TOP END PRODUCTIONS, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 500 (2004)

(a) Income Tax Ordinance (XLIX of 2000----

----S.122(5A)---Income Tax Ordinance (XXXI of 1979) Ss.96, 59(1), 50(4) & 80C---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Self-assessment---Assessee was engaged in production and exhibition of TV drama by obtaining "Air Time" from PTV---Return filed was set apart for Total Audit---Federal Tax Ombudsman recommended that order of set apart be withdrawn---Return was accepted under Self-Assessment Scheme resulting refund---In another complaint Federal Tax Ombudsman had recommended issuance of refund after verification---Notice under S.122 of the Income Tax Ordinance, 2001 was issued on the ground that income derived by telecasting dramas on PTV "through purchase of air time under contract" were chargeable to tax under S.80C of the Income Tax Ordinance, 1979 which fell within the presumptive tax regime---Assessment finalized was erroneous in so far as it was prejudicial to the interest of revenue---Validity---Case was set apart on . the recommendation of Commissioner and the same Commissioner now contended that filing of return under Self-Assessment Scheme was not proper and statement under S.143B of the Income Tax Ordinance, 1979 should have been filed, was self contradictory; which amounted to a 'change of opinion' and could not be made a basis for considering the assessment erroneous---Return was initially examined by the Commissioner who identified certain points for recommending its setting apart to the Regional Commissioner of Income Tax whose order was subsequently set at naught by the Federal Tax Ombudsman which left no room to suspect erroneousness in the proceedings as may have caused prejudice to the revenue---Change of opinion could not be a valid basis for resort to S.122A of the Income Tax Ordinance, 2001 to amend the assessment on an evidence which had been duly considered and accepted---Bona fides of action evidently stands eroded thus revealing "maladministration" essential for action under S.122(5A) of the Income Tax Ordinance, 2001 that assessment should be erroneous and prejudicial to the interest of revenue at the same time---Since there was no erroneousness in the acceptance of Return, which had been done on the recommendation of Federal Tax Ombudsman, prejudice to the revenue alone could not be the only ground for the proposed amendment---Such notice had been issued to by the same Taxation Officer who made the assessment which was contrary to established practice without any valid reason, against the norm of justice and thus perverse arbitrary and unjust falling in the realm of "maladministration"---Federal Tax Ombudsman recommended that the impugned notice issued under S.122 of the Income Tax Ordinance, 2001 by the Taxation Officer be withdrawn/cancelled; the assessment as framed under S.59(1) of the Income Tax Ordinance, 1979 accepting the returns be allowed to stand good and refund as determined for the two years be issued under S.170 along with additional payment for delayed refund, as per provisions of S.171 of the Income Tax Ordinance, 2001---Central Board of Revenue may issue instructions to the Regional Commissioners of Income Tax/Commissioners of Income Tax to delegate powers so as to retain the hierarchy of the Income Tax Department on the same lines as in the Income Tax Ordinance, 1979.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)----

----S.9---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Re-opening of case---Section 9(2) of the Establishment of the. Office of Federal Tax Ombudsman Ordinance, 2000 protects acts of omission or commission which are bona fide and for valid reasons---Where bona fide is prima facie missing an investigation alone can determine the validity of the complaint---Process adopted to re-open a case did not amount to assessment against which no appeal was provided---Proceedings initiated was independent of assessment---Objection to jurisdiction was overruled by the Federal Tax Ombudsman.

A.A. Zuberi, Adviser (Dealing Officer).

Kh. Riaz Hussain for the Complainant.

Muzammil Hussain, (D-CIT) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---This complaint alleges "maladministration" in the issuance of notice on 17-9-03 under section 122 of the Income Tax Ordinance, 2001 with a view to amend assessment for the years 1999-2000 to 2001-2002.

2. The facts leading to the complaint are that the Complainant-AOP is engaged in the production and exhibition of PTV drama by obtaining `Air Time' from PTV. Returns for the assessment years 1999-2000 and 2000-2001 were accepted Under SAS resulting in refunds at Rs.413,724 and Rs.1,048,257 respectively. When Return for the assessment year 2001-2002 declaring Income at Rs.1,313,080 and claiming refund at Rs.2,325,441 was set apart for Total Audit by resort to para 9(2) of the SAS, the complainant approached this Forum alleging mala fide in the set-apart. Investigations resulted in Finding/Decision dated 3-10-2003 recommending that the order of set apart be withdrawn. The Return was then accepted under SAS. Yet another complaint was filed whereupon Findings/Decision dated 1-10-03 on C.No.923-L/2003 recommended issuance of refund after verification, which is said to be under-process. In the meantime the complainant has been served with a notice under section 122 dated 17-9-03 contending: On "scrutiny of record it transpires that contract receipts in your Return were chargeable to tax under section 80C of the Income Tax Ordinance, 1979 as tax deducted under section 50(4) constituted final discharge of tax liability ..As such assessment already finalized is erroneous in so far as it is prejudicial to the interest of revenue". With this the complainant is aggrieved.

3. The respondents have forwarded para-wise comments by the R-CIT, Eastern Region, Lahore which, in addition to questioning the competence of the complaint for admission in view of the bar as per section 9(2) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance), deny "maladministration". It is submitted by the R-CIT that the complainant derive Income by telecasting dramas on PTV "through purchase of air time under contract" which aspect was overlooked by the assessing officer who failed to consider that prima facie the receipts were contractual in nature falling within the presumptive tax regime hence liability to tax under ..section 80C of the repealed Ordinance for which purpose assessments in all the three years have to be amended.

4. Khawaja Riaz Hussain (Advocate) appearing for the complainant dilating on the chequered history of the case pointed out that initially

(i) refund for the assessment years 1999-2000 and 2000-2001 were unduly withheld,

(ii) till now, despite recommendation by the FTO vide Findings/ Decision dated 1-10-03 (ibid), only part of the refunds have been issued,

(iii) refund for the year 2001-2002 and unpaid balance of complainant's refund for the preceding two years have been withheld on superficial grounds for which C.No.139-L/2004 had been filed.

4A. It is to forestall the issuance of these refunds, despite recommendation by the FTO, that the present action under section 122 has been initiated which clearly smacks of mala fide, thus falling in the category of "maladministration" as defined in the FTO Ordinance.

5. Mr. Muzammil Hussain (D-CIT) appearing for the Revenue repeated the same arguments as were conveyed by the R-CIT in the para wise comments. He explained that the expression that the assessment already finalized is "erroneous in so far as prejudicial to the interest of revenue" clearly implies that the action is proposed under sub-section (5A) of section 122 of the Ordinance though not specifically mentioned in notice dated 17-9-03. According to the DR, though action for erroneousness and prejudice to the revenue was, in the repealed Ordinance, to be initiated by the IAC, in the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) all powers vest in the Commissioner who has delegated some of these to the Taxation Officers and hence notice has been issued by the Taxation Officer dealing with the case. It was canvassed by the DR that instead of submitting a Statement under section 143B of the repealed Ordinance a normal Return of Income was filed by complainant thus misleading the Department to believe that his receipts were not contractual but normal trading transactions.

6. The rival arguments have been heard and case record examined. As already discussed, the Return for the assessment year 2001-2002 was set-apart for Total Audit, which action was reversed on the basis of Findings/Decision dated 3-10-03. As per the Scheme of Self Assessment, resort to Set-apart para. 9(b) is made on the recommendation of the Commissioner. Therefore, for the same Commissioner to now contend that filing of the Return under SAS was not proper and statement under section 143B should have been filed, is self-contradictory. In other words it amounts to a `change of opinion' which could not be made a basis for considering the assessment erroneous. Again, the return was initially examined by the Commissioner who identified certain points for recommending its set-apart to the R-CIT whose order was subsequently set at naught by the FTO, leaves no room to suspect erroneousness in the proceedings as may have caused prejudice to the revenue. Admittedly `change of opinion' cannot be a valid basis for resort to section 122A inter alia to amend the assessment on an evidence which had been duly considered and accepted. The bona fide of action evidently stands eroded thus revealing "maladministration" as defined in Clause (3) of section 2 of the FTO Ordinance. It is essential for action under subsection (5A) of section 122 that the assessment is erroneous and prejudicial to the interest of revenue at the same time. Since there is no erroneousness in the acceptance of Return, which have been done on the recommendation) of PTO, prejudice to the revenue alone cannot be the only ground for the proposed amendment.

7. Another lapse of more serious dimension is that though the Ordinance vests all the powers of assessment, determination of Income and also of amendment/ rectification (etc). in the Commissioner, on his turn the Commissioner has been authorized vide section 210 of the Ordinance to delegate powers to his subordinates who all are designated as Taxation Officers. Adhering to the principles of justice and the practice existing in the Department, it is incumbent on the Commissioner to delegate assessment (and related) powers to a Taxation Officer, and supervisory powers to Taxation Officer of higher rank/ status such as the IACs. This does not appear to have been done hence the impugned notice has been issued by the same Taxation Officer (office, not the person) who made the assessment. It is clearly contrary to established practice without any valid reason, against the norm of justice and thus perverse, arbitrary and unjust falling in the realm of "maladministration" as defined in the FTO Ordinance.

8. The R-CIT's objection as to the competence of the complaint for admission is overruled for the reason that section 9(2) of the FTO Ordinance protects acts of omission or commission which are bona fide and for valid reasons. Where bona fide is prima facie missing an investigation alone can determine the validity of the complaint. Furthermore the process adopted to reopen a case does not amount to assessment against which proceeding no appeal is provided. The proceeding initiated is independent of assessment. The objection to jurisdiction is overruled.

9. In the final analysis, it is recommended that---

(i) The impugned notice issued under section 122 of the Income Tax Ordinance, 2001 by the Taxation Officer (D-CIT Circle 10, Zone-C, Lahore) in respect of assessment years 1999-2000 to 2001-2002 be withdrawn/cancelled,

(ii) The assessment as framed under section 59(1) accepting the Returns be allowed to stand good,

(iii) Refund as determined for the two years be issued under section 170 along with Additional Payment for delayed refund, as per the provisions of section 171 of the Ordinance,

(iv) The C.B.R. may issue instructions to the R-CITs/CITs to delegate powers so as to retain the hierarchy of the Income Tax Department on the same lines as in the repealed Ordinance.

10. Compliance report be submitted within 30 days of receipt of this Order.

C.M.A./365/FTO(I)Order accordingly.