Jurisdiction of Federal Tax Ombudsman (FTO) has been a burning issue ever since the Establishment of the office of the Federal Tax Ombudsman Ordinance, 2000 (Ordinance No. XXXV of 2000) hereinafter referred to as the FTO Ordinance.
Attention has been drawn to the issue repeatedly by the stakeholders through letters addressed to the Editors of leading daily newspapers. Articles of eminent lawyers have also been published in the media, mostly reflecting a bleak picture about the effectiveness of the recommendations made by the FTO on taxpayer's complaints.
The issue definitely warrants an objective study of the relevant provisions of the FTO Ordinance in their proper context along with an in depth analysis of the decisions of the President of Pakistan on Representations made by the Revenue Division and the Tax Employees u/s 32 of the FTO Ordinance challenging the jurisdiction of the Federal Tax Ombudsman.
The significance of the issue is evident from the fact that over a period of last five years the FTO has decided around 6850 complaints out of about 7200 complaints instituted so far; he has found maladministration in over 6000 cases; Tax Departments have filed over 800 and taxpayers have filed over 100 Representations u/s 32 of the FTO Ordinance against his findings; the honourable President of Pakistan has allowed 384 Departmental Representations holding that the FTO did not have the jurisdiction because the matter did not relate to maladministration; instead it related to the merits of decisions in respect of which legal remedies of appeal, review or revision were available under the relevant law.
The foregoing figures show that the Revenue Division has implemented the recommendations of the FTO not only in the cases of over 5000 complainants but in a much larger number of identical cases as well. It reflects a very positive picture about the effectiveness of this statutory office; hence the need to dispel the pessimistic view,
It would be appropriate to understand and analyse the entire scheme of the FTO Ordinance, before dealing with the issue of jurisdiction of the FTO. The Office of the Federal Tax Ombudsman according to preamble of the Ordinance has been established to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by functionaries administering tax laws. Thus in its nature the legislation is beneficial.
Sub section (1) of Section 9 of the Ordinance provides that the Federal Tax Ombudsman may on a complaint by any aggrieved person, or on a reference by the President, the Senate or the National Assembly, as the case may be, or on a motion of the Supreme Court or a High Court made during the course of any proceedings before it or of his own motion, investigate any allegation of 'maladministration' on the part of the Revenue Division or any Tax Employee.
Revenue Division has been defined u/s 2 (7) as under:
"Revenue Division" means the administrative unit responsible for the conduct of business of the Federal Government in matters relating directly or indirectly with the collection of revenue from federal taxes, levy of taxes, duties, cesses or fees and declared as such by the Federal Government, and includes all its subordinate departments, offices and agencies.
An inclusive definition of the term 'maladministration' is provided by Section 2 of the FTO Ordinance in following clauses: -
SUB SECTION (3): Maladministration includes
(i) a decision, process recommendation, act of omission or commission which-
(a) is contrary to law, rules or regulations or is a departure from established practice or procedure, unless it is bona fide and for valid reasons;
(b) is perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory;
(c) is based on irrelevant grounds; or
(d) involves the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives, such as bribery, jobbery, favouritism, nepotism, and administrative excesses;
(ii) neglect, inattention, delay, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities.
(iii) repeated notices, unnecessary attendance or prolonged hearings while deciding cases involving-
a) assessment of income or wealth;
b) determination of liability of tax or duty;
c) classification or valuation of goods;
d) settlement of claims of refund, rebate or duty drawback; or
e) determination of fiscal and tax concessions or exemptions.
(iv) willful errors in the determination of refunds, rebates or duty drawbacks;
(v) deliberate withholding or non-payment of refunds, rebates or duty drawbacks already determined by the competent authority;
(vi) coercive methods of tax recovery in cases where default in payment of tax or duty is not apparent from record; and
(vii) avoidance of disciplinary action against an officer or official whose order of assessment or valuation is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal.
Thus maladministration according to sub section (3) of section 2 of the Ordinance, besides all else, which the word "maladministration" ordinarily means or connotes, includes whatever is enumerated in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii) supra.
Before proceeding to analyse what these clauses literally convey, a comprehension of common dictionary meanings of the word "maladministration" is desirable. In Chamber's 21st Century Dictionary, Revised Edition, at Page 829 published 1999; Reprinted 2000 the following meaning has been given:
Maladminister: > verb to manage (e.g. public affairs) badly, dishonestly or incompetently.
MALADMINISTRATION: NOUN:
Further, the meaning of the term "maladministration" as given in Black's Law Dictionary, 7th Edition at Page 967 published - 1999, 6th Reprint - 2003 are:-
Maladministration: Poor management or regulation, esp. in an official capacity - Also termed misadministration.
Thus in general terms bad, dishonest, incompetent or poor management or regulation of public affairs is maladministration and it will remain so notwithstanding that at times the departure of the tax employee, directly accused of it, from established practice or procedure may be bonafide and for valid reason.
Good administration, for example, demands reasonably prompt action; it requires vision about the quantum of work in hand and the reasonable time frame for its proper disposal. Failure to assign it to a sufficient number of competent functionaries to ensure its disposal within a reasonable time is poor management especially in an official capacity on the part of supervisory/controlling officers. Simply because a particular employee has valid reason for his inability/incapacity to dispose of his assignment within reasonable time, the concerned Tax Department or the Revenue Division themselves, as the case may be, is not absolved of the charge of maladministration causing delay and it is the responsibility of FTO to investigate and find out its cause and recommend remedial measures. The avowed objective (mission statement) of establishing the Office of Honourable Tax Ombudsman, inter alia, is to rectify and redress any injustice done to a person through maladministration by functionaries administering tax laws.
(EMPHASIS PROVIDED BY ME)
Another aspect that needs elucidatation, before discussing the scope of the FTO's jurisdiction under the Ordinance, is the principles of interpretation applicable to it.
While challenging the jurisdiction, the emphasis is mostly on sub clause (b) of sub section (2) of section 9 of the Ordinance which states that jurisdiction will not be exercised in the matters which relate to the assessment of income or wealth, determination of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision are available under the relevant law.
It would be interesting to refer here to s 34(3) of the Local Government Act 1974 in Britain, hereinafter referred to as 1974 Act that puts a bar on the jurisdiction of the Local Commissioner (Ombudsman). The sub-section provides:
"It is hereby declared that nothing in this Part of this Act authorizes or requires a Local Commissioner to question the merits of a decision taken without maladministration by an authority in the exercise of discretion vested in that authority."
Lord Denning at Court of Appeal Civil Division, hearing an appeal from the Queen's Bench Division, has enunciated significant principles of interpretation of beneficial statutes in the context of 'a bar on the jurisdiction of the Local Commissioner (Ombudsman)' in R v Local Commissioner for Administration: [1979] 2 AII ER 881. I shall be referring to his observations and findings in the case at pertinent points.
Apparently, in the context of s 9(2)(b) of the FTO Ordinance, there will be hardly any matter dealt by the Revenue Division, its subordinate departments, offices, agencies and the tax employees which can not be related in some way or the other to assessment of income or wealth, determination of tax or duty, classification or valuation of goods and the interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation for which such tax statutes do not, ultimately, provide for appeal, review or revision.
But such simplistic construction as has been often pressed by the Revenue Division, its subordinate departments, offices, agencies and the tax employees, if accepted, would negate the very object of the Ordinance and shall paralyse it completely. One, therefore, is persuaded to refer to the principles of interpretation to elucidate the foregoing contention.
To begin with, it cannot be denied that the Ordinance is a welfare, beneficial and remedial statute as evident from its mission statement pronounced in its Preamble ibid.
It intends to provide relief not only to the particular complainants but also to any person likely to be aggrieved through mal-administration as defined under the Ordinance by diagnosing the malady and recommending the remedy.
While interpreting any provision, which is beneficial in nature, the object and intention of the legislature can neither be ignored nor bypassed. This should be the determining factor while interpreting the provisions of such legislation.
The superior courts, in Pakistan and abroad, as well as the jurists are of the opinion that a beneficial legislation should be interpreted in a manner that advances the remedy and suppresses the mischief.
The interpretation should be made fairly to make the remedy secure. The provisions of such a statute must be construed with reference to their context and with due regard to the object to be achieved and mischief to be prevented otherwise the intention of the statute will be defeated.
Any construction, which whittles down the object and produces absurd results, cannot be accepted. Such pronouncements approve that the purpose of a beneficial or remedial statute is to keep the system of jurisprudence up to date in harmony with new ideas, new concepts and the needs of the society.
A construction, which promotes improvement and justice in the system and eradicates the defects and evils, should be favoured over the one, which perpetuates wrong.
In interpreting the provision of a beneficial legislation the court always favours interpretation, which promotes the benefits of such statutes.
(AIR 1960 SC 137, (1994) 1 SCC 243)The trend all over, in U.K., U.S., Pakistan and India, is to favour a beneficial and liberal construction to promote the object of the legislation. In his book "Discipline of Law" Lord Denning has stated that 'intention seeking' is preferred to 'strict construction' and that the literal approach is in disuse".
(INTERPRETATION OF TAXING STATUTE: BY JUSTICE MARKANDAY KATJU). This purposive interpretation is now well accepted and well recognised in preference to the literal interpretation, which may bring conflict, absurdity and completely negate the object and purpose of legislation.
A lucid example of this approach is found in R v Local Commissioner for Administration ibid. Lord Denning considered, in the decision delivered by him, the two points of view on the requirement of s 26(2)(a) of the 1974 Act for 'specifying the action alleged to constitute maladministration' by the complainant.
First, the view of May J. (Queen's Bench Division) that 'the complaint must allege not only that the complainant suffered injustice but also that it was due to maladministration which he must specify expressly or by necessary inference'. The other was the view of the Parliamentary Ombudsman who {being uninhibited by any section like 26(2)(a)} accepts that it is sufficient for a complainant to allege that he has suffered injustice.
He treats it as if it were a complaint of maladministration, which is not specified: and then goes on to enquire whether there was any maladministration leading up to the decision. The Parliamentary Ombudsman said in his address to the Society of Public Teachers of Law:
'Now in my experience a complainant is usually specific about the injustice he has sustained but less so about the maladministration which caused injustice. So the complaint, as I get it, usually starts with the injustice of which the complainant is naturally most aware and says little about the maladministration'.
GIVING HIS FINDING LORD DENNING OBSERVED:
"I must say that I agree with the approach of the Parliamentary commissioner. In the nature of things a complainant only knows or feels that he has suffered injustice. He cannot know what was the cause of injustice. It may have been due to an erroneous decision on the merits or it may have been due to maladministration somewhere along the line leading to decision.
If the Commissioner looking at the case, with all his experience, can say: 'It looks to me as if there was maladministration somewhere along the line, and not merely an erroneous decision', then he is entitled to investigate it. It would be putting too heavy burden on the complainant to make him specify the maladministration: since he has no knowledge of what took place behind the closed doors of administrator's offices. (Emphasis provided by me)
I confess that there is a difficulty about applying this approach to local commissioner because of s 26(2)(a), which I have just quoted, which says that the complainant must 'specify the action alleged to constitute maladministration'.
But I cannot help thinking that those few words are misleading if taken by themselves. In order to give sense to the provision, I think that the word 'action' there refers to the same 'action' as is mentioned earlier in s 26(1). Expanded fully, s 26(2)(a) should read 'specifying the action taken by or on behalf of the authority in connection with which the complainant complains there was maladministration'.
I realise that this means departing from the literal words: but I would justify on the ground that it will 'promote the general legislative purpose' underlying the provision: see Nothman v London Borough of Barnet: [1978] 1 AII ER 1246. It cannot have been intended by Parliament that a complainant, who of necessity cannot know what took place in the Council offices, should have to specify any particular piece of maladministration. Suffice it that he specifies the action of the local authority in connection with which he complains there was maladministration."
(EMPHASIS PROVIDED BY ME)
The first significant principle to be noted here is that while there is no cavil with the plain language of the law that "nothing in this Part of this Act authorizes or requires a Local Commissioner to question the merits of a decision taken without maladministration by an authority in the exercise of the discretion vested in that authority" However, "If the Commissioner looking at the case, with all his experience, can say: 'It looks to me as if there was maladministration somewhere along the line, and not merely an erroneous decision', then he is entitled to investigate it."
Eveleigh LJ not only concurred to the finding of Lord Denning but further added:
"I regard s 26 as providing a sieve through which complaints have to pass. It is there as protection for the local commissioner and not as protection for the local authority. The local authority is protected by the sieve afforded by the member to whom the complaint is first made and by the discretion in the local commissioner to investigate or to refuse to investigate. There is nothing here analogous to a writ or a pleading. Furthermore it is provided by s 26(10) that any question whether a complaint is duly made under the 1974 Act shall be determined by the local commissioner. That subsection itself would be sufficient in my opinion to overcome any objection in this case to the effect that the complaint was not duly made. The commissioner accepted it for investigation.
(EMPHASIS PROVIDED BY ME)
The American view as expressed in Corpus Juris Secondum and Sutherland on Statutory Construction indicates that the rules of strict construction should be applied with due regard to the wishes of the legislature as expressed in the statute and not so strictly as to defeat the legislative purpose and produce unreasonable results.
MAXWELL HAS OBSERVED AS FOLLOWS:
"There are certain objects, which the legislature is presumed not to intend, and a construction which would lead to any of them is therefore to be avoided. It is not infrequently necessary, therefore, to limit the effect of the words contained in an enactment (specially general words) and times to depart not only from their primary and literal meaning but also from the rules of grammatical construction in cases where it seems highly improbable that the primary or grammatical meaning actually express the real intention of the Legislature. It is regarded as more reasonable to hold that Legislature expressed its intention in a slovenly manner than that a meaning should be given to them which could not have been intended".
Although there are authorities, which prefer a literal interpretation, yet as discussed above these are considered waning ideas and concepts, which are being replaced by principle of purposive interpretation. 'Cross on Statutory construction' has quoted Pinner vs. Everett (1969) 3 AER 257, "...The grammatical and ordinary sense of the words is to be adhered to unless that would lead to some absurdity or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid absurdity and inconsistency, but no further."
IN MAUNSELL VS OLINS (1975) AC 373 (391) IT WAS OBSERVED:
"......... the language is presumed to be used in its primary sense, unless it stultifies the purpose of the statue, or otherwise produces some injustice, absurdity, anomaly or contradiction in which some secondary sense may be preferred".
In Argon (Cargo Ex) Gandeb vs. Brown: LR5 PC 134 the Privy Council observed:
"It is a very useful rule in the construction of statutes, to adhere to the ordinary meaning of the words used and to the grammatical construction, unless that is at variance with the intention of the Legislature to be collected from the statutes itself or leads to any manifest absurdity of repugnancy in which case the language may be varied or modified so as to avoid such inconvenience but no further."
It is now well settled that where primary construction defeats manifest purpose of a statute, leads to unjust results, absurdity, repugnancy, inconsistency or manifest contradiction, departure from the plain or primary meaning is permitted. The principles and views considered supra clearly warrant that the provisions of the Ordinance, being a beneficial legislation, should be interpreted in the manner, which may advance the object of the enactment by advancing the remedy provided under it and suppressing the mischief it seeks to eradicate.
Now, if we examine sub section (2) of section 9 of the Ordinance, keeping in view the principles discussed supra, it becomes clear that a strict literal interpretation will completely negate the object of the legislation and no remedy can be provided in any matter, which falls within the category of mal-administration.
The main reason being that in matters where tax or duty is assessed, liability of tax or duty is determined, classification or valuation of goods are made under relevant legislation there is always a provision for appeal, review or revision against the ultimate decision on such matters. Thus, in respect of matters enumerated above, if the view generally canvassed by the Revenue Division, its subordinate departments, offices, agencies and the tax employees is accepted, the Federal tax Ombudsman will have no jurisdiction to investigate into allegations of any injustice done to a person through maladministration by functionaries administering tax laws and he would be rendered ineffective to rectify and redress such injustice in spite of maladministration alleged by a complainant.
Obviously, this would be a misinterpretation of the provisions as it cannot be the intention of the legislature to appoint the Federal Tax Ombudsman, vest him with power and authority and bar the jurisdiction to exercise such power and authority. Such an interpretation is bound to create absurdity, will not advance the remedy and allow the mischief to continue and grow. It will create embarrassing results and will make the entire institution irrelevant.
Therefore, an interpretation of the provisions under discussion has to be made in a harmonious manner, keeping in view the object and intention of the legislature. Thus in the matters enumerated in section 9 (2) (b) ibid allegations of maladministration can be investigated and identified by the FTO even in cases, which affect a decision and make such recommendations as are permissible under law. Such an interpretation is harmonious and in consonance with the intention of the enactment.
It is appropriate to quote Eveleigh LJ again from the decision ibid to elucidate how the provisions of section 9(2)(b) of the FTO Ordinance ought to be construed:
"Action that is taken may or may not be the result of a particular administrative decision. If it is an act that is complained of I do not think that the local commissioner can be denied the right to investigate, merely by contending that the act is the result of a decision. When the party alleges injustice as a result of administrative action, which the party claims is faulty, the local commissioner may investigate.
In the course of that investigation he may come across a number of decisions that have been taken. Section 34 does not say that he may not investigate those decisions. It says that he may not question the merits of a decision taken without maladministration. It will often not be possible to say if a decision was taken with or without maladministration until it has been investigated. This is the whole purpose of the role of a local commissioner.
It is to investigate what has gone on in administrative quarters so that members of the public can be satisfied that public affairs are properly conducted. I therefore do not think that s 34 provides any obstacle. If the local commissioner carries out his investigation and in the course of it comes personally to the conclusion that a decision was wrongly taken, but is unable to point to any maladministration other than the decision itself, he is prevented by s 34(3) from questioning the decision. Consequently his investigations into the complaint in whatever direction his enquiries might lead will have to be conducted on the basis that the decision in question was validly taken.
Administrative action, therefore, which is based on or dictated by that decision will not amount to maladministration simply because someone in the exercise of his discretion has come to a wrong decision. If the decision itself is affected by maladministration, different consequences will follow. (Emphasis provided by me)
In any event, in my opinion, the taking of a decision is action taken in the exercise of administrative function. A faulty decision may amount to maladministration. Consequently, it may be investigated. The only limit imposed on the local commissioner is that he may not arrive at a conclusion hostile to the local authority based on a finding that there was faulty or wrong decision unless the decision was linked to some other act of maladministration." (EMPHASIS PROVIDED BY ME)
Another view that has been very vociferously canvassed by such quarters is that malafide is required to be proved to establish 'maladministration'. The view that malafide is to be proved to hold a tax employee responsible for maladministration is based on the misconceived view that the rider "unless it is bonafide and for valid reasons" appearing at the end of sub clause (a) of clause (i) of sub section (3) of section 2 of the Ordinance, applies to 'any decision, process, recommendation, act of omission or commission which is contrary to law, rules and regulations'. One has to keep in view that the definition of "maladministration" provided in sub clause (a) of clause (i) of sub section (3) of section 2 of the Ordinance supra conceives two distinct eventualities:
First one is "a decision, process, recommendation, act of omission or commission, which is contrary to law, rules or regulations"
The other follows the conjunction, "or is a departure from established practice or procedure, unless it is bonafide and for valid reasons.
(EMPHASIS PROVIDED)
It is evident that the rider "unless it is bonafide and for valid reason" governs 'a departure from established practice or procedure', which is the second part of sub clause (a) of clause (i) supra, and is an exception to the common dictionary meanings of the word 'maladministration'. It does not govern the first situation supra. Further, the use of conjunction "and" in the rider requires the functionary administering tax law to prove that the departure from established practice or procedure was both bonafide as well as for valid reasons.
The burden is squarely on the department and failure to discharge the onus on any one of the two counts, or both, shall not absolve it of the charge of maladministration, even on account of a departure from established practice or procedure.
The foregoing analysis shows that by providing an inclusive definition of 'maladministration' the law in Pakistan intends to elucidate and expand the scope of action by the FTO. The definition, inter alia, covers a decision, process, recommendation, act of omission or commission, which is contrary to law, rules or regulations. Where a decision, process, recommendation, act of omission or commission is contrary to law, rules or regulations (as settled by the courts or the language of law does not beg any interpretation) it amounts to 'maladministration' included in the definition by section 2(3)(i)(a) supra and falls under the jurisdiction of FTO envisaged u/s 9(1) of the FTO Ordinance warranting investigation and cannot be claimed to be bonafide. To justify a decision, process, recommendation, act of omission or commission, which is "contrary to law" (as settled by the binding decisions of judicial forums or where the language of law does not beg any interpretation) on grounds of bonafide is inconceivable. Ignorance of the settled position of law is "incompetence" which again is maladministration per se as specifically defined in clause (ii) supra. Departure from established practice or procedure is the only act for which defence of bonafide and valid reasons may be offered. Thus the rider governs only the phrase, "a departure from established practice or procedure" because it may be both bonafide as well as for valid reasons." The Federal Tax Ombudsman has the jurisdiction to investigate and find out the cause of such maladministration and recommend remedial measures.
In fact, none of the other categories of maladministration specifically included in its wide dictionary definition supra vide sub clauses of clause (i) as well as clauses (ii), (iii), (iv), (v), (vi) and (vii) is qualified with the phrase "unless it is bonafide and for valid reasons". The dictionary definition of maladministration, which may be repeated here for convenience of reference, is to manage (e.g. public affairs) badly, dishonestly or incompetently or in other words poor management or regulation, esp. in an official capacity and at times also termed misadministration.
Making a decision, adopting a process, making a recommendation, performing an act of omission or commission or making a departure from the established practice or procedure dishonestly is only one of the three kinds of 'maladministration' mentioned in Chamber's 21st Century Dictionary supra; managing public affairs badly and incompetently are the other two kinds of 'maladministration'.
According to the inclusive definition of 'maladministration' supra, a decision, process, recommendation, act of omission or commission or a departure from the established practice or procedure is covered thereunder if it is:
' perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory; based on irrelevant grounds; or involve the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives, such as bribery, jobbery, favouritism, nepotism, and administrative excesses; neglect, inattention, delay, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities; repeated notices, unnecessary attendance or prolonged hearings while deciding cases involving; a) assessment of income or wealth; b) determination of liability of tax or duty; c) classification or valuation of goods; d) settlement of claims of refund, rebate or duty drawback; or e) determination of fiscal and tax concessions or exemptions; wilful errors in the determination of refunds, rebates or duty drawbacks; deliberate withholding or non-payment of refunds, rebates or duty drawbacks already determined by the competent authority; coercive methods of tax recovery in cases where default in payment of tax or duty is not apparent from record; and avoidance of disciplinary action against an officer or official whose order of assessment or valuation is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal.' (Emphasis provided by me)
Where any of the foregoing traits of Maladministration is found by the FTO, the law does not allow the Revenue Division or the tax employees even to offer the defence of 'bonafide and valid reasons' because there can be none such excuses. This view has been upheld by the Honourable President of Pakistan in a large number of decisions on Representations filed u/s 32 of the Ordinance. Few of such decisions are being cited in the following Paras.
The view that misconducting the assessment proceedings under income tax law is maladministration as defined u/s 2(3) and provisions of section 9(2)(b) of the FTO Ordinance and does not bar the jurisdiction of Federal Tax Ombudsman on such matters has been upheld in following terms:
"The Federal Tax Ombudsman has found that Mr. Muhammad Saleem DCIT has misconducted income tax assessment proceedings against the complainant, and has among other measures, recommended that departmental disciplinary proceedings be initiated against Mr.Saleem. The recommendations pertaining to other measures concern action by the Revenue Division and, that Division has not represented against the recommendations. Mr.Saleem has represented against the recommendation relating to the initiation of departmental disciplinary proceedings against him".
IT IS FURTHER HELD:
"Sub section (6) of section 14 of the Ordinance XXXV of 2000 provides that if the FTO has reasons to believe that any tax employee has acted in a manner warranting disciplinary proceedings against him he may refer the matter to the appropriate authority for necessary action. The FTO can recommend initiation of departmental disciplinary proceedings on the basis of his reasons to believe and his discretion in that regard ought not to be interfered with. Obviously Saleem will have full opportunity to contest the allegations before departmental authority".
(Decision dated 10th November 2003, in the Representation bearing No.OS-I/ President/646 dated 23.07.1002)
In another complaint the Respondent's (Customs Department) held that for the purposes of sub section (4) of section 81 of the Custom Act, 1969, provisional assessment included the additional amount which the importer paid or in respect of which he furnished guarantees of a scheduled bank under the provision of sub section (1). The Federal Tax Ombudsman found that the language of the section did not support the respondent's decision and, as such, the decision was contrary to law amounting to maladministration as provided u/s 2 (3)(i)(a) of the FTO Ordinance. Honourable President upheld the jurisdiction of FTO to decide what the language of a section connotes if the language of law does not beg any interpretation.
HELD:
"The view of the Customs is not supported by the language of the section. The additional amount is not received as duty. It is only security to meet the excess of the final assessment of duty over the provisional assessment. The provisional assessment in section 81 ibid refers to the legal effect, and not to the quantification of the assessment, it simply means that the duty paid by the importer/exporter on the declared value shall in effect not be final but provisional and subject to re-examination. Section 81 does not empower the appropriate officer to assess duty tentatively. The opinion of the FTO in this regard is sound.
Accordingly, the President has been pleased to reject the representation of the Revenue Division". (Decision dated 11th November 2003 in Representation filed by the CBR vide C.No.1 (143) S (T)-II) /2002)
Honourable President upholding the jurisdiction of the FTO to investigate into the validity of reasons to initiate a process observed and found:
"The CIT's reply to the complaint does not set out the material and the ground on which the assessing officer has initiated proceedings" (u/s 65).
"The Reply that "the notice under section 65 has been issued on valid grounds and issuance of notice is quite justified" is a mere formalism. The case does not seem to be plain assessment proceedings".
"The recommendation of the Federal Tax Ombudsman ought not be interfered with." (Decision dated 8.11.2003 in Representation by CBR's: C.No.4 (823) TO-I/2002 dated 27.11.2002).
Honourable President settled the issue that the onus to prove the bonafide and valid reasons lies on the respondent with the following findings:
"The Federal Tax Ombudsman's findings that refund of tax cannot be withheld to cover the assessee's expected tax liability remains unexplained in the representation". (Decision in CBR's Representation C.No.4 (1358) TO-I/2001 dated 15-11, 2003.)
In a Representation where the Revenue Division objected to the findings/recommendations of the Federal Tax Ombudsman on the grounds (i) that the CBR's clarification contained in its u.o., dated 16.09.1999 does not amount to mal-administration; and (ii) that the matter investigated by the Ombudsman related to determination of tax liability in respect of which the jurisdiction of the Ombudsman is barred. Honourable President has observed and held:
"The Revenue Division had not referred to any provision of law, which provides that the CBR has the power to decide what a provision of the statute of income tax means. The Revenue Division has also failed to explain how the CBR's clarification is near to the reason and purpose of the relevant provision of the statute and that the Ombudsman's findings are far fetched.
The Revenue Division appears to have wrongly assumed that the CBR's word in the matter of the meaning of law is the last word. The findings also do not involve determination of tax. "Determination of tax" involves factual determination of income or computation of tax made or required to be made by a tax employee. The matter raised in the complaint does not involve either.
The clauses in the 2nd schedule to the Income Tax Ordinance 1979 are to be read with section 14 of the Ordinance under which not only the specified person but also specified income is exempt from tax. The findings/recommendations of the Ombudsman are just and proper." CBR's Representation rejected. (Decision dated 11-03-2004 on Representation No. 4(1130) TO-I/ 2002 dated 21.01.
In C.No.1130/2002 dated 31.12.2003):
However, where the FTO recommended to drop proceedings of the total audit because the concerned Regional Commissioners of Income Tax (RCITs) were unable to record or offer valid reasons while exercising their discretion under Para 9(a)(ii) of CBR Circular notified as the Self Assessment Scheme (SAS), the Honourable President of Pakistan has held in a series of decisions u/s 32 in Representation's filed by the CBR that the jurisdiction of FTO is barred under section 9(2)(b) of the FTO Ordinance because the matter relates to assessment of income. This incidentally happens to be the issue on which a large number of Representations have been allowed.
With due deference and respect to such decisions one finds that the Honourable President in another decision has held:
"Where the law under which a tax has been collected is found to be ultra vires (virus) of the legislature the money collected by the Revenue is recoverable by the payee as money had (held) and received for the use of the payee. The right of the payee to claim restitution of the money paid to the Revenue pursuant to ultra-vires demand is a common law right and is not subject to machinery provisions of the statutory regimes of the law (Woolwich Building Society v Inland Revenue Commissioners 1995 PTD 26 (H.L). Technically the "money had (held) and received for the use of payee" must be recovered through civil suit and the provisions of the relevant legislation relating to far (bar) of the civil courts jurisdiction would not apply. But the Government should avoid civil suit, which would be indefensible. Thus, strictly speaking the Assistant Collector's order dated 13.02.2001 is an administrative order and not an appealable order made under the provisions of the Custom Act. And, an administrative order can always be reviewed and re-examined. The recommendation of the FTO in the circumstances of the case is quite apt". (Decision dated 13th November, 2003 on the CBR's Representation C.No.4 (17) S (SS)/2002 dated 23.07.2002
The decision supra supports the view that the FTO has the jurisdiction to examine if a decision/order is administrative in nature and hence non appealable. The fact that legal remedies of appeal, review or revision are not available under the relevant law against the decision of the RCIT to set apart for total audit a return filed under the Self Assessment Scheme is evident from the decision of Lahore High Court on Writ Petitions filed by Sahib Textile (Pvt) Limited & Others against setting apart of their returns of income for total audit by the RCIT. The decision is reported as Sahib Textile (Pvt) Limited & Others V. Federation of Pakistan: (2003) 88 TAX 337 (H.C.LHR)
Thus there is an apparent error on account of non-presentation of the law in proper perspective by the Income Tax Department while canvassing the view that the decision of the RCIT to set apart for total audit a return filed under the Self Assessment Scheme is appealable.
Besides, the qualifying words "matters which relate to" preceding the exclusions in clause (b) of subsection (2) of section 9 ibid is meant to restrict the bar on jurisdiction only to matters which relate plainly to assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation. Had the legislature used the words cases involving assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation, jurisdiction of the FTO would have been barred over the whole case. However if the matter relates to maladministration somewhere along the line leading to decision, and not merely an erroneous decision, then the FTO is entitled to investigate it.
As held by Eveleigh LJ in his concurring decision in R V local Commissioner for Administration ibid, "Action that is taken may or may not be the result of a particular administrative decision. If it is an act that is complained of I do not think that the local commissioner can be denied the right to investigate, merely by contending that the act is the result of a decision.
When the party alleges injustice as a result of administrative action, which the party claims is faulty, the local commissioner may investigate. In the course of that investigation he may come across a number of decisions that have been taken. Section 34 does not say that he may not investigate those decisions.
It says that he may not question the merits of a decision taken without maladministration. It will often not be possible to say if a decision was taken with or without maladministration until it has been investigated. This is the whole purpose of the role of a local commissioner.
It is to investigate what has gone on in administrative quarters so that members of the public can be satisfied that public affairs are properly conducted. I therefore do not think that s 34 provides any obstacle.
If the local commissioner carries out his investigation and in the course of it comes personally to the conclusion that a decision was wrongly taken, but is unable to point to any maladministration other than the decision itself, he is prevented by s 34(3) from questioning the decision. Consequently his investigations into the complaint in whatever direction his enquiries might lead will have to be conducted on the basis that the decision in question was validly taken.
Administrative action, therefore, which is based on or dictated by that decision will not amount to maladministration simply because someone in the exercise of his discretion has come to a wrong decision. If the decision itself is affected by maladministration, different consequences will follow.
In any event, in my opinion, the taking of a decision is action taken in the exercise of administrative function. A faulty decision may amount to maladministration. Consequently, it may be investigated. The only limit imposed on the local commissioner is that he may not arrive at a conclusion hostile to the local authority based on a finding that there was faulty or wrong decision unless the decision was linked to some other act of maladministration."
Another significant aspect of the restricted bar on FTO's jurisdiction envisaged in clause (b) ibid is that it relates only to a decision on the matters enumerated therein, because remedies of appeal, review or revision are available only in respect of the decisions and not against, or in respect of a process being employed, a recommendation being made or an act of omission or commission.
This issue too has been resolved by the Honourable President holding," the matters envisaged u/s 9(2)(b) relate to plain assessment etc not tainted with any of the traits of maladministration defined u/s 2(3)".
(Decision dated 08.11.2003 on Representation C.No. 4(823) TO-I/2002 dated 27.11.2002 against FTO's decision in Complaint No.823-L/2002) Conversely the inference would be that where such an assessment etc is tainted with any of the traits of defined maladministration, the bar on jurisdiction envisaged in clause (b) of sub section (2) of section 9 would not be applicable.
In fact, the view pursued by the Department is based on a misreading of the SAS because the RCITs select returns for total audit on the basis of guidelines issued by the CBR after the returns had been submitted.
The decision to select a case for total audit in exercise of such discretion affects the assessee's vested right, conferred by the SAS, which can be taken away, interfered or withdrawn only for valid reasons to be recorded in such decisions. The very fact that Para 9(a)(ii) of SAS ibid envisages that the RCIT shall select the case for total audit "in the light of guidelines issued by the Central Board of Revenue in this behalf" suggests that the RCIT is required to exercise discretion fairly and to record valid reasons for such selection. Arbitrary exercise of discretion is 'maladministration' per se.
The relevant law does not provide any appeal, review or revision against orders passed by the RCIT under Para 9(a)(ii) of CBR Circular in exercise of such discretion. Appeal, revision or review is provided against the assessment order passed after subjecting the return to total audit; hence the jurisdiction of the FTO.
Nasim Sikandar, J in Sahib Textile (Pvt) Limited & Others V. Federation of Pakistan: (2003) 88 TAX 337 (H.C.LHR) holding that action of CBR to issue the guidelines for selection of cases for total audit, after the last date of filing of returns, is not bonafide has observed:
"A discretion vested in revenue officers to select a return for process under normal law will always be questioned and agitated both in the revenue offices as well as before the Courts."
The Courts and jurists have interpreted the term "discretion" in following manner:
a. DISCRETION: The word in itself implies vigilant circumspection and care; therefore when the Legislature concedes a wide discretion to a Judge or a Court, it also imposes a very heavy responsibility.
b. Discretion. If people, who have to exercise a public duty by exercising their discretion, take into account matters, which the Courts consider not to be proper for the guidance of their discretion, then in the eye of law they have not exercised that discretion. See Maxwell on the Interpretation of Statutes, 11th Edition, Page 118. When considerations extraneous to the suitability of a person for appointment are taken into account in making an appointment, there is an abuse of discretionary power, and so the exercise of power exceeds the bounds of authority. AIR 1970 Mad. 63 at p.75
c. The use of private and independent thought. When anything is left to be done according to one's discretion the law intends it to be done with sound discretion and according to law, and the court has power to redress things that are otherwise done notwithstanding they are left to the discretion of those that do them. Discretion is discerning between right and wrong; and therefore whoever has power to act at discretion, is bound by the Rule of reason and law. And though there be latitude of discretion given to one, yet he is circumscribed that what he does be necessary and convenient, without which no liberty can defend it.
TOMLINS 1982 PS.C.12: PLD 1984 S. C. 289: PLD 1992 (H.C.Kar.) 213 (Para 8 P.215), 1987 MLD 1714
d. Discretion must be exercised honestly and in the spirit of the statute. It is not to be arbitrary, vague and fanciful but legal and regular: to be exercised not capriciously but on judicial grounds and for substantial reasons.
Thus, where the discretion was exercised arbitrarily and in violation of well-settled principles stated above, it is evident that such decisions of RCIT would not attract the bar of jurisdiction under section 9(2)(b) of the FTO Ordinance. The natural construction of section 9 (2) (b) ibid would be that the bar is restricted to adjudication on actual assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods and interpretation of unsettled law in respect of which legal remedies of appeal, review or revision are available under the Relevant Legislation. Provided that even in the course of such an assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods there is no maladministration somewhere along the line leading to the decision; for as Lord Denning has observed in the decision ibid:
"In the nature of things a complainant only knows or feels that he has suffered injustice. He cannot know what was the cause of injustice. It may have been due to an erroneous decision on the merits or it may have been due to maladministration somewhere along the line leading to decision. If the Commissioner looking at the case, with all his experience, can say: 'It looks to me as if there was maladministration somewhere along the line, and not merely an erroneous decision', then he is entitled to investigate it. It would be putting too heavy burden on the complainant to make him specify the maladministration: since he has no knowledge of what took place behind the closed doors of administrator's offices".
However, one has to keep in mind that the FTO Ordinance, still in its nascent stage, is developing through due process of law and any decision overlooked or any loose construction, will be taken due cognisance of by the competent forums.
(The writer is a Retired Federal Secretary and Ex-Advisor-in-charge Research Development and Study Cell Office of the Federal Tax Ombudsman)