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C.13/ISD/IT(08)127/2012

FEDERAL TAX OMBUDSMAN SECRETARIAT

Islamabad

Complaint No.13/ISD/IT(08)127/2012

Dated:27.01.2012[1]

M/s Premier Security Services (Pvt) Ltd
Islamabad / … Complainant
Versus
The Secretary
Revenue Division
Islamabad / … Respondent
Dealing Officer / : / Hafiz Ahsan Ahmad Khokhar, Advisor
Authorized Representative / : / Sardar Shahid Farid, Advocate
Departmental Representatives / : / Mr. Shaukat Hameed, Addl Commissioner
Mr. Zahid Malik, OIR

FINDINGS/RECOMMENDATIONS

The Complainant, a private limited company providing security services at Islamabad, contends that it filed revised Returns for tax years 2010 and 2011 and claimed refund amounting to Rs2,814,550/- and Rs5,766,512/- respectively on 07.05.2011 and 02.03.2012, but the Department did not issue the refund due.

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 forwarded parawise comments by Chief Commissioner IR, RTO, Islamabad, vide letter No.1(127)TO-II/2012 dated 27.02.2012.

3. During the hearing, the AR reiterated the ground of complaint and contended that during the pendency of the complaint, the Department passed order under Section 170(4) of the Income Tax Ordinance 2001 (the Ordinance), rejecting the Complainant’s refund claim. According to the AR, while passing the order, amendment in Section 153 of the Ordinance, made through Finance Act 2009, was ignored. After the said amendment, the FBR issued Circular No.6/2009 dated 18.08.2009, statedly declaring that the services rendered by the corporate sector would remain unchanged after the amendment, and services rendered/provided by corporate sector would remain outside the scope of both the final tax regime as well as the minimum tax regime. The FBR issued another Circular No.7/2011 dated 01.07.2011 and clarified that the provisions of Section 153 of the Ordinance had only been streamlined to provide clarity without changing the existing taxation regime under the said Section. He further contended that the FBR’s clarification, vide letter No.1(25)WHT/2009 dated 26.04.2011, could not supersede the Circular No.6/2009 dated 18.08.2009. Nor could the notification issued vide SRO No.1003(I)/2011 dated 31.10.2011, adding that clause (79), in Part-IV of the Second Schedule to the Ordinance, would apply to the tax withheld on payments received by a company for providing or rendering of services. He also contended that the Department had not finalized the refund proceedings in accordance with law, which was tantamount to maladministration.

4. The DR submitted that the Complainant’s refund claim was rejected under Section 170(4) of the Ordinance, in view of FBR’s clarification issued vide letter No.1(25)WHT/2009 dated 26.04.2011, whereby tax deductions made on payments for rendering or providing services was to be treated as “minimum tax regime”, under Section 153(1)(b) of the Ordinance. He further submitted that Circular No.6/2009 dated 18.08.2009 was not applicable to the Complainant’s case as the same had been replaced by the FBR’s clarification, vide letter No.1(25)WHT/2009 dated 26.04.2011. As regards SRO No.1003(I)/2011 dated 31.10.2011, it would be applicable for tax year 2012 and not retrospectively for tax years 2009 and 2010. He contended that there was no maladministration on the part of the Department and if the Complainant was aggrieved, he could file an appeal against the order.

5. The case has been examined in the light of pleadings of both sides and the record perused.

6. The moot point between the two sides is the application of the Circular No.6/2009 dated 18.08.2009, the clarification issued vide letter No.1(25)WHT/2009 dated 26.04.2011, and SRO No.1003(I)/2011 dated 31.10.2011 of FBR, to the present case. According to the Department, the income of the Complainant was not adjustable under Section 153 of the Ordinance as the FBR’s clarification dated 26.04.2011 had superseded the Circular No.6/2009 dated 18.08.2009. However, the Complainant contends that in view of amendment made in Section 153 of the Ordinance and of Circular No.6/2009 dated 18.08.2009, the position for services rendered by corporate sector remained outside the scope of the Final Tax Regime as well as Minimum Tax Regime. Moreover, a Circular issued under Section 206 of the Ordinance could not be superseded through a clarification. The Departmental contention that SRO No.1003(I)/2011 dated 31.10.2011 could not apply to the preceding tax years is also assailed by the AR on the ground that the said SRO being beneficial in nature could apply retrospectively.

7. Section 206 of the Ordinance provides legally binding effect to circulars, in so far these concern tax officials. Section 206(3) is clear that a circular shall not be binding upon a taxpayer. A circular draws its strength from the Ordinance whereas a clarification has no legal force. A clarification cannot overrule a circular and deviate from its plain meaning. It certainly cannot rescind a circular. This would mean that circular No.6/2009 dated 18.08.2009 is good law despite the clarification.

8. The complaint is for rejection of refund by the Department sheltering behind a clarification. This is not tenable in law as explained in para 7. The Departmental contention that even a beneficial provision of law will only apply prospectively is against established law as laid down in the landmark judgment in Army Welfare Sugar Mills Vs Federation of Pakistan reported as 1992 SCMR 1652.

Findings:

9. Failure to allow refund due against the clear provisions of Section 153 of the Income Tax Ordinance, Circular No.6/2009 dated 18.08.2009 and SRO 1003(I)/2011 dated 31.10.2011 is tantamount to maladministration.

Recommendations:

10. FBR to direct the Commissioner to–

(i) rectify the order under Section 221 of the Income Tax Ordinance 2001 and decide the matter afresh, as per law, within 21 days, providing opportunity of hearing to the Complainant; and

(ii) report compliance within 07 days thereafter.

(Dr. Muhammad Shoaib Suddle)

Federal Tax Ombudsman

Dated: 09-08-2012

M.I.

[1] Date of registration in FTO Sectt.