Both the complaints relate to the same subject-matter and are disposed of by this decision.
The complainant alleges that refund amounting to Rs.7,175,575 for assessment year 1998-99 which had become payable on 23-10-2001, as a result of the decision by the Appellate Tribunal, is being unlawfully withheld despite the Department having been apprised of the financial difficulties faced by the complainant particularly insistence by Muslim Commercial Bank for the re-payment of loan obtained some time back.
2. In its report the respondents have explained that refund now stands reduced to Rs.5,359,603 after adjustments made. With the consent of the taxpayer, in respect of (1) advance tax under section 53, (2) demand outstanding against the complainant/Company for assessment year 2000-2001; and (3) demand outstanding against the Directors. The complainant confirms this fact.
It is further submitted by the, respondent that a 'reference' has been proposed under section 136(1) of the Income Tax Ordinance on the order by the Appellate Tribunal and hence refund has been withheld by resort the provisions of section 103 of the Income Tax Ordinance with the approval of the competent Authority. It is further stated that the legal issue involved in the complainant's case is already pending before the Supreme Court of Pakistan, therefore, the matter falls out of the jurisdiction of F.T.O. Under clause (a) subsection (ii) of section 9 of the Ombudsman Ordinance 2000.
3. The respondent's plea is not tenable because in the complainant's case even a 'reference' application to the I.T.A.T. Has not matured inasmuch at present only proposal has just been made on which a decision yet to be taken requiring the Appellate Tribunal to frame a question of law for consideration by the High Court. The appeal which is said to be pending with the Supreme Court is not in the case of the complainant but relates to some other taxpayers. Moreover, the complaint was filed with this Secretariat on 31-10-2001 whereas the order under section 103 of the Income Tax Ordinance, 1979, for withholding refund was passed on 5-11-2001 which was served upon the complainant on 7-11-2001 meaning thereby that at the time of filing of the complaint no order under section 103 was in existence. Section 103 reads as under:-- "Where an order giving rise to the refund is the subject-matter of an appeal or further proceeding under this Ordinance, Deputy Commissioner may, with the prior approval of the Commissioner, withhold the refund till such time as the Commissioner may determine."
(Underlined here for emphasis).
The order under section 103 (presented by the Revenue) suffers from legal deficiencies such as (1) the order by the Appellate Tribunal which gave rise to "the refund is not yet the subject-matter of an appeal or further proceedings", and (2) it does not mention the time-period for which the refund is to be withheld. It will be pertinent to recall Lahore High Court decision in re: Unique Enterprises -= 1995 PTD 749 wherein it was ruled that the "Income Tax Officer could only withhold refund, if he was of the confirmed opinion that the assessee, after obtaining refund, might disappear and the Department would suffer loss of Revenue". In the present ease, the A-CIT has not expressed any apprehension (whatsoever) in his Letter No.110/09, dated 30-10-2001 addressed to the CIT that if the refund was not withheld under section 103, the taxpayers would disappear and the Department would suffer loss of Revenue. It is, therefore, manifest that looked at from any angle there is no justification to withhold the refund. It is not difficult to infer that the Department's action of "deliberate withholding or nonpayment of refund" is based on "irrelevant grounds" which falls under the definition of 'maladministration' as per section 2(3)(ii) of the E.O. Federal Tax Ombudsman Ordinance. It is, therefore, recommended that:
(i) The refund of Rs.5,359,603 be issued to the complainant alongwith compensation @ 15% payable under section 102 of the Income Tax Ordinance 1979.
(ii) Instructions be issued to the Officers of the Department that action under section 103 should be taken with utmost caution and only in appropriate cases where circumstances justify such an action. They should desist from abusing section 103 as a routine measure to delay issuance of refund legally due.
4. Compliance report be submitted within 30 days of this order. .