Mrs. UZMA KHURRAM ALI ABIDI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 454 (2004)

(a) Wealth Tax Act (XV of 1963)---

---Ss. 14C, 35 & Second Sched., Part-I, Cl.(12)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Tax on owners of certain immovable assets---Rectification of mistake---Limitation---Non-payment of created refund on the ground that payment was final discharge of tax liability in respect of property---Assessing Officer's rectification orders declaring the amounts as refundable were not in accordance with the provisions of law---Validity---Assessing Officer rectified the original assessment under mistaken belief that the tax deposited was in excess of the demand and result was that the demand though due under S.14C of the Wealth Tax Act, 1963, had not at all been created---Such demand could legally be created by rectifying/revising the assessments---Subtle point was that the certificatory order had not created any demand but had simply allowed credit for tax paid---Department woke up to the reality too late in the day when action both under S.35 and S.17B of the Wealth Tax Act, 1963 had become time-barred by operation of the provision of S.17A(4) and 17B(3) of the Wealth Tax Act, 1963---Issuance of notices under S.35 of the Wealth Tax Act, 1963 were `contrary to law' being devoid of lawful authority and fell in the definition of "maladministration"---Federal Tax Ombudsman recommended that Central Board of Revenue to direct the concerned tax functionaries to drop the proceedings initiated by issuing notices under S.35 on 27-7-2004; that initiate enquiry as to how the lapses committed by the Assessing Officer remained unattended despite the expected frequent inspection by the Inspecting Additional Commissioner and that tax functionaries found responsible for improper inspection be identified and warned for dereliction of responsibility placing the warning on the Performance Evaluation Report.

(b) Wealth Tax Act (XV of 1963)---

----Second Sched., Cl. (12)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Exemption---One residential house was exempted from tax on 9th July, 1996 vide S.R.O. 575(I)/96, dated 9th July, 1996 by amending Cl. (12) of the Second Schedule of the Wealth Tax Act, 1963.

(c) Wealth Tax Act (XV of 1963)---

----S. 14C---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Tax on owners of certain immovable assets---Application and explanation---Section 14C of the Wealth Tax Act, 1963 was for the first time introduced in the Wealth Tax Act, 1963 on 16-4-1997 through Finance Supplementary (Amendment) Act, 1997 which was to `come into force at once'---For assessment year 1997-98 the provisions of S.14C and Cl.(12) of the Second Schedule of the Wealth Tax Act, 1963 were applicable.

(d) Wealth Tax Act (XV of 1963)---

---Ss. 14C, 17B, 35 & Second Sched., Cl.(12)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Tax on owners of certain immovable assets---Assessing Officer when framing assessment rightly allowed exemption, as claimed, for the self-occupied property, and subject to the rest of the declared assets without regard to the basic exemption limit---Assessing Officer however, committed a mistake by not levying the `minimum tax liability' as per S.14C of the Wealth Tax Act, 1963 which had `come into force on 16-4-1997---Such mistake was apparent from record and attracted action by the Inspecting Additional Commissioner under S.17B of the Wealth Tax Act, 1963.

Muhammad Akbar, Advisor, Dealing Officer.

Ahmad Shujah Khan for the Complainant.

Abdul Rehman Warriach for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH, (FEDERAL TAX OMBUDSMAN).---The above-captioned complaints involving similar points of law and fact are being disposed of through this consolidated order.

2. Facts of the complaints are that the complainants had filed Wealth Tax Returns for A.Y. 1997-98 showing taxable wealth at Rs.280,000 (Mrs. Uzma Khurram Ali) and Rs.250,000 (Usman Hayat) respectively. Each of the complainants had mistakenly paid wealth tax of Rs.40,000 on 29-10-1997. Assessment were finalized on 30-11-1998 determining wealth tax liability of Rs.1400 and' Rs.1250 respectively. The aforesaid amounts were not separately paid yet Assistant Commissioner of Wealth Tax did not allow credit of wealth tax of Rs.40,000 already paid in each case to avoid creating refunds of Rs.38,600 and Rs.38,750 respectively. The complainant's then applied on 28-7-2001 for rectification claiming credit of Rs.40,000 and for payment of refunds amounting to Rs.38600 and Rs.38,750 respectively. As a result, the wealth tax officer rectified assessment orders on 3-5-2003 admitting the refund claim. The complainants requests for refund dated 30-6-2003 followed by reminders on 21-2-2004 and 26-2-2004 to the Medium Taxpayers Unit claiming refunds together with additional payment for delay in issuing original refunds, remained unattended. It is alleged that the respondents committed maladministration by (i) not giving credit for wealth tax paid; (ii) refusing to refund the excess amounts, (iii) delaying the process of rectification and (iv) ignoring complainants' applications seeking refunds. It is prayed that respondents be directed to pay refunds along with the additional amount admissible to the complainants.

3. In reply, the respondents have denied violating C.B.R's. instructions. The R.C.I.T. has explained that as per section 14C of the Wealth Tax Act, 1963, payment of Rs.40,000 (in each case was final discharge of tax liability in respect of 4000 sq yard property owned by the complainants. The assessing officer was right in not giving the credit of that payment against wealth tax payable in respect of the remaining assets. The only mistake committed by him was that he wrongly gave credit of payments of Rs.1400 and Rs.1250 whereas no such amounts had been paid---a mistake prejudicial to Revenue and, not to the complainants. The R.C.I.T. has asserted that Assessing Officer's ratification orders dated 3-5-2003 were not in accordance with the provision of law. Instead of disallowing the credit of Rs.1400 and Rs.1250 erroneously given in the original assessment orders, he replaced it with credit of Rs.40,000 and wrongly proceeded to declare the amounts of Rs.38,600 and Rs.3.8,750 as refundable. Tax payment of Rs.40,000 (in each case) being final discharge was not adjustable against tax charged on other assets. Lack of action on application for refunds is attributed to the fact that (i) the relevant were under transfer from Zone-B, Lahore, and (ii) officers were busy in disposing of cases which were likely to become time barred on 30-6-2004. According to the R.C.I.T. the complainants were not entitled to any refund for A.Y. 1997-98. On the contrary, proceedings had been initiated to rectify the mistake committed in orders dated 3-5-2003. It is insisted that the complainants are still obliged to pay wealth tax of Rs.1400 and Rs.1250 (respectively) in respect of assets other than 4000 sq. yd. property which should have been paid along' with the wealth tax returns for 1997-98. The R.C.I.T. has prayed that the complaints may be filed being devoid of merit.

4. During the hearing, the A.R. reiterated the points advanced in the written complaints stating that to begin with the assessment orders determined "no demand". Subsequently on complainants' applications, orders dated 3-5-2003 were passed showing Rs.38,600 and Rs.38,750 as refundable amounts. Complainant's applications seeking payment of original refunds and additional refunds under section 31C of the Wealth Tax Act, 1963 remained unheeded. He further added that the complainants had opted for clause-B of Part-I, First Schedule to the Wealth Tax Act, 1963 and were, therefore, exempt from payment of property tax, especially because the houses in question were self-occupied. He argued that the rectifications now intended to be carried out were barred by time as the original assessment orders were passed on 30-11-1998. It is the date of assessment orders and not the date of rectification orders which should form time reference for computing 4 years time bar as stipulated in section 35 of the Wealth Tax Act.

5. The D.R. submitted that the assessments related to assessment year 1997-98. Under section 14C of the Wealth Tax Act the values of the assets as determined on 30-6-1997 were leviable to tax. The aforesaid section was substituted by Finance Act, 1997 but the substitution came into effect from 1-7-1997. On 30-6-1997 the law as it stood required payment of wealth tax at the appropriate rate; even if the houses were self-occupied.

6. The arguments of the parties and the record of the case have been considered and examined. In so far as the applicability of the provisions of section 14C of the Wealth Tax Act is concerned it is worth recalling that one residential house was exempted from tax on 9th July 1996 vide S.R.O. 575(I)/96 by amending Clause 12 of the Second Schedule to the Wealth Tax Act. Moreover, there can be no quarrel with the proposition that section 14C was for the first time introduced in the Wealth Tax Act on 16-4-1997 through Finance Supplementary (Amendment) Act 1997 which was proclaimed to `come into force at once'. Therefore, for the' assessment year 1997-98 the provisions of section 14C and Clause 12 (as above) were applicable. These insertions in law created the following legal scenario:---

(i) Those opting exemption for self-occupied houses under clause (12) (ibid) were subject to tax without any basic exemption.

(ii) Despite the above exemption, the owners of self-occupied residential houses were liable to "minimum tax liability" as per newly inserted section 14C.

On the above legal position, the assessing officer when framing assessment under section 16(3) on 30-11-1998 rightly (i) allowed exemption, as claimed, for the self-occupied property, and (ii) subjected to tax the rest of the declared assets at Rs.280,000/250,000 without] regard to the basic exemption limit of Rs.1.0 (M). However, he committed a mistake by not levying the `minimum tax liability' as pet section 14C which had `come into force' on 16-4-1997. This was a mistake apparent from record and also such as could attract action by the I.A.C. under section 17B. Without realizing his lapse, the assessing officer, taking resort to section 35, rectified the original assessment on 3-5-2003 under the mistaken belief that the tax deposited at Rs.40,000 (in each case) was in excess of the demand of Rs.1,400, Rs.1,250. The result is that the demand of Rs.40,000 though due under section 14C, has not at all been created in any of the two cases. Such demand could legally be created by rectifying/revising the assessments framed under section 16 on 30-11-1998. The subtle point is that the rectificatory order dated 3-5-2003 has not created any demand but has simply allowed credit for tax paid. Unfortunately the Department woke up to the reality too late in the day when action both under section 35 and section 17B have become time barred by operation of the provisions of section 17A(4) and 173(3) of the Wealth Tax Act. Therefore, the conclusion is inescapable that issuance of notices wider section 35 on 27-7-2004 are `contrary to law' being devoid of lawful authority, thus falling in the definition of "maladministration" as per the provisions of Clause (3) of section 2 of the F.T.O. Ordinance. It is, therefore, recommended that the C.B.R.:-

(i) Direct the concerned tax functionaries to drop the proceedings initiated by issuing notices under section 35 on 27-7-2004.

(ii) Initiate enquiry as to how the lapses committed by the assessing officer on 30-11-1998 remained unattended despite the expected frequent inspection by the I.A.C.

(iii) The tax functionaries found responsible for improper inspection be identified and warned for dereliction of responsibility placing the warning on the Performance Evaluation Report (=the old ACR).

(iv) Compliance report be submitted within 30 days of the receipt of this Order.

C.M.A./565/F.T.O.Order accordingly.