Tax writ deduction during appeal is against the law.
The court decided that the recovery from M/s Radiant Medical Limited's bank accounts in Lahore was unlawful and violated the Income Tax Ordinance. They ruled in favor of the petitioner, stating the recovery was invalid during the appeal process.
The main point decided by the court was that the recovery made by the Inland Revenue Officer from the bank accounts of M/s Radiant Medical (Private) Limited in Lahore was deemed unlawful and in violation of the provisions of the Income Tax Ordinance. The court emphasized that the recovery under Section 140 of the Ordinance was unauthorized and should not have been conducted while the petitioner's appeal process was ongoing under Section 12 of the Ordinance. Therefore, the court ruled in favor of the petitioner, declaring the recovery as invalid and without legal effect.
Writ Petition No.34736 of 2024
M/s Radiant Medical (Private) Limited
The Federal Board of Revenue and others
03.06.2024
Mr. Naveed Zafar Khan, Advocate for the petitioner.
Mr. Muhammad Mansoor Ali, Assistant Attorney General for
Pakistan (On Court’s call).
Ch. Muhammad Ashfaq Bhullar, Advocate/Legal Advisor for
the respondent-FBR.
In this petition under Article 199 of the Constitution of
Islamic Republic of Pakistan, 1973 (‘Constitution’), the
petitioner has assailed the recovery made by the Inland
Revenue Officer-respondent No.5 from the Bank Accounts
maintained by the petitioner at National Bank of Pakistan,
Model Town Branch, Lahore and Bank Al-Falah, Shadman
Branch, Lahore pursuant to the notice dated 31.05.2024
(erroneously mentioned as 31.05.2023 on account of
typographical therein) in purported exercise of authority
under Section 140 of the Income Tax Ordinance, 2001
(‘Ordinance’).
2.
Learned counsel for the petitioner contends that the
impugned recovery made under Section 140 of the Ordinance
is manifestly in violation of the proviso to sub-section (1) of
Section 140 of the Ordinance thus without lawful authority
and of no legal effect. He maintains that even otherwise
recovery could not be effected by the revenue authorities
from the petitioner during pendency of its appeal under
Section 12 of the Ordinance till adjudication of liability of the
petitioner by at least one outside departmental form i.e.
Appellate Tribunal Inland Revenue. In support of his
Writ Petition No.34736 of 2024
2
contentions, learned counsel for the petitioner has relied upon the judgment
of this Court in the case of China Machinery Engineering Corporation,
Pakistan Branch Vs. Federation of Pakistan and others (2024 PTD 242).
3.
Conversely, learned Legal Advisor for the revenue authorities, who
has appeared on watching brief, has opposed this petition on the ground that
the stay order granted in favour of the petitioner by the Commissioner
(Appeals) has lapsed after expiry thereof despite granting extension therein
and the appeal was adjourned on request of learned counsel for the
petitioner on the last date of hearing, which is now transferred to the
Appellate Tribunal Inland Revenue in view of the Tax Laws (Amendment)
Act, 2024 dated 09.05.2024. He adds that in the absence of any stay order,
respondent-department was well within its right to effect recovery of tax
due against the petitioner, as determined in the amended assessment order,
while invoking Section 140 of the Ordinance. He maintains that the deposit
of 10% tax was only meant for the extension of stay order before the
Commissioner (Appeals) where a taxpayer volunteered, which is not the
case here. He further contends that the pay orders have been deposited in
the treasury account and the amount has been realized.
4.
Heard. Record perused.
5.
By now it is well settled that the tax allegedly due from a taxpayer
cannot not be recovered before adjudication of liability in appeal preferred
by a taxpayer before at least one extra departmental forum i.e. Appellate
Tribunal Inland Revenue. Reliance in this case is placed on the cases of
Messrs Pak Saudi Fertilizers Vs. Federation of Pakistan and others (2002
PRTD 679), Z.N. Exporters (Pvt.) Ltd Vs. Collector of Sales Tax (2003
PTD 1746), Brothers Engineering (Pvt.) Ltd. Vs. Appellate Tribunal Sales
Tax (2003 PRTD 1836) and Messrs Islamabad Electric Supply Company
Limited Vs. Additional Commissioner Inland Revenue and others (2024
PTD 30).
Writ Petition No.34736 of 2024
3
6.
Section 140 (1) of the Ordinance is reproduced as under:-
140. Recovery of tax from persons holding money on behalf of a
taxpayer.—(1) For the purpose of recovering any tax due by a
taxpayer, the Commissioner may, be notice, in writing, require any
person—
(a)
owing or who may owe money to the taxpayer, or
(b)
holding or who may hold money for, or on account of
the taxpayer;
(c)
holding or who may hold money on account of some
other person for payment to the taxpayer; or
(d)
having authority of some other person to pay money
to the taxpayer,
to pay to the Commissioner so much for the money as set out in the
notice by the date set out in the notice:
[Provided that the Commissioner shall not issue notice under this
sub-section for recovery of any tax due from a taxpayer if the said
taxpayer has filed an appeal under section 127 in respect of the
order under which the tax sought to be recovered has become
payable and the appeal has not been decided by the Commissioner
(Appeals), subject to the condition that [ten] per cent of the said
amount of tax due has been paid by the taxpayer.]
It is manifest from perusal of the proviso to sub-section (1) of
Section 140 of the Ordinance that the same creates exception to the
recovery of tax from a person holding money on behalf of a taxpayer. Such
exception expressly prohibits Commissioner from issuing notice under this
sub-section for the recovery of any tax due from a taxpayer if said taxpayer
had filed an appeal under Section 127 of the Ordinance in respect of the
order under which the tax sought to be recovered has become payable and
the appeal has not been decided. The above prohibition indeed recognizes
the principle of law enunciated in Paragraph No.5 of this order. The said
prohibition, however, is subject to the condition that 10% of the said
amount of tax is paid by the taxpayer. This clearly means that as long as the
taxpayer is ready and willing to satisfy the condition specified in the
aforementioned provision to Section 140(1) of the Ordinance, coercive
measure visualized under the aforementioned Section cannot be pressed
into service.
Writ Petition No.34736 of 2024
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7.
On Court query, it is apprised by learned counsel for the petitioner
that 10% amount of the tax allegedly due has never been demanded,
however, the petitioner is ready to satisfy the condition forthwith.
8.
It is an undisputed position that the appeal preferred by the petitioner
under Section 127 of the Ordinance against amended assessment is still
pending. It is equally uncontroverted by the respondent-department that the
petitioner has never been asked to pay 10% of the amount of tax due from
it against which an appeal under Section 127 of the Ordinance has been
preferred by the petitioner.
9.
In view of the unequivocal provision of the sub-section (1) of
Section 140 of the Ordinance, recovery proposed to be effected by the
department beyond 10% of the tax liability of the petitioner as determined
in the amended assessment order, is without lawful authority.
10. For the foregoing reasons, this writ petition is partially allowed and
the respondents are directed to ensure that the amount recovered from the
Bank accounts of the petitioner pursuant to the impugned notice under
Section 140 of the Ordinance is reimbursed to the petitioner or credited to
the same Bank accounts within a period of 20-days after deducting 10% of
the tax liability therefrom. There shall be no order as to costs.
(RAHEEL KAMRAN)
JUDGE
Approved for Reporting
JUDGE
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