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President Mamnoon Hussain has confirmed the Federal Tax Ombudsman (FTO) landmark order on the issue of Minimum Tax under Section 153(1)(b) of the Income Tax Ordinance, 2001 chargeable in case of all corporate sector service providers companies.
It is learnt that the President has rejected a representation filed by the Agency/FBR against recommendations issued by the FTO on the issue of minimum tax chargeable u/s 153(1)(b) of the Ordinance with the following categorical remarks "After perusal of the record, it is evident that it was the duty of the officials of the Agency to assess the deductions made on services rendered u/s 153(1)(b) and inaction in this regard on the part of the Agency officials to enforce withholding tax is maladministration and it has rightly held by the learned FTO and no illegality found in the Impugned order/decision of the FTO and the recommendation for taking action against responsible officers in accordance with law is called for and is justified.
When contacted a tax expert told this correspondent that National Accountability Bureau (NAB) has also decided to inquire the matter of Minimum Tax under Section 153(1)(b) for service provider companies and examine the issuance and subsequent withdrawal of Circular No. 6 of 2009 as well as SRO 1003 of 2011.
Tax expert further told that law was amended by Parliament through Finance Act 2009 and the service providing companies were made chargeable to 6% Minimum Tax under Section 153(1)(b). The FBR had issued various clarifications informing the field formations that service providing companies have been charged to Min. Tax @ 6%. However, in a surprising move, FBR issued Circular 6, claiming that service providing companies were exempt. The FTO took notice of this unlawful act of FBR functionaries under Own Motion intervention in "Waheed Shahzad Butt Vs Secretary Revenue Division - 2012 PTD 554" and recommended action against the FBR officers who were responsible for issuing unlawful circular. The FBR withdrew Circular No. 6 on 26.04.2011. In another intriguing move, the FBR inserted Clause 79 declaring service providing companies as exempt from Minimum Tax through SRO 1003. Although FBR had withdrawn the Circular 6, yet Review Petition "Secretary Revenue Division Vs Waheed Shahzad Butt -2013 PTD 2159" was filed before the FTO which was rejected and the FTO held, on the strength of judgement of Supreme Court in an identical case, that insertion of Clause 79 was against the provisions of law and, therefore, malafide and unlawful.
Earlier FTO in its order stated "It is to be noted that the Complainant company is a service provider besides being a manufacturer/supplier of I.T equipment and was therefore required to suffer tax deduction at source under Section 153(1)(b). The Complainant has itself admitted to rendering services but has stated that these may be taken as "sale of goods". Its stance here is obviously misconceived "Services rendered" and "sale of goods" are two different activities and cannot be treated as similar Even if the Deptt is "agreed" to such treatment the same is wholly misconceived and is in fact a lapse on its part as tax deduction at source under Section 153(1)(b) constitutes 'Minimum Tax' and no adjustment of the same is permissible under the law. The FTO has held that Minimum Tax is leviable on companies in the light of amendment placed on the statute through Finance Act, 2009 (RA No.12 in C.No.577/2011, R.A No.49/2013 and R.A No.53/2013).
Dept'l failure to enforce withholding tax law under Section 153(1)(b) of the Ordinance is tantamount to maladministration under Section 2(3) of the FTO Ordinance: FTO added.
President order states "This representation has been filed by the agency/FBR against the findings of FTO "FBR to direct the Chief Commissioner IR to conduct inquiry to investigate Dept'l lapse to effectively monitor and enforce tax deduction at source U/S 153(1)(b) of the Ordinance as services have admittedly been rendered and to fix responsibility for the same". Brief facts of the case are that complainant being aggrieved against non issuance of refund for the tax year 2013 filed a complaint before FTO. The Agency replied that refund claim is being processed as relevant record was requisitioned, hence complaint was premature. At this point complainant requested the he may be allowed to withdraw the complaint. However, it is to be noted that complainant company is a service provider and was therefore required to suffer tax deductions at source u/s 153(l)(b).
After perusal of the record, it is evident that it was the duty of the officials of the Agency to assess the deductions made on services rendered u/s 153(1)(b) and inaction in this regard on the part of the Agency officials to enforce withholding tax is maladministration and it has rightly held by the learned FTO and no illegality found in the Impugned order/ decision of the FTO and the recommendation for taking action against responsible officers in accordance with law is called for and is justified. Accordingly, the President has been pleased to reject the representation of the Agency, President order stated.

Copyright Business Recorder, 2016

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