2005 PLP 952 (PTD)

The complainant is aggrieved by deduction of withholding tax amounting to Rs.1,30,000 on Flexi deposit certificates. The facts of the case are briefly stated as under:--

2. The complainant was maintaining US$ saving A/C with Citibank NA Karachi till May, 1998 when it was declared frozen by Government of Pakistan. He therefore, encashed the foreign currency Account on 21-7-1998. The complainant invested 13,00,000 (Rs.1.3 Million) in Habib Bank AG Zurich, Flexi Deposit Certificates at Clifton Branch on 12-3-1999 with the understanding that the Government had exempted all Pak Rupee Accounts created from encashment of frozen foreign currency Accounts from withholding tax. The complainant on requisition submitted the original encashment receipt for endorsement on its back so that it could be notified to the authorities for confirmation.

3. It is stated that when the complainant approached Habib Bank AG Zurich Clifton Branch for encashment of certificates on maturity, he was shown a letter from Government of Pakistan Revenue Division stating that the exemption of withholding tax was allowed only to first investment and since he had invested the amount on 12-3-1999 after eight months delay from the date of encashment on 21-7-1998, the investment did not qualify for exemption from withholding tax under the instructions issued by the Revenue Division, Government of Pakistan, dated 28-5-2002. A photocopy of Board s letter has been furnished in this regard. It is alleged that although he was entitled for exemption from withholding tax but an amount of Rs.1,30,000 was deducted unlawfully on the instructions of the C.B.R. It is also alleged that he requested the Secretary Exemption C.B.R., Islamabad, vide his letter, dated 11-3-2004 to restrain the Bank from deducting the withholding tax unlawfully on the basis of Board s aforesaid Circular, but no reply was received from the C.B.R. till the date of filing the present complaint on 16-4-2004. The complainant has prayed for redressal of his grievances by declaring the deduction of withholding tax amounting to Rs.1,30,000 as illegal.

4. The respondents have forwarded the parawise comments prepared by the Secretary (Exemption) C.B.R. it is pleaded that complainant s letter, dated 11-3-2004 was responded by the Central Board of Revenue, Islamabad vide its letter of even number, dated 29-4-2004 through which the complainant was informed that the source of term deposit invested on 12-3-1999 could not necessarily be out of foreign currency account encashed on 21-7-1998 and therefore, the profit on the deposit would be subjected to withholding tax as per C.B.R. s instructions issued vide U.O. dated 28-5-2002. It was also pointed out that the tax so deducted was adjustable against the final tax liability of the complainant from all sources of income. A copy of letter No.4(32) TP-I/90 Pt-I, dated

29. April, 2004 issued by the C.B.R. has also been filed along with the parawise comments. The complainant Mr. Muhammad Mujib Siddiqui has acknowledged the receipt of aforesaid letter, dated 29-4-2004 but stated that the said letter was received by him after filing the complaint with this forum. The complainant pleaded that after encashment of foreign currency on 21-7-1998, he made investment for the first time with Habib Bank Ltd. AG Zurich, Clifton Branch, Karachi and was therefore fully entitled for exemption from withholding tax. He further, stated that the encashment certificate was also endorsed for the first time by the Bank itself to the effect that profit on the deposit was exempt for withholding tax. Mr. Haseeb-ul-Haq, Secretary, Central Board of Revenue reiterated the plea taken in the parawise comments and contended that the onus was on the complainant to prove with evidence that the investment in Flexi Deposit certificates on 12-3-1999 was the first investment after conversion of foreign currency account.

5. The perusal of Board s letter, date 29-4-2004 addressed to the complainant and the parawise comments clearly show that the respondent was not sure in his findings regarding applicability of the relevant provision of Income Tax Ordinance for deduction of withholding tax in the case of complainant. The Secretary, (Exemption) C.B.R. simply expressed his apprehension that the deposit in Flexi Certificates may not be out of foreign currency accounts encashed on 21-7-1998. His observations in this regard are reproduced as under:-- The source of term deposit invested on 12-3-1999 could not necessarily be out of foreign currency accounts encashed on 21-7-1998. Accordingly, profit on debt would be subjected to withholding Tax.

6. The Department Representative during the course of hearing produced a copy of C.B.R. s U.O. No.4(32) TP-I/90-Pt-I, dated 28th September, 2000 which supports the case of the complainant regarding exemption from withholding tax. The relevant extract from the said U.O. is reproduced hereunder:-- It has, however, been decided that where certificates of deposit have been purchased through cheques drawn by the holder on his Foreign Currency Account converted into Pak Rupees Account before 16-12-1999, tax may not be deducted by the National Savings where a certificate is produced from the concerned bank to the effect that the amount was actually withdrawn from the Foreign Currency Account referred to above. The complainant has produced a certificate, dated 26-6-2004 from Vice-President/Branch Manager, of Habib Bank AG Zurich Clifton Branch, Karachi. The Bank has certified that Mr. Muhammad Mujib Siddiqui the complainant deposited Citibank Cheque No.525060 amounting to Rs.13,34,235 on 10-3-1999 which was cleared on 11-3-1999 and on 12-3-1999 he had invested Rs.13,00,000 in Flexi Deposit Certificates issued by the branch. Mr. Haseeb-ul-Haq, Secretary, Exemption, C.B.R. pleaded that the Board s aforesaid letter, dated 28th September, 2000 was issued in response to the clarification sought by the Central Directorate of National Savings vide their letter, dated 28-9-1999 and therefore, the contents of the said letter would not be applicable in the case of the complainant. His observations are absolutely misconceived as the issue involved in the present case, is identical and therefore, Board s decision reproduced above is applicable to the case of the complainant.

7. In view of the facts stated above it is recommended that:-- (i) The C.B.R. to direct the taxation officer concerned to decide the case of the complainant regarding his claim of refund of withholding tax deducted under section 50(2A) of the repealed Income Tax Ordinance, 1979 in the light of Board s clarification, dated 28-9-2000 and resultant refund if any be issued within 30 days of the receipt of this order. (ii) Compliance be reported within a week after implementing the above recommendation. C.M.A./337/FTO Order accordingly.