The Federal Tax Ombudsman, former Justice Munir A Sheikh, has advised the Income Tax Department to follow a uniform withholding tax adjustment and refund policy. The FTO gave this advice while deciding a complaint of Manzoor Hussain Carriage Contractor, of Jhang.
The complaint was against Income Tax Department's refusal to adjust the tax withheld from taxpayer's receipts and to issue refund for the excess thereof over taxpayers alleged lawful tax liabilities during the years 2003, 2004-05.
The complainant said he is a carriage contractor for transportation of sugarcane for Shakarganj Sugar Mills, Jhang. Tax @ 2 percent was withheld by the payer company for all the three years in accordance with the provisions of sub clause (2)(a) of Part III Division III of first schedule of the IT Ordinance 2001, which was adjustable against the taxpayer's tax liability for the years and the difference/excess was to be refunded under the law.
He said that the returns filed u/s 114 were assessable u/s 120 of the Ordinance and deemed to be an assessment order issued to the taxpayer by the Commissioner on the day the returns were furnished (section 120(1)(a) and (b) of the ordinance)
The complainant said that the department, instead of refunding the excess amount of the tax deducted according to law, started proceedings to hold the taxpayers receipt and deductions therefrom to be covered by the presumptive tax regime and hence did not issue the requisite refunds for all the three years.
It was argued that the complainant's case was covered by clause (b) of sub-section (1) of amended section 153, therefore it was not liable to presumptive tax regime. The complainant also referred to CBR circular I of 2005 dated 05-7-2005 (para 23), and said that since he was rendering services for carriage and transportation and not as such executing a contract which the department is vainly trying to prove in order to bring taxpayers receipts within the ambit of clause (c) of section 153 (I) of the Ordinance.
He further submitted that rate of withholding tax for executing contracts (as is being attempted) the payers (Shakarganj Sugar Mills) will be guilty of wrong withholding @ 2 percent (against the prescribed 6 percent) and liable to action under law while no such action has been taken against the payer.
The complainant further submitted that the department was not following a uniform policy in the matter and refunds in some cases of this nature had been issued in same jurisdiction. After giving due consideration to the arguments of the complainant and the Income Tax Department, the FTO observed that the Department had not been able to clarify in a convincing manner that the action being pursued in the case was bona fide and in line with the general policy of the CBR in the matter.
He said that representative of the Department did not refer to the CBR or any other higher revenue authority pursuing the matter with the Shakarganj Sugar Mills (Payers) or other sugar mills, or other big tax withholders for making deductions in such case at 6 percent prescribed under section 153 (1)(c) or to any action under section 163 for retrieval of loss of revenue.
"In other words, it implies that the action of sugar mills or giant POL products distribution companies like say Pakistan State Oil, or government departments like say Food Department and other deducting agencies for making deductions in cases of carriage contractors @ 2 percent which is the rate applicable to cases falling under clause (b) of section 153 (1) and outside the ambit of presumptive tax regime, is accepted as correct by the department as a whole," he emphasised.
The FTO further pointed out that the Department also did not clarify as to what action had been taken in this case or other cases of this nature for not only retrieving the loss due to refunds issued under the instructions of FTO/President or otherwise but also for recovering the difference due to different rates in cases covered by clause (b) of section 153 (1) and clause (c) of the same section which amounts to 4 percent.
This, he said, will be a huge exercise and may involve billions of rupees revenue but no such action in a concerted manner appears to be taken which means the department as a whole considers the payment of this nature to be covered by the normal tax regime or clause (b) of section 153 (1) of the Ordinance.
The FTO ruled that the CBR circular instructions as per para 23 of circular 1 of 2005 and later clarification vide para (15) of circular 1 of 2006, and SRO 794 (1)/2006 whereby reduced rate of 2 percent is prescribed for carriage / transport contractors by insertion of clause (27) in part II of second schedule to the IT Ordinance to nullify the increase in rate for tax deduction vide Finance Act 2006 in the cases of transport carriage contractors falling u/s 153 (1)(b) of the Ordinance all leave no doubt to the contrary in the matter.
The FTO directed the CBR that the tax paid by way of withholding as is in excess of taxpayers liability under normal law for all the three years be refunded within 30 days of this ruling.