As per the provisions of the Income Tax Ordinance 2001, hereinafter to be known as the Ordinance,1 the Commissioner of income tax has been authorised to:
a) Call for an information which is relevant for the levy of tax under the income tax law;
b) Force attendance of a person for testifying on oath regarding the tax affairs and to provide accounts, documents or computer stored information;
c) Obtain any information, and production of records for the purpose of carrying out an audit through a firm of Chartered Accountants;
In addition, the Commissioner is empowered to:
I. Impound accounts or documents in order to have access for the purpose of audit.
II. The information required can be furnished by the concerned person either electronically or in the form of documents.2
It may, however, be noted that these provisions are embodied in part VIII of the Income Tax Ordinance, 2001 which relate to records, information collection and audits.
In order to understand the scope and intent of the said provisions, it will be better to look into the provisions of chapter VIII of the Ordinance, as a whole. The said chapter consists of four sections,3 and the provisions contained therein provide directions for the tax payers for the maintenance of records,4 and confer powers on the tax officials to inspect, search,5 and to call for information6 from the tax payers in order to conduct audit.7
The said provisions have also conferred powers of investigation along with audit to Commissioner in respect of persons who are taxable and submit their tax returns. The purpose is to verify whether or not records have been maintained properly and compliance of tax laws has been made fully.
It appears that intention of the legislature is to make the tax department more watchful with regard to possible tax evasion, and to verify the veracity of existing records of the tax payer and to seek information to conduct audit. In this background the Commissioner can call for information from any person, notwithstanding the fact that he is liable to tax under the Ordinance.
The word 'any person' used in section 176 of the Ordinance is of primary importance, the same is not restricted to tax payers rather it applies to any person whether or not he is a tax payer.8 The purpose of law is very clear from the chapter heading; these provisions have been enacted to confer powers on the Commissioner to obtain and collect information for the purpose of reassessment of the existing income and to oversee the compliance of tax laws where necessary.
The provisions contained in chapter VIII of the ordinance follow a sequence, section 174 is providing for maintenance of records, section 175 is providing for making search and section 176 is authorising the Commissioner to call for information. The authority has been bestowed to call for information from any person and section 177 provides for carrying out the audit of tax assessment.
In other words, whereas a consequence of non-maintenance of records or faulty records, the premises of the taxpayer is searched and for the purpose of inquiry any information is needed, the authorised officer can call for information for the purpose of audit and investigation.
In order to carry out functions under chapter 8 of the ordinance, presence of a number events are necessary, that is, the search is carried out to investigate whether or not tax payer is maintaining proper records, and where necessary to carry out investigation and to take appropriate measures to conduct audit to ensure compliance of the provisions of Ordinance. In absence of these conditions, powers under section 174 cannot be exercised. And if any information is called for in absence of pending proceedings, the action would amount to a roving or fishing inquiry.
In order to call for an information, the notice must state the object and purpose including the details of suspicion and allegations and the same must be intimated or disclosed to the tax payer to enable him to have an opportunity to produce relevant documents, and where notice served on a party fails to disclose reasons and motive of such notice including the objectives, purpose and reasons for suspicion to conduct inquiry, the inquiry would be roving and fishing and not authorised by law.9 Where these powers are exercised by an authority who has been designated as Commissioner, the requirements and limitations discussed above shall ipso facto apply. And any deviation from the said requirements will make such proceedings ab initio illegal and void.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)
1. See the provisions of Section 176 of the Income Tax Ordinance, 2001.
2. For to exercise these powers, the Commissioner has been conferred the powers of a civil court to enforce attendance, compelling the production of accounts and records etc, to receive evidence and making Commissions for examination of witnesses.
3. Chapter VIII of Income Tax Ordinance 2001 consists of Section 174, 175, 176 and 177.
4. See Section 174
5. See Section 175.
6. Id
7. See Section 177
8. In R v Rowlands, 8 Q.B.D, 530, the use of the word, 'any person' used in UK's Debtors Act 1869 was interpreted as not restricted to the case of bankruptcy and applied to any person whether bankrupt or not.
9 Assistant Director, Intelligence and Investigation vs. M/s BR. Herman, PLD 1992, S.C.485.