MUMTAZ HUSSAIN MIAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 475 (2011)

Income Tax Ordinance (XLIX of 2001)---

----S. 151(1)(a), Second Sched: Part-IV, Cl. (59)---Profit on debt---Defence Saving Certificates---Deduction of tax at source---Taxpayer contended that tax withholding was unjustified as the Defence Saving Certificates held in each account were within theexemptionthreshold---Department contended that tax withholding rate on profit on debt was 10%; and deposits below Rs.1,50,000 were exempt from withholding tax and as the complaint was against officials of Directorate of National Savings, the Department was not concerned in the improper deduction of withholding tax at the time of encashment of Defence Saving Certificates held by the complainant and his family members---Validity---Tax was required to be withheld @10% under S.151(1)(a) of the Income Tax Ordinance, 2001 since tax year 2003, and the same constituted final discharge of tax liability---Defence Saving Certificates were purchased by the complainant in his own name and the names of his family members in tax year 2003 and 2004---Exemption threshold for profit on debt specified in the Income Tax Ordinance, 2001 had since been Rs.1,50,000 as per Cl.(59) Part-IV of the Second Schedule to the Income Tax Ordinance, 2001---Prior to tax year, 2003, exemption threshold was Rs.3,00,000---Tax was required to be deducted at source at the time of encashment, except for the joint account being less than Rs.15,00,000---Tax had been correctly withheld by the Directorate of National Savings---Department's contention that it had no concern with the matter was not correct---Department was responsible to monitor the tax withheld by the Directorate of National Savings, or for that matter any withholding agent, on a regular basis---Department was also responsible to provide the required guidance to the withholding agents with regard to correct application of the relevant provisions of the Income Tax Ordinance, 2001---Federal Tax Ombudsman recommended the Federal Board of Revenue to issue instructions to concerned officials to monitor tax deductions by withholding agents and provide necessary guidance to the withholding agents.

Muhammad Munir Qureshi, Advisor Dealing Officer.

Mumtaz Hussain Mian Authorized Representative.

Ashfaq Hussain, DCIR Departmental Representative.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---This complaint is against illegal deduction of withholding tax on profit realized on the joint accounts of the complainant and his family members, at the time of encashment of Defense Saving Certificates (DSCs).

2.Thecomplaintpertainstoincometaxwithholdingundersection 151 of the Income Tax Ordinance, 2001 (the Ordinance), by the Directorate of National Savings, which the F.B.R. functionaries are required to monitor under the Ordinance.

3.The complainant and his immediate family members (wife, sons and daughters) held DSCs of the value of Rs.1.75 million in seven joint accounts maintained in different branches of the Directorate of National Savings, Lahore. The DSCs were encashed in May and June 2011, and the profit thereon subjected to tax withholding @ 10%. The complainant contends that the tax withholding was unjustified as the DSCs held in each account were within the exemption threshold laid down in the Ordinance.

4.When confronted, the Deptt. filed a reply stating that the tax withholding rate on profit on debt under the Ordinance was 10%. Deposits below Rs.150,000 were exempt from withholding tax under the Second Schedule to the Ordinance. As the complaint was against officials of the Directorate of National Savings, the Deptt. was not concerned in the alleged improper deduction of withholding tax at the time of encashment of DSCs held by the complainant and his family members.

5.The matter has been examined. So far as the statutory position with regard to tax withholding on profit on debt is concerned, tax is required to be withheld @ 10% under section 151(1)(a) of the Ordinance since Tax Year 2003, and the same constitutes final discharge of tax liability. The complainant purchased the DSCs in his own name and the names of his family members in Tax Years 2003 and 2004. The exemption threshold for profit on debt specified in the Ordinance has since been Rs.150,000 as per Clause (59), Part-IV, of the Second Schedule tothe Ordinance. Prior to Tax Year 2003, the exemption threshold was Rs.300,000. Tax was therefore required to be deducted at source at the time the complainant and his family members encashed their DSCs, except for the joint account of Arfan Hussain and Mumtaz Hussain maintained at the National Savings Centre Branch at Mughalpura, being less than Rs.150,000.

Findings:--

6.While tax has been correctly withheld by the Directorate of National Savings, the Deptt's contention that it had no concern with the matter is not correct. The Deptt is responsible to monitor the tax withheld by the Directorate of National Savings, or for that matter any withholding agent, on a regular basis. It is also the Deptt's responsibility to provide the required guidance to the withholding agents with regard to correct application of the relevant provisions of the Ordinance.

Recommendations:

7.F.B.R. to -

(i)issue instructions to concerned officials to monitor tax deductions by withholding agents;

(ii)provide necessary guidance to the withholding agents; and

(iii)report compliance within 30 days.

C.M.A./287/FTOOrder accordingly.