tilt Income Tax Ordinance, 2001 pertain to assessment years 2000-01 and 2001-02. The assessment of these years will deemed to have been made in respect of income referred to in subsection (1) of section 80 of repealed Ordinance (XXXI of 1979). The Lahore High Court in the case of Messrs Monnoo Industries Limited v. The Commissioner of Income Tax, Central Zone, Lahore has held that substituted subsection (5A) in section 122 of Income Tax Ordinance, 2001 is effective from 1-7-2003, hence not applicable to a matter decided and closed prior to enactment of Finance Act, 2003. So the proceedings initiated against the complainant under section 122 of the Ordinance (XLIX of 2001) are without jurisdiction, illegal and void ab initio.

11. In view of the findings in paras. 9 to 10 it is recommended:--

(a) that proceedings initiated against the complainant by respondent No.2 under section 122 of Ordinance (XLIX of 2001) by issue of notices dated 14-3-2005 and 22-3-2005 be dropped/withdrawn and cancelled.

(b) Compliance to be reported within 30 days from the date of receipt of the findings.

C.M.A./572/FTOOrder accordingly.