MUHAMMAD RAFIQUE RANA VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1979 (2003)

Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cls.78(E) & (50)---S.R.O. 871(I)/1998 dated 5-8-1998---S.R.O. 278(I)/2002, dated 30-5-2002---Exemption--Deduction of tax at source---Special Saving Certificates---Deduction of withholding tax from interest on Special Saving Certificates converted out of foreign currency account ignoring the statutory exemption provided vide cl.78(E) to the Second Schedule of the Income Tax Ordinance, 1979---Matter was referred to Member Income Tax, Central Board of Revenue seeking redress and clarification on the issue and Central Board of Revenue had not bothered to issue clarification---Validity---No valid reason existed to doubt the veracity of Complainant/assessee's 'contention that he had referred the matter to Central Board of Revenue for clarification particularly when he was aware of the fact that his grievance could only be redressed by the Central Board of Revenue's clarification. Federal Tax Ombudsman recommended that Central Board of Revenue to issue clarification regarding the issue of exemption within 30 days of the receipt of this order after providing opportunity to the Complainant to present his case.

S. Asghar Abbas, Adviser (Dealing Officer).

Muhammad Rafique Rana, complainant present along with Abid Shirazi, Advocate.

Mrs. Lubna Ayub Asif, IAC Range-II Zone-E, Karachi present for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The complainant has challenged the deduction of income-tax on the interest earned on Special Saving Certificates purchased out of the foreign currency account converted into Pak rupee account. The facts of the case are briefly stated as under:-

2. The complainant was maintaining a US $ Account bearing No.17768-0 with Messrs Habib Bank Ltd., Mercantile Branch, Habib Bank Plaza, Karachi. The said account was frozen by the Government of Pakistan and was converted into Pak rupee account No. CRSD 5006-0-0 on 31-7-1999.

3. It is stated that under clause 78(E) to the Second Schedule of repealed Income Tax Ordinance, 1979 the interest derived from Pak rupee account converted out of foreign currency account was exempt from the levy of income tax. The complainant purchased Special Saving Certificates for rupees one million by issuing Cheque bearing No.124132 dated 9-8-2002 drawn on CRSD Account No.5006-0-0. The cheque was encashed by the State Bank of Pakistan, National Saving Treasury, Karachi on 12-8-2002. The complainant also submitted a certificate from Messrs Habib Bank Ltd., Mercantile Branch, Habib Bank Plaza, Karachi confirming that he was maintaining US $ Account No.17768-0 since 5th March, 1990 which was closed on 31-7-1999. It was further certified that US $ 30,000 was converted equivalent to Pak rupee 15,60,000 and transferred to CRSD Account referred above. Messrs Habib Bank Ltd. also verified that he had purchased Special Saving Certificates by drawing an amount of Rs.10,00,000 from CRSD Account No.5006-0-0.

4. It is alleged that when the complainant visited the National Saving Centre for receiving the interest on Special Saving Certificates, the Dealing Clerk deducted withholding tax on the certificates ignoring the statutory exemption provided vide clause 78(E) to the Second Schedule of the Income Tax Ordinance, 1979 read with S.R.O. 871(I) 1998 dated 5-8-1998 and S.R.O. 278(I)/2002 dated 30-5-2002.

5. It is further stated that the complainant received a copy of letter dated 24-2-2003 from the National Saving Centre wherein it was stated that exemption from deduction of withholding tax could only be allowed in case the complainant proved himself as non-resident person. The complainant immediately referred the matter to the Member Income Tax, Central Board of Revenue seeking redress and clarification on the issue. It is alleged that the Board has not bothered to issue clarification so far which amounts to maladministration. It is reiterated that the complainant has exhausted all the administrative remedies but has not succeeded in receiving any response from the authorities concerned. The complainant has prayed to issue directions to the respondent not to deduct tax on the interest earned on Special Saving Certificates purchased out of foreign currency account and to refund the tax deducted earlier.

6. The respondent No.1 i.e. Central Board of Revenue has filed parawise comments stating therein that the complainant has referred to a portion of clause 78(E) to the Second. Schedule of the repealed Income Tax Ordinance, 1979. The proviso added to the aforesaid provision has not been mentioned. The proviso is reproduced as under:--

"Provided that nothing' contained in this clause shall apply to such Pak rupee account or certificates which are created out of Foreign Current deposits which are not exempt under clause (78)".

7. It is further stated that through S.R.O. 278(I)/2002 dated 2-5-2002 which has been referred by the complainant, a charge was brought about in the Proviso to clause 78(E) by adding clause (78B) after clause 78. The amended Proviso envisaged that nothing contained in clause (78E) shall apply to such Pak rupee or accounts created out of foreign currency accounts which were not exempt under clause (78) and clause (78B). It is further pleaded that even clause (78B) covered exemption of income derived from a private foreign currency account and did not contain any mention of certificates purchased in Pak rupees out of the foreign currency account converted into Pak rupees.

8. It is also stated that the complainant has not been able to provide any evidence of filing of representation before the Central Board of Revenue regarding the aforesaid issue.

9. The case has been discussed with the complainant, his AR and the departmental representative. The complainant has furnished a photocopy of the receipt issued by Leopards Courier Service dated 9-7-2003 through which the application was sent to the Member, Income Tax, C.B.R. The complainant and his AR have emphatically stated that a representation was made of the Member Income Tax, C.B.R., Islamabad requesting for issuance of clarification/directions to the Regional Director, National Saving Centre, Karachi but no response has been made so far.

10. The authorized representative in his letter received on 4-11-2003 has stated that the complainant opened Foreign Currency Bank Account No.17768-0-0 with Messrs Habib Bank Ltd., Mercantile Branch, in March, 1990 when he was working abroad i.e. at UAE. He has also filed relevant portion of his passport dated 8-11-1989 and second passport dated 20-10-1994 in support thereof. The AR has reiterated that the complainant was entitled for exemption under clauses 78 and 78 (E) to the Second Schedule of the Income Tax Ordinance, 1979.

11. In view of above stated facts there appears to be no valid reason to doubt the veracity of complaint's contention that he had referred the matter to C.B.R. for clarification particularly when he was aware of the fact that his grievance could only be redressed by the C.B.R's. clarification.

12. It is, therefore, recommended as under:-?????

(i) C.B.R. to issue clarification regarding the issue of exemption within 30 days of the receipt of this order after providing opportunity to-the complainant to present his case.

(ii) Compliance be reported within a week thereafter.

C.M.A./95/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Order accordingly.