DECISION /FINDING ' JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).---The complainant filed Income Tax return for year 2002-2003 which was not formally finalized but as per provisions of section 59(4) of the repealed Income Tax Ordinance, 1979, would be deemed to be assessed as declared. The amount of refund works out to Rs.1,71,165. The tax returns for the tax years, 2003 and 2004 were filed under provisions of sections 114/120 of the Income Tax Ordinance, 2001. The complainant vide application, dated 10-12-2004 requested the C.I.T.(MTU) Lahore for issue of refund who did not issue the refund within the time prescribed under the law violating provisions of section 100 of the repealed Income Tax Ordinance, 1979 and sections 170/171 of the Income Tax Ordinance, 2001. Since the action of respondent No.2 is mala fide, the complainant is entitled to additional payment for delayed refund. The action of the respondents being highly unjust and contrary to law amounts to 'maladministration'.
2: In the reply submitted by Regional Commissioner of Income Tax, Eastern Region, Lahore it is submitted that the complainant is a contractor who carries out various jobs including housekeeping and cleaning under contracts with different clients. All of these clients deduct tax under section 50(4) of the repealed Income Tax Ordinance, 1979 from the contractual payments made by them to the complainant. Income from contract is covered by Presumptive Tax Regime.
The complainant was required to file the statement under section 143B of the repealed Ordinance in respect of his gross income from contract. Instead of filing the statement, he computed net income from business by claiming huge expenses against the gross contract receipts and included the net income from business in his taxable income declared in the return filed under section 55 of the repealed Ordinance. He has included income from contract in the total income, which is not in accordance with law. He was required to pay Rs.110584 along with the return for assessm ent year 2002-2003 but he has claimed credit of Rs.3,14,169 which was deducted from contractual payments and was the final discharge of tax liability. The complainant is entitled to refund of Rs.40,330 as per law whereas he has claimed refund of Rs.4,01,391 for tax year, 2003. He is entitled refund of Rs.2,80,096 but has claimed refund of Rs.5,26,120 from year, 2004. It is further submitted that as per section 170(1) the taxpay. Is entitled to file a refund application only if he has paid tax in excess of the amount which the taxpayer is properly charged. He cannot file an application for refund and such application would be void ab initio as a necessary consequence of the invalidity of such application. The C.I.T. Is not obliged to pass any order within 45 days or afterwards. In view of this legal position no refund is payable to the complainant and instead an amount of Rs.4,32,158 is recoverable from him.
3. In the hearing of the complaint on 7-9-2005 the complainant was represented by Mr. Naved A.
Andrabi, Advocate Supreme Court and Mr. Waheed Shahid, Advocate High Court whereas the respondents were represented by Mr. Irshad Hussain (D.C.I.T.). The AR of the complainant submitted that after filing of the complaint Mr. Ashraf Ahmad Ali, Taxation Officer issued notices to the complainant for amending assessm ents under section 122(5A) for imposition of correct amount of tax for assessm ent year 2002-2003 and tax years, 2003 and A 2004 to punish him for filing the complaint. He argued that the Sindh High Court in the case of Messers Honda Shahrah-e-Faisal AOP and 2 others v. RCIT Karachi, has held that the provision contained in subsection 5(A) of section 122 of the Income Tax Ordinance inserted w.e.f.1-7-2003 is not retrospective in operation.
Consequently the assessm ents finalized before 1-7-2003 cannot be reopened/revised and amended in exercise of jurisdiction under the above provisions. So the issue of notice for proceedings under section 122(5A) regarding assessment year 2002-2003 is totally unwarranted and illegal and the respondent should be restrained from taking any action in respect of this assessm ent. Regarding notices under section 122(5A) for amending assessment of tax years, 2003 and 2004 it was urged that the respondents were maliciously trying to bring in the complainant's case under Presumptive Tax Regime and the tax deducted as a final discharge of tax liability. It has been held by the I.T.A.T. In number of judgments that services rendered whether through contract or otherwise are.Not covered by the Presumptive Tax Regime as laid down in section 80 of the repealed Ordinance. Also restricted meaning cannot be given to the expression "services rendered". Therefore, action of the IAC to cancel the assessments is not sustainable in the eyes of law. He further argued that as held by the President of Pakistan in C.No.36 of 2003 refund could not be withheld on account of expected tax liability. The mala fide intention of the respondents is evident from non-passing of order of refund on the complainant's application. The DR reiterated the arguments contained in the parawise comments.
4. I am in agreement with the following contentions of the AR of the complainant:--
(a) That in view of the judgment of the Karachi High Court reported as 2005 PTD 1316 the notice, dated 30-8-2005 issued under section 122(5A) of the Income Tax Ordinance, 2001 for amending order of assessm ent year 2002-2003 is without jurisdiction, illegal and void ab initio.
(b) That as per observation of the President of Pakistan in C.No.36 of 2003 refund cannot be withheld on account of expected tax liability.
5. In view of the findings in preceding pars, it is recommended that:--
(i) Notice under section 122(5A) of the Income Tax Ordinance, 2001 issued to the complainant for amendment of the assessm ent order pertaining to year, 2002-2003 be withdrawn/cancelled.
(ii) Refund be determined and issued for tax years, 2003 and 2004 as per law.
(iii) Compliance to be reported within 30 days of the receipt of the finding.