NAZAR KHAN, CONTRACTOR, D.G. KHAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 735 (2004)

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

---Ss. 55, 57 & 143-B---Income tax refund claim---Refund would be issued not by Secretary, Revenue Division, but by Taxation Officer in whose jurisdiction case of assessee fell.

(b) Jurisdiction---

----Order passed without jurisdiction---Status---Such order being an illegal and void order, would not confer any right on party concerned.

PLD 2001 Kar. 695 rel.

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

----Ss. 9 & 10(3)---Income Tax Ordinance (XXXI of 1979), S.143-B---Complaint seeking refund---Limitation---Assessment order was made on 15-3-2003, but complaint was filed on 16-2-2004---Effect---Complaint was prima facie time-barred---Issue of refund had not yet been settled, thus, injustice was continuing---Complaint was treated to be in time in. circumstances.

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

----Ss. 62 & 143-B---Constitution of Pakistan (1973), Art.247---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3)(i)(a)(b), 9 & 11--=Income tax refund claim---Tax deducted for work done in Tribal Area was claimed to be exempt in view of Art.247 of the Constitution---Taxation Officer completed assessment under S.62 of the Income Tax Ordinance, 1979, accepted claim of exemption, but did not issue refund and later on transferred assessment record to another region on point of jurisdiction---Validity---Assessment in such case had been completed without jurisdiction and without following proper procedure---Such claim had not been settled even after a year---Such facts would constitute maladministration on account of neglect, inattention, inefficiency and inaptitude in performance of duties falling within meaning of S.2(3)(i)(a)(b) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Onus to prove that respondent had acted bona fide and for valid reasons was lying on Taxation authorities, which they had failed to discharge---Federal Tax Ombudsman recommended to Revenue to direct concerned Taxation authorities to make thorough enquiries to determine location, where income rose, and if same arose within Tribal Area, refund be made to 'complainant, and if same did not arise in Tribal Area, then proper assessment be made and refund due, if any, be issued immediately after completion of assessment as required by law.

(2000) St Tax 360 and 1993 PTD (Trib.) 249 ref.

Muhammad Mushtaq, Advisor (Dealing Officer).

Sheikh Ghulam Asghar for the Complainant.

Qaiser Mehmood, D.C.I.T. for the Revenue.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The complainant is aggrieved on account of non-issuance of refund. The brief facts are that the complainant is the resident of Basti Jan Muhammad, Fort Munro, Dera Ghazi Khan situated in Tribal Area. The complainant executed contracts with the Irrigation Department, District Zhob, Baluchistan Province for the assessment year 2002-2003 and received payment of 54,787,883. Tax was deducted at source at Rs.3,284,255. The complainant alleged that the contract was executed in Tribal Area hence he was not liable to Income Tax. Income earned by him was alleged to be exempt in view of Article 247 of the Constitution of Pakistan as laws of the country were not applicable in the Tribal territory. The complainant filed statement under section 143B of the repealed Ordinance in Circle 18 D.G. Khan and claimed refund of Rs.3,284,255. Income Tax assessment was completed under section 62 vide order dated 14-3-2003 wherein the complainant's claim of exemption was accepted. However, so far no refund has been issued and injustice was being continued indicating `maladministration' on the part of the Taxation Authorities which has caused grievance to the complainant.

2. In reply the R.C.I.T. Central Region, Multan has denied any maladministration. It has been submitted by the R.C.I.T. that the complainant was a permanent resident of Tribal Area. The entire contract was executed by him in Tribal Area of Zhob, which fell in the Province of Baluchistan. According to the R.C.I.T., the payment was made by the Irrigation Department, Zhob and the tax was accounted for by the Accountant-General, Baluchistan. The R.C.I.T. submitted that jurisdiction of this case lay with the R.C.I.T., Southern Region, Karachi and Income Tax assessment completed by the Taxation Officer, Circle-18, D.G. Khan was without any jurisdiction. The R.C.I.T. has also submitted that the refund in this case could not be issued because not only assessment was completed without any jurisdiction but also because verification of payment of tax deducted at source has not been completed inspite of the fact that District Account Officer Zhob was requested by the Taxation Officer on 24-12-2003 for verification. The R.C.I.T. further submitted that the complainant had filed only statement under section 143B of the repealed Ordinance and no Income Tax Return claiming refund was filed by the complainant. According to the R.C.I.T. statement under section 143B of the repealed Ordinance was filed under section 80C of the repealed Ordinance where the taxpayers did not have any other source and tax deducted was treated as final liability of a taxpayer. If the complainant wanted a refund then he should have filed a regular Income Tax Return under section 55 of the repealed Ordinance and claimed refund in the return, which was not done by the complainant. The R.C.I.T. has further submitted that demand notice issued on 15-3-2003 did not indicate any refund implying thereby that the matter of refund has not been finalized as yet. The R.C.I.T. informed that the assessment record was transferred to R.C.I.T., Southern Region, Karachi on the point of jurisdiction and the 'Taxation Officer, Circle-18 has been asked to explain his position for completing the assessment without jurisdiction.

3. Sheikh Ghulam Asghar, Advocate, attended for the complainant. He forcefully argued that the assertion of the R.C.I.T. that Income Tax assessment completed by the Taxation Officer, Circle-18 was without any jurisdiction was not correct and too late in the day for the following reasons:

(1) The very first sentence of assessment order read. "The assessee an individual falls within the jurisdiction of this Circle and continued to derive income from execution of work contracts". It meant that while making assessment the Taxation Officer examined the issue of jurisdiction and made a conscious decision after consultation with the Inspecting Additional Commissioner. Now at this stage after assessment has been completed to say that assessment was completed without jurisdiction was not correct.

(2) The complainant is resident of Basti Jan Muhammad, Fort Munro, Dera Ghazi Khan which is a part of D.G. Khan District as is evident from the Notification No. 2205/Steno-LG dated 16-10-2000 issued by the Deputy Commissioner D.G. Khan in connection with the local bodies election. A copy of this notification was placed on the record.

4. The A.R. has submitted that he complainant was not only exempt from tax keeping in view the provisions of Article 247 of the Constitution but was also exempt from tax keeping in view S.R.O. 586(I)/91 dated 30-6-1991. The A.R. has argued that the complainant filed statement under section 143B of the repealed Ordinance to claim the refund of Rs.3,284,255 which was clearly indicated in the statement under section 143B filed by the complainant. In this statement the complainant nowhere indicated that the tax deducted at source was his final tax liability. The A.R. submitted that the Taxation Officer, keeping in view the provisions of Article 247 of the Constitution and the decision of Peshawar High Court in case reported as (2000)-St-Tax-360 (H.C. Peshawar), exempted the complainant from Income Tax but inspite of this fact refund has not been issued so far which was serious maladministration. The A.R. pointed out that the assertion of the R.C.I.T. that the tax deducted at source had not been verified by the District Accounts Officer Zhob was not correct because the said office had already issued a verification certificate which was available on the record. Instead of issuing refund, the assessment record was transferred to the R.C.I.T., Southern Region, Karachi with mala fide intention to delay the refund. The A.R. further submitted that the respondent in this complaint was the Secretary, Revenue Division and refund had to be issued on his behalf. The Taxation Officer, Circle-18, D.G. Khan, I.A.C., C.I.T. and R.C.I.T., Multan are his representatives. They have to issue the refund requested by the complainant.

5. The replies of the complainant and the respondent were examined and rival arguments considered. This complaint involves a number of legal issues which are as under:---

(i) The complainant admittedly .is a resident of Tribal .Area and executed contract in Tribal Area. The payments were made to the complainant by the Irrigation Department, Zhob and tax deducted was accounted for by the District Accounts Officer, Zhob and the Accountant-General Baluchistan. Thus the jurisdiction of the complainant falls with the Taxation Authorities, Baluchistan within the meaning of section 5(3)(a) of the repealed Ordinance. The assessment completed by the Taxation Officer, Circle-18, D.G. Khan was without any jurisdiction. The assertion of the A.R. that the complainant is a resident of Basti Jan Muhammad, Fort Munro, is not tenable because jurisdiction in cases deriving income from business lies with the Taxation Officer where business is situated as provided by section 5(3)(a) of the repealed Ordinance.

(ii) The complainant is a resident of the Tribal Areas. However, it does not make him a non-resident because:---

(a) According to Article 247 of the Constitution of Pakistan, no Act of Parliament applies to Federally Administered Tribal Areas (FATA). However, the said areas remain part of Pakistan and their residents are Pakistanis.

(b) The complainant is the holder of National Identity Card.

(iii) The assertion of the A.R. that complainant enjoyed exemption from Income Tax in view of S.R.O. 586(I)/91 dated 30-6-1991 is not tenable. The said S.R.O. provides exemption from withholding of Income Tax under section 50(4), which cannot be equated with the exemption from Income Tax altogether.

(iv) The complainant has filed only statement under section 143B of the repealed Ordinance which statement is filed in the cases covered by the presumptive tax regime under section 80C of the repealed Ordinance indicating that tax deducted is a final tax liability of the person filing such statement. In order to claim the Income Tax Refund a regular Income Tax Return under section 55 or 57 had to be filed which was not done.

(v) The assertion of the R.C.I.T. that as the complainant had filed statement under section 143B he was not entitled to refund is not tenable as observed by the I.T.A.T. in a case reported as 1993 PTD (Trib.) 249. In the quoted case, it was held "that if an assessee is clearly entitled to a relief the same should be provided to him and no effort should be made to subject to tax an income which was otherwise exempt by encashing on the ignorance or oversight of the assessee". Mere filing of statement under section 143B by the complainant does not deprive him of the relief he is entitled to.

(vi) The assessment completed by the Taxation Officer, Circle-19, D.G. Khan is not only without jurisdiction but also suffers from other legal infirmities. The assessment has been completed under section 62 of repealed Ordinance where no Income Tax Return was filed by the complainant and no notices under sections 56/65 calling for the return were issued. Only a statement under section 143B was filed by the complainant. Completion of assessment under section 62 on the basis of 143B statement is illegal. In such cases assessments have to be completed under sections 59A, 62 or 63 as the case may be read with section 80C of the repealed Ordinance.

(vii) It has been asserted by the R.C.I.T. that assessment was completed by the Taxation Officer without jurisdiction but inspite of these observations the said assessment order was not cancelled.

6. The A.R. pleaded that as the Taxation Officer, Circle-18, D.G. Khan accepted the claim of exemption, the refund should have been issued by the Taxation Officer along with assessment order. This was not done even after a year of finalization of assessment, which was, according to the A.R., a case of maladministration. The A.R. also argued that in the complaint the Secretary Revenue Division was made the respondent. Refund was to be issued on his behalf. The Taxation Officer, Circle-18, D.G. Khan being his representative was bound to issue the refund. These pleas of A.R. are not acceptable for the reason that notwithstanding the fact the Secretary, Revenue Division is the respondent in this case but refund has to be issued by the Taxation Officer in whose jurisdiction the case of the complainant falls. It has already been pointed out that the assessment completed by the Taxation Officer D.G. Khan was without any jurisdiction. An order passed without jurisdiction is an illegal and void order. It does not confer any right on the parties concerned as held by Karachi High Court in a case reported as PLD 2001 Kar. 695.

7. Another issue which is required to be examined is the late filing of the instant complaint. The complainant filed 143B statement on 31-10-2002. Assessment order was made on 15-3-2003 but complaint was filed on 16-2-2004. Thus the complaint was prima facie time-barred keeping in view the provisions of section 10(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. This issue has been examined. Since the issue of refund has been so far settled and injustice is continuing the complaint is treated to be in time.

8. Completion of assessment in this case without jurisdiction and without following proper procedure and non-settlement of the claim of refund of the complainant even after a year constitutes maladministration on account of neglect, inattention, inefficiency and inaptitude in performance of duties falling within the meaning of the provisions of sections 2(3)(i)(a) and 2(3)(i)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. The Taxation Authorities have failed to prove that the non-settlement of the issue of refund of the complaint was bona fide and for valid reasons. The onus to prove that respondent acted bona fide lay with the Taxation Authorities which has not been discharged.

9. In view of the above discussion, it is recommended that:---

(i) C.B.R. to direct the concerned Taxation Authorities to make thorough enquires to determine:

(a) The location where the income arose.

(b) If it arose within the Tribal Area, refund is to be made to the complainant.

(c) If it did not arise in Tribal Area, then proper assessment be made and refund due, if any, be issued immediately on the completion of the assessment as required by law.

(ii) The C.I.T., Multan, to take action against the concerned Taxation Officer for completion the assessment under section 62 read with section 80C for assessment year 2002-2003 in the case of the complainant without jurisdiction and without following proper procedure.

(iii) Compliance report of above mentioned recommendations be submitted within 60 days of the receipt of this order by the Revenue Division.

S.A.K./256/F.T.O.Order accordingly.