ISLAMABAD: The Sindh High Court (SHC) has granted interim relief to the taxpayers against the Federal Board of Revenue (FBR) Inland Revenue tax officials for issuing notices to disallow adjustment of the Workers Welfare Fund (WWF) liability against the unpaid income tax refunds.

The SHC has granted this relief on the ground that in terms of Section 122 such deemed assessment could have been probed; however, in the manner as it has been done in the instant case by issuing notices for rectification of mistake in terms of Section 221(2) for adjustment of the WWF is not justifiable.

When the matter was discussed with Asif S Kasbati, ICAP Fiscal Laws Committee Member and Pakistan Business Council Tax; Legal Core Committee Member, he stated that recently, notices have been issued by the Inland Revenue Tax Department in several cases in order to disallow adjustment of the WWF liability against unpaid income tax refunds.

After hearing the submission of the Legal Counsel, Ovais Ali Shah, advocate for the petitioner; the SHC granted interim relief as to no coercive measures be taken by the Tax Department.

He elaborated that in CP D-5109; 5113 in the case of OBS Pakistan Ltd vs FOP, etc the SHC heard learned counsel’s submissions that the returns, which were filed by the petitioners were, under law considered as the deemed assessment in terms of Section 120(1)(b) of the Income Tax Ordinance.

In terms of Section 122, such deemed assessment could have been probed; however, in the manner as it had been done in the instant case by issuing notices for rectification of mistake in terms of Section 221(2) for adjustment of the WWF is not justifiable.

The counsel also submitted that similar question came up for hearing before the SHC Division Bench.

The Bench, however, was of the view that the assessment, which is apparently an error or mistake could be rectified in terms of Section 221(2), but not the assessment order having no error in the order done in deliberate intention.

Such observation was made in the ITRA 219 of 2011 by the SHC Division Bench in respect of powers, which are to be exercised under law.

This apparently is not a mistake as considered.

While explaining the background of the notices, Kasbati informed that the notices were issued considering the FBR letter dated May 25, 2021, whereby, it was directed to all the Chief Commissioners that as per sub-section 3 of section 170 of the Income Tax Ordinance, refund can only be adjusted against any other tax and since WWF; WPPF are not classified as tax, these cannot be adjusted against a tax refund.

The FBR letter further highlighted that the Income Tax Returns are filed voluntarily, however, reportedly some taxpayers probably adjusted WWF; WPPF against available tax credits.

As the Income Tax Ordinance does not allow for adjustment of WWF; WPPF against income tax refund and more adjustment are detected during tax audit and be taken as part of audit exercise; detection and efforts to get correct declaration i.e. enforcement-related activities.

The FBR, accordingly, directed the field formations to ensure that payment of the WWF; WPPF is not skipped through adjustment against Income Tax Refunds.

In case of any lapse, further action may be initiated under the law.

Kasbati highlighted that previously, the FBR vide letter 4(33)-Rev.Bud./99 dated 17 February 2000 had allowed the adjustment of Income Tax Refunds against the WWF liability, since the collection of WWF arrear demand was also the Tax Department’s responsibility.

Owing to the FBR letter of May 25, 2021, Kasbati had already predicted in his commentary on the FBR letter that the non-adjustment matter will land into Court as both are being dealt with by the FBR (especially WWF) to the extent of trans-province entities, as several entities have adjusted/will adjust the WWF against Income Tax Refunds.

The tax and legal expert, Kasbati felt that the change in the FBR stance is owing to the SCP order in CP-1049/2011, etc., dated 27 September 2016, wherein, it has been held that the WWF is not tax.

However, he stated that in addition to the matter discussed by the legal counsel before that Court, he opined that it can also be argued that if FBR Inland Revenue has the tax refund to be paid (but not paid) on the one hand and WWF is receivable on the other hand; and same Inland Revenue is responsible for tax refund and the WWF collection, hence, it is not justifiable to disallow adjustment by the FBR.

Copyright Business Recorder, 2021