FINDINGS /DECISION ' The Complainant is an AOP earning its income from running a Commerce College and Computer Training Institute. In response to statutory notices, the Complainant filed its Income Tax Returns declaring income at Rs,28,886, Rs,43,940, Rs,58,240 and Rs,73443 respectively for the assessment year, 1996-97 to 1999-2000 and claimed exemption from Income Tax under clause 86A of Part-I of Second Schedule of the repealed Income Tax Ordinance, 1979. The Complainant alleges that its claim for exemption was turned down by the Taxation Officer illegally and arbitrarily although the Complainant fulfilled all the conditions necessary for eligibility of the claim for exemption. The Complainant also alleges that exempt income declared as above was enhanced arbitrarily to Rs,800,000, Rs,1,000,000, Rs,1,166i667 and Rs,1,266,667 respectively for the assessment year, 1996-97 to 1999-2000. This has caused grievance to the Complainant.
2. In reply the R-CIT Eastern Region Lahore his raised a preliminary objection that the issue involved in the complaint relates to assessment for which remedy of appeal is available hence this complaint falls outside the jurisdiction-of the Federal Tax, Ombudsman.
3. On merits it has been submitted that the declared income of the Complainant was not accepted because the Complainant did not produce account books before the Taxation Officer at the time of hearing. The only record produced by the Complainant was cash memos. Secondly; enquiries were conducted in this case, which indicated that the commerce classes were taking place from 8-00 A.M., to 12-00 Noon, After that the college was converted into a Computer Training Institute and exorbitant fees were charged by the Complainant. The R-CIT has submitted that as far as the Complainant's claim for exemption was, concerned, the exemption under clause 86A of second schedule is available if Educational Institution is set up, between 1-7-1991 to 30-6-1995. The Complainant has stressed that it, has started classes in March, 1995 whereas all the documentary evidence goes show that this Institution was set up after 30-6-1995. The A.R-CIT has pointed out, that the letter from Deputy Director Education (Colleges) Lahore Division, dated 9-7-1995 clearly indicated that Ch. Tanver Ahmed, Principal of the college has requested for registration as, the college is going to start its operation by the end of 1995, Again letter from the Principal Queen Marry. College, dated 25+144996, W the Director Public Instruction, indicating that the committee for recommending, grant of approval for Registration of College by the Education Department visited the Quaid College and that Institute had fulfilled the requirements for I. Com Classes. The D.P.I. Vide letter, dated 4-12-1996 granted registration for the year, 1995-96 and 1996-97. According to R-CIT all these documents indicate that the Institution was set up after 30-6-1995 and was not entitled to the exemption under clause 86A of second schedule.
4. Mr. Muhammad Ajmal Khan, Advocate, attended for the Complainant. He has explained that the college was set up prior to 3076-1995: In support of his contention the Complainant produced following documents before the Taxation Officer,
(1) Rent deed of the college building, dated 21-11-1994.
(2) Certificate from District health Officer, dated 14-4-1995 showing the inspection of the college
(3) Copy of registration application6tlatecl: 12-671995: to Director Technical Education.
(4) Affidavit filed with the Director Technical Education Lahore alongwith application letter joining reports of staff.
(5) Copy of challan, dated 12-6-1995 for deposit of Registration Fee. According to AR all these documents clearly indicated that the college was set up before 30-6-1995. The AR has submitted that under clause 86A of second schedule Institution set up between 1-7-1991 to 30-6-1995 was entitled to the exemption. In the above clause the word used 'set up' is important. According to AR the Taxation Officer has assumed that the word 'set up' means starting of classes. The AR has explained that this word was explained by the Honourable Peshawar High Court in case reported as 1999 PTD 126 Re. (Messrs Frontier Ceramics v. Government of Pakistan and others) as under:-- "Expression 'set up' would apply when unit was ready to commence production or start manufacturing goods."
According to AR college was ready to start classes before 30-6-1995 as indicated from the documents furnished to the Taxation Officer. The AR has explained that Revenue Authorities have interpreted the words 'set up' as implying actual starting of classes which interpretation is not correct. As far as rejection of declared version was concerned, it was submitted by the AR that the Complainant had maintained account books, which were retained by the Taxation Officer from 15- 12-2001 to 9-1-2002. The estimate of receipts and income was without any basis. Finally it was submitted that the action of Taxation Officer was arbitrary, unjust and constituted serious maladministration.
5. Malik Ghulam Rasul D-CIT attended for the Revenue alongwith Muhammad Khan S.O. Who, completed the assessm ents as above in this case. The DR supported the action of Taxation Officer by reiterating the submissions made by the R-CIT in his report and further elaborated that inauguration ceremony of the college took place on 28-9-1995 which clearly indicated that this college started functioning after 30-6-1995 and was not entitled to exemption under clause 86A of second schedule.
6. The Complainant and Respondent's reply have been examined and arguments of the two sides have been considered. Clause 86A of Part of I of second schedule is reproduced as under:-- "86A. Profits and gains derived by an assessee from the running of any educational institution set up between the first day of July, 1991, and the thirtieth day of June, 1995, both days inclusive, for a period of five years beginning with the month in which institution is set up".
' From a perusal of the above clause it is evident that exemption is available to the educational Institution set up between 1-7-1991 to 30-6-1995. The word 'set up' have been explained by the Peshawar High Court in a case reported as 1999 PTD 126 as discussed in detail in para. 4 at Page-4 supra. These words imply that a unit is ready for production and not that it has commenced production. The Complainant has relied on a number of documents i,e, (i) copy of rent deed, dated 21-11-1994, (ii) copy of challan, dated 12-6-1995 for payment of registration fee (iii) copy of application to Director Technical Education, dated 2-6-1995 for registration and (iv) certificate from District Health Officer, dated 21-11-1994. On the other hand Revenue have based its decision on letter, dated 9-7-1995 from Deputy Director Education to the D.P.I indicating that according to Principal of the college the college is going to start its operation by the end of year and letter, dated 28-1-1996 from the Principal of Queen Marry College indicating that the college was inspected by the Committee and that college had fulfilled all the requirement for I. Corn classes.
The Revenue also relied on the posters and pamphlets indicating inauguration ceremony of the college held on 28-9-1995. From all these documents it is evident that the claim of exemption was rejected without paying proper attention to the provisions of clause (86A) supra as well as to the evidence produced in support of setting up the institution before 30-6-1995.
7. The Complainant had proved on the basis of documentary evidence produced before the DCIT/Taxation Officer that the educational institutions had been set up before the 30th day of June, 1995. However, the DCIT was unable to appreciate both the provisions of clause (86A) of Part-I of the second schedule to the Income Tax Ordinance, 1979 (Repealed Ordinance) for qualifying to claim exemption of tax on income of such institution as well as the documentary evidence produced before him in that respect. It proves the alleged maladministration defined under section 2(3)(2) of Ordinance XXXV of 2000 that the action and decision of the DCIT reflect his inattention, incompetence and ineptitude in discharge of his duties and responsibilities.
8. It is therefore, recommended:
(i) That CIT considers, on the basis of facts of the case supra, that the order passed by the Taxation Officer requires revision under section 122A and he may make such revision to the order as he deems fit on the facts and in law.
(ii) Compliance report be submitted within 40 days of the receipt of these recommendations by the Revenue Division.