2012 PLP 475 (PTD)

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).

This complaint is against illegal deduction of withholding tax on profit realized on the joint accounts of the complainant and his family members, at the time of encashment of Defense Saving Certificates (DSCs).

2. The complaint pertains to income tax withholding under section 151 of the Income Tax Ordinance, 2001 (the Ordinance), by the Directorate of National Savings, which the F.B.R. functionaries are required to monitor under the Ordinance.

3. The complainant and his immediate family members (wife, sons and daughters) held DSCs of the value of Rs.1.75 million in seven joint accounts maintained in different branches of the Directorate of National Savings, Lahore. The DSCs were encashed in May and June 2011, and the profit thereon subjected to tax withholding @ 10%. The complainant contends that the tax withholding was unjustified as the DSCs held in each account were within the exemption threshold laid down in the Ordinance.

4. When confronted, the Deptt. filed a reply stating that the tax withholding rate on profit on debt under the Ordinance was 10%. Deposits below Rs.150,000 were exempt from withholding tax under the Second Schedule to the Ordinance. As the complaint was against officials of the Directorate of National Savings, the Deptt. was not concerned in the alleged improper deduction of withholding tax at the time of encashment of DSCs held by the complainant and his family members.

5. The matter has been examined. So far as the statutory position with regard to tax withholding on profit on debt is concerned, tax is required to be withheld @ 10% under section 151(1)(a) of the Ordinance since Tax Year 2003, and the same constitutes final discharge of tax liability. The complainant purchased the DSCs in his own name and the names of his family members in Tax Years 2003 and 2004. The exemption threshold for profit on debt specified in the Ordinance has since been Rs.150,000 as per Clause (59), Part-IV, of the Second Schedule to the Ordinance. Prior to Tax Year 2003, the exemption threshold was Rs.300,

000. Tax was therefore required to be deducted at source at the time the complainant and his family members encashed their DSCs, except for the joint account of Arfan Hussain and Mumtaz Hussain maintained at the National Savings Centre Branch at Mughalpura, being less than Rs.150,

000. Findings:--

6. While tax has been correctly withheld by the Directorate of National Savings, the Deptt's contention that it had no concern with the matter is not correct. The Deptt is responsible to monitor the tax withheld by the Directorate of National Savings, or for that matter any withholding agent, on a regular basis. It is also the Deptt's responsibility to provide the required guidance to the withholding agents with regard to correct application of the relevant provisions of the Ordinance. Recommendations:

7. F.B.R. to - (i) issue instructions to concerned officials to monitor tax deductions by withholding agents; (ii) provide necessary guidance to the withholding agents; and (iii) report compliance within 30 days. C.M.A./287/FTO Order accordingly.