Return of Income

2021 PTD 157 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.114Return of incomeDeduction of expensesScope

Question before Appellate Tribunal was whether the appellant was entitled to get set off/deduction of any expenses from his professional services receipts

Validity

Appellant had rightly claimed expenses

Tax returns were lawfully filed under normal tax regime which had to be assessed under normal tax by allowing expenses to the extent as were admissible and verifiable on the basis of details and documents filed during the course of assessment proceedings

Appellant had placed the details/documents before the Appellate Tribunal and after going through the headwise claim of expenses supported by valid and lawful documentary evidences, Appellate Tribunal held that both the officers below had wrongly rejected the claim of expenses

Appellant was required to be allowed profit and loss expenses at forty percent of the claimed expenses for all three years under review

Appeals succeeded accordingly.

2019 PTD 1238 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 114(5) & 122-CReturn of incomeShow-cause notice, issuance ofLimitationCompleted tax yearDuration

Taxpayer assailed show-cause notice issued by authorities on grounds that it was time barred due to conclusion of tax year well before issuance of notice

Validity

Relevant tax year could not be considered complete, for purposes of S. 114(5) of Income Tax Ordinance, 2001 on last day of next financial year or on date prescribed in terms of S. 118(2)(b) of Income Tax Ordinance, 2001 as same was illegal

Time would not run from date of default when return of income had to be normally submitted but to be reckoned from 30th day of June, for which period return of income had to be submitted but was not done

Interpretation put forward by authorities was erroneous and based on misapplication of law

High Court declared notice issued under S. 114(4) of Income Tax Ordinance, 2001, show-cause notice under S. 122-C of Income Tax Ordinance, 2001 and consequent orders as issue/passed without lawful authority, beyond limitation and of no legal effect

Constitutional petition was allowed in circumstances.

2019 PTD 1264 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 122C & 144Return of incomeAmendment of assessment for non-furnishing of returnProcedure and verification by department

Taxpayer impugned order passed by department under S. 122C of the Income Tax Ordinance, 2001 inter alia, on the ground, that the same had been passed without taking into consideration response of taxpayer to show-cause notice

Validity

Impugned order had been passed on misconceived facts and without taking into consideration response of the taxpayer pursuant to show-cause notices issued under Ss. 114 & 122C of the Income Tax Ordinance, 2001 and the return filed by taxpayer / petitioner for the relevant tax period

High Court observed that the Department, instead of passing impugned order, could have verified from its record whether the petitioner had actually filed returns or not, and said impugned order which was passed ex parte had no factual or legal justification

Impugned order was set aside

Constitutional petition was allowed, accordingly.

2019 PTD 1317 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 115, 114, 169 & 120Persons not required to furnish a return of incomeReturn of incomeTax collected or deducted as a final taxAssessmentsScope

Filing of income tax return and of statement are two different regimes and run parallel to each other and in case a person is obliged to file his statement merely in terms of S. 115(4), he stands discharged with regard to his tax liability

No clear intent of the legislature with regard to the two categories of persons; one category was to file return of income and the other were required to file a statement in terms of S. 115(4) in case of final tax

By fiction also, the assessment made under S.169 shall be treated to have been made under S. 120 and the person shall also not be required to furnish a return of income under S. 114 for the tax year.

2019 PTD 1317 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 169, 115, 114 & 154Income Tax Rules, 2002, Rr. 34 & 39Tax collected or deducted as a final taxPersons not required to furnish a return of incomeReturn of incomeExportStatement in lieu of Return of incomeScope

Section 169(3) provided that where all the income derived by a person is subject to final taxation, he is not required to furnish a return of income under S. 114

Assessment under S. 115(4) was to be treated to have been made under S. 120, meaning thereby that person is exempt from filing of return of income under 114 for that tax year

Law itself provides as to what course of action that person will have to take in lieu of filing of return, such action has been enumerated in S. 115(4)

Under S. 115(4) any person who is not obliged to furnish a return for a tax year because all the person's income is subjected to final taxation, inter alia, under S. 154, that person was to furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed

Rules 34 & 39 of Income Tax Rules, 2002 prescribe the different forms in which the return of income and the statement in lieu of return of income have to be filed respectively

Rule 39 refers to statement to be filed by a person where tax deduction is to be taken as a final discharge of tax liability under S. 169.

2019 PTD 1317 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 115, 114, 122, 120, 154 & 169Persons not required to furnish return of incomeReturn of incomeAmendment of assessmentExportTax collected or deducted as a final taxScope

Appellant filed statement in terms of S. 115(4) of Income Tax Ordinance, 2001 declaring export receipts covered under Final Tax Regime for the years 2014 and 2015 respectively

Declared receipts were deemed to be treated as assessment in terms of S. 120(1), Income Tax Ordinance, 2001

Additional Commissioner found that deemed assessments completed were erroneous insofar as prejudicial to the interests of revenue for the reasons communicated through show cause notice

Proceedings were concluded and deemed assessments were amended under S. 122(5A), Income Tax Ordinance, 2001; total income for tax years 2014 and 2015, subject to normal tax and capital gains, was assessed at the rate of 10%

Validity

Appellant exported 100% of its textile products after getting manufactured, as such, was under legal obligation to furnish the statement in terms of S. 115(4) instead of filing normal tax return under S. 114

Under S.115(4), such particulars in such forms and verified in such manner as prescribed on the basis of liability determined under S. 154 were to be declared as the deduction of tax so made was the final taxation under subsection (4) of S. 154 and the statement filed under subsection (4) of 115 was to be taken for all purposes of Income Tax Ordinance, 2001 to be an assessment order in terms of clause (b) of subsection (3) of S. 169

Authorities below had misinterpreted and misconstrued subsection (3) of S. 169

Section 169 merely referred that where all the income driven by a person was subjected to final taxation under subsection (1) or under Ss. 5, 6 & 7, the person was not required to furnish a return of income under S. 114

Said assessment had to be treated as having been made under S.120

Legislature by its wisdom added the word "and" in between the two phrases; one that "the person shall not be required to furnish a return of income under S. 114 of the Ordinance for the year" and the other "an assessment shall be treated to have been made under S. 120 of the Ordinance"

Both were injunctive and not disjunctive phrases and none could be read in isolation

Subsection (3) of S. 169 simply envisaged that the statement filed under S. 115 had to be taken as an assessment order under S. 120 without requiring the normal income tax return

When Ss.120 & 122 were read together, it became manifestly clear that only the order passed under S.120 was to be amended on complete and valid return and not otherwise; therefore, it did not mean that before proceeding under S. 122(5) or (5A), normal return of income was not required

If it was so then how come a deemed assessment, made under S. 120 on the basis of a statement filed under S. 115, could be held to be erroneous and prejudicial to the interest of revenue, until and unless the person furnished his manufacturing and profit and loss account or income and expenditure statement and balance sheet and also declared his taxable income

Invocation of proceedings under S. 122(5A) in the present case were illegal and also without lawful authority

Orders passed by authorities below were cancelled/annulled by the Tribunal

Appeals were allowed.

2019 PTD 1317 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 120, 114 & 115AssessmentReturn of incomePersons not required to furnish a return of incomeScopeSection 120 has its genesis in and relates to the filing or failure thereof of a return of income

Subsection (4) of S. 120 merely gives the Commissioner the power to issue notice to the taxpayer in case the return of income furnished is not complete; it presupposes that a person is, in law, required to file a return of income in terms of S. 114

Section 120 relates to the filing of return under S. 114 and the consequences flowing therefrom

Provisions of S. 120 are not relatable to the filing of the statement under S. 115(4)

Section 114 obliges certain persons to furnish a return of income

Section 120(4) does not have any nexus with the provision of S. 115(4).

2016 PTD 268 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 114, 120 & 172(3)Return of incomeNon-residentAssessment without appointing representative/agent of non-resident assesseeEffectAssessee, who was a non-resident, filed return of income declaring 'NIL' incomeNotice for furnishing return of total income was issued to the assessee

Brother of assessee, who simply looked after property of the assessee, filed reply of notice, which was found unsatisfactory

Assessing Officer treating brother of assessee as representative of assesee finalized assessment assessing total income of assessee

Appeal filed by assessee against assessment order, having been accepted, case was remanded to decide the same on merits

Validity

Assessee, being a non-resident, process of his assessment could only be initiated after appointing someone as his representative

Under S.172(3) of Income Tax Ordinance, 2001, such representative could be; if he was employed by, or on behalf of non-resident person; if he had any business connection with the non-resident, and from or through whom non-resident was in receipt of any income, whether directly or indirectly; if he was the trustee of the non-resident; or he was declared by the order of Commissioner in writing to be the representative of non-resident person

Brother of the assessee, who had none of the said qualities, could not be treated as representative of assessee

Finding of Appellate Commissioner that an ex parte assessment order had been made by showing brother of assessee as his representative, was not exceptionable

Appeal was dismissed.

2016 PTD 2522 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss. 117 & 114Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 10 & 2(3)Return of incomeNotice of discontinued businessDeletion of National Tax Number (NTN)MaladministrationScope

Complaint against inordinate delay in deletion of complaint's name from the list of NTN holders and against issuance of notices to complainant for furnishing return of income

Contention of complainant was that despite various applications to the Department intimating closure of business and request for issuance of NOC for deletion of its name from list of NTN holders, no response was forthcoming from the Department and instead notices under S. 114 of the Income Tax Ordinance, 2001 were issued to the complainant for furnishing return of income

Validity

Under S. 117 of the Income Tax Ordinance, 2001 any person discontinuing business was required to give notice to the Commissioner Inland Revenue to the such effect within a period of fifteen days and the complainant, in the present matter, neither disclosed the exact date of closure of business nor furnished any such notice

Department, under such circumstances, had no option except to serve notices to complainant to furnish fresh return of income under S. 117 of the Income Tax Ordinance, 2001

Federal Tax Ombudsman observed however, that the Department had not disposed of the complainant's application, which was the Department's responsibility, in order to enable the complainant to seek further legal remedy and such inattention to the applications of the complainant tantamount to maladministration under S. 2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000

Federal Tax Ombudsman recommended the Department to direct the concerned Commissioner to dispose of the complainant's application for deletion its name from list of NTN holders within a period of 21 days after providing opportunity of hearing to the complainant

Complaint was disposed of accordingly.

2015 PTD 1425 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 114, 120, 121 & 122Return of incomeFiling of revised returnAmendment of assessment

Assessing Authority, formulated amended assessment, wherein not only sales, as declared by the assessee, were enhanced, without any basis, but also made 30% lump sum addition out of Profit and Loss Expenses, simply on the ground that taxpayer had been filing revised returns again and again

Validity

Taxpayer under S.122(3) of Income Tax Ordinance, 2001, had been allowed to file revised return and no restriction had been imposed with regard to the number of times, taxpayer could file revised return

Law had not postulated that adverse inference would be drawn in case revised return was filed more than one time

Section 122(5) of Income Tax Ordinance, 2001, did not empower the Taxation Officer to act whimsically

Lump-sum addition out of Profit and Loss Expenses, could not be made

Impugned order was set aside and amended assessment passed by the Taxation Officer, was cancelled, in circumstances.

2011 PTD 257 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.169(3), 114, 115, 120 & 122Tax collected or deducted as a final taxReturn of incomeAmendment of assessmentFiling of statement was equal' to assessmentScope

Section 169 of the Income Tax Ordinance, 2001 declared tax collected or deducted as final tax in certain situations; and withholding tax charged on the provisions mentioned therein to be as final discharge; it did not protect any other source of income of the assessee which was not covered by the said transaction; which means that the other provisions of the Income Tax Ordinance still remained intact

Under such scheme of law some sources of income had been put under presumptive tax regime and had been declared as final discharge

Law makers through insertion of the words "an assessment shall be treated to have been made under S.120 and" had declared the filing of the statement, equal to an assessment

Said phrase read with complete remaining section i.e. "the person shall not be required to furnish a return of income under S.114 for the year" had made the statement a substitute of the return under S.114 of the Income Tax Ordinance, 2001

Such assessment was treated to have been made under S. 120 of the Income Tax Ordinance, 2001.

2009 PTD 749 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S.114(6)Return of incomeRevision of the return"Omission" or "wrong statement"ScopeScope of "omission" or "wrong statement" was very wide and all encompassing

If a taxpayer, after filing his return, discovers that it was not correct and any part of taxable income had been omitted and not included in taxable income or a "wrong statement" including "wrong statement of accounts" had been filed, he was legally entitled to correct such "omission" or "wrong statement"

Contrary to provisions of Income Tax Ordinance, 1979 the right of revision of return did not abate (during statutory limitation) even after the completion of deemed assessment or amended assessment

Such right continues to remain legally due, even after pointation of any "omission" or "wrong statement" from the department

Law did not stop any taxpayer from revising his return

No bar could be put against the rights of a taxpayer granted to him by the statute

Powers of assessment of income, conferred upon the tax authorities by law, could nevertheless be exercised, in relation to the return so revised by a taxpayer and they were also empowered to declare a return as invalid, if it did not fulfil all legal requirements-Tax authorities could not refuse to accept a revised return, under any circumstances

Additional Commissioner's action of refusal to accept the revised return was legally not correct.

2009 PTD 543 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S. 114(4)Return of incomeFinance Act (II of 2004), PreambleAssessment year 2002-2003

Contention was that assessment order passed on 30-6-2006 for the assessment year 2002-2003 was not sustainable, because it was based on a void notice under S.114(4) of the Income Tax Ordinance, 2001 issued on 12-6-2004, whereas notice under S.114 (4) could not be issued in respect of an `assessment year' prior to promulgation of Finance Act, 2004

Validity

Held, that issuance of notice under S.114 of the Income Tax Ordinance, 2001 and the superstructure based thereon was legally justified

Departmental action was confirmed by the Appellate Tribunal.

2008 PTD 1625 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S.114(4)Return of incomeAssessment year 2002-2003

Words "assessment year" were not available in the statute on the date when the notice under S.114(4) of the Income Tax Ordinance, 2001 was issued by the Taxation Officer on 31-1-2004

Subsequent proceedings thus were nullity in the eyes of law.

2008 PTD 1625 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

Ss. 114(4) & 121Return of incomeNotice under postal certificate

Statutory notice under S.114(4) and S.121 of the Income Tax Ordinance, 2001 were sent under postal certificate without acknowledgements and there was no evidence that the notices were served upon the tax payer which clearly showed that the income had been determined without associating the taxpayer

In absence thereof assessment so framed was arbitrary and unjustified.

2008 PTD 1625 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

Ss. 114(4) & 121Return of incomeBest judgment assessmentLimitationNotice was issued on 31-1-2004 under S.114(4) of the Income Tax Ordinance, 2001

Assessment was to be framed on or before 30-6-2006 whereas the assessment was framed under S.121 of the Income Tax Ordinance, 2001 on 5-6-2007

Such order was without jurisdiction and void ab initio being time-barred and legally not sustainable.

2008 PTD 1625 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

Ss.114(4) & 115(5)Return of incomeAssessment year 2002-2003

Words `assessment year' in S. 114(4) of the Income Tax Ordinance, 2001 were inserted on 1st July, 2003 and in subsection (5) the words "assessment year" were inserted through Finance Act, 2004 applicable from 1st July, 2004

Subsection (4) of S.114 of the Income Tax Ordinance, 2001 was subject to subsection (5) of S.115 of the Income Tax Ordinance, 2001

Prior to insertion of these words notice under S.114(4) of the Income Tax Ordinance, 2001 could not be issued

As words "assessment year" being not available in statute on the date when the notice was issued under S.114(4) of the Income Tax Ordinance, 2001, the action of Taxation Officer was without any jurisdiction and not in accordance with law.

2008 PTD 1466 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S.114(4) & (5)Return of incomeAssessment year 1997-98

Assessee contended that initiation of proceedings through a notice under S.114(4) of the Income Tax Ordinance, 2001 was not sustainable in the eyes of law for the simple reason that notice, dated 28-6-2003 by itself was time-barred as S.114(5) of the ,Income Tax Ordinance, 2001 provided that notice under S.114(4) of the Income Tax Ordinance, 2001 could only be issued in respect of assessment year of the last five completed assessment years; that notice could only be given for the assessment year 1997-98 before 30-6-2002 and that since the very inception of the proceedings was time-barred, all the subsequent proceedings would also fall flat

Validity

Proceedings were initiated through notice under S.114 of the Income Tax Ordinance, 2001, dated 28-6-2003 which was clearly time-barred as the period provided under S.114(4) of the Income Tax Ordinance, 2001 was that the notice under S.114 of the Income Tax Ordinance, 2001 could only be issued in respect of previous five completed tax years

Since very initiation of proceedings was without jurisdiction for the reason that same commenced through a time-barred notice, all the penultimate proceedings were coram non judice, hence nullity in the eyes of law

Order of First Appellate Authority whereby appeal of the assessee was dismissed as having been held to be time-barred was vacated by the Appellate Tribunal and assessment framed by the assessing authority started in pursuance of notice under S. 114 of the Income Tax Ordinance, 2001 having been issued after 30-6-2002 was directed to be annulled.

1961 PTD 865 SUPREME-COURT-INDIA Judicial Precedent

Ss. 22, 23, 34-Finance Act (XXV of 1950), S. 13 (1)-Return of income-Disclosing no assess­able income-Officer noting "no proceeding"-Whether "assess­ment"-Initiation of re-assessment proceedings.