2010 P T D (Trib.) 768
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Munir Sadiq, Judicial Member
I.T.A. No.696/LB of 2009, decided on 16/12/2009.
(a) Income Tax Ordinance (XLIX of 2001)---
----S.170(4)---Refund---Non passing of an order within the prescribed time---Effect---Law assumes non passing of an order under S.170(4) of the Income Tax Ordinance, 2001 as an order against the taxpayer rather than in his favour.
(b) Income Tax Ordinance (XLIX of 2001)---
----S.170(4)---Refund---Passing of an order after limitation---Jurisdiction---When the Commissioner fails to pass an order within 45 days of the receipt of a refund application under S.170(1) of the Income Tax Ordinance, 2001, the person aggrieved by the failure of the Commissioner to pass an order under subsection (4) of S.170 of the Income Tax Ordinance, 2001 was entitled to prefer an appeal under Part-III of Chapter X of the Income Tax Ordinance, 2001---By no stretch of imagination it could be assumed that the Assessing Officer had no jurisdiction to pass an order under S.170(4) of the Income Tax Ordinance, 2001 after the specified period of 45 days unless an appeal had been preferred by the aggrieved person, for the failure of the Commissioner to pass an order under subsection (4) of S.170 of the Income Tax Ordinance, 2001, within the time specified in said subsection, before passing of such order after 45 days.
(c) Income Tax Ordinance (XLIX of 2001)---
----S.170(5)---Refund---Passing of an order after prescribed limitation--Validity---Section 170(5) of the Income Tax Ordinance, 2001 provides a taxpayer an opportunity to get early refund without unnecessary delay by filing an appeal before the First Appellate Authority against the failure of the Commissioner/Taxation Officer to pass an order under S.170(4) within the stipulated period---Where an appeal is filed against such failure of the Commissioner/Taxation Officer, the power of the Commissioner/Taxation Officer shifts to the Appellate Authority and the Commissioner/Taxation Officer could not pass an order on refund application---If a taxpayer did not file any appeal after 45 days and the refund application remains pending before the Commissioner/Taxation Officer the law does not prohibit the Commissioner/Taxation Officer to pass an appropriate order on the same---Admittedly, appellant, in the present case, had not filed any appeal before First Appellate Authority against the failure of the Commissioner before the passing of order under S.170(4) of the Income Tax Ordinance, 2001 and the refund application remained pending before the Commissioner/Taxation Officer, Commissioner, in circumstances had jurisdiction to pass an order under S.170(4) of the Income Tax Ordinance, 2001 even after the expiry of 45 days---Failure to pass an order within prescribed period of 45 days (now 60 days) reflected a lack of interest and inefficiency of the Commissioner/Taxation Officer.
(d) Income Tax Ordinance (XLIX of 2001)---
----S.170(2)(c)---Refund---Provisions of S.170(2)(c), Income Tax Ordinance, 2001 are directory and not mandatory---Assessing Officer instead of verifying the claim of taxpayer for refund rejected the same on the ground that refund application filed after lapse of statutory limit provided in section 170(2)(c) of the Income Tax Ordinance, 2001 could not be entertained after the prescribed period of two years---Provisions of S.170(2) of the Income Tax Ordinance, 2001 were directory and not mandatory---Word "shall" though has been used in subsection (2) of S.170 of the Income Tax Ordinance, 2001 yet it was not couched in negative language.
(e) Administration of justice---
----Technicalities---Right of people---Government functionaries, especially in an Islamic or a democratic society governed by rule of law, are supposed to do justice and not to deprive the people of their rights on ground of technicalities.
(f) Constitution of Pakistan, 1973---
----Art. 2A---Objectives Resolution reflects the will of the people of Pakistan to establish an Order wherein the principles of social justice as enunciated by Islam .shall also be fully observed---Objectives Resolution admits that sovereignty, over the entire Universe belongs to Allah Almighty alone and the authority which he has delegated to the State of Pakistan, through its people for being exercised within the limits prescribed by Him, is a sacred trust.
(g) Income Tax Ordinance (XLIX of 2001)---
----S.170---Refund---Refund is a "Amanah "---Public servants hold such amount as an "Amanah" and are supposed to refund/return same to the person entitled to it.
(h) Income Tax Ordinance (XLIX of 2001)---
----S.170---Refund---Limitation---Purpose---Claim regarding over-payment of tax was to be verified from record and if the record was not available, due to lapse of a long period and claim could not be verified and refund is allowed without verification from original record, same may lead to bogus refunds and corrupt practices---Legislature had set a time limit of two years in order to avoid inconvenience and bogus refund, besides discouraging the delayed application/claims which could not be verified---If over-payment of tax was easily verifiable, there was no bar to adjust or refund the same even if an application was made after the period of two years---Provision did not mean that a taxpayer was free to claim the refund of an overpaid tax at his sweet will at any time even after the expiry of many years as the laches may defeat the claim.
Pfizer Laboratories Ltd. v. Federation of Pakistan and others PLD 1998 SC 64 rel.
(i) Income Tax Ordinance (XLIX of 2001)---
----S.170---Refund---Limitation---Genuine refund claim could not be refused on the ground that application was not filed within prescribed time---When a refund claim was verifiable and genuineness, of over-payment of tax established after verification, but it was refused mere on technicalities it was unfair.
(j) Income Tax Ordinance (XLIX of 2001)---
----S.170---Refund---Constitution of Pakistan (1973), Art. 2A, 3, 4(2)(a), 24, 25, 29, 31 & 37---Application of refund-Non-filing of---Effect---Forms for "Return of total income ""statement of final taxation" for tax year, 2007 onwards, contained a specific column about tax refundable and most of them also contain a column for request that net tax refundable may be credited to the bank account of the tax payer as mentioned in the column---Income Tax Authority processing the "Return of Total Income/Statement of Final Taxation" was bound to proceed in accordance with law---When, on verification, it was established that taxpayer had over paid the tax, Income Tax authorities were bound to refund the same even without any separate application for refund from the taxpayer and refusal to refund the same was violation of Articles 2A, 3 4(2)(a), 9, 24, 25, 29, 31, and 37 of the Constitution.
(k) Income Tax Ordinance (XLIX of 2001)---
----S.170--Refund---Limitation---Jurisdiction---First Appellate Authority directed to issue refund on the ground that the Taxation Officer had acted beyond his jurisdiction by passing order on refund application after lapse of about one year and nine months as S.170(4) of the Income Tax Ordinance, 2001 did not allow him to pass an order after the lapse of 45 days---.Validity---Finding of First Appellate Authority was not legally tenable---If the view of the First Appellate Authority was accepted as correct same would render all orders passed under S.170(4) of the Income Tax Ordinance, 2001 after the stipulated period of 45 days (now 60 days) liable to be annulled even in cases where refund had been allowed---Such was against the spirit and intention of law---Authorities acting under an enactment were bound to see and interpret the law as a whole and not to examine any provision in isolation---First Appellate Authority had examined the case in light of subsection (4) of S.170 of Income Tax Ordinance, 2001 and had failed to realize the impact of subsection (5) of S.170 of the Income Tax Ordinance, 2001---First Appellate Authority had also ignored that S.170(3) of the Income Tax Ordinance, 2001 provided that before passing any order of refund it was the duty of the Commissioner/ Taxation Officer to satisfy himself that the tax had been over paid by the taxpayer---No such finding was available on the record---First Appellate Authority ought to have remanded the case to the Taxation Officer for verification of the claim of the taxpayer and issuance of the refund if the tax had been over paid strictly in accordance with law but the First Appellate Authority had straightaway directed the Taxation Officer to issue refund---Orders passed by First Appellate Authority and the Taxation Officer were vacated by the Appellate Tribunal and the' case was remanded to the Taxation Officer/Commissioner with directions to obtain and verify the proof of tax paid; to determine the tax overpaid by the taxpayer and to refund the same as per law, but within a period of 30 days from the receipt of the order.
Khalid Latif, D.R. for Appellant.
Qadeer Ahmad, ITP for Respondent.
Date of hearing: 16th December, 2009.
ORDER
CHAUDHRY MUNIR SADIQ, (JUDICIAL MEMBER).---This order shall dispose of the titled appeal pertaining to the tax year, 2003 filed by the Revenue against the order, dated 23-12-2008 passed by the learned CIT(Appeals-II), RTO, Lahore.
2. Brief facts giving rise to the present appeal are that the respondent filed return for tax year, 2003 declaring the following:
| Tax year | Income declared | Tax payable | Tax deducted | Refundable |
| 2003 | Rs.1,016.384 | 229,734 | 590,875 | 361,141 |
The respondent filed refund application on 24-6-2006 for the tax year, 2003 which was examined by the Taxation Officer. He observed that the same cannot be entertained being barred by time under the provisions of section 170(2)(c) of the Income Tax Ordinance, 2001. The Taxation Officer confronted the same to the tax payer/respondent vide letter, dated 7-5-2008 but no 'compliance was made on the due date, therefore, the Taxation Officer rejected refund claim for the tax year, 2003 vide order, dated 28-5-2008. Being aggrieved by the treatment accorded by the Taxation Officer, the taxpayer filed an appeal before the learned CIT(A) who held that the Taxation Officer had acted beyond his jurisdiction as indicated in subsection (4) of section 170 by not processing the taxpayer's application of refund within 45 days and directed the Taxation Officer to issue refund voucher of Rs.361,141 for the Tax year, 2003. Being aggrieved by the order passed by the learned CIT(A), the Revenue has preferred the instant appeal.
3. The learned DR has argued that the learned CIT(A) was not justified to hold that the refund order was without jurisdiction on the ground that the application for refund, dated 27-6-2006 for the tax year, 2003 was not processed within 45 days; especially when the said application for refund was time-barred being filed after the statutory limit of two years. On the other hand, the learned AR has supported the impugned order for the reasons mentioned therein.
4. Arguments heard and record perused.
5. The learned AR has contended that when an order of refund is not passed within 45 days by the Commissioner from the receipt of refund application under section 170(1) the refund is deemed to have been allowed and thus the order passed under section 170(4) after lapse of 45 days by the Commissioner is without jurisdiction. I am afraid the contention of learned AR is not correct and law assumes non passing of an order under section 170(4) as an order against the taxpayer rather than in his favour. Section 170 of Income Tax Ordinance, 2001 'is reproduced below:--
170. Refunds.---(1) A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess. (IA) Where any advance or loan, to which sub-clause (e) of clause (19) of section 2 applies, is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid by him as a result of such advance or loan having been treated as dividend under the aforesaid provision.
(2) An application for a refund under subsection (1) shall be--
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within two years of the later of--
(i) the date of which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or
(ii) the date on which the tax was paid.
(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall--
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
(4) The Commissioner shall, within forty five days of receipt of a refund application under subsection (1), serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard.
(5) A person aggrieved by--
(a) an order passed under subsection (4); or
(b) the failure of the Commissioner to pass an order under subsection (4) within the time specified in that subsection may prefer an appeal under Part-III of this Chapter.
Perusal of subsection (5) of section 170 makes it crystal clear that when the Commissioner fails to pass an order within 45 days of the receipt of a refund application under section 170(1), the person aggrieved by the failure of the Commissioner to pass an order under subsection (4) of section 170 is entitled to prefer an appeal under Part-III of Chapter X of the Income Tax Ordinance, 2001. However by no stretch of imagination it could be assumed that he had no jurisdiction to pass an order under section 170(4) after the specified period of 45 days unless an appeal has been preferred by the aggrieved person, for the failure of the Commissioner to pass an order under subsection (4) within the time specified in that subsection, before the passing of such order after 45 days.
6. In fact section 170(5) provides a taxpayer an opportunity to get early refund without unnecessary delay by filing an appeal 'before the C.I.T.(A) against the failure of the learned Commissioner/Taxation Officer to pass an order under section 170(4) within the stipulated period. Where an appeal is filed against such failure of the Commissioner/Taxation Officer, the power of the Commissioner/Taxation Officer shifts to the Appellate Authority and the Commissioner/ Taxation officer cannot pass an order on refund application. However, if a taxpayer does not file any appeal after 45 days and the refund application remains pending before the Commissioner/Taxation Officer the law does not prohibit the Commissioner/Taxation Officer to pass an appropriate order on it. Admittedly the appellant had not filed any appeal before C.I.T.(A) against the failure of the Commissioner before the passing of order under section 170(4) therefore, the Commissioner had jurisdiction to pass an order under section 170(4) even after the expiry of 45 days. However it needs mention that failure to pass an order within prescribed period of 45 days (now 60 days) may reflect a lack of interest and inefficiency of the concerned Commissioner/Taxation Officer.
7. In the refund cases the Taxation Officer has to pass an order on refund application after he is satisfied that the tax has been overpaid but , perusal of record reveals that in the present case he, instead of verifying the claim of tax payer for refund rejected it on the ground that the refund application filed after lapse of statutory limit provided in section 170(2)(c) cannot be entertained after the prescribed period of two years. It needs mention that the provisions of section 170(2) are directory and not mandatory. Although word "shall" has been used in subsection (2) of section 170 yet it is not couched in negative language. Even otherwise the Government functionaries, especially in an Islamic or a democratic society governed by rule of law, are supposed to do justice and not to deprive the people of their rights on ground of technicalities. Article 29 of the Constitution of Islamic Republic of Pakistan in unequivocal terms, commands as under:--
"29. Principles of policy.---(1). The Principles set out in this Chapter shall be known as Principles of Policy, and it is the responsibility of each organ and authority of State, and of each person pm-forming functions on behalf of an organ or authority of the State, to act in accordance with those Principles insofar as they relate to the functions of the organ or authority."
Article. 31(2)(b) provides that the State shall endeavour to promote unity and the observance of the Islamic moral standards; and Article 37(d) says that the State shall ensure inexpensive and expeditious justice. By virtue of Article 2A of the Constitution of Islamic Republic of Pakistan, 1973 the principles and provisions set out in the objective resolution have been made substantive part of the Constitution. The objective resolution reflects the will of the people of Pakistan to establish an order wherein the principles of social justice as enunciated by Islam shall also be fully observed. The objective resolution admits that sovereignty over the entire universe belongs to Allah Almighty alone and authority which He has delegated to the State of Pakistan, through its people for being exercised within the limits prescribed by Him, is a sacred trust.
Few commandments of Allah (SWT) relevant to the issue are reproduced below.
Do not usurp one another's property by unjust means. (2: 188)
O Believers! Do not consume/usurp one another's property/wealth among yourselves illegally. (4 : 29)
Weigh with even scales and do not cheat others of what is rightly theirs, nor corrupt the land with evil. (26 : 182-183)
Surely Allah commands you (0 men in authority) that you shall render dues ("Amanah"/Amanat) unto those entitled to them and when you judge between men judge fairly. (4 : 58)
No doubt public servants hold such amount as an "Amanah" and are supposed to refund/refund it to the person entitled to it. It should be kept: in mind that a claim regarding over payment of tax is to be verified from record and if the record is not available, due to lapse of a long period, a claim could not be verified and if a refund is allowed without verification from original record it may lead to bogus refunds and corrupt practices. Therefore, the legislature has set a time limit of two years in order to avoid inconvenience and bogus refunds, besides discouraging the delayed applications/claims which could not be verified. If over payment of tax is easily verifiable, there is no bar to adjust or refund the same even if an application is made after the period of two years. However, it does not mean that a taxpayer is free to claim the refund of an overpaid tax at his sweet will at any time even after the expiry of many years. It should be kept in mind that laches may defeat the claim. The view expressed by the Honourable Supreme Court of Pakistan on a similar issue, in case of "Pifzer Laboratories Limited v. Federation of Pakistan and others" cited as PLD 1998 SC 64 is illuminating. In that case it was held that a genuine refund claim could not be refused on the ground that application was not filed within prescribed time. When a refund claim is verifiable and genuineness of over payment of tax is established after verification, but it is refused mere on technicalities it does not look fair. Furthermore such acts are against the norms of good governance and shake the confidence of taxpayers. It also needs mention that prescribed forms for "Return of total income"/"statement of final taxation" for tax years, 2007 onwards, contain a specific column about tax refundable and most of them also contain a column for request that net tax refundable may be credited to the bank account of the taxpayer as 'mentioned in the column. An Income Tax Authority processing the "Return of Total Income/Statement of Final Taxation" bound to proceed in accordance with law. After verification when is established that taxpayer has over paid the tax, Income Tax Authorities are bound to refund the same even without any separate application for refund from the taxpayer and refusal to refund the same is violation of Articles 2A, 3 4(2)(a), 9, 24, 25, 29, 31 and 37 of the Constitution.
8. Learned C.I.T.(A) has held that the Taxation Officer has acted beyond his jurisdiction by passing order on refund application after lapse of about one year and nine months vide order, dated 28-5-2008, as subsection 4 of section 170 did not allow him to pass an order after the lapse of 45 days and, therefore, directed to issue refund voucher of Rs.361,141 for the tax year 2003. I am afraid, this finding of learned C.I.T.(A) is legally not tenable. If this view of the learned C.I.T.(A) is accepted as correct it would render all orders passed under section 170(4) after the stipulated period of 45 days (now 60 days) liable to be annulled even in cases where refund has been allowed. This is against the spirit and intention of law. Authorities acting under an enactment are bound to see and interpret the law as a whole and not to examine any provision in isolation. The learned C.I.T.(A) has examined the case in light of subsection (4) of section 170 and has failed to realize the impact of subsection (5) of section 170. She has also ignored that subsection (3) provides that before passing any order of refund it is the duty of the Commissioner/Taxation Officer to satisfy himself that the tax has been over paid by the taxpayer. In the present case there was no such finding available on the record, therefore, the learned C.I.T.(A) ought to have remanded the case to the Taxation Officer for verification of the claim of the taxpayer and issuance of the refund if the tax has been overpaid strictly in accordance with law but she has straightaway directed the Taxation Officer to issue refund voucher of Rs.361,141 for the year, 2003. For what has been discussed above the orders passed by the learned C.I.T.(A) and the Taxation Officer are vacated and the case is remanded to the Taxation Officer/Commissioner with directions:
(a) to obtain and verify the proof of tax paid;
(b) to determine the tax overpaid by the taxpayer; and
(c) to refund the same as per law, but within a period of 30 days from the receipt of this order.
9. The appeal succeeds to the extend indicated above.
C.M.A./17/Tax (Trib.)Order accordingly.