CROWN LIGHTING (PVT.) LTD., PESHAWAR VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 434 (2004)

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.156, 92, 80-D & Second Sched., Cl.(126C)--C.B.R. Circular No.10 of 1960 dated 19-7-1960---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Rectification of mistake---Refund---Minimum tax on turnover was charged---Application for rectification on the ground that complainant being exempt from tax under Cl.(126C) of the Second Schedule of the Income Tax Ordinance, 1979 was not liable for payment of minimum tax under S.30-D of the Income Tax Ordinance, 1979 and demanded refund of tax paid under S.80-D of the Income Tax Ordinance, 1979---Department contended that Complainant/assessee had not filed appeal against the order and application for rectification was rejected as there was no mistake apparent from record---Validity---Complainant/assessee being exempt from tax under Cl.(126-C) of the Second Schedule of the Income Tax Ordinance, 1979 was exempt from levy of minimum tax under S.80-D of the Income Tax Ordinance, 1979---Tax levied was illegal and non-filing of appeal could not make it legal and such being a glaring and obvious mistake of law should have been rectified deleting the tax demand instead of rejecting the application under S.156 of the Income Tax Ordinance, 1979 simply for the reason that there was no mistake apparent from record---Stand taken by the department was arbitrary and contrary to law which constituted maladministration---Federal Tax Ombudsman recommended that the assessment order for the year 1997-98 be amended/rectified by the Commissioner by resorting to the provision of sections 122A and 221 of the Income Tax Ordinance, 2001 so that the Complainant was not charged to tax under section 80D and the tax collected was refunded to him.

Elahi Cotton Mills's case PLD 1997 SC 582 = 1997 PTD 1555 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.156---Income Tax Act (XI of 1922), S.35---C.B.R. Circular No. 10 of 1960 dated 19-7-1960---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Rectification of mistake---Scope---Mistake of fact--Mistake of law---If a mistake of fact apparent from the record of assessment order could be rectified why a mistake of law which was glaring and obvious could not be similarly rectified.

(1958) 34 ITR 143 rel.

Muhammad Anwar, Consultant, Dealing Officer.

Zafar Iqbal for the Complainant.

Khalid Khan, DC IT for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Brief facts of the case are that the complainant, a private limited company, runs an industrial unit at Risalpur which was set up before 30-6-1997 and enjoyed exemption from income tax for a period of 10 years in terms of clause (126-C) of the 2nd schedule to the Income Tax Ordinance, 1979 inserted by S.R.O. 66(I)/95 dated 18-10-1995. For the assessment years 1997-1998 and 1998-1999 the complainant was charged to minimum tax @ 0.5% on the turnover of Rs.11,139,000 and Rs.71,222,290. The tax demand amounted to Rs.55,595 and Rs.356,111 for the respective years. It is stated that Supreme Court of -Pakistan, in its judgment in the case of Elahi Cotton Mills reported as PLD 1997 SC 582 = 1997 PTD 1555 held that provi sions of section 80D inserted in 1991 being subsequent to the provisions of Protection of Economic Reforms Act, 1992 were not applicable to the units exempt under clauses (118C), (118D) and (118E) of the repealed Ordinance. In the same manner the complainant being exempt from tax under clause (126C) was statedly not liable for payment of minimum tax under section 80D. In the light of the said judgment the complainant approached the Deputy Commissioner and the Commissioner of Income Tax vide application dated 23-6-1999 for refund of tax paid under section 80D but no action was taken by the concerned tax authorities. The complainant filed a writ petition before the Peshawar High Court which was disposed off by the Court directing the respondents to conclude the matter within two months. Thereupon the complainant again filed an application with the DCIT for refund but to no avail. It is prayed that the DCIT be directed to issue refund as considerable time had already elapsed.

2. In reply the respondent has submitted that judgment of the Supreme Court referred to by the complainant held that the cases covered by the schedule to the Economic Reforms Act 1992 were not liable to pay minimum tax and the said schedule provided protection specifically to those cases which were covered by clauses (118C), (118D) and (118E) of the repealed Income Tax Ordinance. The complainant's case being exempt under clause (126C) was not covered by the Economic Reforms Act, 1992. It is however stated that tax charged under section 80D at Rs.356,111 for the assessment year 1996-1999 was refunded to the complainant on 29-6-2002 as a result of the Tribunal's order dated 30-3-2001 without prejudice to the fact that the department was in reference before the Peshawar Nigh Court. As regards assessment year 1997-98 the complainant had not filed any appeal and his application for rectification was rejected vide order under section 156 dated 3-9-2001 as there was no mistake apparent, from record.

3. The representatives of the both sides attended and reiterated their contention. The AR of the complainant argued that although no appeal was filed for the assessment year 1997-98 the issue involved was the same as in the year 1998-99 for which a refund of Rs.356,111 was issued to the complainant. The principle of natural justice and fair play demanded that tax illegally charged for the year 1997-98 be also refunded. He referred to the CIT (Appeals) order dated 22-9-1999 for the assessment year 1998-99 wherein it was categorically held that the complainant, being exempt from tax under clause (126C) was covered under the Protection of Economic Reforms Act 1992 and the said order of the CIT(A) was upheld by the Tribunal vide order dated 30-3-2001 holding that the Protection of Economic Reforms Act 1992 also protected the talc exemptions promulgated later on. The respondent's representative reiterated that since the complainant had not challenged the assessment order for the year 1997-98 in appeal, he was not entitled to refund.

4. The contentions and arguments of the both sides were considered. The ITAT, Peshawar Bench, Peshawar while dismissing the reference application of the department in the complainant's case for assessment year 1998-99 vide its order dated 28-9-2001 relied on the judgment of the Division Bench of the Peshawar High Court dated 24-9-1999 in which it was held that not only the cases falling under clauses (118C) to (126D) but all those exemptions which were contained in the second schedule to the Income Tax Ordinance, 1979 were protected by section 6 of the Act 1992. The result is that the complainant being exempt from tax under clause (1260) was also exempt from levy of minimum tax under section 80D of the Ordinance. The tax levied on the complainant for the assessment year 1997-98 is therefore illegal and non-fling of appeal by the complainant can not make it legal. The scope of section 156 of the Ordinance, 1997 is congruent to the scope of section 35 of the repealed Income Tax Act, 1922. While defining the scope of section 35 the C.B.R. in its circular No.10 of 1960 dated 19-7-1960 had referred to the decision of Supreme Court of India reported as 1958 (34)-ITR 143 which stated that `if a mistake of fact apparent from the record of assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified'. In the instant case the assessment order for the year 1997-98 whereby the complainant was charged to minimum tax under section 80D was illegal and this being a glaring and obvious mistake of law should have been rectified deleting the tax demand instead of rejecting the complainant's application under section 156 simply for the reason that there was no mistake apparent from record. The stand taken by the department is arbitrary and contrary to law which constitutes maladministration.

5. It is recommended that---

(i) The assessment order for the year 1997-98 be amended/rectified by the Commissioner by resorting to the provision of sec tions 122A and 221 of the Income Tax Ordinance, 2001 so that the complainant is not charged to tax under section 80D and the tax collected is refunded to him.

(ii) Compliance be reported within 30 days.

C.M.A./101/FTOOrder accordingly.