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C.No.80/ISD/IT/(50)939/2012
FEDERAL TAX OMBUDSMAN SECRETARIAT
ISLAMABAD
Complaint No.80/ISD/IT(50)/939/2012
Dated: 04-07-2012[1]
M/s United Bank LimitedIslamabad / … Complainant
Versus
Secretary
Revenue Division
Islamabad / … Respondent
Dealing Officer / : / Hafiz Ahsan Ahmed Khokhar, Advisor
Authorized Representative / : / Syed Naveed Andarabi, Advocate
Departmental Representative / : / Mr. Imran Latif, Secretary (Withholding)
FINDINGS/RECOMMENDATIONS
The Complainant, a banking company, is aggrieved with the issuance of SRO 561(1) 2012 dated 24-05-2012 (SRO) by the Federal Board of Revenue. It is the Complainant’s contention that amendments in Rule 5(1) and Rule 5(1A) of the Seventh Schedule of the Income Tax Ordinance 2001 (the Ordinance) have been introduced to wrongly deprive the bank from the benefits confirmed by Section 147(4-A) and 147(6) of the Ordinance.
2. The AR submitted that the SRO had been issued with malafide intention. Its purpose was to extract excessive advance tax arbitrarily just to meet budgetary targets. The SRO had also taken away the Complainant’s right to offer lower estimated income under section 147(6) of the Ordinance. The SRO was issued on 24-05-2012, fixing 15-06-2012 as the cut-off date for computing advance tax liability. This meant that only data of the first quarter was available to the taxpayer and the department for arriving at an advance tax figure. He finally argued that subordinate legislation could not supersede the provisions of the statute and cited several rulings to support this proposition: PLD 1990 i.e 1034, 1993 SCMR 745, 2011 PTD 2533, 2008 PTD 1061, 481 and Recommendations of the Hon’ble Federal Tax Ombudsman in complaint No. 88/ISD/Suo Moto(1) 1100/2012.
3. The DR submitted that the impugned SRO only harmonized the procedure for payment of advance tax. The banking companies were paying advance tax even prior to the introduction of the SRO. The SRO required them, to pay advance tax if their income was likely to exceed that of the previous year’s comparable period. No malafide was involved. The amendments brought about through the SRO were within the ambit of the law. The SRO was not repugnant to the statute. He also contended that the complaint did not fall within the purview of Section 2(3) of the FTO Ordinance.
4. Contentions of both sides have been heard and documents perused. Written submissions have also been minutely examined.
5. The impugned Section 147(6) of the Ordinance and SRO No. 561(1) 2012 dated 24-05-2012, are reproduced below in order to clarify the point of their compatibility:
Section 147(6) of the Ordinance
“if any taxpayer who is required to make payment of advance tax under sub-section (1) estimates at any time before the last installment is due, that the tax payable by him for the relevant tax year is likely to be less than the amount he is required to pay under sub-section (1), the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him, and therefore pay such estimated amount, as reduced by the amount, if any, already paid under sub-section (1), in equal installments on such dates as have not expired.”
SRO 561(1)2012 dated 24-05-2012
“In exercise of the power conferred by rule 10 of the Seventh Schedule to the Income Tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that the following further amendments shall be made in the Seventh Schedule to the said Ordinance, namely:-
In the aforesaid Schedule, in Rule 5, -
(i) in sub-rule(1), after the figure “147”, occurring for the second time, the words, figures, comma and brackets, “except sub-section (4A) and (6)”, shall be inserted; and
(ii) after sub-rule (1), the following new sub-rule shall be inserted, namely:-
“(1A) A banking company required to make payment of advance tax in accordance with sub-rule (1), shall estimate the tax payable by it for the relevant tax year, at any time before the installment payable on 15th June of the relevant year is due. In case the tax payable is likely to be more than the amount it is required to pay under sub-rule (1), the banking company shall furnish to the Commissioner an estimate of the amount of tax payable by it and thereafter pay in the installment due on 15th June the difference, if any, of fifty percent of such estimate and advance tax already paid upto 15th June of the relevant tax year. The remaining fifty percent of the estimate shall be paid after 15th June in six equal installments payable by 15th of each succeeding month of the relevant tax year.”
6. It is obvious that the impugned SRO has superseded the provisions of section 147 of the Ordinance. Whereas section 147(6) allows a taxpayer with an estimated income less than the previous year to pay advance tax on the basis of such estimation in equal installments on such dates as have not expired the SRO replaces this beneficial provision and instead fixes 15th June for payment of 50% of the estimated tax in case it is likely to be more than the amount required to be paid under sub-rule (1).
7. The law is clear and established on this issue. An SRO cannot amend or alter a substantive section of a statute. It is a subordinate legislation as defined in Black’s Law Dictionary, “It derives its authority other than from the sovereign power and therefore depends for its continued existence and validity on some superior authority.” This position is established through judgment 1982 SCMR 522 titled Hirjina Salt Chemicals (Pak.) Ltd Versus Union Council, Gharo and others in the following terms:
“It is now a well-established principle of interpretation of statute that Rules which are merely subordinate legislation cannot override or prevail upon the provisions of the parent statute and whenever there is an inconsistency between a Rule and a statute, the latter must prevail”
PLD 1990 Supreme Court 1034 enshrines the established law in case titled The Chairman, Railway Board, Lahore and others Versus Messrs M. Wahabuddin & Sons in the following words:
“Rules or bye-laws should neither be in excess of the statutory power authorizing them, nor repugnant to that power, nor violate the limitations under which they have to operate, nor be unreasonable, nor deal with a subject not within their scope nor exceed the prescribed limits within which the authority may be exercised”.
8. The Department has contended that the Hon’ble FTO cannot embark upon interpretation of law. The issue here is that the Department has taken an action, ie amendment of a statutory provision through an SRO in utter violation of established law and has thus committed maladministration as defined under section 2(3) of the FTO Ordinance. The Hon’ble FTO has investigated a complaint about an action that is clearly contrary to established law, and has not in any way tried to interpret the law.
FINDINGS
9. The introduction of an SRO that has the effect of amending the statute being contrary to law is tantamount to maladministration.
RECOMMENDATIONS
10. FBR to-
(i) ensure that SRO No.561(1)2012 is appropriately amended to bring it in conformity with the provisions of section 147(6) of the Income Tax Ordinance 2001; and
(i) report compliance within 30 days.
(Dr. Muhammad Shoaib Suddle)
Federal Tax Ombudsman
Dated: 28-01-2013
AH
[1] Date of registration in FTO Sectt: