AHMED MUNIR VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 848 (2004)

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

----Ss.12(2), 50(4), 59A, 80C & 143B---Income Tax Ordinance (XLIX of 2001), S.221---S.R.O. No.586(I)/99 dated 30-4-1999---Constitution of Pakistan (1973), Arts. 246 & 247---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(a), (b) & (c)---Tax deducted---Refund---Statement of Income---Assessment on basis of return---Tax on income of contractors---Exemption---Complainant was resident of Provincially Administered Tribal Area and had executed some contracts with Frontier Works Organization for road works in the Kohistan Pattan Area---Tax was deducted under S.50(4) of the Income Tax Ordinance, 1979---Contractor claimed refund which was refused by the department---Department contended that complainant had filed statements under S.143B of the Income Tax Ordinance, 1979 and tax was deducted under S.5.0(4) on the presumptive income which constituted final discharge---Validity---Provisions of Income Tax Ordinance had not been extended to Federally Administered Tribunal Areas or provincially Administered Tribunal Areas where the complainant resided---Section 12(2) of the Income Tax Ordinance, 1979 was wrongly interpreted---Complainant had not done any activity directly or indirectly in the taxable territories and he could not be considered to have business connection in Pakistan---Context of section 143B was quite invalid---Assessment under S.59A was to be on deemed income under S.80C of the Ordinance---Assessment under S.59A was made in respect of income which was not chargeable to tax in Pakistan---Federal Tax Ombudsman recommended the Commissioner of Income Tax to make rectification under S.221 of Income Tax Ordinance, 2001 and refund would be considered as due from that date.

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

----S.2(3)(i)(a) & (b) & (V)---Maladministration---Refusal to refund the tax which was not actually payable by the complainant fell within the definition of "maladministration".

Mirza Muhammad Wasim, Adviser (Dealing Officer) Ahmed Munir for the Complainant.

Nemo for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---This is a complaint by resident of Kohistan regarding non-payment of income tax refund which is stated to be due to him. It is stated that Kohistan and Malakand Division enjoy special status as no law or Act of Parliament has been extended to the area under Articles 246 and 247 of the Constitution of Pakistan. It is pointed out that the complainant is a resident of village Seo in Kohistan which falls under PATA and he executed some contracts with Frontier Works Organization for road works in the Kohistan Pattan area. It is stated that since the Income Tax Ordinance, 1979 was not applicable to Kohistan, which exemption to Tribal Areas is also evident from S.R.O. No.586(I)/99 dated 30-471999 it is obvious that tax was wrongly deducted under section 50(4) of the repealed Income Tax Ordinance, 1979 from the payments received by the complainant and was thus refundable. It is pointed out that despite applications to the tax authorities, including the R.C.I.T. the refund has not been allowed to the complainant. It has been prayed that the refund be ordered to be issued together with compensation for delayed refund.

2. The respondent's reply consists of the comments of the R.C.I.T., Northern Region; Islamabad. It is stated in the reply that the complainant had filed statements under section 143B of the repealed Income Tax Ordinance, which are required for declaring presumptive income on which the tax deducted under section 50(4) constitutes final discharge of tax liabilities. It is stated that after the filing of statements under section 143B there is no scope for claiming any refund unless tax has been deducted at a higher rate than the rate applicable, which is not the case here. It is also stated that income has been earned by the complainant from a business connection in Pakistan viz. the Frontier Works Organization and for this reason also there is no question of any refund being payable to the complainant. It has thus been prayed that the complaint be dismissed.

3. During the hearing it was stated by the complainant that he had been advised by the departmental functionaries themselves to file returns of income in order to claim refund of the tax deducted under section 50(4). It is stated that it was on the basis of this advice that statements under section 143B were filed and that, in any case, the department has not disputed the fact that the provisions of the repealed Income Tax Ordinance were not applicable in the Kohistan area.

4. The contentions of the complainant and those in the respondent's reply have been considered and there is no dispute that the provisions of the Income Tax Ordinance have not been extended to FATA/PATA where the complainant resides. The respondent's contention regarding business connection in Pakistan is also totally misplaced and is based on a misreading of subsection (2) of section 12 of the repealed Ordinance which reads as under:--

"(2) Any income accruing or arising, whether directly or indirectly, through or from--

(a) any business connection in Pakistan;

(b) any asset, property or source of income in Pakistan; or

(c) transfer of a capital asset situated in Pakistan, shall be deemed to accrue or arise in Pakistan:

Provided that, in the case of a business all the operations of which are not carried out in Pakistan, the income of the business deemed under this subsection to accrue or arise in Pakistan shall be only such part of the income as is reasonably attributable to the operations carried out in Pakistan."

The above provisions clearly mean that the business connection should itself be within Pakistan viz. that the person concerned should have such activity in Pakistan as may be considered to constitute a business connection. This does not mean that any dealings with a resident of Pakistan would constitute such a connection. If the respondent's arguments were accepted; all persons making exports to Pakistani buyers would become taxable in Pakistan. Obviously this is not so because the foreign exporter has no activity in Pakistan which could constitute a business connection. Similarly the complainant has also not carried out any activity directly or indirectly in the taxable territories and he cannot, therefore, be considered to have a business connection in Pakistan.

5. The respondent's contention in the context of section 143B of the repealed Ordinance has also been considered and found to be quite invalid. According to subsection (7) of section 80C of the repealed Ordinance, an assessment 'under section 59A would be deemed to have been made in respect of the, deemed income under section 80C. In the complainant's case deemed assessment under section 59A has, therefore, been made in respect of income which was not chargeable to tax in Pakistan. This is a mistake apparent from record which the respondent should have rectified under section 221 of the Income Tax Ordinance, 2001. The refusal to refund the tax which was not actually payable by the complainant falls within the definition of maladministration contained in section 2(3)(i)(a) & (b) and (v) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

5. In the light of the above, it is recommended that-

(i) Necessary action be taken on the lines indicated in para 4 above and the tax deducted from the complainant's receipt be refunded without further delay.

(ii) The refund would be considered as due from the date of the rectification under section 221.

(iii) Reasons for failure to attend on the date of hearing be explained by the respondent.

(iv) Compliance be reported within 30 days.

M.I./352/F.T.O.Order accordingly.