04-27-2011, 07:29 PM
2008 P T D 527
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
M. A. FAROOQI, REGISTRAR, SUPREME COURT OF PAKISTAN, ISLAMABAD
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 368 of 2004, decided on 4th August, 2004.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.59(3), 56, 61, 13(1)(aa) & Second Sched., Cls. (39) & (77A)---Supreme Court Rules, Part-II, R.24---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-Âassessment---Income from salary and rent---Filing of salary certificate---Exemption was claimed on account of honorarium/reward---Issuance of notices under Ss.61 and 13(1)(aa) of the Income Tax Ordinance, 1979---Validity---Admittedly, complainant/assessee filed only salary Certificate (LT.-11E) whereas he was required to file return of income (I.T.-11B) under R. 190(3) of the Income Tax Rules, 1982, because besides salary, complainant/assessee had income from house properly therefore no valid return was filed---Honorarium /reward and special allowance was claimed to be exempt---Taxation Officer instead of issuing notice under S.56 of the Income Tax Ordinance, 1979, issued notices under Ss.61 and 13(1)(aa) of the Income Tax Ordinance, 1979 and demand notice was served on the basis of IT-30 produced by PRAL under S.59(3) of the Income Tax Ordinance, 1979 which proved maladministration on account of incompetence in discharge of responsibility; that if there was no valid return, a notice under S.56 of the Income Tax Ordinance, 1979 was required to be served calling for a valid return that notice under S.61 could be issued only when there was a valid return; hence proceedings under S.61 of the Income Tax Ordinance, 1979 were contrary to law; that there was no basis on the foregoing facts, to issue a notice under S.13(1)(aa) of the Income Tax Ordinance, 1979; hence contrary to law; complainant/assessee had claimed certain exemptions, which after obtaining a valid return could be considered on merits ; that order was not passed under S.62 of the Income Tax Ordinance, 1979 despite proceedings under S.61 of the Income Tax Ordinance, 1979 and that order was passed under S.59(3) of the Income Tax Ordinance, 1979 after making adjustments on account of alleged legally inadmissible claims, although it required a proper consideration and finding through an order under S.62 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the Commissioner undertakes written counselling of the concerned Taxation Officer to pay more attention to correct application of relevant provisions of law so that assessees are saved from undue harassment and that the Commissioner in discharge of his responsibility under S.122A of the Income Tax Ordinance, 2001 may call for the record of proceedings considered in which the orders have been passed by the Taxation Officer working under him and proceed under S.122A(2) of the Income Tax Ordinance, 2001 as he deems fit.
(b)Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---
----S.9(2)(b)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Invalid return---Where an assessment is based on an invalid return, it is contrary to settled law and ab initio void and invalid ; it is a defect that is jurisdictional in nature and does not refer to the judgment of the Assessing Officer in assessment of complainant/ assessee's income.
Shamim Ahmad and S.M. Sibtain, Advisers (Dealing Officers).
Muhammad Siddiq Mughal, Advocate for the Complainant.
Mazhar Iqbal, ACIT, for Respondent.
FINDINGS/DECISION
JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---The Complainant earns income from salary and rent.
The Return of Income for assessment year 2002-2003 was filed under Self Assessment Scheme. However, it was not accepted under the said Scheme and notice under section 61 of the Income Tax Ordinance, 1979 (R.O) was issued. Additionally, notice under section 13(1)(aa) of the R.O. was also issued. Detailed hearings were conducted in which the exemption claimed on account of Honorarium/ Reward amounting to Rs.8,454,333 (later on the caption was changed to "any other allowance") and special allowance of Rs.24,456 was discussed. The final hearing was conducted on 28-6-2003. As stated by the Complainant, he did not hear anything from the department till the receipt of a recovery notice on 10-5-2004. The demand was created at Rs.2,776,436.
2. The treatment meted out to the complainant was challenged on many grounds, specially the following---
a) The Income Tax Return filed by the Complainant qualified for acceptance under the Self Assessment Scheme and there was no reason for its exclusion.
(b) It was the requirement of the law to pass order under section 62 of the R.O. after the issuance of notices under sections 61 and 13(1)(aa). Therefore there was no justification for passing the order under section 59(3).
(c) Without the service of an assessment order and a Demand Notice, the recovery notice issued was a mala fide act.
(d) None of the arguments and submissions made by the Complainant before the Taxation Authorities were considered. Therefore, he was condemned unheard.
(e) That the Complainant was entitled for the statutory exemption, denial of which was against his constitutional right.
(f) That the impugned order was never communicated to the Complainant. He received the copy after the service of recovery notice.
3. In be reply, the RCIT, Northern Region, Islamabad raised the following preliminary objections
(a) That no act of maladministration was established in the instant complaint.
(b) The case involved interpretation of law which has been specifically excluded from the jurisdiction of the Federal Tax Ombudsman within the meaning of Section 9(2)(b) of the FTO Ordinance, 2000.
(c) As the matter related to the assessment of income for which legal remedy of appeal was available, the case fell outside the jurisdiction of the FTO.
4. On the merits of the case, the RCIT submitted that---
a) The Complainant submitted only a Salary Certificate in the form of IT 11E (Salary Certificate) which was not legally correct because the Complainant enjoyed rental income in addition to his salary. He was required to file his return sin the form of IT 11B under Rule 190(3) of the Income Tax Rules, 1982.
(b) The Complainant claimed huge, amount of Rs.8,455,333 as exempt. Therefore, it did not qualify for the Self Assessment Scheme.
(c) In the return of income filed by the Complainant, he claimed deduction of Zakat at Rs.2001. However, the certificate submitted in support thereof showed the deduction only at Rs.859.
(d) Notices issued under sections 61 and 13(1)(aa) were within time .and in accordance with the provisions of law. The Complainant's claim of exemption of Honorarium/Reward was not admissible under the law. The nomenclature of the claim was changed to special allowance. That too was not exempt.
(e) The assessment was completed by Pakistan Revenue Automation Services Ltd [PRAL). The assessment for the year under consideration was not finalized under section 62 because, while the assessee's explanations and documents were under examination, IT 30 and Demand Notice were received from PRAL. Thus an order under section 62 would have amounted to double assessment.
(f) IT 30 was despatched to the Complainant through ordinary mail on 27-11-2003 along with the IT 30s of other employees of Supreme Court of Pakistan in a single envelope.
(g) The assessment was made after making adjustment as provided under section 59(3) by the PRAL. So the question of being condemned unheard did not arise.
5. The Counsel of the Complainant along with 'the Departmental Representative attended. The learned Advocate discussed the grounds of the complaint as enumerated in para 2 supra at length and quoted decisions of higher judiciary in support of his arguments. He argued that the special allowance was given to the Complainant under Rule 24 of Part-II of Supreme Court Rules which, under the provisions of Clause (39) of the Second Schedule to the R.O., was exempt. Claim of exemption of the interest income received from Hubco/WAPDA under Clause (77A) of the Second Schedule was not pressed.
6. The Departmental Representative reiterated the points raised by the RCIT in his written reply. It was stated that, according to rule 190(3) of the Income Tax Rules, 1982, the furnishing of return of income in IT 11E was not legal that is why the case could not be accepted under Self Assessment Scheme. Besides, the exemption claimed on account of special allowance was not admissible.
7. The contents of the Complaint and the reply furnished by the RCIT along with arguments of the representatives of the two sides were considered. The admitted facts in the complaint are that the complainant filed only a Salary Certificate (I.T-11E) whereas he was required to file return of income (IT-11B) under Rule 190(3) of I.T. Rules, 1982, because besides salary, he also had income from house property in assessment year 2002-03. Thus there were no valid return. Honorarium/ Reward amounting to Rs.8,454,333 and special allowance Rs.24,456 was claimed to be exempt from tax under clause (39) of 2nd schedule and exemption was also claimed on interest earned from HUBCO/WAPDA under clause (77 A).
8. The Taxation Officer (T.O.) instead of issuing notice under section 56 of R.O., issued notices under sections 61 and 13(1)(aa). Proceedings were conducted till 28-6-2003. However, a demand notice for Rs.2,776,436 was served on 11-5-2004 on the basis of IT-30 produced by PRAL under section 59(3). It proves maladministration on Account of---
(a) Incompetence in discharge of responsibility as the T.O, did not know ---
(i) That if there was no valid return, a notice under section 56 was required to be served calling for a valid return.
(ii) That notice under section 61 can be issued only when there is a valid return; hence proceedings under section 61 contrary to law.
(iii) There was no basis on the foregoing facts, to issue a notice under section 13(1)(aa) of R.O; hence contrary to law. The complainant had claimed certain exemptions, which after obtaining a valid return could be considered on merits.
(iv) Order was not passed under section 62 despite proceedings under section 61.
(v) Order was passed under section 59(3) after making adjustments on account of alleged legally inadmissible claims, although it required a proper consideration and finding through an order under section 62 of R. Ord.
The provision of this section empowers the assessing officer to "make such adjustments as may be necessary, including any adjustment under sections 34, 35, 36, 37, 38, 50, 53 or 54, the rules made under section 165, the First- Schedule and the Third Schedule" but not the Second Schedule.
9. The preliminary objection of the Respondent to the jurisdiction of this Forum is thus misconceived. The traits of maladministration, inter alia, the foregoing would not have been specifically included to its wide dictionary meanings if provisions of section 9(2)(b) were not meant to be construed strictly and restrictively. Where an assessment is based on an invalid return, it is contrary to settled law and ab initio void and invalid. It is a defect that is jurisdictional in nature and does not refer to the judgment of the assessing officer in assessment of complainant's income. The matters which are raised in the instant complaint do not relate to assessment of income or interpretation of law. The said matters relate to processes and acts contrary' to settled law and incompetence and ineptitude in discharge of duties and responsibility-a malady that has acquired alarming proportions warranting thorough diagnosis in order to take effective remedial measures. Cosmetic actions or sheltering such elements behind the loose and exaggerated veil of section 9(2) would amount to sabotaging the very purpose of this Forum.
10. It is recommended---
(i) That the Commissioner Companies Zone II, Lahore under-takes written counseling of the concerned Taxation Officer to pay more attention to correct application of relevant provisions of law so that assessees are saved from undue harassment.
(ii) That the Commissioner in discharge of his responsibility under section 122A of the Ordinance may call for the record of proceedings considered supra in which the orders ibid have been passed by the Taxation Officer working under him and proceed under subsection (2) of section 122A as he deems fit.
(iii) That compliance is reported within 45 days.
C. M. A./348/FTO Order accordingly.
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
M. A. FAROOQI, REGISTRAR, SUPREME COURT OF PAKISTAN, ISLAMABAD
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 368 of 2004, decided on 4th August, 2004.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.59(3), 56, 61, 13(1)(aa) & Second Sched., Cls. (39) & (77A)---Supreme Court Rules, Part-II, R.24---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-Âassessment---Income from salary and rent---Filing of salary certificate---Exemption was claimed on account of honorarium/reward---Issuance of notices under Ss.61 and 13(1)(aa) of the Income Tax Ordinance, 1979---Validity---Admittedly, complainant/assessee filed only salary Certificate (LT.-11E) whereas he was required to file return of income (I.T.-11B) under R. 190(3) of the Income Tax Rules, 1982, because besides salary, complainant/assessee had income from house properly therefore no valid return was filed---Honorarium /reward and special allowance was claimed to be exempt---Taxation Officer instead of issuing notice under S.56 of the Income Tax Ordinance, 1979, issued notices under Ss.61 and 13(1)(aa) of the Income Tax Ordinance, 1979 and demand notice was served on the basis of IT-30 produced by PRAL under S.59(3) of the Income Tax Ordinance, 1979 which proved maladministration on account of incompetence in discharge of responsibility; that if there was no valid return, a notice under S.56 of the Income Tax Ordinance, 1979 was required to be served calling for a valid return that notice under S.61 could be issued only when there was a valid return; hence proceedings under S.61 of the Income Tax Ordinance, 1979 were contrary to law; that there was no basis on the foregoing facts, to issue a notice under S.13(1)(aa) of the Income Tax Ordinance, 1979; hence contrary to law; complainant/assessee had claimed certain exemptions, which after obtaining a valid return could be considered on merits ; that order was not passed under S.62 of the Income Tax Ordinance, 1979 despite proceedings under S.61 of the Income Tax Ordinance, 1979 and that order was passed under S.59(3) of the Income Tax Ordinance, 1979 after making adjustments on account of alleged legally inadmissible claims, although it required a proper consideration and finding through an order under S.62 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the Commissioner undertakes written counselling of the concerned Taxation Officer to pay more attention to correct application of relevant provisions of law so that assessees are saved from undue harassment and that the Commissioner in discharge of his responsibility under S.122A of the Income Tax Ordinance, 2001 may call for the record of proceedings considered in which the orders have been passed by the Taxation Officer working under him and proceed under S.122A(2) of the Income Tax Ordinance, 2001 as he deems fit.
(b)Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---
----S.9(2)(b)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Invalid return---Where an assessment is based on an invalid return, it is contrary to settled law and ab initio void and invalid ; it is a defect that is jurisdictional in nature and does not refer to the judgment of the Assessing Officer in assessment of complainant/ assessee's income.
Shamim Ahmad and S.M. Sibtain, Advisers (Dealing Officers).
Muhammad Siddiq Mughal, Advocate for the Complainant.
Mazhar Iqbal, ACIT, for Respondent.
FINDINGS/DECISION
JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---The Complainant earns income from salary and rent.
The Return of Income for assessment year 2002-2003 was filed under Self Assessment Scheme. However, it was not accepted under the said Scheme and notice under section 61 of the Income Tax Ordinance, 1979 (R.O) was issued. Additionally, notice under section 13(1)(aa) of the R.O. was also issued. Detailed hearings were conducted in which the exemption claimed on account of Honorarium/ Reward amounting to Rs.8,454,333 (later on the caption was changed to "any other allowance") and special allowance of Rs.24,456 was discussed. The final hearing was conducted on 28-6-2003. As stated by the Complainant, he did not hear anything from the department till the receipt of a recovery notice on 10-5-2004. The demand was created at Rs.2,776,436.
2. The treatment meted out to the complainant was challenged on many grounds, specially the following---
a) The Income Tax Return filed by the Complainant qualified for acceptance under the Self Assessment Scheme and there was no reason for its exclusion.
(b) It was the requirement of the law to pass order under section 62 of the R.O. after the issuance of notices under sections 61 and 13(1)(aa). Therefore there was no justification for passing the order under section 59(3).
(c) Without the service of an assessment order and a Demand Notice, the recovery notice issued was a mala fide act.
(d) None of the arguments and submissions made by the Complainant before the Taxation Authorities were considered. Therefore, he was condemned unheard.
(e) That the Complainant was entitled for the statutory exemption, denial of which was against his constitutional right.
(f) That the impugned order was never communicated to the Complainant. He received the copy after the service of recovery notice.
3. In be reply, the RCIT, Northern Region, Islamabad raised the following preliminary objections
(a) That no act of maladministration was established in the instant complaint.
(b) The case involved interpretation of law which has been specifically excluded from the jurisdiction of the Federal Tax Ombudsman within the meaning of Section 9(2)(b) of the FTO Ordinance, 2000.
(c) As the matter related to the assessment of income for which legal remedy of appeal was available, the case fell outside the jurisdiction of the FTO.
4. On the merits of the case, the RCIT submitted that---
a) The Complainant submitted only a Salary Certificate in the form of IT 11E (Salary Certificate) which was not legally correct because the Complainant enjoyed rental income in addition to his salary. He was required to file his return sin the form of IT 11B under Rule 190(3) of the Income Tax Rules, 1982.
(b) The Complainant claimed huge, amount of Rs.8,455,333 as exempt. Therefore, it did not qualify for the Self Assessment Scheme.
(c) In the return of income filed by the Complainant, he claimed deduction of Zakat at Rs.2001. However, the certificate submitted in support thereof showed the deduction only at Rs.859.
(d) Notices issued under sections 61 and 13(1)(aa) were within time .and in accordance with the provisions of law. The Complainant's claim of exemption of Honorarium/Reward was not admissible under the law. The nomenclature of the claim was changed to special allowance. That too was not exempt.
(e) The assessment was completed by Pakistan Revenue Automation Services Ltd [PRAL). The assessment for the year under consideration was not finalized under section 62 because, while the assessee's explanations and documents were under examination, IT 30 and Demand Notice were received from PRAL. Thus an order under section 62 would have amounted to double assessment.
(f) IT 30 was despatched to the Complainant through ordinary mail on 27-11-2003 along with the IT 30s of other employees of Supreme Court of Pakistan in a single envelope.
(g) The assessment was made after making adjustment as provided under section 59(3) by the PRAL. So the question of being condemned unheard did not arise.
5. The Counsel of the Complainant along with 'the Departmental Representative attended. The learned Advocate discussed the grounds of the complaint as enumerated in para 2 supra at length and quoted decisions of higher judiciary in support of his arguments. He argued that the special allowance was given to the Complainant under Rule 24 of Part-II of Supreme Court Rules which, under the provisions of Clause (39) of the Second Schedule to the R.O., was exempt. Claim of exemption of the interest income received from Hubco/WAPDA under Clause (77A) of the Second Schedule was not pressed.
6. The Departmental Representative reiterated the points raised by the RCIT in his written reply. It was stated that, according to rule 190(3) of the Income Tax Rules, 1982, the furnishing of return of income in IT 11E was not legal that is why the case could not be accepted under Self Assessment Scheme. Besides, the exemption claimed on account of special allowance was not admissible.
7. The contents of the Complaint and the reply furnished by the RCIT along with arguments of the representatives of the two sides were considered. The admitted facts in the complaint are that the complainant filed only a Salary Certificate (I.T-11E) whereas he was required to file return of income (IT-11B) under Rule 190(3) of I.T. Rules, 1982, because besides salary, he also had income from house property in assessment year 2002-03. Thus there were no valid return. Honorarium/ Reward amounting to Rs.8,454,333 and special allowance Rs.24,456 was claimed to be exempt from tax under clause (39) of 2nd schedule and exemption was also claimed on interest earned from HUBCO/WAPDA under clause (77 A).
8. The Taxation Officer (T.O.) instead of issuing notice under section 56 of R.O., issued notices under sections 61 and 13(1)(aa). Proceedings were conducted till 28-6-2003. However, a demand notice for Rs.2,776,436 was served on 11-5-2004 on the basis of IT-30 produced by PRAL under section 59(3). It proves maladministration on Account of---
(a) Incompetence in discharge of responsibility as the T.O, did not know ---
(i) That if there was no valid return, a notice under section 56 was required to be served calling for a valid return.
(ii) That notice under section 61 can be issued only when there is a valid return; hence proceedings under section 61 contrary to law.
(iii) There was no basis on the foregoing facts, to issue a notice under section 13(1)(aa) of R.O; hence contrary to law. The complainant had claimed certain exemptions, which after obtaining a valid return could be considered on merits.
(iv) Order was not passed under section 62 despite proceedings under section 61.
(v) Order was passed under section 59(3) after making adjustments on account of alleged legally inadmissible claims, although it required a proper consideration and finding through an order under section 62 of R. Ord.
The provision of this section empowers the assessing officer to "make such adjustments as may be necessary, including any adjustment under sections 34, 35, 36, 37, 38, 50, 53 or 54, the rules made under section 165, the First- Schedule and the Third Schedule" but not the Second Schedule.
9. The preliminary objection of the Respondent to the jurisdiction of this Forum is thus misconceived. The traits of maladministration, inter alia, the foregoing would not have been specifically included to its wide dictionary meanings if provisions of section 9(2)(b) were not meant to be construed strictly and restrictively. Where an assessment is based on an invalid return, it is contrary to settled law and ab initio void and invalid. It is a defect that is jurisdictional in nature and does not refer to the judgment of the assessing officer in assessment of complainant's income. The matters which are raised in the instant complaint do not relate to assessment of income or interpretation of law. The said matters relate to processes and acts contrary' to settled law and incompetence and ineptitude in discharge of duties and responsibility-a malady that has acquired alarming proportions warranting thorough diagnosis in order to take effective remedial measures. Cosmetic actions or sheltering such elements behind the loose and exaggerated veil of section 9(2) would amount to sabotaging the very purpose of this Forum.
10. It is recommended---
(i) That the Commissioner Companies Zone II, Lahore under-takes written counseling of the concerned Taxation Officer to pay more attention to correct application of relevant provisions of law so that assessees are saved from undue harassment.
(ii) That the Commissioner in discharge of his responsibility under section 122A of the Ordinance may call for the record of proceedings considered supra in which the orders ibid have been passed by the Taxation Officer working under him and proceed under subsection (2) of section 122A as he deems fit.
(iii) That compliance is reported within 45 days.
C. M. A./348/FTO Order accordingly.
