SECRETARY REVENUE DIVISION, ISLAMABAD VS WAHEED SHAHZAD BUTT, 2013 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2159 (2013)

2013 P T D (Trib

2013 P T D (Trib.) 2159

[Federal Tax Ombudsman]

Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman

SECRETARY REVENUE DIVISION, ISLAMABAD

Versus

WAHEED SHAHZAD BUTT, ADVOCATE HIGH COURT

Complaint No.286/LH R/IT (240)/577 of 2011, decided on 10/07/2013.

(a) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 9(1)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---"Public interest"---Suo motu notice in public interest by ombudsman---Necessity of complaint---Objection of the Department that "Federal Tax Ombudsman could only assume jurisdiction if there was an aggrieved party", was misconceived---Allegations of systemic maladministration were levelledagainst the functionaries of Federal Board of Revenue and the Federal Tax Ombudsman took suo motu notice in public interest, under S.9(1) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000---Investigation of the nature did not necessitate a complainant.

(b) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 2(3)---Maladministration---Department contended that in the absence of mens rea in the conduct of functionaries of Federal Board of Revenue, no disciplinary action was warranted against them---Validity---Mens rea in proceedings before the Federal Tax Ombudsman was determined by the attendant circumstances on the basis of balance of probability andnot on the basis of requirement of criminal law beyond reasonable doubt---Chain of transactions which could result in loss of billions of rupees to the exchequer and a corresponding gain to the service provider corporations could not be brushed aside as a bona fide error of judgment.

(c) Income Tax Ordinance (XLIX of 2001)---

----Ss.153 (1)(b), 153(6)(iii), 113 & 206---FBR Circular No.6 of 2009 dated 18-8-2009---FBR Circular C.No.196 WHT/2009 dated 4-7-2009---FBR Circular No.3 of 2009 dated 17-7-2009---S.R.O. 1003(I)/2001 dated 31-10-2011---Payments for goods, services and contracts---Tax on services---Minimum tax for service sector, corporate as well as non-corporate---Minimum tax under Ss.153(1)(b)/153(6) of the Income Tax Ordinance, 2001, and after Finance Act, 2001, Ss.153(1)(b)/153(3)(b) of the Income Tax Ordinance, 2001, was applicable in cases of all service sector taxpayers, corporate as well as non corporate---FBR Circular No.6 of 2009 dated 18-8-2009 was based on wrong and possibly motivated view of the law pertaining to minimum taxation under S.153 of the Income Tax Ordinance, 2001---FBR Circular No.3 dated 17-7-2009 was issued soon after the changes in S.153 of the Income Tax Ordinance, 2001 were brought after enactment of Finance Act, 2009 under which 6% minimum tax was made applicable to all taxpayers rendering services---Three illustrations provided in Circular No.3 covered corporate as well as non-corporate taxpayers, wherein 6% tax deducted under S.153(1)(b) of the Income Tax Ordinance, 2001 was specifically categorized as minimum tax---Nothing was mentioned in Circular No.3 which had hinted, however obliquely, at exclusion of the corporate sector from the purview of minimum taxation---Minimum taxation of all service sector taxpayers was again re-affirmed in FBR Circular No.7 of 2001 when S.153 of the Income Tax Ordinance, 2001 was re-cast, re-aligned and re-drafted to make it more comprehensible and easy to understand---Earlier, Federal Board of Revenue through C.No.1(25)WHT/2009 dated 26-4-2011 superseded Circular No.6 and clarified that 6% minimum tax applied to all taxpayers falling within the purview of S.153(1)(b) of the Income Tax Ordinance, 2001 and thereby admitted that the contrary view expressed in Circular No.6 of 2009 was wrong.

(d) Income Tax Ordinance (XLIX of 2001)---

----Ss.153(1)(b) & 153(6)(iii)---FBRCircularNo. 6of2009dated18-08-2009--Tax on services--Exemption certificate issued by commission for minimum tax---Interpretation of statutes was the exclusive prerogative of the courts---One may refer to the issuance of exemption certificates by the Commissioners of Income Tax to corporate entities, especially Cellular Companies, deriving receipts from rendering services after the changes were introduced in S.153 following enactment of Finance Act, 2009---Issue of such certificates was clearly illegal as after introduction of minimum taxation of all service providers through Finance Act, 2009, 6% tax withheld became the minimum tax below which there was no possible threshold---No possibility of refund of tax withheld at source existed on payments made to service providers and a corporate entity was bound to pay such minimum amount of tax---No justification existed for issuance of exemption certificates to corporate entities---When matter was brought to their attention, the Commissioner immediately cancelled the exemption certificateswhich evidently triggered a huge effort by the affected corporate entities who obviously wielded considerable clout in the Federal Board of Revenue---Circular No.6 of 2009 was issued after few days which "clarification" was expressly designed to take companies rendering services out of the purview of minimum taxation under Ss.153(1)(b)/153(6) of the Income Tax Ordinance, 2001---No greater indictment of a government agency charged with the mobilization of revenue desperately could be needed by the State than what it did by issuing Circular No.6 of 2009---After withdrawal of saidCircular further clarifications/Statements/S.R.Os. were issued by the FederalBoardofRevenueon26-4-2011, 28-4-2011, 17-6-2011and1-7-2011---Secretary Inland Revenue, on 6-9-2011 confirmed that Circular No.6 was wrongly issued---Chief Income Tax Policy, also stated (during the hearing of the Review Application) that Circular No.6 of 2009 was unlawful and he had signed that Circular under pressure---All these admissions and clarifications notwithstanding, S.R.O. No. 1003dated31-10-2011wasissuedtograntexemptiontothe corporate sector from minimum tax by inserting Cl.79 toSecondScheduleoftheIncomeTaxOrdinance,2001---FederalBoard of Revenue issued Circular No.6 of 2009 without mandate.

2010 PTR 1 and 1993 SCMR 1232 rel.

(e) Income Tax Ordinance (XLIX of 2001)---

----Second Sched., Part-II, Cl.79 & S.153---FBR Circular No. 7 of 2011 dated 1-7-2011---S.R.O. 1003 dated 31-10-2011---S.R.O. 1003 dated 31-10-2011 was issued inserting Cl. 79 in the Second Schedule of Income tax Ordinance, 2001 without getting retrospective approval of the amendment in S.153 of the Income Tax Ordinance, 2001 by the Parliament through Finance Act, 2011---Only subsections of S.153 of the Income Tax Ordinance, 2001 were 'realigned to provide clarity without changing the taxation regime through Finance Act, 2011 as explained by Federal Board of Revenue itself in Para 19 of Circular No.7 of 2011 dated 1-7-2011---No approval of the Parliament had been sought through Finance Act, 2012 or Finance Act, 2013 for the purpose.

(f) Income Tax Ordinance (XLIX of 2001)---

----Ss.153(1)(b), 153(6)(iii) & Second Sched., Part-II, Cl.79---FBR Circular No.6 of 2009 dated 18-8-2009---Payments for goods, services and contracts---Tax on services---Exemption to corporate sector service providers from minimum tax---Validity---Federal Board of Revenue acted beyond its jurisdiction exempting corporate sector service providers from minimum tax---Federal Board of Revenue's act of issuing Circular No.6 of 2009, and then inserting Cl. 79 in the Second Schedule to the Income Tax Ordinance, 2001 effectively amending the provisions of S.153 of the Income Tax Ordinance, 2001 without approval of the Parliament smacked of improper motive, as also inefficiency, incompetence and ineptitude---Federal Board of Revenue had no authority to issue S.R.Os./Circulars which contradict the statutory provisions of laws---As no amendment in S.153 of the Income Tax Ordinance, 2001 was approved by the Parliament, insertion of Cl.79 in the Second Schedule to the Income Tax Ordinance, 2001, changing the whole spirit of taxation regime, was clearly an act without jurisdiction---Bumpy and conflicting sequence of Circulars and S.R.Os. leading to insertion of Cl. 79 in the Second Schedule of the Income Tax Ordinance, 2001 through S.R.O. 1003 dated 31-10-2011 being wilful and mala fide came under the definition of "maladministration"---Review application was rejected by the Tax Ombudsman accordingly.

2010 PTR 1 and 1993 SCMR 1232 rel.

Muhammad Munir Qureshi, Advisor, for the Dealing Officer.

Waheed Shahzad Butt for the Authorized Representative.

Asrar Rauf, Senior Member, FBR, Dr. Muhammad Iqbal, Chief ITP, FBR, Aftab Ahmed, then Chief ITP, FBR, Taj Hamid, Secretary IR (Budget), FBR, Dr. Aftab Imam, Secretary, FBR, Khalid Aziz Banth, then Member DT for the Departmental Representatives.

Dr. Ikram ul Haq, Advocate Surpeme Court, Rana Munir Hussain, General Secretary-APTBA, Habib Fakhruudin, Ex-Member FBR Syed Pervaiz Amjad, Ex-Member FBR, for the Amici Curie

ORDER

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---The applicant has filed a petition seeking review of the Findings/Recommendations of the Hon'ble Federal Tax Ombudsman's in Complaint No.286/LHR/IT(240)/577 of 2011 disposed of vide order dated 16-12-2011 as under:--

Findings:

In view of above, it is clear that the FBR Circular No.6 of 2009 dated 18-8-2009 was wrongly issued and the Commissioner Inland Revenue issued Exemption Certificates contrary to law and in departure from FBR's earlier clarifications, which is tantamount to mal-administration as defined under section 2(3) of the FTO Ordinance, 2000.

Recommendations: FBR to ---

(i)initiate appropriate action against officials who approved/issued Circular No. 06 of 2009 dated 18-8-2009;

(ii)initiate appropriate action against officials who issued ExemptionCertificatestoundulybenefitthecorporateentities;

(iii)ascertain the particulars and the amount of tax not withheld @ 6% from each service provider;

(iv)take immediate measures to recover the loss of revenue, as per law;

(v)direct the concerned officials to take suitable action to ensure that the taxpayers, including the cellular companies, issue bills/invoices without reference to exemption from withholding tax; and

(vi)report compliance within 60 days."

2.The Deptt. did not implement the Recommendations of the Hon'ble FTO within the given timeframe. Rather, it filed a Review Application dated 7-2-2012 before the Hon'ble FTO, raising the following issues:--

Preliminary Submissions.

(1)The Hon'ble Federal tax Ombudsman was not competent to hear and investigate public interest complaints such as the one filed by the complainant.

(2)Only an aggrieved person could file a complaint before the Hon'ble FTO and the complainant did not fall in this category.

On Facts.

(1)No mens rea was evident in the conduct of FBR functionaries and therefore no disciplinary action was warranted against them.

(2)The Hon'ble FTO had erred in the understanding of section 153(1)(b) along with its three provisions. The third proviso related to Clause (iii) of subsection (6) only.

(3)The import of the word "further" in the second proviso and its absence in the third proviso was not fully comprehended by the Hon'ble FTO.

(4)The Review was occasioned because of a complexity of construction, the true import of which escaped the Hon'ble FTO."

3.The following officials of the Federal Board of Revenue were examined to ascertain the facts and also to determine their role in the matter:--

(i)Mr. Taj Hamid, then Secretary IR Judicial, FBR, and presently Secretary IR (Revenue Budget)

(ii)Mr. Aftab Ahmad who issued FBR Circular No. 6 on 18-8-2009

(iii)Mr. Khalid Aziz Banth, then Member DT

(iv)Mr. Asrar Rauf, Additional Secretary Revenue

(v)Dr. Muhammad Iqbal Chief ITP

4.As regards the preliminary objection that Mr. Waheed Shahzad Butt, the complainant, is not an aggrieved person and the Hon'ble FTO can only assume jurisdiction if there is an aggrieved party, this objection is misconceived. Mr. Waheed Shahzad Butt levelled allegations of systemic maladministration against the FBR functionaries and the Hon'ble FTO took suo motu notice in public interest, under section 9(1) of the FTO Ordinance. An investigation of this nature does not necessitate a complainant.

5.On facts, it has been contended by the department that in the absence of mens rea in the conduct of FBR functionaries, no disciplinary action is warranted against them. Mens rea in proceedings before the Hon'ble FTO is determined by the attendant circumstances on the basis of balance of probability, not on the basis of criminal law requirement of beyond reasonable doubt. The chain of transactions which resulted in loss of possibly billions to the exchequer and a corresponding gain to the service provider corporations cannot be brushed aside as a bona fide error of judgment.

6.The Review Application is signed by Mr. Taj Hamid, Secretary IR (Budget). He stated that he simply signed the Review Application in a mechanical way. The Application was prepared by other officials. When confronted with the tenor of the Review Application, he tendered an unconditional apology and held out the assurance that he would never use inappropriate language in future.

7.Mr. Aftab Ahmad, the Chief ITP, stated that he signed the FBR Circular No. 6 on 18-8-2009 under pressure from Member DT, Mr. Khalid Aziz Banth. He did not fully grasp the significance of the Circular but just signed it. He stated that Mr. Khalid Aziz Banth had made up his mind that companies deriving income from services ought not be subjected to minimum tax @ 6% under section 153(1)(b) of the Ordinance. He remained upset by the act of signing the Circular and ultimately on 26-4-2011 withdrew the notification. Also, he was told by Mr. Banth that his predecessor had already approved the issuance of the Circular. This assertion however turned out to be false.

8.Mr. Asrar Rauf, Addl. Secretary Revenue, said that the 6% minimum tax was never applicable to companies rendering services. He saidthatitwould not be in the ultimate interest of revenueastaxingthe mobile phone companies would lead to flight of capital from Pakistan. In his opinion an adjustable tax over the year would serve Pakistan better.

9.Mr. Khalid Aziz Banth, then Member DT, made a written deposition dated 24-9-2012. He stated that 1st Proviso to section 153(6) had excluded companies rendering services (other than listed companies) from FTR and had also placed them out of the Minimum Tax Regime. The 2nd proviso related to media services which were similarly excluded. The 3rd proviso related to part (iii) of section 153(6) and covered the resident, non-corporate sector. The corporate sector was already subject to minimum tax @ 1% of receipts through section 113 of the Ordinance when the third proviso was added through Finance Act, 2009. Therefore a second minimum tax under section 153(6)(iii) could not relate to the corporate sector.

10.The Department explained that the minimum tax measure was revenue neutral and no significant tax yield was projected through it.

11.The first point that needs to be resolved is the import of section 153(6)(iii). The 3rd Proviso clearly states that sub-clause (b) of subsection (1) of section 153 shall be the minimum tax. Mr. Khalid Aziz Banth in his statement maintained that this did not relate to the corporate sector. This contention is not based on any valid argument except that section 113 makes the services performed by the corporate sector subject to a minimum tax @ 1% of receipts. However section 113 applies only under certain conditions when no tax is payable by an individual, an AOP or a company. If minimum tax above 1% is leviable, then section 113 is not applicable. Mr. Banth has also sought the shelter of Circular No.3 of 2009 and the Finance Act of 2011. Both do not support the issuance of Circular No. 6. This office is concerned with the motive of Mr. Banth in pressurising his subordinates to issue Circular No. 6. The attendant circumstances tend to show that he was doing this for improper motives. The service providers were first issued certificates of exemption by Commissioners, which were withdrawn when the FBR realized that the law did not provide for such exemptions, after Mr. Waheed Shahzad Butt lodged a complaint before the concerned Commissioners alleging huge loss of revenue being allowed to certain corporate sector service providers. Mr. Butt also lodged a Complaint No. 1258 of 2010 in the FTO Office.

12.DRs Mr. Asif Rasool, Secretary FBR, and Dr. Muhammad Iqbal Chief FBR, accepted that mistakes had been made while issuing Circular No. 6.

13.The Hon'ble FTO decided to obtain the assistance of the following amici curiae:--

(i)Dr. Ikram ul Haq Advocate Supreme Court, and International Tax Consultant.

(ii)Rana Munir Hussein, Advocate, General Secretary Pakistan Tax Bar Association.

(iii)Mr. Habib Fakhrudddin, FCA, Consultant (formerly Member Tax Policy, CBR).

(iv)Syed Pervaiz Amjad, Consultant (formerly Member Audit, CBR).

14.Their input was sought to the following four questions:--

(i)Whether FBR Circular No. 6 of 2009, dated 18-8-2009 effectively negates minimum taxation of service sector receipts @ 6% of gross receipts as envisaged in the amendment made to second proviso to subsection (6) of section 153 of the Income Tax Ordinance, 2001 through Finance Act, 2009?

(ii)Whether legislative intent in the amendments made in section 153 through Finance Act, 2009 is to charge minimum tax on income/loss declared by all service providers @ 6% of gross receipts?

(iii)Whether FBR had the authority to interpret statutory provisions through 'Clarifications', 'Circulars' and 'S.R.Os.'?

(iv)Whether the series of Clarifications/Circulars/S.R.Os. issued by FBR between 1-7-2009 and 31-10-2011 establish mens rea on the part of FBR functionaries?

15.Rana Munir Hussein, Secretary General, All Pakistan Tax Bar Association was of the view that Circular No. 6 was not for interpreting the law but clarifying it as it pertained to companies rendering services. He said that section 206 of Income Tax Ordinance, 2001 expressly empowered the FBR to issue Circulars to provide guidance to the taxpayers as well as the functionaries of FBR. He pointed out that there was no such provision in the repealed Income Tax Ordinance, 1979. The purpose of the provision was to ensure consistency in the administration of the statute. Being a special law it would prevail over the general law. He said that by issuing Circular No. 6, FBR had actually clarified the position with regard to section 153(6) of the Ordinance after amendments were made through Finance Act, 2009. Had the Circular not been issued taxpayers and FBR functionaries would have remained confused. Some taxpayers would have seen the levy as a Final Tax, others as an Adjustable Tax, and still others as a Minimum Tax. FBR had only clarified matters and had not interpreted any law.

16.Rana Munir Hussein said that he was of the considered view that earlier Circulars (C.No.1(6)WHT/2009 dated 4-7-2009 and Circular No.3 of 2009 dated 17-7-2009) and S.R.Os. issued after Circular No.6 for corporate taxpayers' income tax returns (S.R.O. 1158(I)/2010 dated 30-12-2010 and S.R.O. 850(I)/2011 dated 17-9-2011 to notify electronic returns for Tax Years 2010 and 2011) were illegal because they did not support the law pertaining to levy of minimum tax as enacted by the Parliament.

17.Rana Munir Hussein's answer to Question No. (iii) was that while FBR did not have the power to interpret law, it had been empowered, through section 206 of the Income Tax Ordinance, 2001, to issue Circulars to clarify the law for taxpayers and tax functionaries alike.

18.He said that there was an interesting feature to the charge of minimum tax in that a Proviso had been made the charging section to levy minimum tax which was against the scheme of law incorporated in the Income Tax Ordinance, 2001. He said that the correct way to levy tax was through an independent Section, not a Proviso.

19.Coming to Question No. (iv) as to whether the series of conflicting Clarifications issued by FBR showed mens rea of the functionaries involved, Rana Munir Hussein said that in his view mens rea was not involved when there was an honest difference of opinion or a change of opinion on a subject. Rather, mens rea was present only in the case of intentional, wilful action to do something that was not the right thing to do. He said in the present case this was not so and the FBR viewpoint with regard to minimum tax had simply undergone a change since minimum tax was levied through Finance Act, 2009 and certain functionaries chose to differ from those who held the contrary view.

20.Mr. Habib Fakhruddin, FCA, Consultant, formerly, Member Tax Policy, CBR, said that rather than going into interpretation, which was an accepted prerogative of the Courts, what was relevant to this discussion was whether the series of conflicting Clarifications/ Circulars issued by FBR amounted to maladministration by the functionaries involved. He said that he wanted to draw attention to the concluding paragraph of the Deptt. Review Application. In that paragraph, which was akin to a prayer, the Deptt. asserted that the issuance of Circular No. 6 was valid and FBR had done nothing wrong in the matter. However, it was interesting that FBR had considered it fit to file a Review Application after it recognized that the issuance of Circular No.6 had been a mistake. He further pointed out that as against the single Circular No. 6 that asserted that there was to be no 6% minimum tax on companies rendering services, there were a host of other Circulars and Clarifications that affirmed quite the opposite. He said that it was important to find out why this was so. He pointed out that initially, after changes were made in section 153 through Finance Act, 2009, a Commissioner issued exemption certificates to some corporate service providers. The certificates were withdrawn after the Commissioner was told that the law with regard to taxation of services sector income having been changed through Finance Act, 2009, no exemption from tax was available for such taxpayers. Within a few days, however, Circular No.6 was issued by FBR. This again made it possible for corporate taxpayers rendering services to obtain exemption certificates. It was thus obvious that certain taxpayers with influence in the corridors of power were behind the move to get Circular No. 6 issued.

21.Mr. Habib Fakhruddin said that while it was important to see whether companies rendering services attracted levy of minimum tax or not, it was equally important to ascertain what would be the mode of levy of minimum tax on non-corporate taxpayers rendering services. He said that the opinion held by some FBR functionaries that the minimum tax was a final discharge of tax liability and could not be clubbed with other-source income was, in his words, a criminal view of the levy because it should be obvious to all, and especially FBR functionaries, that after the amendments made in section 153 of the Ordinance through Finance Act, 2009, the minimum tax levy could not fairly be visualized as a final tax. Rather, after clubbing of income etc. the tax rate could go up to 25% (non-corporate cases) or even higher (35% in corporate cases) and the 6% threshold was only the minimum tax liability under sections 153(1)(b)/153(6) of the Ordinance.

22.Mr. Habib Fakhruddin pointed out that it was important to see what was the legislative intent behind such taxation moves. In order to do so, the first post-budget Circular issued by FBR was very important. He said that the first such Circular made it clear that minimum tax did apply to corporate entities rendering services and that the legislature intended it to be so levied. He said that a detailed budget brief invariably accompanies a taxation measure giving the pros and cons of the measures and forms the basis of any FBR Circulars. FBR Circular No. 3 relied on such a budget brief and correctly explained the law after amendments made in section 153 through Finance Act, 2009. The subsequent Circular No. 6 was an odd, Circular, not based on a budget brief. Furthermore, the notifications for corporate returns for Tax Year 2010 and Tax Year 2011 were in line with Circular No.3 that correctly explained the minimum tax levy and were against Circular No. 6 and its distorted view of minimum tax. It was significant that the legislature totally disregarded Circular No. 6 of 2009 while approving tax returns for Tax Years 2010 and 2011 for corporate taxpayers.

23.According to Mr. Habib Fakhruddin, the changes introduced in a re-drafted section 153 through Finance Act, 2011 were significant in that there was no longer any doubt regarding minimum tax on companies. Circular No. 7 issued in the wake of Finance Act, 2011 made it clear that the purpose of re-designed section 153 was to provide clarity and re-align existing provisions without changing the taxation regime. It is thus evident that the legislature visualized the minimum tax levy to be fully applicable in the case of companies.

24.The issuance of S.R.O. 1003(I)/2011dated31-10-2011toundo the minimum tax levy for companies was very revealing. Whenever anexemptionfromtaxisintended,thestartdateforavailabilityofexemptionisspecified.However,inS.R.O. 1003(I)/2011dated31-10-2011 no start date was specified. That meant the exemption would be available from the date that the S.R.O. was issued, i.e. 31-10-2011.

25.All this suggests that with regard to charge of minimum tax on corporate service providers, there was something seriously amiss with FBR. It appeared to be adrift, without any clear long term policy or coherent plan for effective resource mobilization. The net result of the repeated FBR somersaults and flip flops with regard to levy of minimum tax on companies left taxpayers more confused than ever and the situation has not been properly resolved to this day.

26.Syed Pervaiz Amjad, FCA, Consultant, formerly, Member Audit, CBR, was of the view that new taxation measures were generally meant to seek increase in revenues. However, Circular No. 6 went against this objective and was a strange 'Clarification' of the law after changes were made in section 153 through the Finance Act, 2009. In his view, Circular No.6 gave unwarranted relief from minimum tax to certain blue-eyed taxpayers. The withdrawal of Circular No. 6 by Mr. Aftab Ahmed who also issued the earlier Circular was, in his view, proof of intentional wrong done by FBR functionaries that was directly linked to the resultant losses in revenue which ran into billions. In his view, mens rea ofFBR functionaries was clearly established by the sequence of events following amendments made in section 153 of the Ordinance through Finance Act, 2009. He disagreed with the FBR view that the presence of an aggrieved person was necessary before the Hon'ble FTO could start investigation in a matter. He said that Hon'ble FTO could intervene whenever FBR's policies adversely affected more than one taxpayer. Information leading to an investigation could come to him from any source.

27.Dr. Ikram ul Haq, Advocate Supreme Court, said that the statute was required to be read as a whole and not piecemeal. He said that the rationale for levy of alternate minimum tax was clear. So many inflated expenses are booked by taxpayers when filing returns that the tax base is drastically eroded and tax yield plummets to an intolerably low level. The only way out of this predicament is to resort to measures like enactment of alternate minimum tax. He further said that instead of creating consistency by issuing Circulars, FBR was actually creating inconsistency. He said that in the presence of back up material it was not possible to presume that FBR was unaware that minimum taxation applied to the corporate sector. FBR made repeated mistakes in matters pertaining to levy of minimum tax and it was just not plausible that only one Circular was correct (i.e. Circular No.6) and all other Circulars/ Clarifications (about twelve in number) were wrong.

28.Summing up, three of the four amici curiae unequivocally held that minimum tax under sections 153(1)(b)/153(6), and, after Finance Act, 2011, sections 153(1)(b)/153(3)(b), was for all service sector taxpayers, corporate as well as non corporate. All three affirmed that Circular No. 6 was based on a wrong and possibly motivated view of the law pertaining to minimum taxation under section 153. They pointed out that Circular No.3 dated 17-7-2009 was issued soon after the changes in section 153 were brought on the statute after enactment of Finance Act, 2009 under which 6% minimum tax was made applicable to all taxpayers rendering services. The three illustrations provided in Circular 3 covered corporate as well as non-corporate taxpayers, wherein 6% tax deducted under section 153(1)(b) was specifically categorized as minimum tax. There was not a word in Circular No. 3 that hinted, however obliquely, at exclusion of the corporate sector from the purview of minimum taxation. Minimum taxation of all service sector taxpayers was again re-affirmed in Circular No.7 of 2011 when Section 153 was re-cast, re-aligned and re-drafted to make it more comprehensible and easy to understand. Earlier, FBR through C.No.1(25)WHT/2009 dated 26-4-2011 superseded Circular No 6 and clarified that 6% minimum tax applied to all taxpayers falling within the purview of section 153(1)(b) of the Ordinance and thereby admitted that the contrary view expressed in Circular No.6 of 2009 was wrong.

29.It is evident that FBR issued Circular No. 6 of 2009 for which it had no-mandate. The interpretation of statutes is the exclusive prerogative of the courts as held by the Supreme Court of Pakistan in the Central Insurance Company case 1993 SCMR 1232 = 1993 PTD 766. In order to better comprehend FBR's actions, one may refer to the issuance of exemption certificates by certain Commissioners of Income Tax to corporate entities, especially Cellular Companies, deriving receipts from rendering services after the changes were introduced in Section 153 following enactment of Finance Act, 2009. The issuance of such certificates was clearly illegal as after introduction of minimum taxation of all service providers through Finance Act, 2009, the 6% tax withheld became the minimum tax below which there was no possible threshold. There was no possibility of refund of tax withheld at source on payments made to serviceprovidersandacorporateentitywasboundtopaythis minimum amount of tax. There could thus be no justification for issuanceofexemptioncertificatestocorporateentities.Whenthematter was brought to their attention, the Commissioners immediately cancelledthe exemption certificates. This evidently triggered a huge effort by the affected corporate entities who obviously wielded considerable clout in the FBR. Within a few days, Circular No. 6 was issued. This so called 'Clarification' was expressly designed to take companies rendering services out of the purview of minimum taxation under sections 153(1)(b)/ 153(6). There could be no greater indictment of a government agency charged with the mobilization of revenue revenues desperately needed by the State than what it did by issuing Circular No.6.

30.The Findings/Recommendations given on 16-12-2011 were on the basis of maladministration discerned through in-depth investigation. All the issues relevant to a just and fair decision of the Review Application have again been thoroughly re-examined. The averments of the concerned officials of the FBR and the departmental representatives have been taken. Inputs of four amici curiae have also been appraised and are grateful acknowledged.

31._After withdrawal of Circular No. 6 of 2009, further Clarifications/Statements/S.R.Os. were issued by the FBR on 26-4-2011, 28-4-2011, 17-6-2011, and 1-7-2011. On 6-9-2011, Secretary IR, confirmed in a hearing at the FTO Secretariat that Circular No. 6 was wrongly issued. Mr. Aftab Ahmad, Chief Income Tax Policy, also stated (during the hearing of the Review Application) that Circular No. 6 of 2009 was unlawful and he had signed that Circular under pressure. All these admissions and clarifications notwithstanding, on 31-10-2011, S.R.O. No. 1003 was issued to grant exemption to the corporate sector from minimum tax by inserting Clause 79 to the Second Schedule of the Income Tax Ordinance, 2001.

32.The superior judiciary has declared any S.R.Os./Circulars for inserting Clauses in the Second Schedule of Income Tax Ordinance, 2001 against the express provisions of law as unlawful. The Hon'ble Supreme Court in a case reported as 2010 PTR 1 (S.C.Pak) in Civil Appeals Nos.1525 to 1536 and C.P. No.143-L of 2008, endorsing the decision of Lahore High Court dated 20-6-2008, had declared a similar S.R.O. as null and void. The FBR vide S.R.O. No. 847(I)/2007 dated 22-8-2007 had inserted Clause 46-B in exercise of its delegated powers. The Supreme Court, referring to its earlier judgment (1993 SCMR 1232), gave the following verdict:--

"Having gone through the available record as well as judgment of the High Court wherein theaboveaspectofthecasehasbeen attended to at length by examining the addition of items Nos.46-A and 46-B, in the Second Schedule vis-a-vis the provisions of section 153(6-B) reproduced hereinabove, we find no ground to differ with the opinion of the learned High Court, since perusal of Clause item 46-B clearly indicates that it has travelled beyond the scope of Section 153(6-B) of the Ordinance. Therefore, we are of the considered opinion that addition of Clause 46-B by amending the Second Schedule in the exerciseof delegated powers was not permissible. The judgment of the High Court is plainly correct to which no exception can be taken".

In its judgment 1993 SCMR 1232, the Hon'ble Supreme Court had observed that interpretation made by FBR through the Circulars was not in conformity with the provisions of Income Tax Ordinance, 2001, and that FBR was not a judicial or quasi judicial forum to interpret the law:

"Any interpretation placed by the CBR on statutory provisions cannotbetreatedasapronouncementbyaforumcompetent to adjudicate upon such a question judicially or quasi-judicially."

33.It is quite intriguing that S.R.O. No. 1003 dated 31-10-2011 was issued inserting Clause 79 in the Second Schedule without getting retrospective approval of the amendment in section 153 by the Parliament through Finance Act, 2011. Only subsections of section 153 were 'realigned to provide clarity without changing the taxation regime' through Finance Act, 2011 as explained by FBR itself in para. 19 of Circular 7 of 2011, dated 1-7-2011. Nor has the approval of the Parliament been sought through Finance Act, 2012 or Finance Act, 2013.

34.It is evident that FBR acted beyond its jurisdiction in exempting corporate sector service providers from minimum tax. The FBR's act of issuing Circular No. 6 of 2009, and then inserting Clause 79 in the Second Schedule effectively amending the provisions of section 153 of the Ordinance without approval of the Parliament smacks of improper motive, as also inefficiency, incompetence and ineptitude. The FBR has no authority to issue S.R.Os./Circulars which contradict the statutory provisions of tax laws, as held by the Hon'ble Supreme Court. As no amendment in section 153 was approved by the Parliament, the insertion of Clause 79 in the Second Schedule, changing the whole spirit of taxation regime, was clearly an act without jurisdiction.

35.ThebumpyandconflictingsequenceofCircularsandS.R.Os. leading to insertion of Clause 79 through S.R.O. 1003 dated31-10-2011 being wilful and mala fide comes under the definition ofmal-administrationintermsofsection 2(3) of the F.T.O.Ordinance,2000.

36.The Review Application is accordingly rejected in above terms, except that as a related aspect of Recommendation (iv) [para 1] is sub judice in the Hon'ble Lahore High Court, its implementation will be taken up in due course, in the light of final determination of the matter by the superior judiciary.

CMA/142/FTOApplication rejected.