A CBR clarification for obtaining income tax refund on transport services has resulted in suspension of certain income tax officers, creating a legal dispute among CBR Wings, Income Tax Appellate Tribunal, Federal Tax Ombudsman (FTO) and Directorate General of Inspection and Internal Audit.
Consequently, the board is working on a mechanism to implement a uniform procedure for the assessment of income tax on transport services. Insiders told Business Recorder on Thursday that the board has suspended some officers for issuing income tax refund, in violation of the clarification issued by the board. Contrary to this, some officers, who followed the CBR's clarification were suspended on the FTO's directive, who recommended action against officials, who withheld refund falling under the normal income tax law. These officers followed the CBR's instructions and had not permitted refund in cases falling within the Presumptive Tax Regime.
The board's stance and legal interpretation of Collector, Appeals/Tribunal/FTO was entirely different as compared to the interpretation made through the clarification. Even CBR Wings are divided over the legal interpretation of the issue.
In this regard, the board has convened a meeting to discuss the correct interpretation of section 153 (1) (b) of the Income Tax Ordinance 2001 to evolve a uniform mechanism for the assessment treatment of transport services. The meeting was attended by CBR Member Direct Taxes Salman Nabi, Member Legal Mumtaz Sheikh and Member Taxpayer Education and Facilitation, Habib Fakhruddin and other senior tax officials. So far, the authorities have not taken any decision on legal status of section 153(1) (b) and the whole issue was discussed during the meeting.
The issue came to light when a goods transport company sought a clarification from the CBR on transport services to ascertain whether these services fall within the normal income tax law or presumptive tax regime. The CBR Help Line had issued a clarification, on behalf of the CBR last year.
According to the clarification, transportation of goods etc is broadly divided into two categories, ie, carried through transport owned by a person or transport hired by a person. Where the transport is owned by the person it is classified as rendering of transport services and where it is carried hired through transport it is classified as providing of transport services.
Upto tax year 2005: Rendering of transport services is covered under section 153(1)(b) and the tax deducted at source is an adjustable advance tax. Provision of transport services falls under section 153(1) (c) and the tax deducted at source is the final tax liability, the clarification said. However from tax year 2006, this distinction has been removed and both rendering and providing of transport services now fall under section 153(1)(b).
Upto tax year 2005, tax collected at source under section 234 is the final tax for taxpayers rendering transport services and accordingly the tax deducted under section 153(1)(b) is refundable, the clarification added. Interpreting the board's clarification, sources said that the rendering of transport services covered under section 153(1) (b) was related to the normal income tax law, where refund is admissible. But section 153(I) (c) pertains to the Presumptive Tax Regime (PTR) as specified in the above-mentioned clarification.
Following issuance of clarification, some of the officials followed the directive and some continued to deal cases under normal income tax law. In certain cases, the field formations had followed the CBR clarification particularly hiring of transport services under section 153(1) (c) where tax deducted at source was the final discharge of liability. As a result of this clarification, the regional officials did not issue refund taking the plea that transport services fall within the Presumptive Tax Regime (PTR) which is the final discharge of tax liability.
On the other hand, some officials had issued refund despite issuance of clarification and treated section 153(1) (c) under normal income tax law.
Responding to interpretation made in clarification, certain persons approached the Collector, Appeals and Income Tax Appellate Tribunal against the board's viewpoint on rendering of transport services. The appellate fora upheld that both the services including transport owned by the person or transport hired by the person are covered under the normal tax regime and transport services falling under section 153 (1) (c) is not final discharge of tax liability.
Keeping in view verdict of the Collector, Income Tax (Appeals) and Income Tax Appellate Tribunal, field officials issued refund in some cases by processing the same under the normal income tax law. At the same time, other officials, who followed the income tax law, also issued refund.
Subsequently, CBR had directed the Directorate General of Inspection and Internal Audit to take action against officers, who issued refund despite clear instructions. The DG Inspection and Internal Audit had issued notices of re-opening of these cases based on the CBR's clarification in question.
After completion of legal formalities, officials who issued refund were suspended from services. The whole processing of cases was done on the basis of CBR clarification, which did not permit refund under the Presumptive Tax Regime. On the other hand, the FTO held that those who had not issued refund be suspended. Resultantly, some officers were suspended who tried to follow the CBR clarification. It is clear that these officers followed the CBR instructions and interpreted law as directed by the board. Even then they were suspended during the whole episode. If the legal interpretation of clarification is not correct then what is the justification to suspend innocent persons.
Now, officials are suspended on both sides including those suspended by the CBR as well as those recommended by the FTO. This legal battle has ultimately resulted in suspension of certain income tax officers, who one way or the other followed the CBR instructions.
Similarly, the FTO also ordered to take action against officials, who were reluctant to issue refund based on the CBR clarification. These officers followed the board's stance on the argument that refund would not be admissible in cases covered under the Presumptive Tax Regime.