SHAHID JAMIL KHAN, J. Petitioner is aggrieved of withdrawing an amount from his personal account by invoking Section 140 of the Income Tax Ordinance, 2001 ("Ordinance of 2001").
Learned counsel for the petitioner submitted that the impugned notice addressed to the bank is without any details of demand under an assessment order against the petitioner.
2. On notice, the Commissioner Inland Revenue, Lahore appeared and attempted to justify the action under the Section 140, submitting that the demand is against the company, of which petitioner is a director. Added that a notice dated 21.09.2023 under Section 139 was served on the petitioner before taking action under the Section 140.
The Commissioner was confronted with the notice under Section 140 which did not disclose service of notice under Section 139. The notice is reproduced:- "Subject: NOTICE UNDER SECTION 140 OF THE INCOME TAX ORDINANCE, 2001.
Please refer to the above subject.
Dear Sir/Madam, Whereas the undersigned is empowered to issue this notice and has reason to believe that following taxpayer is maintaining bank accounts in your bank/branches:- Sr.
No.NTN/CNICNAME Tax YearSectionOutstanding Demand 1 7182813 Modern Building2017 161 8,172,9 00 Maintenance (Pvt.) Ltd.
Income Tax demand as mentioned in columns of the above table is outstanding against the taxpayer. i. You are owing to the taxpayer money, amount, and debt or may at a future date/month owe to him. ii. You hold money on behalf of the taxpayer/defaulter. iii. You are holding money on some other person's behalf for payment to the above named taxpayer/defaulter. iv. You hold authority of some other person to money to him or defaulter...."
Notice under Section 139 of the Ordinance of 2001 was placed on record through an independent application, which is also reproduced:- "To Mr. Sardar Waseem Ilyas CNIC: 3520174169653 C/o Modern Building Maintenance (Pvt.) Ltd. 132/2, Block-B, Model Town, Lahore SUBJECT: NOTICE UNDER SECTION 139 OF THE INCOME TAX ORDINANCE, 2001 Please refer to the subject cited above.
As per record of this office, an Income Tax demand of Rs.8,172,900/- (as detail below) is outstanding against M/S Modern Building Maintenance (Pvt.) Ltd.
Tax YearsDemand 2017 8,172,900 You are; hereby required to pay this arrear demand of tax on or before 28.09.2023 and produce necessary evidence to that effect before the undersigned at my office on failing which proceedings may be initiated under the Income Tax Rules, 2006. As per the provision of section 139 of Income Tax Ordinance, 2001 you are personally liable to pay the amount of tax due. Relevant portion of the section reproduced for you convenience.
"Notwithstanding anything in the Companies, 1984 (XLVII of 1984), where any tax payable by a private company (including a private company that has been wound up or gone into liquidation) in respect of any tax year cannot be recovered from the company, every person who was, at any time in that tax year- a director of the company, other than an employed director; or a shareholder in the company owning not less than ten per cent of the paid-up capital of the company, shall be jointly and severally liable for payment of the tax due by the company.
I, in exercise of the powers vested under section 138 of the Income Tax Ordinance, 2001 hereby further direct that you shall no sell, mortgage, charge, issue or otherwise deal with any property belonging to except with my permission to that effect in writing. -sd- (SYEDA LUBNA SHAH)
Deputy Commissioner Inland Revenue"
3. The Commissioner Inland Revenue was asked, whether reasons for non-recoverability of the demand from the Company were written in the impugned notice, the answer was in negative. She, however, submitted that procedure was undertaken and notice under Section 139 of the Ordinance of 2001 has shifted the onus on the Director.
This court is not convinced with the explanation. In earlier judgment by this court in Sultan Muhammad Khan v. Deputy Commissioner Inland Revenue and 3 others (2015 PTD 458), directions were given, confirming the fundamental rights of the taxpayer under Article 10A of the Constitution of the Islamic Republic of Pakistan, 1973 ("the Constitution") with specific 'direction that non-recoverability should be confronted to the taxpayer through notice under the Section 139.
Relevant part of the judgment is reproduced:- "8. The words, 'cannot be recovered from the company' make it obligatory for the Taxation Officer/Commissioner to show, after employing due process, that tax was not recoverable from the company. A director or shareholder cannot be proceeded against for the recovery without exhausting all modes of recovery against the company. The director/shareholder is required to be confronted, under this section, that tax is not recoverable from the company, therefore, he is being held liable, otherwise he would be taken by surprise on notice under section 140. Though, this section is a 'non obstante' provision, excluding Companies Ordinance, 1984, yet the basic principle that 'company is a distinct personality, independent of its shareholders/directors' could not be ignored."
Thereafter, similar view was taken by different High Courts in the judgments reported as Messrs Huawei Technologies Pakistan (Pvt.) Limited v. Commissioner Inland Revenue and others (2016 PTD 1799), Mst. Fouzia Razzak v. Federal Board of Revenue and others (2021 PTD 162) and Messrs Pakistan LNG Limited through Authorized Representative v. Federation of Pakistan, through Secretary Revenue Division, Ministry of Finance, Islamabad and 2 others (2022 PTD 1763).
4. Facts and circumstances discussed in this case confirm that fundamental rights of the petitioner under Article 10A of the Constitution have been violated by not following the due process, Though Article 19A of the Constitution gives an independent fundamental right regarding dissemination of necessary information, however, the way FBR is proceeding in recovery matters has made it, necessary to hold that every notice shall contain the necessary information of the proceedings and material, based on which the coercive measure for recovery of demand is to be taken. In this case, notice under Section 140 of the Ordinance of 2001 does not disclose any detail of creating or shifting the demand enforceable against the petitioner. It has already been held that proceedings under Section 138 are sine qua non for invoking the provisions of Section 140. Reliance is placed on the judgment reported as Mubashir Yameen v. Assistant/Deputy Commissioner Inland Revenue, RTO, Rawalpindi and others (2023 PTD 146).
It is hereby reiterated and held that any notice and in particular, notice for recovery, which does not contain necessary details like assessment, its finality under the law, consequent demand, and in case of coercive measures, the details of earlier notice to which taxpayer did not respond. The notice under Section 140, addressed to a third party, must also contain the same details to justify that the ultimate coercive measure is inevitable.
Forceful withdrawal of an amount from personal and business account, in absence of due process, is infringement of fundamental rights under Article 23 of the Constitution, besides having negative impact on taxpayer's business and business activities in general. The provisions of Section 140 shall be invoked, when Commissioner believes that the taxpayer may run away with the demand, which will become irrecoverable forever. Such action against an active taxpayer, for the sake of recovery only, amounts to robbery, if due process is not followed. Till the time it is incorporated in the Rules, the Commissioner shall not invoke the provisions of Section 140 without seeking prior approval from FBR.
5. This court has reprimanded such reckless recovery by the Taxation Officer in number of cases but the pursuit to achieve the targets is the apparent reason of non-compliance. These circumstances have compelled this court to direct the FBR for issuance of notification to all the Taxation Officers warning them of disciplinary proceedings on the charges of misuse of powers, infringing fundamental rights. Recovery under Section 140, without complying with the command of Articles 10A and 19A of the Constitution and that too by ignoring the statutory procedure and law laid down in binding judgments, is a misconduct, proceedable under the Service Laws. The protection under Section 227 of the Ordinance of 2001 is only for actions in good faith and FBR under its subsection (2) can always recommend for disciplinary proceeding for infringing fundamental rights or for non-compliance of judgments by superior Courts.
6. The amount recovered illegally, be returned to the petitioner within 15-days.
The petition is allowed.