AL-ABBAS TRADERS through Proprietor VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 437 (2005)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 221, 122-A & 122(5A)---income Tax Ordinance (XXXI of 1979), Ss. 156, 80C & 50(4)-- C.B.R. Circular No.11 of 1991, dated 30-6-1991---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 10(8)---Rectification of mistake--Income from commission; service charges and janitorial services by providing manpower---Assessment were framed under Ss.62/132 of the Income Tax Ordinance, 1979 after conducting direct enquiries---"Nil" demand notices were issued---Application for rectification for grant of full credit and issue of refund was filed---Application for rectification was rejected for the reason that proceedings under S.122(5A) of the Income Tax Ordinance, 2001 were proposed to be taken as the complainant/assessee was a contractor and fell within the Presumptive Tax Regime---Although, Assessing Officer admitted that the mistake was apparent from record but refused to rectify on the ground that the case had been proposed for action under S.122(5A) of the Income Tax Ordinance, 2001---Validity---Decision rejecting the rectification application for creation of refund was contrary to 'the decision of the President of Pakistan which amounted to `maladministration' and was not maintainable in the eyes of law---Federal Tax Ombudsman recommended that the order passed under S.221 of the Income Tax Ordinance, 2001 by the Taxation Officer, rejecting the complainant's application under S.156 of the (repealed) Income Tax Ordinance, 1979 should be set aside by invoking provision of S.122A of the Income Tax Ordinance, 2001 and complainant's refund in consequence of assessment order for assessment years 1998-99, 1999-2000, 2001-02 and 2002-03 be properly determined and issued along with additional payment, if any, as per law.

C.No.36 of 2003, Vol.7 No.9 Tax Forum 42 and I.T.A. No.2668/LB to 2672/LB of 2002 rel.

Muhammad Sirjees Nagi, Advisor, Dealing Officer.

Salim Iqbal Rathore for the Complainant.

Muzammil Hussain, D.C.I.T. for Respondent.

DECISION/FINDINGS

JUSTICE (REM.) MUNIR A. SHAIKH, (FEDERAL TAX OMBUDSMAN).---The complainant derives income from providing manpower to the P.I.A. as under:-

(i) Commission

(ii) Service charges and

(iii) Janitorial services

He offered `Commission receipts' for taxation under the normal law for assessment years 1998-99, 1999-2000, 2002-03 and `service charges' receipts for the assessment years 1998-99, 1999-2000, 2001-02 and 2002-03 according to section 80(c)(2a)(ia) of the repealed Income Tax Ordinance, 1979.

The receipts under the head `Commission' for the assessment year 2001-02 and Janitorial service for the assessment years 1999-2000 and 2002-03 were offered as full and final discharge under the "Presumptive Tax Regime'.

2. On 29-6-2001 the assessments for the years 1998-99 and 1999-2000 were framed by the Taxation Officer under sections 62/80(C) wherein receipts under the head `Commission' were assessed under section 50(A) and `service charges' and `Janitorial services' as contract under sections 50(4)/80(c) of the repealed Income Tax Ordinance, 1979.

3. The complainant preferred appeals against these orders before the C.I.T.(A) who set aside the assessment orders on 28-12-2002 for de novo assessment with directions to make detailed ascertainment of facts regarding nature of business after examining the original documents and if required necessary enquiries to be made from the P.I.A.

4. In the second round of assessment the Taxation Officer took up assessments simultaneously for years 1998-99, 1999-2000, 2001-02 and 2002-03. The assessments were framed under sections 62/132 for years 1998-99 and 1999-2000 and under section 62 of the repealed Ordinance for years 2001-02 & 2002-03 on 30-6-2004 after conducting direct enquiries from the P.I.A. The assessing officer consequent to completion of assessment issued `NIL' demand notices.

5. Not being satisfied with these assessments the complainant moved applications for rectification under section 156 of the repealed Ordinance for grant of full credit and issue of refund. Since no action was taken by the respondent, this in-attention, neglect and in-competence amounts to `maladministration'.

6. During proceedings of the instant complaint the concerned Taxation Officer vide letter No.15/02 dated 20-7-2005 informed the complainant that his application dated 18-5-2005 under section 156 stood rejected for the reason that proceedings under section 122(5A) of the Income Tax Ordinance, 2001 were proposed to be taken in this case. The complainant on receipts of the rejection letter urged further grounds assailing the rejection of the rectification application.

7. The grievances of the complainant are as under:-

(i) The respondent has not allowed full credit of tax deducted on payments made by the P.I.A. and;

(ii) The rejection of application for rectification on the basis of intended action under section 122(5A) is biased and unlawful. Arbitrary refusal squarely falls under the definition of `maladministration' specifically included in section 2(3)(1)(a) of the Ordinance XXV of 2000.

8. In the parawise comments the Regional Commissioner of Income Tax, Eastern Region, Lahore has stated that the action under section 122(5A) is attracted in this case as the complainant is a contractor and falls within the `Presumptive Tax Regime' in terms of Central Board of Revenue's Circular 11 of 1991 dated 30-6-1991 and against the proceedings under sections 122/221 of the Income Tax Ordinance, 2001, the legal remedy of appeal is available to him. So no maladministration is spelled out from the complaint. It is admitted that assessment for years 1998-99, 1999-2000 were finalized on 30-6-2004 under sections 62/132 of the repealed Income Tax Ordinance, 1979 and for years 2001-02 and 2002-03 at "no demand". No refund was determined and no credit of tax was withheld. Subsequently the complainant applied for rectification under section 221 of the Income Tax Ordinance, 2001 claiming credit for tax withheld and claimed refund, which was rejected by the Taxation Officer on the basis that provisions of S.122(5A) were attracted in the case. The complainant is a supplier of manpower on contract basis. The gross receipts being contractual in nature fall within the `presumptive tax regime' and were liable to be taxed under S.80(c) of the repealed Income Tax Ordinance, 1979. In support of this contention six decisions of various forums have been cited by the respondent. Preliminary objections have also been raised about the non-maintainability of the complaint and ouster of F.T.O's. jurisdiction in the matter. It is urged that a process which is bona fide or is initiated or made for valid reasons would not amount to maladministration, even if it is contrary to law, rules or regulations. There is no allegation of targeted malice or bias against the respondent. Under section 10(8) of the F.T.O. Ordinance, 2000, the conduct of an investigation shall not affect any action taken by the Revenue Division to take further action in respect of matter subjected to any investigation. So the respondent was within legal limits for proposing action under section 122(5A) of the Income Tax Ordinance, 2001.

9. In the hearing of the case on 5-9-2005 the complainant was represented by Mr. Salim Rathore, Advocate whereas Mr. Muzammil Hussain (I.A.C.) appeared for the respondent. He emphasized that the given receipts of the complainant being contractual in nature fell within the presumptive tax regime and were liable to be taxed under S.80(c) of the repealed Income Tax Ordinance, 1979. The tax deducted was final discharge of the tax liability. He relied on the cases cited in the parawise comments in which it was held that gross receipts of the taxpayer being contractual in nature fell within the Presumptive Tax Regime and were liable to be taxed under section 80(C) of the repealed. Income Tax Ordinance, 1979. The A.R. of the complainant contended that when the assessments were finalized in June, 2004 the assessing officer intentionally did not grant credit of full amounts of taxes paid although complete proof of taxes paid was available with him which was evident from the fact that piece-meal credit from full amounts was given to the extent of satisfying the taxes levied for each year. Full credit should have been given there and then and refund created. He submitted that the Taxation Officer although admitted that the mistake was apparent from record but refused to rectify on the ground that the case had been proposed for action under section 122(5A) of the Income Tax Ordinance, 2001. He argued that order of the assessing officer was unlawful because refusal on basis of mere proposal for any action to be taken in future was nowhere provided under the law. It amounted to unlawful and arbitrary exercise of authority against the taxpayer. He relied on the decision of the President of Pakistan in C.No.36/2003 in which it was observed that refund could not be withheld on account of expected tax liability. He argued that section 50(4) is not only applicable to the expression of `Contract' but to the "Service Rendered" through contract as well. In support of his contention he referred to the ITAT's decision at Vol.7 No.9 Tax Forum 42 which was land mark decision and countered the decisions referred to by the respondent. He pointed to another lacuna in the proposal for action under section 122(5A) as the same had been made by the Taxation Officer against the order of his predecessor who made the assessment. It was established practice that one could not be judge of ones own cause. The P.I.A. had wrongly deducted tax on the gross amounts and as such it was a case of excessive deduction of tax. The respondent had failed to realize that if the receipts pertaining to the complainant were assessed under Presumptive Tax Regime it would result into refund more than what was claimed by him.

10. The respondent has ignored the later decision of the ITAT in I.T.As. Nos.2668/LB to 2672/LB/02 in which it was held that services rendered through contract or otherwise were not covered by the presumptive tax regime. The respondent has initiated action against the complainant on the basis of earlier decisions of the ITAT.. The impugned decision rejecting the complainant's rectification application for creation of refund is contrary to the decision of the President of Pakistan referred to in Para 10 above which amounts to `maladministration' and is not maintainable in the eyes of law. Therefore, the preliminary objections raised by the respondent are overruled.

11. In view of the findings in the preceding Para. it is recommended that:---

(i) The order dated 20-7-2005 passed under section 221 of they Income Tax Ordinance, 2001 by the Taxation Officer, Circle 02, Zone C, Lahore rejecting the complainant's application under section 156 of the repealed Income Tax Ordinance, 1979 should be set aside by invoking provision of S.122A of the Income Tax Ordinance, 2001 and complainant's refund in consequence of assessment order dated 30-6-2004 for assessment years 1998-99, 1999-2000, 2001-02 and 2002-03 be properly determined and issued along with additional payment, if any, as per law.

(ii) Compliance to be reported within 30 days of receipt of the findings.

C.M.A./547/Tax (Trib.)Order accordingly.