Introduction
A bill under the title the Tax Laws (Amendment) Act, 2024 has been laid down before the National Assembly. The statement of objective as laid before the National Assembly states that this Bill is to give legislative effect to the taxation proposals to liquidate a significant number of appeals pending before Commissioner lR (Appeals) and Appellate Tribunals. As Appellate Tribunal lnland Revenue (ATIR) is the last fact-finding authority in the appellate hierarchy provided in fiscal statutes.
As per the Government’s version, over the years, and for various reasons, including arbitrary constitution of benches, inadequate number of benches, delay in fixation of cases and disposal of appeals, a substantial amount of revenue to the tune of Rs. 2 trillion, is held up in litigation before the ATIR.
Summary comments
The proposal introduced appears to be a steps in the right direction with caveats, which make them practically unviable. This is a classic case of indecisiveness of the policy makers.
There appears to be an error in the introduction of a statute that can trespass the rights of the High Court as laid down in the constitution with regard to stay of demand.
Furthermore, in order to reduce litigation the dispute resolution system is being promoted under the legislation. However it is a fact that on account of frequent changes (2014, 2018, 2022, 2023) in the law on ADRC there is complete erosion of trust in the legislature’s intent on this matter.
Accordingly, no major matter has come up before the ADRC in the past two decades (2004-2024). As per our information at the moment no committee is operational.
The system will only succeed if dispute resolution is property installed and operated and the orders of the ADRC are accepted with open heart and the condition of withdrawal of appeal pending before an appellate authority is removed. Frequent policy change is the problem of Pakistan.
The ADRC system is one of the most frequently altered statutes. Through Finance Acts, 2018, 2020, 2022 and 2023 the whole provision was initially introduced by the Finance Act 2004. The main contentious issue is whether the aggrieved party is required to withdraw the appeal.
Forums of Appeal
The first forum of appeal being the Commissioner of Income Tax (Appeals) has been abolished for cases where the value of assessment of tax or, as the case may be, refund of tax does not exceed twenty million rupees.
For such cases, now there is only one forum of appeal on the question of facts being Appellate Tribunal Inland Revenue (ATIR).
The cases pending before the Commissioner (Appeals) at the time of introduction of the proposed bill (June 16, 2024) having the value of assessment of tax or, as the case may be, refund of tax exceeding twenty million rupees shall stand transferred to the Appellate Tribunal Inland Revenue.
Constitution of the Appellate Tribunal Inland Revenue
Substantive amendments have been made in the provisions relating to the constitution of ATIR.
Important ones are:
a. The appointment shall be made by the Federal Government in the manner as are to be prescribed. Earlier the office of the Prime Minister was involved;
b. Earlier a Judge of the High Court or a District Judge could be appointed as a Member of ATIR. That group is not included in the list of persons who can become the Member of the ATIR. Similarly a Cost and Management Accountant cannot be a Member.
c. Following persons can be appointed as member of ATIR
i. an advocate of a High Court for not less than fifteen years of practise and possesses such other qualifications as may be prescribed by rules;
ii. A person who has for a period of not less than ten years practised professionally as a chartered accountant within the meaning of the Chartered Accountants’ Ordinance, ’1961 (X of 1961);
iii. an Officer of the inland Revenue in BS-21 or above; or
iv. An Officer of the inland Revenue in BS-20, having served in such a grade for three years or more.
d. The Chairman of the Tribunal shall be a Member being a Chartered Accountant or an advocate of the High Court amongst the members.
e. The Chairman shall hold office for a period of three years provided that the Federal Government may reappoint the Chairman for such further term or terms as it may deem appropriate.
f. The Members including, the Chairman shall cease to hold office on attaining the age of sixty-two (62) years; however, for the officers the retirement age under the government rules shall apply. It is our view that this age bracket should be extended to sixty five (65) years;
g. The procedure of the Appellate Tribunal lnland Revenue including constitution of benches, case management system, distribution of cases and other matters ancillary or incidental thereto shall be regulated by the rules made for this purpose.
Appeal to the Appellate Tribunal
Under the proposed revised statute all appeals in cases involving an assessment or refund over twenty million shall lie before the ATIR directly instead of the Commissioner of Income Tax (Appeals).
An order by the Federal Board of Revenue is also now appealable. For State-Owned Enterprises (SOEs) there will be a mandatory routing through Alternative Dispute Resolution Committee (ADRC), except in particular circumstances. .
The appeal to ATIR is to be filed within thirty (30) days of the receipt of the order.
Rules for the conduct of appeals at the ATIR are to be prescribed. These rules are to include a ‘Hearing Schedule’ for the appeals filed before the ATIR.
The power for stay of demand by ATIR has been reduced from one hundred and eighty (180) days to ninety (90) days. It has, however, been prescribed that stay will be vacated if the hearing schedule is not met by the taxpayer.
In case a stay has been given and the appeal is not decided by the ATIR within the prescribed time then stay will continue till the finalisation of appeal. This effectively means that if a stay has been given and there is no order by the ATIR then the stay will continue till the appeal is finalised.
Decisions of Appeals by the Appellate Tribunal
A time period of ninety (90) days has been fixed for the ATIR to decide the appeal. Present pending appeals may however be decided in one hundred and eighty (180) days.
If the appeal is not decided within that time then an extension would have to be sought from the Minister of Law and Justice. Even in that case the time period cannot extend for another ninety (90) days.
A completely new system for the conduct of appeal before the ATIR has been prescribed. It provides that ATIR shall at the first hearing:
(a) Give the option to the taxpayer to seek remedy through ADRC under section 134A of the Ordinance. If the ADRC is opted, the aggrieved party shall give an undertaking to the effect that applicant shall accept the decision of the Committee which shall be binding on him in all respects and shall on receipt of the decision immediately withdraw any and all pending litigation or cases of any kind in respect of the dispute’ mentioning details thereof:
(b) If the taxpayer declines that option and wishes to continue with the appeal then ATIR will fix the date or dates for hearing in consultation with the taxpayer and Commissioner and in accordance with the rules and;
(c) There is reference to a ‘Decision of Appeal’ in consultation of the taxpayer and the Commissioner. This effectively implies a ‘Consent Order’.
There will be strict compliance of the schedule of the hearing dates and a fee of Rupees fifty thousand would be payable for seeking an adjournment.
Specific reference to an ‘Ex-parte’ order has been omitted. Further, in addition to earlier rights of the ATIR to (a) affirm, modify or annul the assessment order and (b) remand the case to the Commissioner for making such enquiry or taking such action as the Tribunal may direct; a new provision has been inserted being a right to order anything as the ATIR may deem fit.
ATIR’s powers as contained in earlier provision being (a) call for such particulars as it may require in respect of the matters arising on the appeal or (b) cause further enquiry to be made by the Commissioner have not been placed in the proposed bill. Nevertheless, for practical purposes, such powers will continue to exist.
Reference to High Court
Substantive changes have been proposed on the matters relating to reference of the matter to the High Court. There are certain amendments which are tantamount to curtailment of powers of the High Courts, who have unconstrained power under the Constitution. Therefore, the validity of such an amendment would require a judicial review.
The pertinent changes are:
a. Special Benches to be constituted at the respective High Courts. Such benches are not expected to deal with other cases. A bench will consist of not less than two judges.
b. A stay of demand will be given to the extent of seventy percent (70) of the amount determined to be payable by the ATIR. There will be a mandatory payment of thirty percent (30) of demand determined by the ATIR.
c. The fee for filing the reference has been increased from one hundred to fifty thousand rupees.
d. The reference by the department shall require the approval of the Chief Commissioner.
e. The High Court shall establish a case management system to ensure that a sufficient number of Special Benches are constituted, so as to ensure that a reference filed under is decided within the stipulated six months.
f. When a reference is filed there will be no recovery for thirty (30) days from the date of communication of the order of the Appellate Tribunal:
Alternative Dispute Resolution Committee (ADRC)
The provisions relating to ADRC have again been changed. The cases where ADRC can be formed are proposed to be:
a. the liability of tax of fifty million rupees or above against the aggrieved person or admissibility of refund as the case may be. Previously it was 100 million rupees;
b. the extent of waiver of default surcharge and penalty; or
c. any other specific relief required to resolve the dispute’
The law has again inserted a wrong provision whereby the decision of ADRC has been made binding and the taxpayer is required to withdraw all appeals.
The ADRC system is one of the most frequently changed part of the statute. Through Finance Acts, 2018, 2020, 2022 and 2023 the whole text has been replaced from what had been introduced by the Finance Act 2004.
The main contentious issue was whether the aggrieved party is required to withdraw the appeal. The pendulum had been moving in opposite directions in the law as it stands today.
Before the proposed amendment there was no requirement to withdraw the appeal. In our view this is the right proposition as no aggrieved party would like to waive their right of appeal.
If there was an examination of what has been changed with respect to ATIR it was the option to go to the ADRC. If the condition of withdrawal of appeal or an undertaking is required to that effect then the system will not work as it did in the past.
Ironically, the policy makers have not been clear about the system since 2004 and no major case has been so decided. If this is the situation then the proposed system will also fail except to the extent that departmental appeals will be decided by ADRC.
In the proposal it is stated that the aggrieved party shall give an undertaking to the applicant, shall accept the decision of the Committee which shall be binding on him in all respects and shall on receipt of the decision immediately withdraw any and all pending litigation or cases of any kind in respect of the dispute’ mentioning details thereof:
In the case where the aggrieved party is a State-owned Enterprise (SOE) the limit of tax liability fifty million rupees or above shall not apply and it shall be mandatory for such SOE to apply for the appointment of a committee for the resolution of any dispute under ADRC.
Definition of State owned enterprises
State-Owned Enterprise shall have the same meaning as assigned in the state owned Enterprises (Governance and Operations) Act, 2023 (Vll of 2023).
Copyright Business Recorder, 2024
Comments
Comments are closed.