2012 PLP 554 (PTD)

7. As the applicant in the meanwhile continued to send repeated representations through e-mails to the F.B.R., the Chief (ITP), F.B.R., through Letter No.1(25)WHT/2009 dated 26th April, 2011, clarified that "the matter has been examined again and it is ruled in supersession of earlier instructions issued through Circular No.6 of 2009 that the tax deducted on payments made for rendering or providing of services is to be treated as minimum tax and the taxpayers falling in the ambit of section 153(1)(b) of the Ordinance shall file return of income instead of a statement under Final Tax Regime." Additional Secretary, Revenue Division, also clarified through statement published in daily Business Recorder dated 28-4-2011 that "every person whether a company, Association of Persons (AOP) or individual providing or rendering services will pay minimum tax @ 6% under section 153(1)(b) of the Ordinance."

8. Commenting on the prevalent confusion on the issue, the applicant felt that F.B.R. functionaries were either not fully aware of the changes made in section 153 of the Ordinance, 2001, through the Finance Act, 2009, or were wrongly interpreting the law with ulterior motives. He further alleged that the functionaries of F.B.R. by not taking the applicability and enforcement of law seriously were quality of negligence, inattention and arbitrariness in the discharge of their duties and responsibilities.

9. The complaint was sent on 8-6-2011 to the Secretary, Revenue Division, for comments. In response, Mr. Muhammad Imtiaz, Secretary (Withholding Tax), F.B.R., filed comments through F.B.R's. Letter C.No.4(577)/TO-I/2011 dated 18th June, 2011, which were sent to the applicant for rejoinder, if any. The applicant filed a rejoinder on 4-7-2011, stating that the F.B.R. had accepted that Circular No.6 of 2009 dated 18th August, 2009 was issued solely to benefit some blue-eyed taxpayers who obtained exemption certificates and avoided the deduction of 6% minimum withholding tax on their gross receipts. The applicant also claimed that F.B.R. had deliberately avoided to comment on the issues raised and had wrongly construed that the applicant wanted to claim any refund.

10. During the hearing, the applicant contended that the functionaries of the F.B.R. had deliberately mis-interpretered the provisions of section 153 of the Ordinance as emended by the Finance Act, 2009. They had issued Circular No.6 of 2009 and the exemption certificates in order to benefit certain taxpayers. In support of this allegation, he contended that a report was published on 28-4-2011 in the widely circulated Business Recorder that the concerned F.B.R. functionaries had made a commitment with mobile phone companies to change the withholding tax regime of minimum tax @ 6% into an adjustable tax regime. He maintained that all the telecom operators/ cellular companies were doing businesses of several hundred billion rupees but were continuously showing operational losses. The applicant apprehended that by making the minimum withholding tax @ 6% of gross receipts as an adjustable tax, the public exchequer would be bearing a colossal loss of revenue as all the mobile telephone companies would claim refund of the withheld amount of tax.

11. The applicant requested that F.B.R. be directed to initiate disciplinary proceedings against its functionaries who had issued exemption certificates and Circular No.6 of 2009. He also requested that loss of revenue had to be recouped either by amending the tax return form for Tax Year 2010 or by asking the taxpayers providing services to file revised returns on the new return form prescribed for Tax Year 2011. The applicant also contended that many taxpayers particularly cellular companies were still sending bills/invoices with a note that they were exempt from withholding tax deductible @ 6% on gross receipts. Resultantly, no tax was being withheld by many recipients of services causing a huge loss of revenue.

12. The DR, Mr. Asif Rasool, Secretary, F.B.R., raised legal objections by stating that the Hon'ble FTO was not competent to decide the cases on the basis of applications for suo moto investigations in the public interest. He, however, admitted that the applicant had raised valid objections and stated that the mistakes made by F.B.R. were later rectified through clarificatory letters. He stated that the income tax return form for the year 2010 could not be legally amended/re-issued as the benefit once given could not be withdrawn with retrospective effect. The DR also claimed that the F.B.R. was considering other alternatives to recoup the loss of revenue caused due to wrongly issued exemption certificates, Circular 6 of 2009 and faulty income tax return form for the year 2010.

13. Dr. Muhammad Iqbal, Chief (ITP), F.B.R., who also appeared as DR, admitted the maladministration by functionaries of F.B.R. in issuing self-contradictory instructions and Circulars. The DR stated that many taxpayers had challenged the withdrawal of Circular No.6 of 2009 dated 18-8-2009 in the Lahore High Court, Lahore, and the matter being sub-judice was out of the jurisdiction of Hon'ble FTO in terms of section 9(2) of the FTO Ordinance, 2000.

14. The averments made and record produced has been examined. It is an admitted fact that the F.B.R. through its letter C.No.1(6)WHT/2009 dated 4th July, 2009, had issued guidelines to all the Director Generals of LTUs/RTOs in the country. The F.B.R. also placed income tax return form (IT-2) with built in tax computation facility for the year 2010 on its web portal which calculated the tax on service sector as "minimum tax". The income tax form prescribed by the F.B.R. for tax year 2011 and placed currently on its web portal also calculates the withholding tax deducted from the service providers as a minimum tax.

15. The above clarifications circulated by the F.B.R. to its field formations are sufficient proof that the amendment made in section 153 of the Ordinance through the Finance Act, 2009 ousted all the NTN holders whether individuals, AOPs or Companies providing services from Normal Tax Regime (NTR)/Final Tax Regime (FTR) and brought them under the Minimum Tax Regime (MTR). The exemption certificates issued by the Commissioners on the request of some corporate taxpayers prior to issuance of Circular No.06 of 2009 dated 18-8-2009 were withdrawn when the legal position was explained to the concerned Commissioners by the applicant. Prima facie, it seems that the corporate sector providing services thereafter approached the F.B.R. and Circular No.6 of 2009 dated 18-8-2009 was then issued, ousting the corporate sector from Minimum Tax Regime of amended section 153 of the Ordinance without withdrawing the Board's earlier clarifications issued through it letter dated 4th July 2009 and Circular No.3 of 2009 dated 17th July, 2009.

16. The Exemption Certificates clearly were wrongly issued in the month of July, 2009, when changed position of applicability of section 153(i)(b) was clear. Clarification issued vide F.B.R.'s Circular/ Letter C.No.1(6)WHT/2009 dated 4-7-2009 and Circular No.03 of 2009 dated 17-7-2009 were not followed while issuing these Exemption Certificates. Moreover, an ambiguous clarification was issued through Circular No. 6 of 2009 dated 18-8-2009 which was withdrawn on 26-4-2011.

17. The objections raised by the DR regarding the matter being sub-judice in the Lahore High Court, Lahore, or regarding the jurisdiction of Hon'ble FTO to investigate the complaint in public interest are not legally tenable. No evidence has been submitted to prove that the issue was sub judice before the Hon'ble Lahore High Court, Lahore, prior to the filing of application by the applicant. Section 9(1) of the FTO Ordinance, 2000, empowers the Hon'ble FTO to investigate, on his own motion, any allegation of maladministration on the part of the Revenue Division or any tax employee.

18. The DRs have admitted that the public exchequer suffered losses because of issuance of Circular No.6 of 2009 dated 18-8-2009 and the Exemption Certificates issued by the Commissioners of Inland Revenue all over Pakistan. No measures were taken by F.B.R. to recoup the losses which according to the applicant were several billion rupees because the corporate taxpayers were still issuing bills to their customers with a printed note that they were exempt from the deduction of withholding tax and the same was not being deducted by many service recipients. Findings:

19. In view of above, it is clear that the F.B.R.'s Circular No. 6 of 2009 dated 18-8-2009 was wrongly issued and the Commissioners Inland Revenues Issued Exemption Certificates contrary to law and in departure from F.B.R.'s earlier clarifications, which is tantamount to mal-administration as defined under section 2(3) of the FTO, Ordinance, 2000. Recommendations:

20. F.B.R. to-- (i) initiate appropriate action against officials who approved/issued Circular No.6 of 2009 dated 18-8-2009; (ii) initiate appropriate action against officials who issued Exemption Certificates to unduly benefit the corporate entities; (iii) ascertain the particulars and the amount of tax not withheld @ 6% from each service provider; (iv) take immediate measures to recover the loss of revenue, as per law; (v) direct the concerned officials to take suitable action to ensure that the taxpayer, including the cellular companies, issue bills/invoices without reference to exemption from withholding tax; and (vi) report compliance within 60 days. C.M.A./284/FTO Order accordingly.