Federal Tax Ombudsman (FTO) has declared that all lease agreements are not akin to toll tax and hence are required to be treated separately.
In this regard, the FTO issued an order against the Federal Board of Revenue (FBR) on Wednesday.
According to the FTO order, the complainant dealt with the leasing contracts of sand and minerals which are governed under provincial law and administered by the Mines Labor Welfare Commissioner, Government of Punjab. The said authority had already clarified the nature of the contract and collection of excise duty on the specified minerals. While processing the claim for a refund the nature of the deduction has to be determined in light of the laws and rules of the concerned provincial department.
FTO has accordingly observed that Income Tax Ordinance, 2001 creates categorically defined and distinct toll, fee and lease rights.
Section 236A explains that the credit for the tax collected under sub-section (1) in that tax year shall, subject to the provisions of section 147, be given in computing the tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B or section 145 applies, the tax year in which the “said date” as referred to in that section, falls or whichever is later.
Explanation
For the purposes of this section, the sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees, or other levies, by whatever name is called.
FTO’s finding further stated that through sub-section (3) tax collected on a lease of the right to collect tolls only has been categorized as final tax. Thus all leases cannot be treated as tolls.
FTO has further clarified that even an otherwise mere mode of collection of tax can neither determine the nature of collection nor truly represents the intent of the legislature.
It is pertinent to mention that the complainant filed returns of income under section 114 of the Income Tax Ordinance under normal law and claimed refunds and the same was treated as deemed assessment under section 120 of the Ordinance.
If the department is satisfied with sufficient material evidence that receipts and tax collected thereon under section 236A have to be treated under the final tax regime (FTR) in terms of section 236A(3) of the Ordinance, then this power lies with the Additional Commissioner Inland Revenue (CIR) and action was required to be taken u/s 122(5A) of the Ordinance to amend the deemed assessment order u/s 120 of the Ordinance. Section 170 gives no mandate to the Assessing Officer to take this step.
In such a situation, the level of authority is different for different proceedings under the Ordinance. Hence the action of the Refund Officer was not only beyond his legal jurisdiction and lawful authority his action tantamount to superseding CIR (Appeals) domain as well.
Instead of filing a second appeal, the department overruled CIR Appeals by passing the same orders on the same grounds. Further, the department had not filed an appeal before Appellate Tribunal Inland Revenue. (ATIR) therefore, FBR was bound to give appeal effect to the order of CIR (Appeals) within 60 days which has not been done yet.
Tax Ombudsman has accordingly recommended FBR to direct the Commissioner-IR to revisit the orders passed u/s 170(4) of the Ordinance for Tax Years 2018 and 2019, respectively by invoking provisions of section 122A of the Ordinance and passing fresh orders u/s 170(4) of the Ordinance for Tax Years 2018 and 2019 after providing a hearing opportunity to the complainant in accordance with the law.
