2002 PLP 1500 (PTD)

8. As respects the factual and legal position, as presented by the two sides, it emerges that there is no dispute as to the quantum and validity of the aggregated refund in the three. years 1975‑76 to 1977‑

78. In fact, the same was duly issued on 21‑9‑2000. The dispute hinges on the issue of admissibility of compensation under the provisions of section 102 of the Income Tax Ordinance. The respondent's point of view is that (i) there should be a nexus between the order of the Court and the emergence of the refund, and (ii) compensation for delayed payment is payable under section 102 only on refund due for which the starting date is to be determined with reference to clauses (a), (b), and (c) of subsection (1) of section‑

102. Here the Department places the complainant's case in clause (c) of section 102(2) complainant however, insists that the Indian verdict relied upon by respondent is not applicable being irrelevant and that their case qualifies for as per clause; (a) of subsection (2) of section 102.

9. It is interesting that the verdict in the judgment of the Indian Jurisdiction was on identical facts. The appeal in that case was for the assessment year 1971‑72, and the Assessing Officer did not pass the revised order, giving effect to the order by the Tribunal and, as a consequence, the unabsorbed losses/allowances to be carried forward were not computed. Had the order been revised for the assessment year 1971‑72, assessee would have immediately become entitled to claim adjustment in the assessment year 1973‑

74. Appeal‑effect was finally given by the Assessing Officer after 29 months in respect of the assessment year 1971‑72 whereafter the higher amount of unabsorbed allowances were carried forward and set off in the year 1973‑

74. The learned judges .of the Delhi High Court on these facts ruled: "The Tribunal's order was only in respect of the assessment year 1971‑72 and no refund is actually due to the petitioner in respect of the assessment year 1971‑72 pursuant to the order having been passed by the Tribunal" and further "that section. 242 of the Act would apply when there is a direct nexus between the order in appeal and the payment of refund".

10. For the resolution of the issue in dispute, it appears necessary to analyze the provisions of section 102 of the Pakistan Income Tax Ordinance, which are reproduced hereunder: "

102. Additional payment for delayed refunds.‑‑‑(1) Where a refund due to an assessee is not paid within three months of the date on which it becomes due, there shall be paid to the assessee, a further sum of the amount of refund from the expiration of the said three months up to the date on which the refund order is made. (2) For the purposes of this section, a refund shall be deemed to have become due.‑‑ (a) in any case where the refund is required to be made in consequence of any order on an appeal or a revision or to the High Court or an meal to the Supreme Court, on the date of receipt of such order by the Deputy Commissioner; (b) in any case to which subsection l5) of section 99 applies, on the thirtieth day of June of the financial year next following the date on which the application for refund was made; and (c) in other cases, on the date on which the refund order is made." (Here underlined, for emphasis): As per words underlined hereinabove, it appears that clause (a) would apply when refund is required to be made in consequence of an order on an appeal or revision. In the present case, the order in appeal before the Supreme Court was for the years 1974‑75 and not the subsequent years. Another point to be considered is whether a writ petition is to be equated with an appeal or reference as referred to in clause (a). It may be recalled that vide Finance Act, 1997 the words "or an appeal to the High Court or the Supreme Court" were replaced for the words "or a reference to the High Court or an appeal to the Supreme Court". This was in consequence of the change in the procedure to approach the superior Courts, because prior to 1997 the jurisdiction of the, superior Courts could be invoked only to seek opinion on a question of law which was to be formulated by the Tribunal and referred for the opinion of the High Court against which an appeal could be filed to the Supreme Court. In 1997, section 136 of the Ordinance was substituted so as to make an appeal to lie to the High Court in respect of any question of law arising out of an order under section

135. It is, therefore, evident that in clause (a) of section 102(2), the reference to an approach to the superior Courts relates to a procedure prescribed under sections 136 and 137 of the Income Tax Ordinance and not to a Constitutional jurisdiction to be invoked under Article 199 of the Constitution of Pakistan. The applicability of the clause (a), therefore, appears to be completely ousted. In the present case, claim for refund for the years 1975‑76 to 1977‑78 has not become due "in consequence of an appeal to the Supreme Court" because these years were not before Supreme Court which pronounced its judgment, dated 4‑4‑1993 (ibid) on a writ petition relating to assessment years 1974‑75 only. Therefore, the complainant's case is, not covered by clause (a) of subsection (2) of section 102 nor does it fall under a situation contemplated by clause (b) of subsection (2) of section 102 of the Ordinance. This leaves the residuary clause (c) relating to "other cases", such as refund which may arise due to writ petition or any other situation resulting in over‑payment by a taxpayer. For such categories the law specifically lays down "refund shall be deemed to have become due on the day on which the refund order is made". Thus compensation to the complainant at 15% is allowable in terms of section 102(2)(c) of the Ordinance read with section 166(2)(1) and not under the clause (a) of section 102(2).

11. It is regrettable that the officers of the Department never cared to examine the record carefully although the Supreme Court had delivered, a landmark decision involving huge revenues and affecting a large number of taxpayers. Even those having rudimentary knowledge of the Income Tax Law fully well know that an order by the Commissioner, when pronounced on a revision petition under section 138 of the Ordinance, has finality and no further appeal to the Appellate Tribunal and subsequent reference to superior Courts is possible. Therefore, any approach to the superior Courts could be only through a writ petition which fact was strikingly apparent from the very title of the above referred judgment which was widely reported in tax and law journals. Moreover, in the opening paragraph of the judgment, the Supreme Court itself mentioned this fact. Had due regard and respect been shown to the judgment, the Commissioner should have either revised his earlier order passed under section 138 or should have passed a fresh order under that very section directing implementation of Supreme Court decision. The so‑called confusion as how to give effect to the above judgment is ascribable to ignorance of law or proper application of mind. Since the petition had not passed through an appellate/reference process, the Appellate Tribunal did not come into picture for action under section 137 of the Ordinance. Another instance of issuing instructions without proper scrutiny of facts is evident from C.B.R.'s letter, dated 18‑9‑2000 whereby the Assessing Officer was directed to issue "out of turn refund" for the assessment year 1974‑

75. Since there was no refund due in the assessment year 1974‑75, the panel could still adhere to the earlier instructions to issue refund in chronological order for years 1975‑76 to 1977‑78, in which refund was due and was the subject of the controversy. Luckily for the complainant Assessing Officer was wise enough not to do so. The foregoing lapse and acts of omission or commission squarely fall under the definition of "Mal-administration" obtaining at section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

12. Despite the above legal limitation on the compensation, it is hard to ignore that considerable sum of money belonging to the complainant remained locked up in controversy for over several years. The thorny issue was as how to deal with assets left by Pakistan Citizens in the territory now called Bangladesh. As can be easily seen, the dispensation by the CIT (Revision) was confirmed by the High Court. Therefore, when the Supreme Court vacated the High Court order, holding that the benefit of section 10(2)(vii) of Repealed Act was to be given to the complainant/assessee, right course should have been for the C.B.R. to direct that in all such cases as were not "past and closed transactions" the C.I.Ts. should suo motu pass orders under section 138 of the Ordinance. Such an order by the C.B.R. could provide prompt relief to taxpayers throughout Pakistan. Even at the Zonal level, particularly in the case‑in‑hand, had the CIT acted vigilantly, and. dutifully, he should have either modified his earlier order or should have passed a fresh order under section 138 for which no time limit is prescribed in law. The mal-administration' now noticed, would have been avoided.

13. Looking at the controversy from another angle it is found that the claim falls for consideration under clause (i) of section 166 of the Income Tax Ordinance which reads as under:‑‑ "Where in respect of any assessment completed before the commencement of this Ordinance.....any refund fails due after such commencement, the provisions of section 102 of this Ordinance ....shall apply." (Here underlined, for emphasis). It is at once discernible that this provision does not envisage that the refund should be "in consequence of any order on appeal or a revision or reference to the High Court or on an appeal to the Supreme Court". Obviously any situation under which 'a refund falls due, such as a decision on a writ, is fully taken care of by section 166(2) (1). This brings us back to determine the date on which the "refund shall be deemed to have become due" in terms of section 102(2). Since the residuary situation conceived by section 166(2)(1) does not fit in clauses (a) and (b) of section 102(2), it has to be placed under the residuary clause (c) relating to "other cases" where the commencement date for the calculation of compensation has to be three months after "the date on which the refund order is made". The refund order (both sides agree) was passed on 24‑5‑2000 and hence the compensation at the prescribed rate of 15 % is to be paid from 25‑8‑2000 to 21‑9‑2000.

14. The upshot of the foregoing appraisal of legal and factual aspects is that there being no nexus between the order by the Supreme Court and the refunds for the succeeding three years of 1975‑76, 1976‑77 and 1977‑78, the complainant is entitled to compensation under clause (c) of section 102(2) of the Ordinance. At the same time it has to be recognized that a long delay occurred in modifying assessments for these three years, to bring these in line in the Supreme Court judgment, which resulted in blocking up considerable sums of money which if given back to complainant at the appropriate time would have had much real value. The money remained with the Government for no fault of the complainant/assessee but due to "mal-administration" by functionaries of the C.B.R. Therefore, to meet the ends of substantial justice and to compensate them for the loss which they suffered in the meantime, the Revenue Division is to be called upon to show cause under section 22(1) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000, as to why consolidated compensation at Rs. 200,000 (Rupees two‑hundred thousand only) be not awarded to the complainant. It may be appropriate to recall that several financial statutes prescribe compensation as a matter of public policy and Income Tax Ordinance is no exception. Consequently wherever a taxpayer's money is retained for unduly long periods at the behest of the Government or mal-administration of the Revenue Division or tax employees, depending on the facts and circumstances compensation may be claimed. In the present case, compensation under section 22 of the Ordinance cannot be granted.

15. It is recommended: (a) Complainant, be paid compensation for delayed payment of refund @ 15 % per annum from 25-8‑2000 to 21‑9‑2000. 1

16. The C.B.R. to report compliance within 30 days of the receipt of this Order. S.A.K./235/FTO Order accordingly.