FINDING/RECOMMENDA TIONS MUSHT AQ AHMAD SUKHERA, FEDERAL TAX OMBUDSMAN .
This is an Own Motion (OM) investigation, initiated through exercise of jurisdiction, conferred under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) against failure of the Department (Deptt) to adhere to the provisions of Sections 172(3), 173 and 218 of Income Tax Ordinance, 2001 (the Ordinance) relating to service of notices/orders on the Residents/Non-residents (NRs) and appointment of Authorized Representative in the case of NRs, which resulted in multiple difficulties faced by the resident tax payers generally and particularly . As a result of adjudication of quasi juridical matters without adhering to the above provisions of law, in letter and spirit vitiate the entire proceedings and become cause of multiple grievances of maladministration against the Deptt.
2. Comments on the issue were requisitioned in terms of Section 10(4) of the FTO Ordinance read with Section 9(1) of Federal Ombudsman Institutional Reforms Act 2013.
The Chief Commissioners-IR (CCs-IR) LTO's/MT O's/R TO's and CTO's filed comments related to their regions. It was contended that after introduction of IRIS System, it was mandatory to make every , correspondence through the system w.e.f Tax Year 2014. Through Finance Act (FA), 2018 clause (d) was inserted in subsection (1) of Section 218 of the Ordinance, which provided that any notice, order or requisition served on a resident individual electronically , shall be treated as properly served on the individual. Similarly , clause (d) was inserted in subsection
(2) of Section 218 of the Ordinance, which also provided that any notice, order or requisition served electronically shall be treated as proper service. Thus, notices sent through IRIS got properly served upon the taxpayer through given mailing address/ message at cell numbers, hence is presumed a valid service in terms of Section 218 of the Ordinance. However , for facilitation purposes, despite the above provisions, manual mode for service was also used. Precisely , the following service modes were used:
(i) online via IRIS;
(ii) Courier Service (GPO); and
(iii) Notice Server (NS) of Deptt.
3. Furthermore, NADRA Verisys System was available to track such cases where persons were not traceable on their declared registered addresses so as to ensure proper service of notices and judicious disposal of tax proceedings. However , in the light of instant OM, instructions were once again issued to all the field formations to ensure strict adherence to the provisions of Section 218 of the Ordinance, in letter and spirit.
4. As regards cases of the NRs and declaration of their AR's in terms of Section 172(3) of the Ordinance, it was averred that the notices/orders, issued to NRs were served in the same manner as to a resident person through given e-mail address /cell phones. The matter regarding appointment of AR did not arise in normal routine until a NR made such request or the Deptt deem it necessary to do the same before proceeding ex-parte for assessment or recovery . In case a NR authorizes a person as AR, it is the Zonal CIR who had to declare the AR to be his representative in terms of Section 172(3) (f) of the Ordinance. The Zonal CIR, declares AR strictly in accordance with Section 172(3) read with Section 172 of the Ordinance. The Region wise position of ARs declared in terms of Section 172(3) of the Ordinance, is as under: Sr.No. Name of the field formationNumber of NRsNumber of NR's where ARs declared appointedNumber of NR's where Ars not declared appointed 1 RTO Islamabad 02 Nil 02 2 CTO Karachi 4,473 3,200 1,273 3 LTO Karachi 74 55 19 4 RTO-I Karachi Nil Nil Nil 5 RTO-II Karachi Nil Nil Nil 6 MTO Karachi 10 10 Nil 7 RTO Hyderabad 128 30 98 8 RTO Faisalabad 2171 310 1,861 9 RTO Abbottabad 311 12 299 10 RTO Bahawalpur 682 286 396 11 RTO Peshawar 139 13 126 12 RTO. Quetta 306 162 144 13 RTO Rawalpindi 1034 304 730 14 RTO Sahiwal 268 71 197 15 TRO Sargodha 823 79 744 16 RTO Sukkur Nil Nil Nil 17 RTO Sialkot 982 Nil 982 18 RTO Gujranwala 964 04 690 19 RTO Islamabad 34 Nil 34 20 RTO Multan Nil Nil Nil 21 RTO-Lahore Nil Nil Nil 22 RTO-11 Lahore 03 03 Nil 23 CTO Lahore Nil Nil Nil Grand T otal: 12,404 4,539 7,865
5. The case was discussed in the light of comments/contentions threadbare and record made available perused.
6. From perusal of the record, it is apparent that following comprehensive mechanism has been put in place by the Legislature for service of notices/orders on the resident/non-resident taxpayers:-
(i) online IRIS Bar Code generated notices, sent through taxpayer's inbox as well as through email and cell number
(ii) courier service,
(iii) through notice server , and
(iv) use of NADRA Verisys System for exact identification of address of resident/non-resident declarant.
7. However , practically the things are not as encouraging as appear from the feedback received from the trade bodies, Chambers of Commerce and Industry , representative associations, individual tax payers who frequently appear before this forum. The main cause of grievance was always the Dept'l failure rearing to service of notices/orders, on the proper addresses. In majority of such cases where the Complainants are redressed, it is the State revenue which is the ultimate looser . Such environment obviously impacts not only the dynamics of business and investment in the country in most adverse manner but above all the State exchequer .
8. In the case of NRs, the issue is further aggravated as a person who lives abroad buys some property in the country and shows his local address where such property is located. It is seen that in most of the cases came up before this forum, the Deptt after sending notices/orders on the address given on the property documents simply go ahead with making ex parte orders. In such cases it incumbent on the Deptt to conduct proper inquiry and ensure that AR's are declared in accordance with Section 172(3) (t) of the Ordinance, which elucidates- "(3) Subject to subsections (4) and (5), where a person is a non-resident person, the representative of the person for the purposes of this Ordinance for tax year shall be any person in Pakistan-
(a) who is employed by , or on behalf of, the non-resident person;
(b) who has any business connection with the non-resident person; [Explanation- In this clause the expression "business connection" includes transfer of an asset or business in Pakistan by a non-resident;
(c) from or trough whom the non-resident person is in receipt of any income, whether directly or indirectly;
(d) who hold, or controls the receipt or disposal of nay money belonging to the non-resident person;
(e) who is the trustee of the non-resident person; or
(f) who is declared by the Commissioner by an order in writing to be the representative of he non-resident persons."
9. From the legal position explained supra, it is evident that in case, a representative of the NR person do not fall within sub-clauses (a) to (e), then the Zonal CIR had to declare the same as AR in writing in terms of Clause (0 of Section 172(3) of the Ordinance. From the above data provided by the Regions in this respect, it appears that out of 12.404 NR's in cases of only 4,539, ARs had been declared under Section 172(3)(f) of the Ordinance. It is however , observed that in 7,865 cases of NRs apparently no such clear distinction had been pointed out by the Deptt thus the cases are apparently pending.
10. It is evident from the facts discussed supra that a comprehensive legal mechanism is in place for service of notices/orders under Section 218 and declaring an AR of a NR, in terms of Section 172(3) (0 Ordinance. However , when it comes to ground reality , the position is otherwise as appear from most of the complaints adjudicated upon by this forum.
Findings:
11. Failure of the Deptt to properly serve notices/orders in terms of Section 218 of the Ordinance, and appointment of the AR's in nonresident cases, under Section 172(3)(f) of the Ordinance, is tantamount to mal-administration, in terms of Section 2(3)(i)(a) & (ii) of the FT O Ordinance.
Recommendations:
12. FBR to-
(i) devise system based mechanism/ framework so as to ensure that service of the notices/orders is made on the taxpayers properly well within time, in accordance with Section 218 of the Ordinance, in letter and spirit;
(ii) develop mechanism/legal framework for ensuring that the Authorized Representatives are declared timely by the Commissioners-IR in respect of non-residents in terms of Section 172(3)(f) of the Ordinance; and
(iii) direct the Commissioners-IR concerned of LTOs/ MTO's/R TO's/CT O's to dispos e of the pending cases of 7,865 NR's in terms of Section 170(3)(f) of the Ordinance;
(iv) report compliance within 60 days.