It is, indeed, heartening to note from a news report, (December 4), that Federal Tax Ombudsman Munir A. Sheikh has ruled that services rendered, whether through contract or otherwise, are not covered under 'presumptive tax regime' of the repealed Income Tax Ordinance 1979, and also that the expression 'services' could not be given restricted meanings.
This has reference to his clear-cut ruling on the complaint of a washer-man, Munir Hussain, of Renala Khurd. The complainant was providing the services of clothes washing to the Pakistan Army, and due to non-compliance with a notice, a consolidated ex-parte assessment u/s 63 of the repealed Income Tax Ordinance was framed against him in 1999.
But his move for rectification, seeking credit of tax paid under section 54, was rejected on the ground that he was not entitled to refund. He was told that he being a contractor, who should file a statement u/s 143B, deduction u/s 50(4) was to be final discharge of tax liability.
Seemingly, intrigued by it, he filed a complaint at the FTO office. This led to FTO's recommendation that consolidated ex-parte order for the years 1995-96 to 1998-99, as also the one passed in 2001 under section 156 of the repealed Ordinance be cancelled by the Commissioner by resort to section 122A of the Income Tax Ordinance 2001.
The FTO further recommended that assessment proceedings may then be taken up to dispose of the returns in accordance with law. Consequently, in his order dated May 10, 2004, the CIT, Sahiwal, cancelled the impugned assessment u/s 122A of the Income Tax Ordinance 2001, holding that the tax deducted u/s 50(4) was final liability, serving a notice on the complainant in August 2005.
According to the FTO, a complaint was filed against that order, on the plea that services rendered by the complainant as washer-man/dhobi, are covered by the word 'services', and, therefore, the assessment, u/s 80(c), was not justified, pointing out that his case falls u/s 50(4) of the repealed IT Ordinance 1979, hence outside the purview of 'presumptive tax regime', and that tax, thus deducted, could not be final discharge of liability.
However, in his reply, the RCIT, Central Region, Multan, argued that services rendered by a washer-man are not covered under the definition of 'services', as elaborated in section 153 (9) of the IT Ordinance 2001, explaining that CBR's circular of July 9, 2003, includes the services rendered, through a contract, or otherwise, by professionals, such as medical practitioners, legal practitioners, consultants etc, and that services rendered by a washer-man contractor could not be termed as 'services' by a professional, his being purely a contract with the Pakistan Army.
He insisted that his case fell within the ambit of section 80C (2), and that tax deducted at source was final and full discharge of his tax liability.
Turning down these pleas, the FTO held that the assesssee washer-man was very well covered within the definition of the word 'services rendered' and, therefore, the assessment of the same under section 80(c) was not justified.
Setting aside CIT order of May 2004, the FTO directed the Taxation Officer to assess the complainant's return under normal law. It will, thus be noted that, simply because of lack of proper comprehension of the intricacies of tax laws in all their dimensions, the dispute took almost six years to resolve, and that too from eventual resort to the Tax Ombudsman.
Again, as they say, a solitary swallow does not make the summer, similar ending of much more tax cases, complicated by diverse interpretation of rules, by concerned tax officials, cannot be taken for granted.
However General Pervez Musharraf's reform-oriented all-out exercise in reform and restructuring of the tax system, over the past several years notwithstanding, a great deal will appear to have remained to be done to ensure smooth functioning of the system, in a manner conducive to a really vibrant economy.
From all indications, the need of doing more continues to be very much there on policy issues. It is the flawed handling of the reformed system, which will be seen as still hampering the desired progress on the tax front. Reference, in this regard, may be made to suggestions contained in an appeal made by the FPCCI President to the Federal Tax Ombudsman, some three years ago, focusing frustrations caused to the taxpayers in general, and the business community in particular, from flawed functioning of the tax collecting machinery.
The issues discussed in that appeal emanated from the agonising experience of the willing yet variously tormented taxpayers. All in all, it will be noted that there still remains a crying need for an environment of trust and confidence between the taxpayers and tax collectors.