PUNJAB PRIVATIZATION BOARD, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2011 P T D 1386
[Federal Tax Ombudsman]
BeforeDr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
PUNJAB PRIVATIZATION BOARD, LAHORE
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.490//LHR/IT(411)874/2010, decided on 15/09/2010.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss. 161 & 236-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3)(i)(a), 9 & 10---Charge of advance tax on sale of property---Department raised tax demand amounting to Rs.52,277,542 against the complainant under S.161 of the Income Tax Ordinance, 2001 for failure to pay withholding tax under S.236-A of Income Tax Ordinance, 2001 at the time of sale of property---Section 236-A of Income Tax Ordinance, 2001, as per enactment introduced through Finance Act, 2009, referred to sale of confiscated or attached property or goods---Complainant could not be denied benefit that could have accrued to him as the charge in S.236-A of Income Tax Ordinance, 2001 through Finance Act, 2010 was prospective in its application---Department failed to associate the complainant in the assessment proceedings, which lapse was fatal to the assessment made---Maxim "audi alteram partem" was required to be read into every statute and was fundamental to ensuing procedural transparency---Demand of Advance Tax from the complainant under S.236-A of Income Tax Ordinance, 2001, was neither in accordance with the statutory stipulation, nor had it been raised by the department in a manner that conformed to requirements of "due process" which, in circumstances, tantamounted to mal-administration as defined in S.2(3)(i)(a) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Recommendations were made to Federal Board of Revenue to direct the Chief Commissioner to take up matter in exercise of his revisionary jurisdiction under S.122-B of Income Tax Ordinance, 2001 and issue a fresh order, after affording proper opportunity of hearing to the complainant and to report compliance within 30 days.
PLD 2004 441; PLD 1982 Lah. 1; PLD 2008 SC 663; 2005 SCMR 1841 and 2005 SCMR 678 ref.
(b) Interpretation of statutes---
----Standard rule of interpretation of statutes was to adopt the meaning suggested by a plain reading of the text of the statute.
Muhammad Munir Qureshi Advisor, Dealing Officer.
Tipu Sultan, ITP Authorized Representative.
Khurram Ali Qadri, DCIR Departmental Representative.
FINDINGS/RECOMMENDATIONS
DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---This complaint by a corporateentity is against illegal charge of advance tax on sale of property under section 236A of the Income Tax Ordinance, 2001.
2.The respondent Department raised tax demand amounting to Rs.52,277,542 against the complainant under section 161 of the Ordinance for failure to withhold tax under section 236A at the time of sale of property. The complainant contends that the demand of tax is illegal as (a) proper opportunity, as envisaged in law, was not accorded and assessment was finalized on the first default by the complainant to the Show Cause Notice issued by the Department which was in violation of F.B.R. Circular No.7(2)DT-14/94 dated February 1, 1994, stipulating that atleast three chances be given before drawing an adverse inference, (b) in tax year 2009 section 236A was applicable on transactions involving sale of confiscated/attached property/goods only whereas the complainant had not entered into any such transaction in that year, (c) recovery of withholding tax was required to be made from the purchaser of the properties under section 162 of the Ordinance rather than the complainant, and (d) the complainant was, for all intents and purposes, a Punjab Government entity and hence exempt from levy of income tax.
3.When confronted, the Department filed reply contending that the tax demand raised against the complainant was consistent with statutory stipulation and a Show Cause Notice had been issued but the complainant did not comply.
4.During the hearing, the DR reiterated what was stated in the Departmental reply.
5.Section 236A was added as an amendment to the Income Tax Ordinance, 2001, through the Finance Act, 2009, to provide for tax withholding at the time of sale of immovable properties/goods. The wording of the enactment is significant in the context of the complainant's case and is reproduced hereunder for facility of reference:--
"Advance tax at the time of sale by auction.---(1) Any person making sale by public auction, of any property or goods confiscated or attached either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under sub-clause (vi) of clause (b) of subsection (2) of section 80, or a foreign contractor or a consultant or a consortium or Collector of Customs or Commissioner of Income Tax or any other authority, shall collect advance tax, computed onthebasisofsalepriceof such property and at the rate specified in Division VIII of Part IV of the First Schedule, from the person to whom such property or goods are being sold.
(2)The credit for the tax collected under subsection (1) in that tax year shall, subject to the provisions of section 147, be given in computing the tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B or section 145 applies, the tax year, in which the "said date" as referred to in that section, falls or whichever is later.
Explanation.---For the purposes of this section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees or other levies, by whatever name called".
6.The complainant contends that a plain reading of the text of the enactment makes it clear that it was the sale of confiscated/attached property that attracted tax withholding in Tax Year 2009 and as the complainant had not entered into any transaction involving confiscated/attached properties, the charge of tax was bereft of any legal basis and was required to be struck down.
7.Whereas the Department submits that F.B.R's Circular regarding implementation of the provisions of section 236A had to be followed by all its functionaries, the Complainant's response is that F.B.R's circular instructions are directory in nature and cannot override the statutory enactment and where the circular instructions are at variance with the statute, the statute must prevail.
8.It may be noted that section 236A was amended through Finance Act, 2010, as follows:--
"Advance tax at the time of sale by auction,---(1) Any person making sale by public auction, of any property or goods (including property or goods confiscated or attached) either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under sub-clause (vi) of clause (b) of subsection (2) of section 80, or a foreign contractor or a consultant or a consortium or Collector of Customs or Commissioner of Income Tax or any other authority, shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in Division VIII of Part IV of the First Schedule, from the person to whom such property or goods are being sold.
(2)The credit for the tax collected under subsection (1) in that tax year shall, subject to the provisions of section 147, be given in computing the tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B or section 145 applies, the tax year, in which the "said date" as referred to in that section, falls or whichever is later.
Explanation.---For the purposes of this section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees or other levies, by whatever name called."
9.The Department holds that the complainant's contention that the provision was applicable to sale of confiscated/attached properties only was misconceived and the amendment through Finance Act, 2010, amply clarifies the scope of property transactions covered under the law. The Department also contends that the 'clarification' in law is applicable with effect from 1-7-2009.
10.The standard rule of interpretation of statutes is to adopt the meaning suggested by a plain reading of the text of the statute. Following this principle, it does appear that section 236A, as per enactment introduced through Finance Act, 2009, referred to sale of confiscated or attached property or goods. Such a view is fortified by the fact that in the year following its enactment, section 236A was amended through Finance Act, 2010, and the change in its wording was adopted as reproduced supra. This change is clearly not a 'clarification' as the Department would have us believe, but recognition of a lacuna in the provision that needed to be remedied. But whatever the reason for the lacuna, the complainant cannot be denied benefit that may have accrued to him, as the change in section 236A through Finance Act, 2010 is prospective in its application.
11.As regards the Departmental failure to associate the complainant in the assessment proceedings, such a lapse is fatal to the assessment made. The dictum 'audi alteram partem' is required to be read into every statute and is fundamental to ensuring procedural transparency. No doubt, the Department issued a Show Cause Notice to which the complainant did not respond, but to draw an adverse inference on a single default is neither fair nor in conformity with F.B.R's circular instructions referred to supra that are binding on all F.B.R. functionaries.
12.The Supreme Court of Pakistan has ruled (PLD 2004 441), that the principle of 'audi alteram partem' is applicable to judicial as well as non-judicial proceedings and is to be read into every statute as its part even if right of hearing has not be been specifically provided therein. Similarly, it has also been held (PLD 1982 Lahore 1) that where the statute does not make any mention of giving opportunity of hearing to affected person, the right of hearing nevertheless is to be read into the statute unless specifically prohibited therein. Reliance is also placed PLD 2008 SC 663 where it has been held that the principle of natural justice has to be observed if the proceedings might result in consequences affecting "the person or property or other right of the parties concerned".
13.The consequences of non-adherence to the above canon of natural justice have been held to be as follows:--
(i)An adverse order made without affording an opportunity of personal hearing is to be treated as a void order [2005 SCMR 1841]; and
(ii)It's violation is always considered enough to vitiate even the most solemn proceedings (2005 SCMR 678).
Findings:
14.The demandof Advance Tax under section 236A in Tax Year 2009 is neither in accordance with the statutory stipulation, nor has it been raised by the Department in a manner that conforms to require-ments of "due process". It therefore tantamounts to maladministration as defined in section 2(3)(i)(a) of the FTO Ordinance.
Recommendations:
15.F.B.R. to direct the Chief Commissioner to -
(i)take up the matter in exercise of his revisionary jurisdiction under section 122B of the Ordinance and issue a fresh order, after affording proper opportunity of hearing to the complainant; and
(ii)report compliance within 30 days.
H.B.T./118/FTOOrder accordingly.