Government of Pakistan,
Dealing Officer: …Mr. Asad Arif, Advisor
Mr.S.M.Rehan, FCA : for the Complainant.
Mr. Tahir Tanveer, DCIT : for the respondent.
The complainant, a private limited company, is aggrieved by issuance of a notice under section 176 of the Income Tax Ordinance, 2001 by the Income Tax Department for the purpose of monitoring of withholding taxes.
2. Brief facts of the case are that the complainant received a notice from the Taxation Officer, Medium Taxpayers Unit (MTU) for production of salary register, cash book, general ledger etc for purpose of monitoring of withholding taxes deducted under section 148 to 156 and 233 to 236 of the Income Tax Ordinance, 2001 (hereinafter referred as the Ordinance). It is stated that it was explained to the Department that the said sections do not provide for any examination of record but only prescribe deduction of taxes on prescribed payments. It was contended that deduction of tax and monitoring of withholding taxes are two different matters and the above sections in the Ordinance do not empower any officer to examine the record of taxpayers. In response thereto, the complainant received reply from the Taxation Officer stating that monitoring of withholding taxes by MTU was within its jurisdiction ant that the record is being requisitioned under section 176 of the Income Tax Ordinance, 2001. The complainant then addressed a letter to the Commissioner of Income Tax, MTU stating that calling of books of account is against the spirit of self Assessment Scheme and that books can be called only when a case is selected for audit under section 177 by the Income Tax Ordinance and that section 176 does not empower a taxation authority to call for the books of accounts. It is stated that this letter remained un-responded whereupon a similar letter was addressed to the Regional Commissioner of Income Tax (RCIT) which also remain un-responded. However, after about 06 months, the complainant again received a notice from the Taxation Officer requiring him to produce certain books/documents for the purpose of monitoring of withholding taxes. It is stated that the issuance of such notices by the Income Tax Department is illegal and beyond their jurisdiction and hence the present complaint.
3. In his written report, the RCIT has stated that the monitoring of withholding taxes has been assigned to MTU vide CBR’s jurisdiction order dated 23.11.2004 and hence the notice issued by the Taxation Officer for the purpose of monitoring of taxes withheld by the complainant was in accordance with law. It is further stated that it is incorrect to suggest that the letters addressed to the CIT/RCIT remained un-responded as the letter dated 26.05.2005 by the Taxation Officer duly addressed the objections raised by the complainant. The DCIT appearing for the Department has also referred to the provisions of sections 161, 162 & 182 of the Ordinance and has contended that the notice issued was in pursuance of the powers vested by the provisions of section 176 of the Ordinance and that such notice being legal, the complaint is without any merit.
4. During the course of hearing, the learned A.R of the complainant has reiterated that he had challenged the jurisdiction of monitoring of withholding taxes in broad sense and his main contention is that for the purpose of such monitoring, the Department has no authority and jurisdiction to call for the books of accounts of the withholding agent. It is contended that monitoring would imply that the Department can only check whether quarterly and annual statement are filed by the taxpayers; whether tax is deducted and timely deposited and whether tax is correctly deducted. He has vehemently contended that monitoring of withholding tax does not empower the Taxation Officer to call for any record and books of accounts for the purpose of verification of prescribed quarterly and annual statements. He has also contended that calling of books of accounts for monitoring of withholding taxes is against the spirit of Universal Self Assessment Scheme (USAS) and that if the Department wishes to call for record and books of accounts for the purpose of monitoring of withholding taxes, then it has first to select the case for audit under section 177 of the Income Tax Ordinance, 2001 and that otherwise the Department has no jurisdiction to call for books of accounts. It is stated that the CBR has assigned jurisdiction only for the purpose of monitoring of taxes withheld but has not issued any circular authorizing the Taxation Officer to call for record/books of accounts for the purpose of such monitoring. It is, therefore, prayed that respondent be directed to cease the proceedings initiated for monitoring of withholding taxes.
Parties have been heard and the record produced has been examined.
6. The contention that calling of the books of accounts for monitoring purposes is against the spirit of USAS and that books of accounts can be called for such purpose only after a case has been selected for audit is misconceived. The selection of a case for audit under section 177 is for the purpose of ascertainment and verification of the correctness of the income declared and self-assessed by the taxpayer whereas the calling of books of accounts of the withholding agent for the purpose of monitoring of withholding taxes is to ascertain the correctness of the tax deducted and paid in the Government treasury. Section 165 of the Ordinance enjoins upon every withholding agent to furnish statements in the prescribed form giving details of the taxes deducted/collected in respect of imports (sec.148), Salaries (sec.149), Dividends (sec.151), Payments to non residents (sec.152), Payment for goods and services (sec.153), Exports (sec.154), Brokerage & commission (sec.233), Transport business (sec.234), Electric consumption (sec235) and Telephone users (sec.236). If such statements are not furnished in the manner and time prescribed then such failure is visited by penalty prescribed in section 182 of the Ordinance. If a person fails to collect or deduct the tax collected or having collected or deducted the tax, fails to pay the same in government treasury then he is personally liable to pay the amount of tax so collected or deducted as is envisaged in section 161 of the Ordinance. Now, in order to verify as to whether the tax has been properly deducted and deposited, the only source from which such verifications can be made is the record and the books of accounts maintained by the withholding agent. If the Department is not allowed to call for the books of accounts of such agents, then how can correctness of the statements furnished be verified. As far the power to call for such record and books of accounts is concerned, this is provided in section 176 of the Ordinance, the relevant portion of which is reproduced is as under:
176. Notice to obtain information or evidence: (1) The Commissioner may, be notice in writing, require any person, whether or not liable for tax under this Ordinance.
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to attend at the time and place designated in the notice for the purpose of being examined on oath by the Commissioner or an authorized officer concerning the tax affairs of that person or any other person and, for that purpose, the Commissioner or authorized officer may require the person examined to produce any accounts, documents, or computer – stored information in the control of the person.
(2) The Commissioner may impound any accounts or documents produced under sub – section (1) and retain them for so long as may be necessary for examination or for the purposes of prosecution.
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The above provision of law is wide enough to authorize the Commissioner or an authorized Officer to call for the accounts, documents or computer stored information concerning the tax affairs, including the tax deducted, of that person. In view of the above provision of law, the contention that the Taxation Officer has no power to call for record for the purposes of monitoring of withholding taxes is not tenable. The learned representative’s argument that there is no circular instructions of the CBR in this behalf also carries little weight for the reason that in view of such clear provision of law, there is no need to issue any separate circular instruction authorizing the officer to call for the books of accounts for monitoring purpose.
7. Thus, in order to check the authenticity and verify the correctness of various statements prescribed under section 165 of the Ordinance, the Taxation Officer is well within his right to call for the books of accounts and other records and no exception can be taken to the exercise of such power.
In view of the above, no case of maladministration has been made out and the proceedings are, therefore, filed.
(Justice (R) Munir A. Sheikh)
Federal Tax Ombudsman
BEFORE THE FEDERAL TAX OMBUDSMAN
Mr. Ali Zahir Jafri
101, Mezzanine Floor
Taj Mahal Centre
Block No.1, Gulshan-e-Iqbal