Centralised management: field formations barred from monitoring banks' WHT at branch level

The Federal Board of Revenue has barred field formations from monitoring WHT of banks at branch level where the same is being done on centralized basis by the head offices of banks. Sources told Business Recorder here on Monday that FBR Director Withholding Taxes Mahbooba Razzaq has issued instructions to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) on the 'management of tax collection and its procedure regarding concurrent jurisdiction'.
The FBR has conveyed to LTUs and RTO that monitoring of withholding taxes would remain limited only to the payments which have not been centralized by the banks so far. If disbursement under any head of withholding taxes on these payments has been centralized in the head office and payments are being made directly from the head office the monitoring will be done by the respective LTU where the bank is originally assessed.
The FBR instructions means that the monitoring would now be done by the Large Taxpayer Unit (LTU) having jurisdiction over the banks and not the field formations having jurisdiction over the branches, as most of the banks are engaged in withholding of taxes on the centralized basis at the head office, sources added.
According to the FBR instructions issued to the LTUs/RTOs, the Income Tax Circular No 5 of 2011 has provided for assigning concurrent jurisdiction for special purpose that is Withholding Audit of Withholding Agents or persons or class of persons liable to Withholding Taxes under division II or division III of part V of Chapter X or chapter XII of the Ordinance or Sales Tax Act 1990 in respect of branches or a particular branch, manufacturing unit, etc, falling in the territorial jurisdiction of the said RTO in addition to the original jurisdiction of monitoring of Withholding Taxes vested with the RTO/LTU having assessment jurisdiction on the basis of location of place of business of the taxpayers.
The FBR has also issued an order No 57(2) Rev.Bud/2011-Vol-IV- 10810 dated January 23, 2012 assigning concurrent jurisdiction for monitoring of Withholding Taxes, FBR said. It is important to mention that a judgement of High Court of Pakistan in respect of Montgomery Flour & General Ltd Vs F.O Pakistan in the Writ Petition No 255 decided on the legality of concurrent jurisdiction on 10th October 2011 held as under:
"No bar is contained under Section 5 of the Income Tax Ordinance 1979 to confer concurrent jurisdiction in respect of persons, classes of persons or distinct jurisdiction in specified cases, classified cases or specified persons or classified persons by the Central Board of Revenue and also by the Regional commissioner, commissioner of the respective zones."
While elaborating further on the issue the court further says that: "Under the scheme of Income Tax Ordinance the person who is obliged to make deductions of tax at source is not an assessee. He is merely a payer and he makes deduction of tax from the payment of recipients and the amount so deducted is deposited by the payer, the adjustment whereof is sought by the recipient at the time of his assessment. On failure to make deduction at source the payer becomes an assessee in default to the extent of that much amount which he failed to deduct. In fact under section 52 of the Income Tax Ordinance, 1979 a person becomes an assessee making deduction out of the payment made by him to any other person, he would never fall within the ambit of assessee," court judgement added.
The said judgement clearly says that the monitoring and collection/deduction at source is quite limited in its nature as it does not allow monitoring office to act as assessing officer, the FBR directive said. In the light of above mentioned facts the LTUs/RTOs are therefore, requested to take up the monitoring of withholding taxes in respect of all the bank branches falling in your territorial jurisdiction.
It is important to mention that this monitoring of withholding taxes shall remain limited only to the payments which have not been centralized by the banks so far. If disbursement under any head of withholding taxes on these payments has been centralized in the head office and payments are being made directly from the head office the monitoring will be done by the respective LTU where the bank is originally assessed, the instructions added.