MUNIR HUSSAIN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 472 (2005)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C & 50(4)---Income Tax Ordinance (XLIX of 2001), Ss.122A & 153(9)---C.B.R. Circular No.6 of 2003, dated 9-7-2003---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Tax on income of certain contractors and importers---Services rendered as washerman/dhobi---Assessing Officer passed order cancelling the assessment under S.122A of the Income Tax Ordinance, 2001 holding that tax deducted under S.50(4) of the Income Tax Ordinance, 1979 was final liability---Assessee contended that services rendered as washerman/dhobi were covered by the word "services" and assessments under S.80C of the Income Tax Ordinance, 1979 were not justified; case fell under S.50(4) of the Income Tax Ordinance, 1979 and outside the purview of Presumptive Tax Regime and tax deducted could not be final discharge of tax liability---Validity---Issue had been dealt with at length by the Appellate Tribunal and it had been held by the Appellate Tribunal that the services rendered, whether through contract or otherwise were not covered by the `Presumptive Tax Regime' of the Income Tax Ordinance, 1979---Restricted meaning could not be given to the expression "services"---Federal Tax Ombudsman recommended that the impugned order of Commissioner of Income Tax should be set aside and that the Taxation Officer should assess the complainant's returns under normal law after issuing notices under S.61 of the Income Tax Ordinance, 1979.

2005 PTD (Trib.) 668 rel.

Muhammad Sirjees Nagi, Advisor, Dealing Officer.

Rana Mushtaq Ahmad Toor, I.T.P. for the Complainant.

Muhammad Naeem Afzal Khan, Taxation Officer for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---The complainant is providing services of cloth washing to the Pakistan Army. Due to non-compliance of notices, a consolidated ex parte assessment under section 63 of the repealed Income Tax Ordinance, 1979 was framed on 30-6-1999. On receipt of the demand notice the complainant moved an application under section 156 of the repealed Ordinance for rectification and sought credit of tax paid under section 54. The rectification application was rejected on the ground that the complainant was not entitled to refund being a contractor who should file statement under section 143B as deduction under section 50(4) was to be final discharge of tax liability. The complainant filed complaint No.1026-L-2003 in this office which was accepted and the following recommendation were made:---

(i) "Consolidated ex parte order dated 30-6-1999 for the years 1995-96 to 1998-99 as also order passed on 30-6-2001 under section 156 of the repealed Ordinance be cancelled by the Commissioner by resort to section 122A of the Income Tax Ordinance, 2001.

(ii) Assessment proceedings may then be taken up to dispose of the Returns in accordance with law."

2. In pursuance of the recommendations the C.I.T., Sahiwal passed order dated 10-5-2004 cancelling the impugned assessment under section 122A of the Income Tax Ordinance, 2001 holding that the tax deducted under section 50(4) was final liability. This order was served on the complainant on 29-8-2005. The complainant not being satisfied with order of the C.I.T., Sahiwal filed Review Application No.41/05 which was disposed of vide order dated 1-8-2005. It was observed that the recommendation of the findings in the complaint stood compiled with. The complainant may, if so advised and permissible under the law, the challenge the said order (i.e. dated 10-5-2004 of the C.I.T.) if he feels aggrieved of the same.

3. The instant complaint has been filed against the order of the C.I.T. dated 10-5-2004 on the ground that services rendered by the complainant as washerman/dhobi are covered by the word "services" and therefore the assessments under section 80(C) are not justified. The case falls under section 50(4) of the repealed Income Tax Ordinance, 1979 and outside the purview of tax presumptive regime and the tax deducted could not be final discharge of tax liability. The impugned order is perverse and contrary to law and judgments in the field.

4. In reply the R.C.I.T., Central Region, Multan submits that in compliance with recommendations of the F.T.O's. order dated 15-4-2004, the C.I.T. concerned has passed order under section 122A on 10-5-2004 cancelling the assessment order under section 63 for assessment years 1995-96 to 1998-99. The services rendered by washerman are not covered under the definition of "services" which are elaborated in section 153(9) of the Income Tax Ordinance, 2001 and further explained by C.B.R's. Circular dated 9-7-2003. The services rendered include the services rendered whether through a contract or otherwise by professionals such as medical practitioners, legal practitioners, Accountants and consultants etc. and the services by a washerman contractor cannot be termed as "services" by professional as it was purely a contract with Pakistan Army for washing of clothes etc. The complainant is a contractor and his case falls within the ambit of section 80C(2) and tax deducted as source is final and full discharge of tax liability. Therefore, the complainant's tax deducted is not adjustable and will be treated as final tax liability as provided under subsection (6) of section 153 of the Income Tax Ordinance, 2001. Regarding the case reported as 2005 PTD (Trib.) 668, relied upon in para.7 of the complaint it is submitted that a reference or appeal to the High Court must have been filed against it.

5. In the hearing of the case on 7-10-2005, Rana Mushtaq Ahmad Toor I.T.P. represented the complainant. The respondent was represented by Mr. Muhammad Naeem (Taxation Officer). The parties reiterated the arguments contained in the pleadings. The A.R. of the complainant placed reliance on the judgment of the I.T.A. reported as 2005 PTD (Trib.) 668 which is on all fours with the case of the complainant. The decision is fortified by earlier decision of the ITAT in which it was held that the assessee was very well covered within the definition of the words "services rendered" and, therefore, the assessment of the same under section 80(C) was not justified. The assessments were illegal and cancelled and the Assessing Officer was directed to assess the returns filed by the assessee under normal law after issuance of notice under section 61. He pointed out that the Multan Commissionerate of Income Tax in five cases of washermen and barbers had relied on these decisions and issued refunds to the assessees.

6. The core issue in the case is whether "services rendered" by complainant as washerman are to be assessed under section 80(C) of the repealed Income Tax Ordinance, 1979 and the tax deducted thereon is to be considered as final discharge of the tax liability. This issue has been dealt with at length by the ITAT in I.T.A. No.2668/LB. It has been held that the services rendered whether through contract or otherwise are not covered by the `presumptive tax regime' of the repealed Income Tax Ordinance, 1979. Also restricted meanings cannot be given to the expression "services".

7. The complainant's case is on all fours with the case reported as 2005-PTD (Trib.) 668. The respondent's assertion that a reference/appeal must have been filed against it is not a valid argument to dislodge this decision. It is to hold field against the respondent until it is set aside/varied or amended by the appellate forum. Therefore, it is recommended that:---

(i) The impugned order of C.I.T. dated 10-5-2004 should be set aside.

(ii) The Taxation Officer should assess the complainant's returns under normal law after issuing notices under section 61 of the repealed Income Tax Ordinance, 1979.

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

C.M.A./564/F.T.O.Order accordingly.