STAR LINK (GLAMOUR SHOPPING MALL), through Messrs Tahir Law Associates, Sukkur VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 351 (2006)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 170(4), 113A, 114, 115(4) & 233---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3) & 9(2)(b)---Refund---Limitation---Commission receipts---Discount income--Statement under S.115 (4) of the Income Tax Ordinance, 2001 was filed declaring commission receipt and tax payable thereon and claimed the excess of tax deducted as refundable---No return was filed in response to notice under S.114 of the Income Tax Ordinance, 2001 in respect of discount income subject to normal taxation---Refund was claimed on the ground that since no order had been passed within 45 days as directed by the First Appellate Authority, the refund had automatically became due---Validity---Provision of S.170 of the Income Tax ordinance, 2001 did not come in operation because it was yet to be decided as to whether the amount paid was in excess of the amount with which the complainant was properly chargeable to tax---Since the discount income earned was not offered for taxation, Assessing Officer required the claimant to file the return under S.114 of the Income Tax Ordinance, 2001 in regard to this income so that his tax liability and the resultant refund, if any, could be determined---Instead of filing return, complainant chose to approach the Federal Tax Ombudsman with the result that Taxation Officer had kept the proceedings in abeyance---Question as to whether any refund was due or not was to be determined by the Taxation Officer---Return having not been filed, Taxation Officer had not yet worked out the tax liability and the amount refundable also remained undetermined---Question of issuance of refund would not arise in circumstances---No case of mala-administration had thus been made out.

2006 PTD 1580; Complaint Nos. C-1088 of 2005, 905L of 2004, 945 of 2005 and also 1102/2005 and (1994) 70 Tax 11 distinguished.

Asad Arif Advisor Dealing Officer.

Abdul Tahir Ansari for the Complainant.

Saeed Ahmed Siddiqui Addl. Commissioner and Khuda Bux Abbasi, Special Officer, Income Tax for Respondent.

DECISION/FINDINGS

JUSTICE (RTD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---This complaint has not been signed by the complainant but by his authorized representative and when this was pointed out, the A.R. has furnished an authority letter from the complainant authorizing him to sign the complaint on his (complainant's) behalf.

2. The complainant, an individual earning income from sale of scratch cards and SIMS as a dealer of Messrs Pakistan Mobile Communication Limited, is aggrieved by non-issuance of refund by the Income Tax Department.

3. Brief facts of the case are that for the year, 2005, the complainant originally filed a statement under section 113A of the Income Tax Ordinance, 2001 (hereinafter referred as the Ordinance) declaring turnover of Rs.3,300,000 on which tax liability @ 0.75% was calculated at Rs.24,750 and the tax deduction was shown at Rs.1,107,826. For the balance amount of Rs.1,083,126, the complainant moved an application under section 170 of the Ordinance: for refund which, however, was rejected by the Taxation Officer on the ground that the income earned by the complainant was from commission which, under section 233 of the Ordinance, constituted full and final discharge of liability and, therefore, nothing was refundable. The complainant felt aggrieved by such order and filed a revision petition before the Commissioner on the ground, amongst others, that the application under section 170 has been rejected by the Taxation Officer without providing opportunity of hearing, The Commissioner annulled the order of the Taxation Officer whereafter the complainant changed his position and this time. filed a statement under section 115(4) of the Ordinance declaring therein commission receipt of Rs.3,234,906 and tax payable thereon at Rs.323,491 and claiming the excess of tax deducted at Rs.784,335 as refundable for which a fresh refund application was filed. The Taxation Officer, however, again rejected the claim of the complainant against which he filed an appeal before the. Commissioner of Income Tax (Appeals) [CIT(A)] who, vide his order, dated 29-3-2006, remanded the case back to the Taxation Officer for passing order in accordance with law in the following words:--

"The contents of subsection (4) of section 170 (reproduced supra) clearly envisages the issuance of show cause notice before final decision in the matter within a period of 45 days. The perusal of record shows that opportunity of hearing was not afforded to the assessee in writing. Beside above, the same is also not referred to in the body of the impugned order. From the above, it is quite clear that show cause notice as prescribed under section 170(4) was not issued and order passed in view of above lacuna cannot be maintained and is hereby vacated, with direction to the Taxation Officer to pass strictly in accordance with law."

4. It is contended that in spite of various remainders and applications, the Taxation Officer has not passed any order so far though there was clear direction of the CIT(A) to decide the matter within 45 days. It is contended that by not passing any order within the stipulated period of 45 days, the Taxation Officer has violated the directions of the CIT(A) and hence the present complaint. It is prayed that the Department be directed to issue the refund of the complainant.

5. Replying to the allegations in the complaint, the RCIT in his. written report has first raised objection in regard to the jurisdiction of this office in view of section 9(2)(b) of the Establishment of the Office of FTO Ordinance, 2000 on the ground that the complainant had legal remedy of appeal under sections 127 and 131 of the Ordinance and, therefore, the case would not come within the jurisdiction of this office.

6. The Commissioner in his written report has stated that pursuant to the directions of the CIT(A), processing of the case was started and it was found that the complainant has enjoyed the following two benefits from Pak. Mobile Communications Limited:--

UPFRONT COMMISSION.---The company has paid the discount to the dealer on the sale price of SIMS and scratch cards. The dealer purchases these cards at a lower price than the sale price of the inventory. The same inventory is sold at its market value and the discount/commission is recovered from end users. Thus, this amount is the difference in the gross amount and the commission amount. Such discount earned by the complainant during the year amounted to Rs.7,802,900.

RESIDUE COMMISSION:--The residue commission is paid to the dealer in cash as acknowledgement to the sales contributed to the company. Such commission earned by the complainant during the year amounted to Rs.3,234,906.

7. Thus, the total of both these amounts comes to Rs.11,037,806 and the company deducted tax of Rs. 1,103,783 @ 10% under section 233 on the total value of discount and commission paid at Rs.11,037,805 to the complainant. It is stated that the complainant filed the statement under section 115(4) declaring commission receipts only which is subject to final tax @ 10%. However, the discount enjoyed by the complainant at Rs.7,802,900 is subject to normal taxation for which the complainant was obliged to file a return under section 114 of the Ordinance. Since no such return was filed, a notice under section 114 was issued for filing such return. Along with this notice, a covering letter, dated 22-7-2006 was also issued in which it was explained to the complainant that whereas the commission income earned by him is covered under Presumptive Tax Regime, the discount income enjoyed by him is liable to be taxed under the normal law for which a return is required to be filed. In response thereto, the complainant filed an application for extension of 30 days' time which was allowed. The complainant did not file the return but moved an application for further adjournment and has also filed the present complaint in this office. It is stated that so far, no refund has yet been determined in the case and in the absence of return, it is not possible for the Department to determine the total tax liability of the taxpayer and calculate the amount of refund, if any.

8. Responding to the above, the learned A. R., of the complainant has reiterated that as directed by the CIT(A), the order under section 170 should have been passed within 45 days and that since no such order has been passed, therefore, the refund has automatically become due to the complainant. In this regard the complainant has referred to a case reported as 2006 PTD 1580 and findings of this office in Complaint Nos.C-1088 of 2005, 905L of 2004, 945 of 2005 and also 1102 of 2005. It is also contended that other proceedings cannot be made unless and until the refund is first issued.

9. Parties have been heard and the record produced has been examined.

10. The objection raised by the Department in regard to jurisdiction of this office is not valid. As far as the remedy of appeal is concerned, the complainant had already availed such remedy and what is alleged in this complaint is that the Taxation Officer is not complying with the directives of the CIT(Appeals) and deliberately withholding the refund which, if proved, would tantamount to maladministration which this office: is competent to investigate.

11. The perusal of CIT(A)'s order shows that nowhere has he given directions that the matter is to be decided within 45 days. He only referred to the contents of subsection (4) of section 170 but then he directed the Taxation Officer to pass order strictly in accordance with law. It may not be out of place to mention that the period of 45 days given in subsection (4) of section 170 is to be read with reference to subsection (1) of section 170 under which an application may be made by taxpayer who has paid tax in excess of the amount with which he is properly chargeable under the Ordinance. Thus, for determining as to whether any excess has been paid, first the tax liability has to be worked out. It is precisely for working out such tax liability that the Taxation Officer is asking the complainant to file the return under section 114. During the course of hearing, the learned A.R. of the complainant attempted to make a distinction between discount and commission for the purpose of taxation and in this regard referred to the Income Tax Appellate Tribunal's decision reported as (1994) 70 Tax 11 but then such pleas should be taken before the Taxation Officer who has to make the assessment and determine the complainant's tax liability.

12. The cases relied upon by the complainant are distinguishable inasmuch as in all those cases the refund amount stood determined and these revolve round their own facts. However, in none of these cases, it has been held that if no order is passed within 45 days, the taxpayer automatically becomes entitled to refund of the claim. In the present case, refundable amount is yet to be determined. Merely because an amount has been shown as deducted and claimed as refund would not by itself entitle the claimant to get such refund unless the Commissioner is satisfied that ,the amount has been paid in excess of what is actually due. What subsection (3) of section 170 envisages for issuance of refund is the satisfaction of the Commissioner that tax has been overpaid. However, in the present case the provisions of section 170 (which deal with refunds) do not come in operation because it is yet to be decided as to whether the amount paid by the complainant is in excess of the amount with which the complainant is properly chargeable to tax.

13. In this case, the Assessing Officer opined that since the discount income earned by the complainant was not offered for taxation, therefore, he required the claimant to file the return under section 114 in regard to this income so that his tax liability and the resultant refund, if any, could be determined. Instead of filing the return, the complainant chose to approach this office with the result that the Taxation Officer has kept the proceedings in abeyance. The question as to whether any refund is due or not is to be determined by the Taxation Officer. Since the return has not so far been filed, therefore, the Taxation Officer has not yet worked out the tax liability and the amount refundable. If any, also remains undetermined. In such circumstances, the question of issuance of refund would not arise. Thus, no case of maladministration has been made out.

14. The matter is disposed of in the manner indicated above.

C.M.A./177/F.T.OOrder accordingly.