MUHAMMAD SADEEQ VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 642 (2004)

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

----Ss.50(5), 80(c) & 96---Constitution of Pakistan (1973), Art.247---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(ii)---Advance tax---Deduction at source---Payment of tax before Assessment---Exemption---Maladministration---Complainant, a resident of Tribal Area, imported goods---Customs authorities charged income tax under section 50(5) of the Income Tax Ordinance 1979---Complainant filed nil income return and claimed refund on the plea of exemption under Article 247 of the Constitution of Pakistan---Assessing Officer accepted the return of the complainant and assessed him to tax under section 80 C treating the tax deducted under section 50(5) as the final discharge of liability and no refund was created---Validity---Complainant was carrying on business in the Tribal Area where repealed Income Tax Ordinance 1979, and Income Tax Ordinance 2001 had not been made applicable---Assessing Officer had no jurisdiction to issue notice or frame assessment---Claim was verified---Department had no option but to refund the tax deducted or received in advance---Tax Ombudsman ordered the refund of the amount already verified to be paid to the complainant.

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

----S.122---Constitution of Pakistan (1973), Art.247---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(ii)---Tax paid in advance---Concealment of information---Exemption---Maladministration---Complainant, a resident of Tribal Area had paid advance Income Tax to the customs authorities at the time of import of goods---Assessee claimed refund due to exemption---Show- cause notice was issued to the assessee by the department alleging that he was residing in settled area and owned property in the name of his company/firm and was liable to prosecution for such concealment of facts---Validity---Complainant was proved to be a resident of Tribal Areas and the other person was his brother; he was neither resident of nor carried on business in Pakistan---Ground on which the department had issued notice under section 122 of the Income Tax Ordinance 1979 and framed assessment was contrary to law without jurisdiction and without any evidence---Tax Ombudsman cancelled such notice and the proceedings drawn in pursuance thereof and assessment order in circumstances.

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

----Ss.9(b) & 2(3)(i)(a)---Jurisdiction---Remedy of appeal---Bona fides---Matter related to assessment of income for which legal remedy of appeal was available to the complainant and the case fell outside the jurisdiction of the Tax Ombudsman---Validity---Proceedings drawn without any proper evidence and merely on presumption were not bona fide---Process adopted in decision making was illegal---Law under which the proceedings were drawn and assessment made was not applicable---Objection of jurisdiction was overruled by the Tax Ombudsman.

Muhammad Sadeeq, Complainant in person along with his brother Muhammad Sadiq and Abdul Malik Khan, ITP for the Complainant.

Ashfaq Masood, ALIT, Circle-06, Peshawar for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Brief facts of the case are that the complainant is a permanent resident of FATA living in village Hajiyano Katy Gudar, Khyber Agency. He carries on business under the name and style of Messrs New Spinzer & Co. at Jamrud; Khyber Agency and deals in imported cloth, T.V. electronics and air-conditioners.

2. The complainant imported Sony TVs and Battery Cells during the period relevant to the assessment years 2000-2001 and 2001-2002 on which income tax was deducted by the customs authorities Karachi under section 50(5) of the repealed Income Tax Ordinance, 1979 amounting to Rs.1,346,170 and Rs.325,060 for the respective years.

3. The complainant filed returns for the years 2000-2001 and 2001-2002 declaring nil income for each year and claimed refund of the amount of tax deducted under section 50(5) on the basis of exemption claimed under Article 247 of the Constitution. The Assessing Officer finalized the assessments on 18-9-2000 as `NA' accepting the plea of complainant that goods imported were sold in tribal area which was exempt from levy of income tax/wealth tax. However no refund was created.

4. After assessment the complainant statedly made several applications to the Taxation Officer, Additional Commissioner and Commissioner requesting them to modify the assessments by giving credit of tax paid under section 50(5) and to issue refund. The Taxation Officer allegedly started bargaining to the extent of 50% of the refund amount which compelled the complainant to file this complaint.

5. During the pendency of the complaint the Taxation Officer issued show-cause notice, dated 3-11-2003 under section 122 of the Ordinance, 2001 showing his intention for amending the assessments on the grounds (i) that the complainant was an existing assessee since 1988-89 as a co-owner of Messrs Spinzer Plaza Jamrud Road, Peshawar and had filed separate returns in respect of imported goods in the name of Messrs New Spinzer and Co. to evade proper taxation and (ii) that the sales were not verifiable to have been made in the tribal area. In response to this notice the complainant had clarified that he had no concern with Spinzer Plaza but in fact it was his brother Mr. Muhammad Sadiq Khan who was a co-owner in the said plaza and the goods imported by the complainant were sold in the tribal area. The Assessing Officer however did not accept the complainant's explanation and conclude that Muhammad Sadeeq and Muhammad Sadiq were one and the same person who owned commercial and residential property in Peshawar and thus being resident of settled area complainant was not entitled to exemption from tax. The assessment for the years, 2000-2001 and 2001-2002 were therefore modified under section 122 on 15-11-2003 and the complainant was assessed to tax under section 80C treating the tax deducted under section 50(5) as the final discharge of liability.

6. Assessments made under section 122 are stated to be arbitrary and contrary to law and outcome of corrupt and improper motives. It is further stated that the Taxation Officer, possessed no evidence that the goods had not been sold in tribal area. It is also stated that Muhammad Sadeeq and Muhammad Sadiq Khan are two different persons who hold separate National Identity Cards and are also residing separately. It is prayed that the order under section 122 be vacated and the respondent' be directed to issue refund to the complainant along with compensation.

7. In reply the respondent has raised preliminary objection that since the matter related to assessment of income for which legal remedy of appeal was available to the complainant, the case falls outside the jurisdiction of the Ombudsman.

8. It is further stated that during the course of proceedings it transpired that complainant was already an existing assessee as a co-owner of Spinzer Plaza Jamrud Road, Peshawar and had not produced any proof that he was resident of tribal area and was not residing in settled area. Assessments were therefore modified under section 122. The fact that the case falls under section 80C was stated to be sufficient ground for amendment of assessments under section 122 and there was no provision in section 80C for refund of tax deducted under section 50(5) of the repealed Ordinance as the same is treated as final discharge of tax liability.

9. Regarding non-creation of refund at the time of original assessments under section 62 it is stated that refund was not created as credit for tax deductions could not be allowed for want of verification.

10. The charge of corruption is denied by the respondent as being totally baseless and framed for the first time after modification of assessment orders. The complainant is stated to have furnished no proof to substantiate the charge. The complaint being without jurisdiction and merit is prayed to be dismissed.

11. Mr. Muhammad Sadeeq (the complainant) and his brother Mr. Muhammad Sadiq appeared in person who were examined on oath in the presence of the respondent's representative. Mr. Muhammad Sadeeq stated on oath that he is engaged in business at Shah Zaman Hjiyano Kalay (village), Jamrud which is located in Tribal Area and owns no commercial or residential property in settled area. He holds National Identity Card bearing No.21202-1344945. Mr. Muhammad Sadiq Khan stated on oath that he was not engaged in any business and was a co-owner in Spinzer Plaza. He also stated that he is a student of B.B.A. in Sarhad University, Peshawar. He holds National Identity Card bearing No.2120-7634378-3. It is proved beyond any doubt that Mr. Muhammad Sadeeq (complainant) and Mr. Muhammad Sadiq Khan are two different persons and not one and the same person as presumed by the assessing officer. The respondent-representative present who happened to be the Assessing Officer in this case accepted the fact that the two persons are different entities. From the evidence it is clear that the complainant and Mr. Muhammad Sadiq Khan are brothers and have no business connection with each other.

12. From the above facts it is clear that the complainant is neither the resident of nor carries on business in Pakistan. In view of this fact the ground on which the department issued notice under section 122 and framed assessment was contrary to law, without jurisdiction and without any evidence. The evidence regarding the identity of two persons was not at all brought on record nor considered. There is no evidence on the basis of which it can be stated that the complainant was carrying on business in Pakistan. Furthermore the complainant is carrying on business in the tribal area where repealed Income Tax Ordinance, 1979 and the Income Tax Ordinance, 2001 have not been made applicable. Therefore, the Assessing Officer did not have any jurisdiction to issue notice or frame assessment. The representative of the department has admitted that the claim of Rs.1,671,765 was verified in 2003. In the face of such verification there was no option for the department but to refund the said amount. The proceedings drawn without any proper evidence and merely on presumption do not seem to be bona fide. The process adopted in decision making is illegal and as the law under which the proceeding drawn, and assessment made, was not applicable, the order passed cannot be termed to have been passed under the Income Tax Ordinance in these circumstances the objection of jurisdiction is over-ruled.

13. It is recommended as follows:

(i) The notice under section 122 of Income Tax Ordinance, 2001 and proceeding drawn in pursuance thereof resulting in the assessment order be cancelled.

(ii) Refund of Rs.1,671,765 already verified to be paid to the complainant.

(iii) Compensation be also paid as provided under section 171 of the Income Tax Ordinance.

(iv) Compliance be reported within 30 days.

M.I./288/FTOOrder accordingly.