2010 PTD 768
ORDER
CHAUDHRY MUNIR SADIQ, (JUDICIAL MEMBER).--- This order shall dispose of the titled appeal pertaining to the tax year, 2003 filed by the Revenue against the order, dated 23-12-2008 passed by the learned CIT(Appeals-II), RTO, Lahore.
2. Brief facts giving rise to the present appeal are that the respondent filed return for tax year, 2003 declaring the following:
Tax year
Income declared
Tax payable
Tax deducted
Refundable
2003
Rs.1,016.384
229,734
590,875
361,141
The respondent filed refund application on 24-6-2006 for the tax year, 2003 which was examined by the Taxation Officer. He observed that the same cannot be entertained being barred by time under the provisions of section 170(2)(c) of the Income Tax Ordinance, 2001. The Taxation Officer confronted the same to the tax payer/respondent vide letter, dated 7-5-2008 but no 'compliance was made on the due date, therefore, the Taxation Officer rejected refund claim for the tax year, 2003 vide order, dated 28-5-2008. Being aggrieved by the treatment accorded by the Taxation Officer, the taxpayer filed an appeal before the learned CIT(A) who held that the Taxation Officer had acted beyond his jurisdiction as indicated in subsection (4) of section 170 by not processing the taxpayer's application of refund within 45 days and directed the Taxation Officer to issue refund voucher of Rs.361,141 for the Tax year, 2003. Being aggrieved by the order passed by the learned CIT(A), the Revenue has preferred the instant appeal.
3. The learned DR has argued that the learned CIT(A) was not justified to hold that the refund order was without jurisdiction on the ground that the application for refund, dated 27-6-2006 for the tax year, 2003 was not processed within 45 days; especially when the said application for refund was time-barred being filed after the statutory limit of two years. On the other hand, the learned AR has supported the impugned order for the reasons mentioned therein.
4. Arguments heard and record perused.
5. The learned AR has contended that when an order of refund is not passed within 45 days by the Commissioner from the receipt of refund application under section 170(1) the refund is deemed to have been allowed and thus the order passed under section 170(4) after lapse of 45 days by the Commissioner is without jurisdiction. I am afraid the contention of learned AR is not correct and law assumes non passing of an order under section 170(4) as an order against the taxpayer rather than in his favour. Section 170 of Income Tax Ordinance, 2001 'is reproduced below:--
170. Refunds .---(1) A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess. (IA) Where any advance or loan, to which sub-clause (e) of clause (19) of section 2 applies, is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid by him as a result of such advance or loan having been treated as dividend under the aforesaid provision.
(2) An application for a refund under subsection (1) shall be--
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within two years of the later of--
(i) the date of which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or
(ii) the date on which the tax was paid.
(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall--
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
(4) The Commissioner shall, within forty five days of receipt of a refund application under subsection (1), serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard.
(5) A person aggrieved by--
(a) an order passed under subsection (4); or
(b) the failure of the Commissioner to pass an order under subsection (4) within the time specified in that subsection may prefer an appeal under Part-III of this Chapter.
Perusal of subsection (5) of section 170 makes it crystal clear that when the Commissioner fails to pass an order within 45 days of the receipt of a refund application under section 170(1), the person aggrieved by the failure of the Commissioner to pass an order under subsection (4) of section 170 is entitled to prefer an appeal under Part-III of Chapter X of the Income Tax Ordinance, 2001. However by no stretch of imagination it could be assumed that he had no jurisdiction to pass an order under section 170(4) after the specified period of 45 days unless an appeal has been preferred by the aggrieved person, for the failure of the Commissioner to pass an order under subsection (4) within the time specified in that subsection, before the passing of such order after 45 days.
6. In fact section 170(5) provides a taxpayer an opportunity to get early refund without unnecessary delay by filing an appeal 'before the C.I.T.(A) against the failure of the learned Commissioner/Taxation Officer to pass an order under section 170(4) within the stipulated period. Where an appeal is filed against such failure of the Commissioner/Taxation Officer, the power of the Commissioner/Taxation Officer shifts to the Appellate Authority and the Commissioner/ Taxation officer cannot pass an order on refund application. However, if a taxpayer does not file any appeal after 45 days and the refund application remains pending before the Commissioner/Taxation Officer the law does not prohibit the Commissioner/Taxation Officer to pass an appropriate order on it. Admittedly the appellant had not filed any appeal before C.I.T.(A) against the failure of the Commissioner before the passing of order under section 170(4) therefore, the Commissioner had jurisdiction to pass an order under section 170(4) even after the expiry of 45 days. However it needs mention that failure to pass an order within prescribed period of 45 days (now 60 days) may reflect a lack of interest and inefficiency of the concerned Commissioner/Taxation Officer.
7. In the refund cases the Taxation Officer has to pass an order on refund application after he is satisfied that the tax has been overpaid but , perusal of record reveals that in the present case he, instead of verifying the claim of tax payer for refund rejected it on the ground that the refund application filed after lapse of statutory limit provided in section 170(2)(c) cannot be entertained after the prescribed period of two years. It needs mention that the provisions of section 170(2) are directory and not mandatory. Although word "shall" has been used in subsection (2) of section 170 yet it is not couched in negative language. Even otherwise the Government functionaries, especially in an Islamic or a democratic society governed by rule of law, are supposed to do justice and not to deprive the people of their rights on ground of technicalities. Article 29 of the Constitution of Islamic Republic of Pakistan in unequivocal terms, commands as under:--
"29. Principles of policy .---(1). The Principles set out in this Chapter shall be known as Principles of Policy, and it is the responsibility of each organ and authority of State, and of each person pm-forming functions on behalf of an organ or authority of the State, to act in accordance with those Principles insofar as they relate to the functions of the organ or authority."
Article. 31(2)(b) provides that the State shall endeavour to promote unity and the observance of the Islamic moral standards; and Article 37(d) says that the State shall ensure inexpensive and expeditious justice. By virtue of Article 2A of the Constitution of Islamic Republic of Pakistan, 1973 the principles and provisions set out in the objective resolution have been made substantive part of the Constitution. The objective resolution reflects the will of the people of Pakistan to establish an order wherein the principles of social justice as enunciated by Islam shall also be fully observed. The objective resolution admits that sovereignty over the entire universe belongs to Allah Almighty alone and authority which He has delegated to the State of Pakistan, through its people for being exercised within the limits prescribed by Him, is a sacred trust.
Few commandments of Allah (SWT) relevant to the issue are reproduced below.
Do not usurp one another's property by unjust means. (2: 188)
O Believers! Do not consume/usurp one another's prop erty/wealth among yourselves illegally. (4 : 29)
Weigh with even scales and do not cheat others of what is rightly theirs, nor corrupt the land with evil. (26 : 182-183)
Surely Allah commands you (0 men in authority) that you shall render dues ("Amanah"/Amanat) unto those entitled to them and when you judge between men judge fairly. (4 : 58)
No doubt public servants hold such amount as an "Amanah" and are supposed to refund/refund it to the person entitled to it. It should be kept: in mind that a claim regarding over payment of tax is to be verified from record and if the record is not available, due to lapse of a long period, a claim could not be verified and if a refund is allowed without verification from original record it may lead to bogus refunds and corrupt practices. Therefore, the legislature has set a time limit of two years in order to avoid inconvenience and bogus refunds, besides discouraging the delayed applications/claims which could not be verified. If over payment of tax is easily verifiable, there is no bar to adjust or refund the same even if an application is made after the period of two years. However, it does not mean that a taxpayer is free to claim the refund of an overpaid tax at his sweet will at any time even after the expiry of many years. It should be kept in mind that laches may defeat the claim. The view expressed by the Honourable Supreme Court of Pakistan on a similar issue, in case of "Pifzer Laboratories Limited v. Federation of Pakistan and others" cited as PLD 1998 SC 64 is illuminating. In that case it was held that a genuine refund claim could not be refused on the ground that application was not filed within prescribed time. When a refund claim is verifiable and genuineness of over payment of tax is established after verification, but it is refused mere on technicalities it does not look fair. Furthermore such acts are against the norms of good governance and shake the confidence of taxpayers. It also needs mention that prescribed forms for "Return of total income"/"statement of final taxation" for tax years, 2007 onwards, contain a specific column about tax refundable and most of them also contain a column for request that net tax refundable may be credited to the bank account of the taxpayer as 'mentioned in the column. An Income Tax Authority processing the "Return of Total Income/Statement of Final Taxation" bound to proceed in accordance with law. After verification when is established that taxpayer has over paid the tax, Income Tax Authorities are bound to refund the same even without any separate application for refund from the taxpayer and refusal to refund the same is violation of Articles 2A, 3 4(2)(a), 9, 24, 25, 29, 31 and 37 of the Constitution.
8. Learned C.I.T.(A) has held that the Taxation Officer has acted beyond his jurisdiction by passing order on refund application after lapse of about one year and nine months vide order, dated 28-5-2008, as subsection 4 of section 170 did not allow him to pass an order after the lapse of 45 days and, therefore, directed to issue refund voucher of Rs.361,141 for the tax year 2003. I am afraid, this finding of learned C.I.T.(A) is legally not tenable. If this view of the learned C.I.T.(A) is accepted as correct it would render all orders passed under section 170(4) after the stipulated period of 45 days (now 60 days) liable to be annulled even in cases where refund has been allowed. This is against the spirit and intention of law. Authorities acting under an enactment are bound to see and interpret the law as a whole and not to examine any provision in isolation. The learned C.I.T.(A) has examined the case in light of subsection (4) of section 170 and has failed to realize the impact of subsection (5) of section 170. She has also ignored that subsection (3) provides that before passing any order of refund it is the duty of the Commissioner/Taxation Officer to satisfy himself that the tax has been over paid by the taxpayer. In the present case there was no such finding available on the record, therefore, the learned C.I.T.(A) ought to have remanded the case to the Taxation Officer for verification of the claim of the taxpayer and issuance of the refund if the tax has been overpaid strictly in accordance with law but she has straightaway directed the Taxation Officer to issue refund voucher of Rs.361,141 for the year, 2003. For what has been discussed above the orders passed by the learned C.I.T.(A) and the Taxation Officer are vacated and the case is remanded to the Taxation Officer/Commissioner with directions:
(a) to obtain and verify the proof of tax paid;
(b) to determine the tax overpaid by the taxpayer; and
(c) to refund the same as per law, but within a period of 30 days from the receipt of this order.
9. The appeal succeeds to the extend indicated above.
C.M.A./17/Tax (Trib.) Order accordingly.