VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 332 (2007)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 170, 120 & 153---Refund-Carriage contractor---First Appellate Authority found that carriage contractor was covered within the definition of the services rendered and thus exempt from charge under presumptive tax regime---Validity---Under S.170 of the Income Tax Ordinance, 2001 the power of issuance of refund did not include the power to discuss the nature of the business of the assessee as well as dilation on the issue whether the same was a case of presumptive income or nor---Enforcement wing had no power to determine the status of carriage contractor and the entire assessment as well as appeal on the basis thereof was illegal---Entire proceedings were without jurisdiction, the cancellation of order by the First Appellate Authority was valid but not for the reason he had mentioned in his order---Some discrimination was being made in respect of various carriage contractors which could neither be appreciated nor approved---Department was instructed to issue refund within 45 days to the assessee unless any other proceedings had been initiated against him till the service of present order.

CIT Medium Taxpayers Unit, Karachi v. Mr. Mukhtar Ahmad C/o KPT I.T.A. No. 30/KB of 2006 and 2006 PTD (Trib.) 1936 rel.

Sardar Taj Muhammad, D.R. for Appellant.

Ch. Inayat Ail Chheena for Respondent.

ORDER

KHAWAJA FAROOQ SAEED CHAIRPERSON---These two appeals on behalf of the department are on the basis of following common grounds:--

(i) That the order of the learned CIT(A) Gujranwala (Camp at Faisalabad) is bad in law and against the facts of the case.

(ii) That the learned CIT(A) was not justified to annul the order under section 170(4) rejecting the taxpayer's refund application when tax deducted on payments of carriage contract is covered under section 153(1)(c) which is a final tax in terms of section 153(6) read with section 169 of the Income Tax Ordinance, 2001.

(iii) That the learned CIT(A) has erred in holding the payments received on account of carriage contract as services rendered under section 153(1)(b) of the Income Tax Ordinance, 2001 when these do not fall, in the ambit of services as explained in section 153(9) of the Income Tax Ordinance, 2001.

2. As is evident from the above grounds the department agitates the finding of the First Appellate Authority that the carriage contractor is covered within the definition of the service rendered consequently exempt from charge under presumptive tax regime.

3. The D.R. says that the assessee undoubtedly is doing his business under a contract and all contracts being covered under presumptive tax regime, carriage contractor had rightly been charged to tax under presumptive tax regime. It was pointed out to learned D.R. that the entire proceedings apparently are without jurisdiction having been done in total ignorance of law and procedure for issuance of refund.

4. The D.R. said that the assessee return in this case was not valid hence question of its being an assessment order under section 120 does not arise. The very requirement under section 120 is filing of `correct return' the absence of which in this case stands proved by way of departmental order that the carriage contractor needs to file a statement and not a formal return. On a remark of the Court that the procedure under the circumstances would still not permit making of an assessment by the Enforcement and Collection Wing as the same does not have any such jurisdiction, the D.R. came out with a new argument. He said that the reply of the Taxation Officer may be an order but it is not an assessment order as it has only rejected the claim of the refund of the assessee. He also said that the issue pointed out by the Court does not emanate from the orders of the subordinate authorities. His comment is ignored as the same pertains to the very jurisdiction of the two officers below. Unfortunately the taxation officer while disposing application under section 170 has exercised the authority of the other officers. He had no power to adjudicate the issue with regard to the status of the income of the assessee. His powers under the re-organization of the income tax through policy of tax reforms wing was restricted to obtaining of return and settle other allied matters. He had no jurisdiction to formally dilate be issue of the status of the business of the assessee. We have already dilated upon this issue in dozens of cases, the main being ITA No. 30/KB/2006 in the case of CIT Medium Taxpayers Unit, Karachi v. Mr. Mukhtar Ahmad C/o KPT, Karachi heard and decided on 27-2-2007. In the above case we have held that under section 170 the power of issuance of refund does not include the power to discuss the nature of the. business of the assessee as well as dilation on the issue whether the same is a case of presumptive income or nor? In the present case it has further been observed that enforcement and collection wing has been assigned following powers:--

"(1.1) Key. Activities

Monitor filling and payments

Demand outstanding returns

Recover outstanding taxes

Impose interest and penalties

(1.2) Mian Benefits

A specialist focus on defaulting and late paying taxpayers

A collection activity removed from audit and other taxpayer contact

The avenue for the development and application of nationally uniform and consistent policies and approaches for collection and enforcement.

4. Above detailed powers assigned to the enforcement wing does not include the power to make an assessment. The D.R. remarked that T.O. enforcement has the power to ensure compliance of statutory provisions with regard to filing of correct return. One may agree with him that monitoring the filing of return is within his duty but, however, said officer has not exercised his power of getting the valid return. If in this case taxation officer, had doubts about the validity of the return he could proceed under law with that respect only. His action of dilation the issue that whether a carriage contractor is covered within the presumptive tax regime or not gives the impression that he was making amendment of a deemed assessment order. This power was not available with him as is evident from the above noted functions assigned to him by the C.B.R.

5. Further to above, if we look into the functions of the audit department the power to amend an assessment is only with the said department. The functions of enforcement start after the assessment is finalized and registered in the relevant registers. One need not go into the details, however, the functions of the Audit department are as follows:--

"K. Audit

(30) This is the most important function. National audit policy and determination of parameters shall be functions of C.B.R. To execute the audit policy will be function of Audit Division. There' will be no pre-appointed auditor. This Function will audit records, amend assessment, perform, audit of withholding agents, and will be a pool of talent.

Audit Functions

Box.4Powers & Functions under Income Tax Ordinance, 2002.

(a) Selection and audit of cases, amendment of assessment under Part-II of Chapter-X including provisional assessment, computation of taxable income under Chapter-III, giving effect to an appeal order under Part-III of Chapter-X arising out of such orders, rectification of orders, and exercise of powers and functions under any specific provision of law and rules provided in the Ordinance and Schedules thereto in respect of audit and assessment;

(b) Computation of income chargeable to tax determining of tax payable thereon, allowing credit for tax paid under Part-V of Chapter-X or adjustment of refund due under Part-VI of Chapter-X, or under any other specific provision of law and rules provided in the Ordinance and Schedules thereto; Exercise powers to determine income under "Anti-avoidance" provisions contained in Chapter VIII; and

(c) Perform any other function in determining and computing income chargeable to tax and correct tax payable under the Ordinance.

K.1 Key Activities

Focus on, address, deal with the areas of greatest risk to the revenue.

Verify reported income and deductions by selective, risk assessed audits.

Make adjustments to assessments and recommendation for new approaches or changes to the law.

K.2 Main Benefits

A national, comprehensive and strategic approach to compliance identifying the taxpayers of greatest risk.

The avenue for bringing key defaulters to account, and encouraging the wider community to comply.

6. The enforcement wing, therefore, had no power to determine the status of the carriage contractor hence the entire assessment as well as appeal on the basis thereof is illegal.

7. Learned A.R. insisted that the matter should be decided on the basis of the finding of the CIT(Appeals). He repeated that all services have been excluded from the purview of the presumptive tax regime upto tax year, 2006. He, however, was unable to factually prove that the carriage contractor was a part of the services except for one reported judgment 2006 PTD (Trib.) 1936 wherein the Tribunal has held that a carriage contractor is covered within the term services rendered, he could not provide any other valid reference. All other judgments referred by him as well as by CIT(A) are on the issue that services rendered is a wider connotation and is not restricted to the Doctors, Engineers, Lawyers etc. The same, therefore, are ignored. Specific judgment is the one mentioned above which obviously needs to be followed in the absence of any contrary view by Tribunal or the superior Courts. In any case since in the upper part we have held the entire proceedings to be as without jurisdiction, the cancellation of the order by the CIT(A) is held to be as valid but not for the reasons he has mentioned in his order. This Tribunal is also conscious of the fact that some discrimination is being made in respect of various carriage contractors which also can neither be appreciated nor be approved. The department, therefore, is instructed to issue the refund within 45 days to the assessee unless any other proceeding have been initiated against him till the service of this order.

8. This decides the appeal in the manner and to the extent mentioned hereinabove.

C.M.A./155/Tax(Trib.)Order accordingly.