ISLAMABAD: The Federal Tax Ombudsman (FTO) while rejecting the FBR’s review petition against its earlier orders, ruled that the compensation amount was to be reckoned from the date of deemed assessment and not from the date of any order for issuance of refund passed belatedly by the department.
As per details, in a review petition FBR contends that the FTO observations with regard to mode of reckoning compensation payment for delayed issuance of tax refund is not consistent with statutory obligation and applicable case law. However, the review petition in question has been rejected by the FTO.
Commenting on the issue, tax experts are of the view that explanation to section 171(2) of the Income Tax Ordinance, 2001 inserted through Finance Act, 2013 as referred to by the department is effective from Tax Year 2014 whereas payment of compensation in this case relates to Tax Year 2009. Supreme Court of Pakistan also held that any executive order/notification that is detrimental to a taxpayer can have no retrospective application.
The experts added that an assessment once finalised under section 120(1) of the Ordinance is valid for “all purposes” under the Ordinance. A plain reading of the text of section 120(1) of the Ordinance makes it abundantly clear that “all purposes” includes payment of refund and determination of compensation for any delay in making payment of refund, therefore, it is legally a perfect proposition that compensation amount is to be reckoned from the date of deemed assessment and not from the date of any order for issuance of refund passed belatedly by the department.
The FTO order stated that departmental representative submitted that the due refund payable to the complainant for Tax Years 2007 to 2010 had been disbursed by the Department. He also acknowledged that there had been a delay in the payment of refund and compensation would therefore be payable to the complainant, but the same would be payable in Tax Year 2009 only. However, he stated that the express direction given by the FTO to calculate amount of compensation payable to the complainant under section 171 of the Ordinance in Tax Year 2009 was not correct. In this context he drew attention to section 171 of the ordinance and the explanation added through Finance Act, 2013. Compensation payment under section 171 of the Ordinance was liable to be reckoned from the date of assessment under section 120(1) of the Ordinance and for purposes of calculating compensation amount the provisions of section 171(1) of the Ordinance may be read directly in conjunction with the provisions of section 120(1) of the Ordinance and that there was no need to take into account Clauses (a), (b) and (c) of sub section (2) of section 171 of the Ordinance.
So far as legal matters are concerned, it goes without saying that the final word in legal matters is the exclusive domain of the Supreme Court. That does not mean that the adjudication on legal aspects of a case made by subordinate Courts / Tribunals have no relevance. LTU Lahore has allowed payment of compensation under section 171 of the Ordinance to M/s Tetra Pak Limited amounting to Rs90.03 million after the Company had sought the FTO’s intervention. In one case M/s Spel-Fujiya Ltd, paid compensation amount in excess of the refund paid to the company; the FTO observed.
The department cannot blow hot and cold in the same breath. If it truly believes that compensation payment under section 171 of the Ordinance is to be reckoned from the date of refund order (even when that order is passed belatedly long after return of income was filed declaring income and claiming refund and after assessment was made accepting the declared position as per return filed) then it must follow that methodology in all cases. It cannot follow different methodologies of reckoning compensation in different cases when the basic facts pertaining to delay in disbursement of refund are the same.