Through these four appeals filed by the department against the Appeal Order Nos.311, 312 and Appeal Order Nos.313, 314 passed by learned CIR(Appeals) Peshawar on the following grounds:-- GROUNDS OF APPEAL IN I.T.AS. NOS.280 AND 281
(1) The LCIR(A) was not justified to vacate the order passed under section 122(5A) for tax year 2010 as the certificate issued by Fecto Cement Ltd. Vide letter No.FCL/Tax/2294 dated 1-6-2012 confirmed that the taxpayer is supplier and the facility of tax exemption to supplier of cement is not available.
(2) The CIR(A) was not justified to vacate the order as the taxpayer was dealer in cement and exports the cement from Islamabad to Afghanistan directly and received payment from Karachi and Rawalpindi which are not located in most affected area as per Circular No.14 of 2011 dated 6- 10-2013 Para No.Iii,: The taxpayer is located inside the specified areas but his business is carried out in the specified area is taxable.
(3) The CIR(A) was not justified to over look the decision of the Honorable ATIR Peshawar Bench Peshawar in the case of Messrs Inter Construct RTO Peshawar vide I.T.A. No.157(PB) 2012 Tax year 2011 dated 17-12-2012 and FBR's Clarification letter C.No.476224 dated 16-6-2013 while deciding the appeal of the taxpayer.
(4) The CIR(A) was not justified to accept any document which is not produced before the taxation officer violation of section 128(5) of Income Tax Ordinance, 2001.
GROUNDS OF APPEAL IN I.T.As. Nos.282 and 283
(1) The L/CIR (A) was not justified to vacate the order passed under section 170(4) for tax year, 2010.
(2) The CIR(A) was not justified to over look the decision of the Honorable ATIR Peshawar Bench Peshawar in the case of Messrs Inter Construct RTO ,Peshawar vide I.T.A. No.I57(PB) 2012 Tax year 2011 dated 17-12-2012 and F.B.R's. Clarification letter C.No.476224 dated 16-6-2013 while deciding the appeal of the taxpayer.
2. Brief facts of the case are that the taxpayer an individual filed returns for tax years 2010 and 2011 declaring commission income with details as under:-- Tax Year Gross Commission receivedTax deducted/ payments 2010 Rs.52,587,500 Rs.15,690,128 2011 Rs.82,500,000 Rs.22,470,211 The return so filed were deemed assessment under section 120(1)(b) of the Income Tax Ordinance, 2001. On the basis of above taxpayer claimed the income exempt under clause 126F of Part-1 of the 2nd Schedule to the Income Tax Ordinance, 2001 with the view that business has been carried out in Peshawar, which is the most affected area prescribed under clause 126F Part-1 of the 2nd Schedule to the Income Tax Ordinance, 2001. On the basis of deemed assessment order taxpayer filed applications for issuance of refunds claimed as per the return of income for both the years under appeal which was rejected by taxation officer of the E&C Wing, then he referred the case to the L/Additional Commissioner Inland Revenue, Audit Division Zone-I, who passed the order under section 122(5A) of the Income Tax Ordinance, 2001 for tax years 2010 and 2011, refusing the exemption under clause 126F of Part-1 of the 2nd Schedule to the Income Tax Ordinance.
3. Being aggrieved from the treatment of additional commissioner taxpayer filed appeals before the Learned CIR(A), who disposed of these appeals .Though separate Orders. Department being unhappy with the orders passed by the L/CIR(A) filed instant appeals before the Tribunal.
4. Learned DR reiterated his contentions as per the grounds of appeals, and relied upon, firstly, that the cement supplies are not exempt under clause 126F of the Part-IV of the 2nd Schedule 2ndly in case of commission receipts the tax deducted at the rate of 10% of the total commission is final tax, liability. The Tribunal in numerous cases of identical nature has held that in cases of presumptive income it falls under the final tax regime and is not exempt under clause 126F. In rebuttal to arguments of the learned AR., it was contended by L/DR that FTO judgment is not binding on ATIR, while against the judgment of Honorable FTO, the representation has already been made before the President of Pakistan which is still pending for adjudication. Copy of FTO, order on complaint and representation made by department have been placed on file and be produced at later part of the order.
5. On his turn L/AR of the taxpayer stated that taxation officer has wrongly declared the taxpayer/respondent as supplier, in fact respondent is a trader. He also referred the judgment of Honorable FTO, whereby making interpretation of Law, it has been held that the judgment of Honorable Supreme Court is distinguishable which the Tribunal has relied upon, at para-6 of the order in complaint. It was also argued by L/AR of the taxpayer that in such like situation in cases of presumptive income, in numerous cases giving exemption under clause I26F presumptive income, refunds have already been issued but department is reluctant to amend the order under the relevant provision of law as have been amended in the case of instant taxpayer.
6. After having heard the arguments of the rival parties and from perusal of relevant orders and the material made available before us, it has been seen that taxpayer is earning its income from the sale of cement, while as per clause 126F supply of cement is excluded from provision of clause 126F of the 2nd Schedule to the Income Tax Ordinance, 2001. As per law tax deducted at the rate of 10% of the commission is final tax liability, thus it falls under the PTR. On the identical issue granting exemption to presumptive income by the authority below, the ATIR making its own interpretation and also placing reliance on the judgment of the Apex Court of the country has held that "profit and gains" as used in clause 126F are relevant only to the "head business income" and not to any other class of income as specified in section 11 of the Ordinance, 2001.
7. As far the objection of L/AR that department is reluctant to amend the order in cases of presumptive income, where refunds have been issued, we have no concern with the same, this is the job of Inland Revenue hierarchy. If the L/AR has any observations to this effect he can approach the concerned hierarchy.
8. To clarify the para-6 of the order on complaint by the Hon'ble FTO, the Tribunal vide its order in I.T.A. No.157(PB) 2012 title Messrs Inter Construct (Pvt.) Ltd. Has held that in case of presumptive income turnover is not chargeable to tax under section 113 of the Ordinance. Thus the order of deletion of Min tax was maintained but the reasons other than recorded by L/CIR(A). In case of Shah Zaman bearing I.T.A. No.81(PB) 2012 dated 10-1-2013 return was filed under section 114 of the Ordinance instead of filing of statement under section 115(4). While to this effect law was not amended, for income falling under PTR only the statement under section 115(4) is requirement of the law.
9. In case of Inter Construct issue of charging of minimum tax was agitated by the taxpayer with the plea that his case falls under the final tax regime, therefore minimum tax is not chargeable on its turnover as per definition of section 113. On examination of relevant law and judgments of Honorable Supreme Court wherein it has been held that "profit and gains" are relevant to business income only and not to any other class of income as prescribed in section 11 of the Ordinance. In case of Shah Zaman (Pvt.) Ltd. Its income also falls under the final tax regime, return was filed under normal law which is deemed assessment order under the term of section 120(1)(b) of the Ordinance, 2001. Taxpayer on the basis of this deemed assessment order applied for issuance of refund, it was refused for the reasons recorded in the order passed under section 170 of the Ordinance, 2001. In this case though deemed assessment order was illegal and against the law from its very inception, the return was filed under section 114, whereas the requirement of law was the filing of statement under section 115(4) of the Ordinance. Deemed assessment order was not amended till the hearing and disposal of appeal before the Tribunal which means that deemed assessm ent was in the field till the disposal of appeal by the Tribunal. As per earlier judgments of the ATIR, refund if claimed on the basis of an illegal order could not be refused until the order already in field is amended as per due course of law. In case of Ashraf Match Industries decided vide I.T.A. No.03, taxpayer derived its income from export which under law is final discharge of tax liability, but specific exemption was granted from the withholding tax under clause 10A of Part IV of the 2nd Schedule to the Ordinance, 2001. This issue has been dealt with by this bench of ATIR, in the case of Ashraf Industries vide I.T.A. No.03 (PB) 2012. The relevant portions of the orders vide I.T.A.
No.157(PB) of 2012 in the case of Messrs Inter Construct (Pvt.) Ltd. Peshawar v. RTO, Peshawar, I.T.A.
No.81(PB) of 2012, RTO v. Messrs Shah Zaman (Pvt.) Ltd., Peshawar, and I.T.A. No.03 (PB) of 2012 RTO v.
Messrs Ashraf Match Industries (Pvt.) Ltd. Peshawar are reprOduced as under:-- ' I.T.A. No.157(PB) of 2012 Messrs Inter Construct (Pvt.) Ltd. Peshawar v. RTO, Peshawar:- "4. We have heard the arguments of the parties and have perused the relevant orders. It was argued before the L/CIR(A) that the amendment of order under section 122(5A) of the Ordinance, 2001 is not applicable in the case of taxpayer as neither the deemed assessment order was erroneous nor prejudicial to the interest of justice. The L/CIR(A) turned down the arguments of the L/AR of taxpayer. While on account of levy of minimum tax L/CIR(A) observed that taxpayer derives its income in the most and moderately affected areas, therefore is exempt from the operation of section 4(1) of the Income Tax Ordinance, 2001 by virtue of exemption available under' clause 126-F and section 113 are not mutually exclusive. Both these provisions are to be seen together and in harmony and not in isolation as is the settled principle of interpretation of statutes. If read together, there is no conflict between the two provisions. The provisions of section 113 has overriding effect and any other provisions, even clause 126-F is to be, referred to, section 113 and hence governed by section 113 of the Income Tax Ordinance, 2001. Section 113 of the Income Tax Ordinance, 2001 is applicable to cases entitled to exemption under clause 126-F of Part-I of Second Schedule or any other provisions of the Ordinance ibid which has an overriding effect over other provisions of Ordinance ibid. Clause 126-F does not have an overriding effect over other provisions of the Ordinance rather this clause is subservient to section 113 of the ITO, 2001, which has overriding effect over all other provisions of the Ordinance ibid as elaborated. In view of the above discussed facts section 113 of the ITO, 2001 prevails over clause 126-F of the Ordinance ibid and the taxpayer was/is liable to charge of minimum tax which has rightly been charged by the L/taxation officer vide order under section 122(SA) of the ITO, 2001.
(1) Appellant through ground of appeal reproduced supra at Serial No.3 has agitated that income of taxpayer is taxable under Presumptive Tax Regime hence turnover does not include the PTR receipts. We are persuaded to agree with the contention of appellant that income of taxpayer falls under the PTR. In such like situation filing of statement under section 115(4) is the requirement of law. The statement filed as such is deemed assessment under the term of section 169(3) as deemed assessment order under section 120(1)(b) of the Ordinance, 2001. The section 11 of the Ordinance ibid prescribed the various heads of income which are as under: "11. Heads of income.---(I) For the purpose of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely:-
(a) Salary;
(b) Income from Property;
(c) Income from Business;
(d) Capital Gains; and
(e) Income from Other Sources.
For each head of income separate section of law has been allotted. Section 18 of the Ordinance, 2001 prescribes the business income; which is at par with section 22 of the Ordinance, 1979 (repealed). While explaining the "profit and gains" the Hon'ble Supreme Court of Pakistan vide its judgment reported as 2010 SCMR 1236 = 2010 PTD 1809 has held that "profits and gains" are related to business income only. In the case of appellant, the income is assessable under PTR, as per section 169(2) of the Ordinance, 2001. Such income is not taxable under any of the heads of income as envisaged in section 11 of the Income Tax Ordinance, 2001, and no tax under any other provision of Income Tax Ordinance, 2001, except the tax withheld under section 169(2) read as under:-- "169(2) Where this section applies--
(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;
(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;
(c) the amount of the income shall not be reduced by--- (i) any deductible allowance under Part- IX of Chapter III; or
(ii) the set off of any loss;
(d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance; and
(e) there shall be no refund of the tax collected or deducted [unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance]."
The income of taxpayer 'does not fall under the provision of section 11 of the Ordinance.
(2) The above discussion leads us to the conclusion that in case of Presumptive Income no tax under section 113 of the Ordinance is chargeable, therefore it is deleted."
I.T.A. No.81 (PB) of 2012 Messrs RTO v. Messrs Shah Zaman (Pvt.) Ltd. Peshawar: "4. We have considered the assistance of the L/DR and perused the relevant orders. It has been observed that taxpayer derives its income from the execution of contract and his income is assessable under the Presumptive Tax Regime. The taxpayer has claimed exemption under the garb of Clause 126-F of the Ordinance with the plea that his income is exempt from taxation.
Accordingly, statement under section 115(4) of the Ordinance with claim of refund was filed.
Clause 126-F is reproduced as under: - "126F. Profits and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a period of three years starting from the tax year 2010: Provided that this concession shall not be available to the manufacturer and suppliers of cement, sugar, beverages and cigarettes."
As per the above clause it is the "profits and gains" which are exempt, from taxation. The phrase 'profit and gains' have been interpreted and explained by the Hon'ble Supreme Court of Pakistan in a case reported as 2010 SCM R 1236 = 2010 PTD 1809. The statement filed under section 115(4) falls under the purview of final taxation and is deemed assessment order under the term of section 120(1)(b) as per section 169(3) of Ordinance, 2001. As per section 169(2); deemed income does dot fall under any of the heath of income as contained in section 11 of the Income Tax Ordinance 2001.
On this issue we have already given our mind in the case of Inter Construct (Pvt.) Ltd., Peshawar vide I.T.A. No.157 (PB) of 2012 dated 17-12-2012.
3. In this case statement filed under section 115(4) by the taxpayer, where refund was also claimed.
Under the term of section 120(1) (b) of 17'0 2001 ibid. The return/statement filed is deemed assessm ent order, and if any refund is claimed it also deemed to have been created in case when the deemed assessm ent order remain in field being not amended, than the right created through this order also remains in contact. The deemed assessment order is not amended in this case, and as per this order refund was available, subsequently demand created is adjustable.
4. The appeal is disposed of as above"
I.T.A. No.03 (PB) of 2013 RTO v. Messrs Ashraf Match (Pvt.) Ltd. Peshawar:
4. Arguments of the parties heard. Relevant orders perused. It reveals that taxpayer has made the export as well as earned his income from local sales. For export sale tax deducted is final discharge of tax liability. However as per clause 10A of Part-IV of 2nd Schedule to the Income Tax Ordinance, 2001 export originating from the most affected area is exempt from withholding tax, while as per clause 126F the exemption to "profit and gains" of taxpayer have been granted. In case of an exporter, the tax withheld falls under the presumptive income, however as per clause 10A it has specifically been provided that no tax should be withheld from the exporters from the exports which originate from the moderately affected areas as specified in Clauses 126F and 10A being relevant to subject under consideration, hence reproduced as under:-- "126F. Profits and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a period of three years starting from the tax year 2010: Provided that this concession shall not be available to the manufacturer and suppliers of cement, sugar, beverages and cigarettes."
"10A(i) The provisions of serial No.5 of the Table given in subsection (1) of section 182 and clause (a) of subsection (1) of section 205 shall not apply to business located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA, provided that the principal amount of tax due is paid by the 30th day of June, 2010.
(iii) the provisions of section 154, regarding withholding tax on exports, shall not be applicable to the export of goods originating from the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA, till the 30th day of June, 2011: Provided that this clause shall only be restricted to the exporters based in the above areas:"
Taxpayer derives its income from two sources i.e. From local sale and from exports. In case of local sales his profit and gains are exempt from taxation under clause 126F of the Part-I of 2nd Schedule, while in case of exports exemption from withholding tax has been granted under 10A of Part-IV of the 2nd Schedule. Clause 126F is effective from 1-7-2009 to 30-6-2012, while clause 10A which is purely related to presumptive income against the tax withheld at export stage remained effective from 1-7-2009 to 30-6-2011. However, in case of exports, only those exports are exempt from withholding tax under section clause 10A of Part-IV of 2nd schedule to the Income Tax Ordinance, 2001, which "originate" front most affected and moderately affected areas as specified in the relevant clause, FATA and PATA. The word "Originate" as per Shorter Oxford Dictionary means: "To give origin to; Cause to arise or begin, initiate, To take its origin or rise; Have its beginning; To spring, be derive; To have its origin (locally); To arise (in or from)."
From the above meaning of "originate" only those exports are exempted from the withholding tax items of which are manufactured, or naturally produced in the specified area of exemption. While in case where the items of exports are traded from the area other the specified areas, without going change in form, shape and substance if are exported from the exempted area no such exemption from withholding tax is allowable the tax withheld in such cases is discard of final tax liability. In the instant matter in hand, taxpayer has its manufacturing plant at Peshawar which is included in the moderately affected area as specified for the purpose of exemption. So for the levy of minimum tax under section 113 is concerned, its rate is 1%, while tax deductible at export stage is almost 1.25%. The withholding tax at export stage is final tax liability and is assessable under presumptive tax regime.
Though the export made by the taxpayer is manufactured by him, but when it is subjected to export, it is then converted in presumptive tax regime. Had the exemption not been granted from withholding tax, tax withheld would have been assessable under PTR, while an income accrued from PTR is deemed income under the fiction of law, while deemed income is excluded from the definition of turnover as contained in section 113 of the Ordinance and for best understanding of the matter is reproduced as under:-
113. Minimum tax on the income of certain persons.--(1) This section shall apply to a resident company, an individual (having turnover of fifty million rupees or above in the tax year 2009 or in any subsequent tax year) and an association of persons (having turnover of fifty million rupees or above in the tax year 2007 or in any subsequent tax year)] where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force--
(a) loss for the year;
(b) the setting off of a loss of an earlier year;
(c) exemption from tax;
(d) the application of credits or rebates; or
(e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than [one] per cent of the amount representing the person's turnover from all sources for that year: Provided that this subsection shall not apply in the case of a company, which has declared gross loss before set off of depreciation and other inadmissible expenses under the Ordinance. If the loss is arrived at by setting off the aforesaid or changing accounting pattern, the Commissioner may ignore such claim and proceed to compute the tax as per historical accounting pattern and provision of this Ordinance and all other provisions of the Ordinance shall apply accordingly.
(2) Where this section applies:
(3) "Turnover" means,-
(a) (b)[gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;
(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;
(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and
(d) the company's share of the amounts stated above of any association of persons of which the company is a member.] So in the light of above discussed facts levy of minimum tax subject to presumptive income under clause 10A of Part IV of 2nd Schedule liable to deletion. In this way deletion of levy of minimum tax to the extent of presumptive income is maintained for the reason recorded supra."(/b)
10. The L/AR referred the judgment of Honorable FTO, the relevant part of which is as under:- (b)"2. The complaint was sent for comments to Secretary, Revenue Division, in terms of section 10(4) of the FTO Ordinance, 2000. In response, the FBR submitted its comments vide letter dated 1- 10-2013.
3. The AR claimed that refund application was e-filed on 14-12-2012, but no response was made by the Deptt. Nor any order was passed under section 170(4) of the Income Tax Ordinance, 2001 (the Ordinance) within the prescribed time limit. He submitted that tax deducted in the instant case was refundable as exemption of tax was allowed by the Federal Government to the affected areas of KPK under Clause 126F Part-1 of the Second Schedule to the Ordinance. The AR prayed that the Deptt be directed to issue refund with compensation due without further delay.
4. The DR contended that though refund application was duly filed for the year 2010, the refund order could not be passed as the Appellate Tribunal, Peshawar, had passed an order vide I.T.A.
No.I57(PB) of 2012 dated 17-12-2012, which created confusion. The Chief Commissioner, RTO Peshawar, wrote a letter on 11-2-2013, followed by reminders dated 21-2-2013, requesting the FBR to issue clarification, in the matter, but there was no response. However, on the directions of FTO in various cases of identical nature, the FBR has issued clarification, vide letter C. No.4/76224- R dated 7-6-2013, wherein it has been stated that exemption of tax under Clause 126F was not available to the taxpayers covered under Final Tax Regime (FTR), as income of such cases did not fall under the definition of "profit and gains". The DR contended that in view of FBR's clarification, issuance of refund in the instant case was not permissible.
5. The AR controverted DR's above contention and argued that the Deptt had been issuing refund in identical cases. He averred that FBR's clarification was unlawful as it was based on the order of the Tribunal referred to supra which was relevant to a different issue i.e. The application of section 113 of the Ordinance in the cases covered under FTR. The reference to a later judgment of the same Tribunal vide I.T.A. No.81(PB) of 2012 dated 10-1-2013, wherein it was clarified that returns/statement filed under the purview of FTR was deemed assessment order under section 120(1)(b) of the Ordinance and if any refund was claimed, it was also deemed to have been created. The AR further deposed that even otherwise the FBR's clarification could not apply retrospectively and the Deptt be directed to issue refund without further delay.
5. Both the parties have been heard and record perused.
6. Some confusion appears to have arisen due to the judgment of the Appellate Tribunal, Peshawar, in cases where exemption of tax was claimed under clause 126F which reads as under: "Profit and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for as period of three years starting from the tax year 2010: Provided that this concession shall not be available to the manufacturers and suppliers of cement, sugar, beverages and cigarettes."
Apparently, no distinction has been made between taxpayers falling under the provisions related to FTR and those falling under normal tax regime (NTR). In letter C. No, 113914 dated 19-8-2010, addressed to Chief Commissioner, RTO, Peshawar, the FBR had clarified that provisions of Prime Minister Fiscal Relief for KPK, FATA and PATA were required to be implemented in letter and spirit. Moreover, clause 126F, provides that concession of exemption was not available specifically to "manufacturers and suppliers of cement, sugar, beverages and cigarettes." In other words, under clause 126F, exemption was available to all other categories of income.
7. While deciding some identical cases, this office had issued following recommendations in each case: "FBR to---
(i) Clarify the long pending issue of exemption of tax under clause I26F of Part-I of Second Schedule of the Ordinance;
(ii) Issue refund due, as per law, in all pending cases where exemption under clause 126F is applicable."
FBR has issued clarification dated 7-6-2013 referred to by the Deptt supra, claiming that exemption under section 126F of the 1st Schedule of the Ordinance was not available to the taxpayers falling under FTR. This clarification is actually based on the decision of the Appellate Tribunal, Peshawar Bench, discussed in the earlier paras herein above. The judgment of Honorable Supreme Court (2010 PTD 1809) has also been cited in support of the argument that "Profit and gains" were not derived from the income of the FTR cases and, therefore, such words as used in Clause 126F, omitted/ excluded FTR cases for exemption of income tax.
8. The FBR in its clarification has misconstrued the decision of the Supreme Court which dealt with the claim of exemption of tax on interest income on deposit of borrowed money maintained in the bank by a company for Power Generation Project. In this case the Honorable Supreme Court, referring to its earlier judgment dated 16-6-2006, has held that: "Payment of interest on capital generated/borrowed by the petitioner for starting a business 'venture would not be adjustable or it could be set off against the income accruing to it by investing/utilizing the generated/borrowed capital or part thereof and caring interest thereon.
There is no provision in the Ordinance exempting such income from being charged to tax."
It is clear that the case referred to be the Tribunal as decided by the Supreme Court, which was made the basis of clarification by FBR, related to the income derived from investment (borrowed money) of capital nature which was not exempted under Clause 176 of the Second Schedule of the repealed Income Tax Ordinance, 1979. The FBR has tried to misquote the judgment of the Supreme Court just to deny the exemption of tax to some taxpayers including the instant case. The fact that exemption was allowed to all the categories of taxpayers of affected areas in KPK is evident from the fact that exemption was allowed through Clause 126F of the second Schedule of the Ordinance with the express Proviso, wherein it was specifically mentioned that exemption was not available to "manufacturers and suppliers of cement, sugar, beverages and cigarettes." This shows that only the categories of income mentioned in the Proviso to Clause 126F have been expressly excluded from the tax exemption and no other category, including FTR cases, can be artificially included in this proviso for disallowing tax exemption. Moreover, as per judgment of the Supreme Court cited as 1993 SCM R 1232, the FBR is not competent to interpret a question of law through a circular or a clarification.
8. In view of the above, the complainant's case is exempt from application of income tax under clause 126F of Part-1 of Second Schedule to the Ordinance for the relevant period.
As regard: Findings:
9. Delay in passing order under section 170(4) of the Ordinance within the prescribed time is maladministration in terms of section 2(3) of the FTO Ordinance, 2000.
Recommendations:
10. FBR to -
(i) Withdraw the unlawful and discriminatory clarification issued vide C.No,4/76224-R dated 19-8- 2013, disallowing exemption of tax to a certain class of taxpayers under Clause 126F of Part-I of Second Schedule of the Ordinance;
(ii) Issue refund due, as per law, in all pending cases where exemption under clause 126F is applicable; and
(iii) Report compliance within 21 days."
The Honorable FTO, for the above reason nullify the order of the Tribunal by discarding the interpretation of Tribunal and observing that the judgment of Apex Court of the country is distinguishable the matter before him, which matter is identical to the cases of Inter Construct (Pvt.) Ltd., Ashraf Match (Pvt.) Ltd., and Shah Zaman (Pvt.) Ltd., which were decided by the Tribunal.
It is clarified that as per judgment of Honorable Sindh High Court cited as 2013 PTD 486, the Honorable FTO has no mandate to interpret the law, against the judgment of Appellate Tribunal Inland Revenue only the High Court is competent to resolve the question which arises from the Tribunal's order. Against it the representation , made by the department is as follow:-- "REPRESENTATION UNDER SECTION 32 OF THE ORDINANCE, NO.XXXV OF 2000 (ESTABLISHMENT OF THE OFFICE OF FEDERAL TAX OMBUDSMAN ORDINANCE, 2000) AGAINST DECISION/FINDINGS DATED 25/10/2013 COMPLAINT NO.58/KP/IT/1271/2013.
Brief facts leading to the filing of this representation are as under:-
5. The complaint deals in supplies of raw material to M/s Lucky Cement (Pvt.) Ltd., on contract basis and his income falls within the definition of presumptive income as envisaged in Section, 169 of the Income Tax Ordinance, 2001.
6. The complainant claimed refund of tax claiming exemption under Clause 126F of 2nd Schedule to the Income Tax Ordinance, 2001.
7. The claim was prima fade not genuine, therefore not entertained by the dealing Officer.
8. The complainant filed complaint before the Honorable FTO who decided the case with following findings and recommendations.
FINDINGS
(A) Delay in passing order under section 170(4) of the Ordinance within the prescribed time is maladministration in terms of section 2(3) of the FTO Ordinance, 2000.
RECOMMENDATIONS
(I) FBR to withdraw the unlawful and discriminatory clarification issued vide C.No,4/76224-R dated 19-8-2013 disallowing exemption of tax to a certain class of taxpayer under clause 126F of Part-I of Second Schedule of
(II) the Ordinance;
(III) issue refund due, as per law, in all pending cases where exemption under Clause 126F is applicable and
(IV) Report/compliance within 21 days.
11. Further the department has made the representation before the President in the following manner:-- The Regional Tax Office, Peshawar in view of the Appellate Tribunal Inland Revenue, Peshawar Order No,ITA I57(PB) of 2012 dated 17-12-2012 could not issue the refund due to directions given by the Appellate Tribunal Inland Revenue that Final Tax Regime cases are not covered by the exemption Clause 126F, therefore the recommendation of the Honorable Federal Tax Ombudsman are contested in representation before the Honorable President of Pakistan under section 32 of the FTO Ordinance, 2000, inter alia, on the following grounds.
GROUNDS
(i) Since FBR has clarified vide letter C. No, 4/76224-R dated 7-6-2003 that exemption under Clause 126F of 2nd Schedule to the Income Tax Ordinance, 2001 is not available to taxpayers covered under Final Tax Regime and the exemption is allowable only to the business income under the normal law, therefore, FTO findings/recommendations are not sustainable. The decision of the L/ATIR is based on the Supreme Court of Pakistan decision in the case of M/s UCH Power (Pvt.) Ltd. As referred to above.
(ii) The issue before the Honorable FTO in the complaint related to determination of facts, assessm ent of lax liability, and interpretation of law and rules, hence the matter is outside of jurisdiction of the Honorable FTO in terms of Section 9(2) of the FTO, Ordinance, 2000.
(iii) Since the Honorable Appellate Tribunal, Inland Revenue, Peshawar has already given its findings on the issue, which are also concurred to by the Board, therefore, recommendation of the Honorable FTO are against the judgment of the Appellate Forum and cannot be implemented.
(iv) The Honorable President of Pakistan has already decided such like matters in favour of revenue in number of cases represented before the Honorable President of Pakistan; a case in point is hereby quoted below for reference:- "Complaint No,674/LHR/IT/(567)/1176/2010-Messrs Micro Tech Industries (Pvt.) Ltd., v. FBR."
(v) That no maladministration is involved in the instant case as the issue has been dealt with in accordance with the principles laid down in the aforementioned judgment of the L/ATIR and that of the FBR in consequent to ATIR order.
(vi) The Federal Board of Revenue has not interpreted a question of law but only has withdrawn earlier circulars of exemption on the basis of judgment of Honorable ATIR vide I.T.A. No,157(PB) of 2012 dated 17-12-2012 and under the law, the judgment of the Honorable ATIR is binding on the department, unless challenged in higher fora.
(vii) That the cases falling in Final Tax Regime (FTR) are not included in section 11(C) of the Income Tax Ordinance, 2001 and thus not covered in section I8(a) (the profits and gains of any business).
Therefore, exemption is not available to the FTR cases under clause I26F of 2nd Schedule to the Income Tax Ordinance, 2001.
PRAYER It is prayed that the order of the Honorable Federal Tax Ombudsman may kindly be set aside on the grounds mentioned above.
Sd/- (Shahid Zaman)
Commissioner (IR) Zone-III, Regional Tax Office, Peshawar"
12. The judgment of Hon'ble FTO is not binding on Tribunal, the Tribunal is competent to interpret the Law, it is this reason that on any point of law reference is to be made to the Honorable Higher Courts for their advice. The Hon'ble Sindh High Court on the point of jurisdiction of FTO cited as 2013 PTD 486 has explained the jurisdiction of Hon'ble FTO. The entire order of Hon'ble Sindh High Court is reproduced as follows:-- AQEEL AHMED ABBASI, J.---Through instant petition, the petitioner has sought relief from this Court with the following prayers:--
(a) Declare that the FTO has no authority to admit a complaint against a Quasi Judicial order passed by an officer acting in his Quasi Judicial capacity under the relevant fiscal law.
(b) Declare that no administrative scrutiny can be made in respect of a Quasi Judicial order except by the relevant Quasi Judicial hierarchy provided under the law.
(c) Declare that the Quasi Judicial officers are not subordinate to administrative control in exercise of their statutory powers and are subject to control of the same Quasi Judicial nature as provided under the relevant law.
(d) Declare that the issuance of Charge Sheet by respondent No,2 amounts to interference in the Quasi Judicial powers of the appropriate officer which the law prohibits in express terms and it undermines the concept of independence of judiciary.
(e) Declare that the issuance of impugned Charge Sheet is discriminatory as a number of orders of appropriate adjudicating officers are reversed/amended by the appellate hierarchy provided under relevant laws and no Charge Sheet has ever been issued to those officers.
(j) Declare that the impugned Charge Sheet is ab-initio void, illegal and coram non judice."
(g) Restrained respondent . No,3 from conducting the proceedings/ex-parte proceedings or directing the petitioner to submit, the reply to the impugned Charge Sheet and restrain respondent No,4 from passing any adverse orders till the decision of this petition.
2. Brief facts as stated by the petitioner are that the petitioner while performing his duties as Additional Collector (Preventive) in the Collectorate of Customs (Preventive), Karachi passed the Order-in-Original No, 12 of 2009 dated 26-2-2009 whereby after adjudication and on the basis of evidence available on record, ordered for the release of seized vehicle to its bona fide owner. Subsequently, the Collector of Customs (Preventive) in exercise of power under section 195 of the Customs Act, 1969 re-opened the case to examine the propriety of the order-in original passed by the petitioner and vide Order No, 001/2009 dated 5-5-2009 again confiscated and seized the subject vehicle. Being aggrieved by such order passed by the Collector of Customs (Preventive) under section 195 of the Customs Act, 1969, the owner of the vehicle filed a complaint of maladministration before Collector of Custom (Preventive) bearing No,367-K/2009 on 9-6-2009. In addition to such complaint the owner also filed an Appeal No,K-403 of 2009 before the Customs Appellate Tribunal against the order of the Collector of Customs (Preventive) passed under section 195 of the Customs Act, 1969. The learned Federal Tax Ombudsman vide his order dated 25-1-2010 dismissed the complaint of the owner and held that the order of the Collector of Custom (Preventive) under section 195 of the Customs Act, 1969, an order, however, while passing such order recommendations were made against the petitioner i,e, Additional Collector (Adjudication) for an action against him under the Removal from Service, (Special, Powers) Ordinance, 2000. Pursuant to said decision and compliance to the recommendations of the learned Federal Tax Ombudsman, the petitioner, has been issued statement of allegations, charge sheet against the petitioner, against which proceedings the petitioner has filed instant petition.
3. Learned counsel for the petitioner has vehemently criticized on the recommendations of the Federal Tax Ombudsman as contained in the impugned order and also the subsequent proceedings initiated against the petitioner in view of the recommendations made in the decision of the Federal Tax Ombudsman. It has been contended by the learned counsel for the petitioner that the recommendations made against the petitioner in the order passed by the Federal Tax Ombudsman on a complaint filed by the petitioner of the vehicle against the Collector of Custom (Preventive), who while exercising powers under section 195 of the Customs Act, 1969 ordered for confiscation of the vehicle corum non judice and without lawful authority as no complaint whatsoever was filed against the petitioner in respect of order-in-original passed by him. Per learned counsel, since the complaint of the owner against the Collector of Customs (Preventive) and his order dated 5-5-2009 under section 195 of the Customs Act, 1969 was dismissed and the notices issued as well as confiscation of the vehicle by the Collector of Custom (Preventive) was held to be in order, therefore, there was no occasion for the learned Federal Tax Ombudsman to issue any recommendations against the petitioner who was neither a party in such proceedings nor was ever issued any show-cause notice alleging any maladministration by the petitioner. It is contended by the learned counsel that principles of natural justice have been violated as no opportunity whatsoever has been provided to the petitioner while passing adverse orders against him and issuing recommendations for proceedings against him under Removal from Service (Special Powers) Ordinance, 2000.
Learned counsel further submitted that the petitioner was never served with the impugned decision passed by the learned Federal Tax Ombudsman and has come to know about such decision after a period of about four months on 28-5-2010 when a show-cause notice was issued to the petitioner by the respondent pursuant to recommendations of the Federal Tax Ombudsman. It has been further submitted that the order passed by the Collector of Customs (Preventive), Karachi, under section 195 of the Customs Act, 1969, has duly been set aside by the learned Customs Appellate Tribunal in Customs Appeal No,K-403 of 2012 vide order dated 13-8- 2012 and the order-in-original passed by the petitioner has been restored. Per learned counsel, the petitioner had no option but to approach this Court through instant petition as he could not avail the remedy to file representation before the President of Pakistan in terms of section 32 of the Federal Tax Ombudsman Ordinance, 2000, whereas the order passed by the Federal Tax Ombudsman is corum non judice and has been passed without having lawful jurisdiction in the case of the petitioner. It has been contended that the impugned order passed by the Federal Tax Ombudsman and the subsequent proceedings initiated by the respondent against the petitioner may be set aside.
4. Conversely, Mr. Asaf Vardag, learned counsel for the respondent No,1 has supported the order passed by the learned Federal Tax Ombudsman and submitted that the Federal Tax Ombudsman has the jurisdiction to entertain the complaint regarding maladministration and to pass appropriate orders and issue recommendations against any tax official in terms of sections 9, 13 and 14 of the Federal Tax Ombudsman Ordinance, 2000. Per learned counsel, the jurisdiction of the learned Federal Tax Ombudsman has vast jurisdiction over all the tax officials under the Ordinance, 2000, therefore, the contention of the learned counsel for the petitioner regarding wrongful assumption of jurisdiction in the instant matter is misconceived. It has been further contended that in terms of section 2 of the Ordinance, the scope of the term maladministration has been defined, which is very vast and the act of the petitioner under the circumstances fell within the definition of maladministration, hence the learned Federal Tax Ombudsman was justified to assume the jurisdiction to pass the impugned order and further to issue recommendations against the petitioner. In support of his contention, learned counsel for the respondent has readout the provisions of section 2, subsection (3), sections 9, 13 and 14 of the Federal Tax Ombudsman Ordinance, 2000. Learned counsel for the respondent has also raised an objection as to maintainability of the instant petition and submitted that if the petitioner feels aggrieved by the order of the learned Federal Tax Ombudsman he should have filed a representation before the President of Pakistan in terms of section 32 of the Federal Tax Ombudsman Ordinance, 2000 instead of filing instant petition. It has been further contended that the departmental proceedings initiated by the concerned departmental authority pursuant to recommendations made by the learned Federal Tax Ombudsman could have been challenged before the appropriate forum and the same cannot be attacked through instant Petition. Learned counsel while concluding his arguments has submitted that since the instant petition is not maintainable the same is liable to be dismissed.
5. Mr. Dilawer Hussain, learned Standing Counsel has adopted the arguments of the learned counsel for respondent No, 1.
6. We have heard both the learned counsel, perused the impugned order passed by the learned Federal Tax Ombudsman and have also examined the available record. It has been noted that the facts as stated in the instant petition with regard to chronology of the events have not been disputed by the respondents, whereas a legal controversy with regard to the jurisdiction and authority of the Federal Tax Ombudsman and subsequent departmental proceedings initiated by the respondents in the case of the petitioner have been raised, which requires decision by this Court. During the course of the argument, learned counsel for the respondent No,1 was directed to assist this Court on the following five points:--
(i) Whether any complaint of maladministration against the petitioner was pending before the Federal Tax Ombudsman?
(ii) Whether the petitioner was a party to the impugned proceedings before the Federal Tax Ombudsman?
(iii) Whether during pendency of the complaint against the Collector of Customs (Preventive) any show-cause notice of maladministration was issued to the petitioner?
(iv) Whether any opportunity of being heard was provided to the petitioner before passing the impugned order by the Federal Tax Ombudsman?
(v) Whether copy of the impugned order passed by the Federal Tax Ombudsman was supplied to the petitioner?
7. Learned counsel for the respondent No,1, in response to above mentioned queries, has candidly given his reply "in negative".
8. Before we proceed to examine the propriety of the impugned order passed by the Federal Tax Ombudsman and the validity of the subsequent departmental proceedings initiated in compliance to recommendations made by the Federal Tax Ombudsman in the instant matter we would examine the scope of jurisdiction, functions and powers of the Federal Tax Ombudsman as provided under section 9 of the Federal Tax Ombudsman Ordinance, 2000. The relevant provision of section 9 reads as follows;-- "9. Jurisdiction, functions and powers of the Federal Tax Ombudsman.---(1) Subject to subsection (2),the Federal Tax Ombudsman may on a complaint by any aggrieved person, or on a reference by the President, the Senate or the National Assembly, as the case may be, or on a motion of the Supreme Court or a High Court made during the course of any proceedings before it or of his own motion, investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee.
(2) The Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into mattes which-(a) are sub-judice before a court, of competent jurisdiction or tribunal or board or authority on, the date of the receipt of a complaint, reference or motion by him; or
(b) relate to assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision are available under the Relevant Legislation.
(3)--------------------------------- (4)--------------------------------- (5)---------------------------------
9. From perusal of the provisions of subsection (1) of section 9, it is seen that the Federal Tax Ombudsman acquires jurisdiction under the Ordinance-on a complaint by any aggrieved person, or on a reference by the President, the Senate or the National Assembly, as the case may be, or on a motion of the Supreme Court or a High Court made during the course of any proceedings before it or of his own motion, to investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee. From perusal of subsection (2) of section 9, it is seen that the assumption of jurisdiction by the Federal Tax Ombudsman under subsection (I) is subject to provision of subsection (2) of section 9, which oust the jurisdiction of the Federal Tax Ombudsman to investigate or inquire into matters, which are subjudiced before a court of competent jurisdiction or tribunal or board or authority on the date of receipt of a complaint, reference or motion by him. Similarly, Federal Tax Ombudsman has no jurisdiction 'to investigate or inquire into matters, which relate to assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating- to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision are available under the relevant Legislation. It has also emerged that the Federal Tax Ombudsman has the jurisdiction only to investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee, which means that unless there is any allegation of maladministration on the part of the Revenue Division or any Tax Employee, no decision, finding or recommendation can be made by the Federal Tax Ombudsman under the Federal Tax.
Ombudsman Ordinance, 2000. In the instant matter, admittedly, no complaint of maladministration against the petitioner was filed by an aggrieved person nor any reference against the petitioner by the President, the Senate or the National Assembly was made. Neither any motion of the Supreme Court or a High Court was made during the course of any proceedings before it. Even no proceedings of his own motion against the petitioner were initiated by the Federal Tax Ombudsman in the instant matter as evident from the impugned order passed by him.
After having examined the facts of the instant case and the provisions of section V9 of the Federal Tax Ombudsman Ordinance, 2000 relating to jurisdiction, functions and powers of the Federal Tax Ombudsman, we are of the considered view that the recommendations made by the Federal Tax Ombudsman against the petitioner in the instant case were corum non judice, without jurisdiction, hence of no legal effect on this account alone.
10. We have further noted that the Federal Tax Ombudsman, while making recommendations against the petitioner for initiation of proceedings under Removal from Service (Special Powers)
Ordinance, 2000, besides wrongful assumption of jurisdiction against the petitioner, has also not followed the procedure as laid down under section 10 of the Federal Tax Ombudsman Ordinance, 2000. It will be advantageous to reproduce the relevant provisions of subsection (4) and subsection (6) of section 10, which are attracted to the facts of the instant petition. "(4)
When the Federal Tax Ombudsman proposes to conduct an investigation he shall issue to the Secretary of the Revenue Division, and to the person who is alleged in the complaint to have taken or authorized the action complained of, a notice calling upon him to reply to the allegations contained in the complaint. (6) A-person shall be entitled to appear in person or be represented before the Federal Tax Ombudsman."
11. From perusal of hereinabove provisions, it is clear that even if it is presumed that through impugned order the learned Federal Tax Ombudsman wanted to assume jurisdiction against the petitioner on his own motion (though in the absence of any complaint of maladministration against the petitioner) he was required to conduct an investigation and to issue a notice to the petitioner calling upon him to reply, to the allegations where after the petitioner was entitled to appear in person or through a representative before the Federal Tax Ombudsman to rebut the allegations and further to explain his position with regard to allegations against him.
Admittedly, no notice was issued to the petitioner nor any opportunity was provided to him before making the impugned recommendations against the petitioner in the instant case, which is not only the violation of the legal procedure provided under the Federal Tax Ombudsman Ordinance, 2000, but also negates the principles of Natural justice, which entitles a person for a fair trial and a reasonable opportunity of being heard. The decision and recommendations against the petitioner under the circumstances are liable to be set aside on this account also.
12. In addition to hereinabove defects, we have also noted that before making any recommendation against the petitioner in the impugned order, the Federal Tax Ombudsman has failed to record any Endings against the petitioner to the effect as to how and what maladministration has been committed by him, We are of the view that in the absence of any such findings regarding any maladministration against the petitioner, the recommendations made by the learned Federal Tax Ombudsman are of no legal effect and the same are hereby set-aside on this account as well.
13. It will not be out of place to note that even on merits, the Custom Appellate Tribunal vide order dated 13-8-2012 has set aside the order passed by Collector Customs under section 195 of the Customs Act, 1969, copy of which order has also been placed on record by the learned counsel for the petitioner.
14. Before parting with this judgment, we may observe that all the authorities performing their functions under any statute are required to conduct themselves strictly in accordance with law by remaining within the domain and jurisdiction as vested in them under the law. Every law is required to be administered in such a manner that it may foster the purpose of such legislation and shall not, in any manner, frustrate the same.
15. In view of hereinabove, we are of the opinion that the recommendations made by the Federal Tax Ombudsman against the petitioner to proceed against him under the Removal from Service (Special Powers) Ordinance, 2000 in. Complaint No,367-K of 2009 dated 9-6-2009 are without jurisdiction and patently illegal and the same were set aside by our short order dated 28-11-2012 and these are the reasons for such short order. The departmental proceedings initiated against the petitioner in compliance to the said recommendations of the Federal Tax. Ombudsman are equally illegal and of no legal effect. Instant petition stands disposed of in the above terms.
Petition allowed."
13. In case of final tax regime the tax withheld is final tax liability; had it the intention of legislature to grant exemption to such categories of the taxpayer, then the specific provision should have been inserted for non withholding of tax as has been done in the cases of export which also falls under FTR, but under clause 10A of Part IV of 2nd Schedule to the Ordinance, exemption to withholding tax has been granted.
14. As far as the judgment of Honorable Supreme Court in "Uch Power case" cited in the case of Inter Construct (Pvt.) Ltd., the assessee deriving its income under the class interest income, the Honorable Supreme Court has held that the term "profit and gains" is relevant to business income and not from any other head of income, the judgment of Honorable Supreme Court is binding on all the courts. While explaining the "profit and gains" the Hon'ble Supreme Court of Pakistan vide its judgment-reported as 2010 SCM R 1236 = 2010 PTD 1809 has held that "profits and gains" are related to business income only.
The section 11 of the Ordinance ibid prescribed the various heads of income which are as under:-- "11. Heads of income.---(1) For the purpose of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely:--
(f) Salary;
(g) Income from Property:
(h) Income from Business:
(i) Capital Gains: and
(j) Income from Other Sources.
If income under all heads are covered under the "profit and gains" then what was need to prescribe five heads of income, there is rational behind it. For each head there is separate provision of taxation and expense are prescribed, presumptive income which also calls deemed income does not fall under any head of income as specified in section 11 of Income Tax Ordinance, 2001 as reproduced supra. Also keeping in view that if all incomes are related to "profit and gains" then why the salaried persons have been charged to tax while the other categories were exempted by FBR and thereafter retracted from its earlier clarification. Though the FBR is not competent to interpret the law, as has been held by the Hon'ble Apex Court of the country in its various judgments. Also in cases of presumptive income for which filing of statements under section 115(4) has been described while in case of normal income, return is to be filed under section 114 of the Ordinance, 2001. It is pertinent to mention that after insertion of Clause I26F to the 2nd Schedule, to this effect law has not been amended. Person falling under presumptive tax regime still were required to file the statement under section 115(4), in cases falling under the other heads of income requirement of law is to file the normal return under section 114 of the Ordinance. Needless to say that FBR is not authorized to interpret the law as has been held by the Honorable Supreme Court of the country.
Further we would like to add that when the principle was laid down and the words "profit and gains" have been interpreted by the Honorable Supreme Court, FBR was supposed to know this factum, then what was the need to give clarification.
15. As stated supra the L/CIR has committed grave mistake by holding that taxpayer income is exempt from the taxation under the garb of Clause 126F. The taxpayer is earning its income from the commission, the tax deducted at 1/10 of the commission is the final liability and falls under the presumptive income, which is not exempt under clause 126F. The judgment of the Tribunal which is in field and has not been followed by the L/CIR(A), when the said judgment of ATIR is well within his knowledge. For the above discussed reason, the impugned order is totally illegal and is in deviation to the judgment of Tribunal and that of apex Court of the country, hence it is vacated and orders passed by the Additional Commissioner under section 122(5A) and order passed by Inland Revenue Officer under section 170(4) stands restored.