ISLAMABAD: The Supreme Court of Pakistan has held that the taxpayer cannot be compelled to produce the record for a tax year beyond the period of six years under the Income Tax Ordinance 2001.
In an order in the matter of Civil Petition No 1691-L of 2018 filed against the orders of Lahore High Court (LHC) by the Federal Board of Revenue (FBR), the apex court has held that a taxpayer is obliged to maintain the record under section 174(3) of the Income Tax Ordinance for a period of six years and the taxpayer cannot be compelled to produce the record for a tax year beyond that period.
Hence, notices issued under section 165(2B) or 161(1A) of the Ordinance, being ineffective and unenforceable, were rightly set aside by the LHC.
The SC, therefore, endorsed the view expressed in the Maple Leaf case by the LHC, where a similar question had come up before the court. The SC has also examined the bank’s case which holds that the department can override the timeframe under section 174(3) by justifying the delay in initiating the matter against the taxpayer and held to be inconsistent with the provisions of law.
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The petitioner (Commissioner Inland Revenue, Zone-IV, Lahore) sought leave to appeal against the order dated March 5, 2018 of the LHC, whereby the notices issued to the respondent taxpayer (M/s Panther Sports and Rubber Industries (Pvt) Ltd) in the years 2017 regarding tax years, 2007 and 2009, seeking statements under section 165 of the Income Tax Ordinance, 2001 (“Ordinance”), reconciliation statements under Rule 44(4) of the Income Tax Rules, 2002 (“Rules”) and recovery of tax under section 161(1A) of the Ordinance were set aside on the ground that a taxpayer cannot be asked to furnish record beyond the period of six years after the end of the tax year to which it relates, as provided under Section 174(3) of the Ordinance.
The taxpayer challenged the said notices through a constitutional petition before the LHC. The High Court allowed the petition and set aside the notices.
The SC’s judgement said that a taxpayer, under the law, is to retain tax records under section 174(3) of the Ordinance, read with Rule 29(4) of the Rules, for a period of six years after the end of the tax year to which they relate.
The section 174(1) binds a taxpayer to maintain such accounts, documents and records as may be prescribed. Rule 29(1) of the Rules provides a list of such records. Subsection (3) of Section 174 makes the duty of the taxpayer to maintain the records for a period of six years. Rule 29(4) reiterates the same timeline.
The SC further held that Section 174(3) of the Ordinance read with Rule 29(4) of the Rules is clear and leaves no room for any such departmental justification, which in any case cannot deprive the taxpayer of the statutory protection under Section 174(3) of the Ordinance.
The SC, therefore, does not support the view expressed in Habib Bank as they have not been able to find any statutory support for the conclusion arrived at in the said case.
It is also useful to draw attention to Section 214A of the Ordinance which specifically deals with “condonation of time limit”. Perusal of the said provision shows that it applies where there is a time limit provided in the provision, which is not so in the case of Sections 161 and 165 of the Ordinance. Further, Section 214A deals with “any act or thing to be done” within a timeframe. Section 174(3), on the other hand, does not require any act or thing to be done in a particular timeframe but quite on the contrary provides that after a lapse of a period of six years, the taxpayer shall not be obligated to maintain its tax records.
Therefore, Section 214A has no application to the present case and cannot be invoked to deprive the taxpayer of the statutory protection under section 174(3) of the Ordinance, the Supreme Court’s order added.
Copyright Business Recorder, 2022