No coercive step can be taken against taxpayers prior to issuance of notice: LHC

LAHORE: The Lahore High Court (LHC) has held that tax authorities cannot take coercive measures against taxpayers before issuing noticeto them even after an assessment order was passed by the Commissioner (Appeals), the Tribunal or the High Court.

The court passed this order in a petition of China Machinery Engineering Corporation (CMEC), a branch of a China firm in Pakistan, and declared the impugned notice issued for recovery of the tax without complying with the mandatory requirement as without lawful authority and of no legal effect.

The court; therefore, directed the respondents to ensure that the amount rupees 759,059,945 recovered from the bank accounts of the petitioner is reimbursed or credited to the same bank accounts the petitioner within a period of 30 days.

The court observed that section 138 (1) of the Income Tax Ordinance, 2001 conceives that a taxpayer should be giving a reasonable timeframe to put him on notice to discharge the tax obligation and also afford him an opportunity to avail his statutory right of appeal.

The court observed revenue functionaries have an obligation to exercise their authority under the Ordinance such that it does not undermine the rights of taxpayers to due process, fair trial and access to justice.

Tax authorities are under an obligation to afford the protection of law to the citizens rather than becoming instruments of denying taxpayer of such protection, the court added.

The court said the decision of respondent tax officer not to issue a notice to the petitioner under Section 138(1) of the Ordinance after decision of its appeal and seeking attachment of the bank accounts of the petitioner and effecting coercive recovery of tax determined in the assessment order, appears to be aimed at frustrating the right of the petitioner to seek injunctive relief from the appellate tribunal.

The respondent deputy commission Inland Revenue issued a notice to the petitioner under Section 140 of the Ordinance and recovered the tax as determined to be due by the Commissioner Inland Revenue and Commissioner (Appeals) from the banks within two hours of the commissioner appeals uploading its order on Indicator Reporting Information System (IRIS).

The court said it is implausible that the deputy commissioner would be able to function with such alacrity if he had also become aware of the decision of the commissioner (Appeals) immediately after its uploading in IRIS for information of the petitioner.

The court observed the amount of tax liability which was disputed by the petitioner in appeal could not be deemed to have become due and recoverable under section 138(1) of the Ordinance in the presence of the stay order while appeal of the petitioner was still pending.

The court said the requirement of prior notice under section 138 of the Ordinance is mandatory as section 140 of the Ordinance does not contain any non-obstante clause to give it effect of overriding to the provisions of section 138.

The court observed the failure of tax authorities to put the petitioner on notice tantamount to play a fraud on the statute.

The court said the decision of respondent tax officer not to issue a notice to the petitioner under Section 138(1) of the Ordinance after decision of its appeal and seeking attachment of the bank accounts of the petitioner and effecting coercive recovery of tax determined in the assessment order, appears to be aimed at frustrating the right of the petitioner to seek injunctive relief from the appellate tribunal, the court added.

If provisions of section 138 of the Ordinance were to be interpreted such that a notice under those sections would automatically stand resurrected upon decision of the commissioner (Appeals) upholding an assessment order, such interpretation would restrict right of the taxpayer to access justice and to have its civil rights and liabilities adjudicated by an impartial arbiter of the law, the court concluded.

Copyright Business Recorder, 2023