APPELLATE TRIBUNAL INLAND REVENUE, BENCH-I,
ISLAMABAD
ITA No.265/IB/2021
(Tax Year 2014)
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Mr.
Mumtaz Ahmed, F-13, 2nd Floor, Ali Arcade, Opp. Habib Bank Ltd, 6th
Road, Satellite Town, Rawalpindi. |
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Appellant |
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Vs |
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Commissioner
Inland Revenue, City Zone, RTO, Rawalpindi. |
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Respondent
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Appellant
By |
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Mr.
Faraz Fazal Shekih, Mirza Saqib Siddeeq, Ch. Naeem Ul Haq, Mr. Ishaq Ali Qazi
and Mr. Zahid Shafiq, Advocates. |
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Respondent
By |
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Mr.
Masood Akhtar, Chief Legal, FBR, Mr. Tariq Iqbal, Secretary (Rules &
SROs) and Mr. Zaheer Qureshi, DR |
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Date of
Hearing |
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25.02.2021 |
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Date of
Order |
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25.02.2021 |
ORDER
M. M. AKRAM (Judicial
Member): This appeal is directed against
the order of the learned Commissioner Inland Revenue (Appeals), CIR(A) dated 09.02.2021 whereby he
rejected the application for condonation of delay. In this appeal we are only
concerned with filing of appeal through electronically as per the prescribed
procedure contemplated in SRO.1315(I)/2020 dated 9th December, 2020.
According to the said SRO, if the appeal is filed electronically before the
learned CIR(A), the appellant would have been entitled to be heard to decide
the appeal in terms of section 129 of the Income Tax Ordinance, 2001 (“the Ordinance”). In the instant case,
the appeal along with application for condonation of delay was filed
electronically and the learned CIR(A) decided the application without giving an
opportunity of being heard to the appellant passed the impugned order in a slip
shod manner. The impugned order is not at all a speaking
order and cannot be called a “judicial order” within the parameters set up by
law. The appellant assailed the impugned order on a number of grounds.
The main issue involved in the instant case relates to SRO.1315(I)/2020 dated 9th
December, 2020 which provides that an appeal shall be filed in the prescribed
manner on IRIS web portal with effect from 01.01.2021. Considering the
importance of the matter, the Member Legal, Member Policy, FBR was called upon
vide order dated 24.02.2021 to appear before this Court on 25.02.2021 either
himself or through Legal Chief and Chief Policy, FBR to assist the Court. On
25.02.2021, the Chief Legal and Secretary (Rules & SROs), FBR appeared on
behalf of the FBR. Similarly, the Bar members also appeared in the instant case
to assist the Court.
2. The contention of the appellant is that the rules prescribed under
SRO.1315(I)/2020 dated 9th December, 2020 are ultra vires of the
rule-making powers conferred on the Federal Board of Revenue (FBR) under Section 237 read with
Section 127(3) of the Ordinance. It was alleged that by virtue of the impugned rules,
the FBR has in effect imposed a restriction for filing of appeal electronically
before the Commissioner Inland Revenue (Appeals) which is against the
substantive provisions of section 127 of the Ordinance and also infringing the
fundamental rights and due process of law. It is submitted that this power to
legislate on matters relating to filing of appeals was vested in the Federal Legislature
only under the Constitution of the Islamic Republic of Pakistan, 1973. As such these
rules framed by the FBR are ultra vires and in excess of the delegated powers
vested in it. Even otherwise these rules are oppressive, unreasonable and
inconsistent with the provisions of the Ordinance. The appellant cannot be
deprived from its statutory right of appeal on the basis of technicalities.
3. The respondent controverted these allegations. They argued that rules
in question did not operate to impose any restriction. It has merely prescribed
the manner for filing of appeal in accordance with the provisions contained in
sub-section (3) of Section 127 of the Ordinance. The respondent submitted that rules
are intra vires of the powers of the FBR vested under Section 127(3) read with
Section 237 of the Ordinance. It was denied that the impugned rules are oppressive
and unreasonable. The learned representatives of the FBR submitted that as per
prescribed procedure filing of appeal through electronically is mandatory. In
order to be entitled to be heard in appeal, an appellant, as a condition
precedent, has to furnish the appeal through electronically before the CIR(A).
In support of the submissions, the learned representatives relied upon the forgoing
SRO.
4. We have heard the learned Counsel for the Appellant and the
representatives of the FBR. In order to appreciate the contentions raised by the parties, it
is necessary to bear in mind the actual language used in the concerned section
and the rules framed under the Ordinance. The relevant portion
of Section 127(3) of the Ordinance reads as follows: -
“Section 127(3). An appeal under sub-section (1) shall —
(a) be in the prescribed form;
(b) be verified in the prescribed manner;
(c) state precisely the grounds upon which the
appeal is made;
(d) be accompanied by the prescribed fee
specified in sub-section (4); and
(e) be lodged with the Commissioner (Appeals)
within the time set out in sub-section (5).”
Section 127(3) of the Ordinance specified the procedure for filing
of appeal. Section 127(3) controls the applicability of section 127 and
says that appeal has to be filed in the prescribed form, verified in the
prescribed manner and shall be lodged with the Commissioner (Appeals) within
the time set out in sub-section (5). The language of section
127(3) is express, explicit and mandatory. The right of appeal under the
Ordinance is conditional upon the appellant producing and furnishing an appeal
in prescribed form and verified in the prescribed manner.
"Prescribed" means prescribed under the rules. Since the section
contemplates furnishing of the appeal before the Commissioner (Appeals), it
will not be ordinarily sufficient compliance, if it is filed before the
appellate authorities without the prescribed procedure. Non-compliance with the
mandatory rule of furnishing the appeal will inevitably deprive the appellant
of statutory right of appeal enshrined in section 127 of the Ordinance. We
derive support for our opinion in the provision contemplated in section 114(2A)[1],
118(2A)[2]
and 165(5)[3].
In these provisions, the law specifically asked the taxpayer to follow the
procedure electronically whereas section 127 does not say so and the said
section allows the appellant to lodge the appeal before Commissioner (Appeals).
It appears to be a great hardship to deprive a taxpayer of his statutory right
of appeal which comes under section 127 of the Ordinance, merely
because of the non-filing of appeal through electronically.
5. In exercise of its powers conferred under Section 237 of the Ordinance, the FBR has issued the S.R.O.1315/(I)2020 dated 9th December, 2020 prescribing electronic filing of appeal before Commissioner (Appeals) on the IRIS web portal by amending the Income Tax Rules, 2002. We had heard the learned representatives of the FBR and find that the rules framed by the FBR are inconsistent with the statutory provisions of the Ordinance as well as against the principle of due process of law and fair trial. This is a clear violation of Article 10A of the Constitution of Islamic Republic of Pakistan, 1973. After insertion of Article 10A in the Constitution of Pakistan 1973, “fair trial” and “due process” are fundamental rights of every citizen for determination of his civil rights and obligations. Before passing the order, the reason should be confronted and be given an opportunity of being heard to the appellant. Reliance is placed on in a judgment titled as Sarfraz Saleem vs. Federation of Pakistan and others,[4] wherein it was held:-
"4……every person, for determination of his civil rights and
obligations or in any criminal charge against him shall be entitled to fair
trial and due
process."
In another case titled as Babar Hussain Shah and another vs. Mujeeb
Ahmed Khan and another,[5]
the Hon'ble Apex Court has highlighted the import of Article 10A of the
Constitution by observing that: -
"11... concept of fair trial and due process has always been the
golden principles of administration of justice but after incorporation of
Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973 vide
18th Amendment, it has become more important that due process should be adopted
for conducting a fair trial and order passed in violation of due process might
be considered to be void.."
It is pertinent to point out
here at the outset that we are mindful of our jurisdiction that is indeed
different from the authority of the Judicature that is directly established
under the Constitution of Pakistan, 1973. We, therefore, limit our findings to
the deficiencies in the amendments to the Income Tax Rules, 2002, prescribed by
the S.R.O.1315 (I)/2020 which were put to the learned representatives of the
FBR appearing before us and they had either concurred to or did not have any
explanation to offer. We are much grateful to the learned representatives of
the FBR for appearing on notice before. We appreciate their contributions and
their resolve to review the rules to bring the same in line with the Ordinance
and the Constitutional provisions of the fair trial and due process.
6. We note a draft of amendments to the Income Tax Rules, 2002
prescribed by the S.R.O.1315(I)/2020 dated 9th December, 2020 was
published by means of S.R.O.1262(I)/2020 on 26th November 2020. This
publication was made in order to meet the statutory requirement of sub-section
(3) of the Section 237 of the Ordinance and for the purposes of “information of
all persons likely to be affected thereby”. In this S.R.O.1262(I)/2020, the
person likely to be affected, which in this case are the taxpayers generally,
were invited to forward their objections and suggestions to the FBR within a
period of seven days from the date of publication of the S.R.O.1262(I)/2020
dated 26th November, 2020. This was confirmed by the learned representatives
of the FBR that no objection or suggestion was received by the FBR following
the publications of the draft amendments to the rules by S.R.O.1262(I)/2020
dated 26th November, 2020. We believe that the aforesaid period of
seven days was too short to expect a reasonable member of public or taxpayer
community to submit a response to the S.R.O.1262(I)/2020 dated 26th
November 2020. We also find that in principle, this consultation is not
complete without the procedure of user testing and inviting the views from the
bodies representing the persons authorised to represent a taxpayer under
Section 223 of the Ordinance.
7. The learned representatives of FBR have also confirmed us that
the only method of filing of an appeal before the Commissioner (Appeals) under
Section 127 ibid is by way of online
mechanism. Nevertheless, this is in contrast with the scheme of the statute
where, so much so, even electronic filing of a return of income tax is limited
to the taxpayers having salaried income of not less than five hundred thousand
rupees (See for example Section 118(2A) of the Income Tax Ordinance, 2001).
Similarly, sub-rule (2DD)[6] of the Rule 73 of the
Income Tax Rules, 2002 also provides for limitation of taxable income of one
million rupees or more or turnover/receipts exceeding fifty million rupees for
the purpose of electronic filing of returns and statements. In this view of the
matter, we find that the scheme of statute has adapted to methodology of
classification on ratio of the income of a taxpayer for the purpose of
application of the electronic medium of communication and submission of returns
etc. However, this aspect is missing in the amendments introduced by
S.R.O.1315(I)/2020. In case of a taxpayer, whose
return is filed manually, he has no option to file the appeal either manually/ in
paper form or electronically. Hence, the amendments are not in in line
with the Scheme of the statute. We believe that it would be beneficial if the
taxpayer is given an option of choosing between the electronic and manual
appeal or through registered post till such time the Ordinance as well as the
rules are not properly amended by the concerned authorities.
8. We also find that right of appeal is a substantive right
reliance may be placed on the judgment titled as Colonial Sugar Refining Co Vs
Irving[7]
and given the objective conditions of our Country vis-à-vis literacy and
reliability of electronic mediums, the mandatory filing of appeal by electronic
means is unwarranted obstructions in exercise of that right by a considerable
proportion of the taxpayers. Further while framing the rules, the provisions of
sub-section (5)(b)[8] of
section 170 of the Ordinance had totally been ignored which provides the right
of appeal to the aggrieved person on the failure of the Commissioner to pass an
order under sub-section (4) of section 170 ibid within the time specified in
that sub-section. Resultantly, the aggrieved person has been deprived of his
substantive right of appeal under the impugned rules. As a result, the
amendments to the Income Tax Rules, 2002 by means of S.R.O.1315/(I)/2020 dated
09th December, 2020 are inconsistent with Sections 127 and 170(5)(b)
of the Ordinance.
9. Similarly, we find that given the scheme of the statute, the
authority to prescribe for electronic filing of appeal appears to be domain of
the Parliament and not the FBR. In this respect, we refer to Sections 114(2A)
of the Ordinance, which recognises electronic filing of return. On the other
hand, there is no such perception in Section 127 of the Ordinance in relation
to the filing of appeal before Commissioner (Appeals) by electronic means.
Likewise, in Section 165(5), the Parliament has specifically authorised the
Board to make rules for the purposes of the electronic filing of the
statements; however, no such recognition to electronic appeal or power to make
rules for that purpose is bestowed upon the FBR by the Parliament in the
Ordinance. Hence, the amendment to the Income Tax Rules 2002 by
S.R.O.1315(I)/2020 dated 9th December, 2020 are potentially
inconsistent with the scheme of the Ordinance as well as beyond jurisdiction.
This could have been better done by the Parliament by suitably amending the
Income Tax Ordinance, 2001.
10. Before parting with this judgement, we would like to specifically
mention that the rules introduced by S.R.O.1315(I)/2020 do not sufficiently
address the issues relating to the application for condonation of delay. In
this respect, the representatives of the FBR have confirmed that where an
appeal before CIR(A) is filed electronically, the filer does not receive any
confirmation by email, by the portal or any other means to confirm the
successful submission of the appeal. Similarly, in case the appeal is filed
late, there is provision for adding grounds for condonation of delay, however,
this application is decided in isolating without making any decision on appeal.
Moreover, this decision is made unilaterally without providing any opportunity
of live hearing by the aggrieved person. We find that this is absolutely
against the principles of administration of justice, in as much as, the decision
on application for condonation of delay invariably involves questions of fact
or mixed questions of law and fact, which cannot be safely decided without a
personal hearing or recording evidence. More so, a decision rejecting
application on condonation of delay without rejecting the appeal leave an
appellant in limbo because the appellant cannot assail implied rejection of
appeal in the Tribunal.
11. We have also noticed that the IRIS system miscalculates the
limitation to file an appeal by short of one day. Likewise, it does not address
or cater for situation under Section 4 of the Limitation Act, 1908. Equally,
rules 76E[9] (Defective appeals etc.)
of the Income Tax Rules, 2002, which are introduced by S.R.O.1315 (I)/2020 does
not make any sense to us. We have struggled to make sense of it even with the
help of learned representatives of the FBR, however, we all were unable to make
any progress due to problem with the grammar, composition and arrangement of
the legislative text of rule 76E.
12. We have also observed that the there is no provision for personal
service of notice, appeal decision in the IRIS system. We find that this is in
contravention of Section 218(1)(a) and 218(2)(a) of the Ordinance. In this
section the electronic service of any notice or order etc. is a secondary but
not a primary method of service. In this context, we find that the Section 218
provides for two mandatory modes of service of notice or order etc., that is
(1) Primary service which is always requires personal service on individual;
and (2) Secondary service, which must be either by post, electronic means or
other method as prescribed for service of summons under Code of Civil
Procedure, 1908 (V of 1908). Notwithstanding the aforesaid, the sub-rule (2)[10] of 74 of the Income Tax Rules,
2002 provides that where a person has notified the Commissioner in writing of
an electronic address for service of documents under the where a person has
notified the Commissioner in writing of an electronic address for service of
documents under the Ordinance or rules, a document required to be served on the
person by the Commissioner or Chief Commissioner shall be considered
sufficiently served if sent to that address. Thus, without notifying to the
Commissioner or Chief Commissioner in writing of an electronic address for
service of documents by the person in accordance with the procedure laid down
in rule 80A and 80B of the Income Tax Rules, 2002, the service of documents
under the Ordinance shall not be considered as valid service under the law.
13. In view of above, we observe that the amendments introduced by
S.R.O.1315 (I)/2020 are a misguided and injudicious attempt to benefit from the
legitimate fruits of the modern technology. Nevertheless, we do encourage and
stand by the efforts of the FBR to modernize the system. This is indeed
important for the goals of ease of doing business and transparency of the
system.
14. We are also minded clarifying that this Tribunal has no
jurisdiction to strike down rules prescribed by the FBR and we are not doing
that in this decision. Nevertheless, we have identified a few out of many
deficiencies in the system introduced by the FBR for electronic filing of the
appeal before the CIR(A). We find that Respondent as a public functionary must
act fairly in accordance with Article 10A of the Constitution of Islamic
Republic of Pakistan, 1973. It is settled law that on the act of the public
functionaries, the person cannot be penalised.
15. Looking the matter from another angle,
the question arises for consideration is when the taxpayer has filed appeal
manually / in paper form, can we say that there was no valid appeal before the
Commissioner (Appeals)? According to the SRO.1315(I)/2020 technically speaking,
the taxpayer has to file the appeal as per the procedure prescribed in the said
rules. Section 127 of the Ordinance provides an appeal before the Commissioner
(Appeals) against the orders specified therein. This right of appeal provided
under section 127 of the Ordinance is a substantive right under the
scheme of the Ordinance.
16. Further the Revenue claims that Rules of
Income Tax Rules, 2002 provides for filing appeal electronically, therefore,
the appeal filed manually / in paper form is not maintainable and shall not be
deemed to have been filed. This contention of the Revenue takes us to a
question when there is a conflict between substantive justice and technicality,
whether technicality is to be preferred or substantive justice? This was
examined by the Apex Court in Collector Land Acquisition Vs Mst Katiji
and others[11]. The
Apex Court found that when substantial justice and technical considerations are
pitted against each other, the cause of substantial justice deserves to be
preferred rather than technicality. In fact, the Apex Court has observed as follows:
-
"And such a liberal approach
is adopted on principle as it is realized that:
1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late.
2.
Refusing
to condone delay can result in a meritorious matter being thrown out at the
very threshold and cause of justice being defeated. As against this, when delay
is condoned, the highest that can happen is that a cause would be decided on
merits after hearing the parties.
3.
"Every
day's delay must be explained" does not mean that a pedantic approach
should be made. Why not every hour's delay, every second's delay? The doctrine
must be applied in a rational, common sense and pragmatic manner.
4.
When
substantial justice and technical considerations are pitted against each other,
the cause of substantial justice deserves to be preferred, for the other side
cannot claim to have vested right in injustice being done because of a non-
deliberate delay.
5.
There
is no presumption that delay is occasioned deliberately, or on account of
culpable negligence, or on account of mala fides. A litigant does not stand to
benefit by resorting to delay. In fact, he runs a serious risk.
6.
It
must be grasped that the judiciary is respected not on account of its power to
legalize injustice on technical grounds but because it is capable of removing
injustice and is expected to do so.”
17. Moreover, under Article 77 of
Constitution of Islamic Republic of Pakistan, 1973 no tax shall be levied
except by or under the authority of law. Therefore, when the taxpayer has a substantive
right of appeal under 127 of the Ordinance, such a right cannot be taken
away so lightly merely because there was a violation of procedural aspect
in the form of filing appeal or any other ancillary requirements thereof.
Reliance may be placed on the judgment titled as Tariq Ikram Vs Income Tax Appellate Tribunal etc[12]
So far, the taxpayer was permitted to
file appeal in manual / paper form or through registered post. Now the
Department switched over to electronical format for filing the appeal. This is
the transition stage. Therefore, this Tribunal is of the considered opinion
that unless and until the deficiencies pointed out in the foregoing paragraphs
are not rescued through proper amendments in the statute as well as the rules,
the taxpayers cannot be restrained to file the appeals through electronic mode only.
They may be allowed to file their appeals manually / in paper form or though
registered post and thereafter a notice may be issued to them by giving
reasonable time to bring the appeals in conformity with the rules. Therefore,
throwing the taxpayer out of court by saying that the appeal was not filed
electronically may not be justified at all.
18. The
assessment proceeding before the Assessing Officer and the Commissioner (Appeals)
is a judicial proceeding as provided under section 224 of the Ordinance.
Moreover, the very object of proceeding before the Income Tax Authorities is to
compute the taxable income, levy tax thereon as per the law and collect the
same as per the procedure prescribed for collection of tax. Therefore, merely
on technicalities, the Government cannot retain a single penny of taxpayer
which is not authorized by law. An effective appeal remedy is provided under
section 127 of the Ordinance, therefore, merely because there was a
technical flaw or violation of not filing the appeal electronically, this
Tribunal is of the considered opinion that the appeal of the taxpayer cannot be
thrown away.
19. By keeping in view the law laid down by Apex
Court in Collector, Land Acquisition (supra), provisions of the Constitution
for levy and collection of taxes and the transition period the taxpayers and
the Department are passing through, this Tribunal is of the considered opinion that
unless and until the deficiencies pointed out in the foregoing paragraphs are
not rescued through proper amendments in the statute as well as the rules, the
taxpayers cannot be restrained to file the appeals through electronic mode only.
They may be allowed to file their appeals manually/ paper form or though
registered post and thereafter a notice may be issued to them by giving
reasonable time to bring the appeals in conformity with the rules. Therefore,
throwing the taxpayer out of court by saying that the appeal was not filed
electronically may not be justified at all.
20. For what has been discussed above, the
appeal of the appellant is allowed and the impugned order is set aside and the
case is remitted back to the learned CIR(Appeals) with the directions to
admit appeal and decide on merit. Let this order be
sent to the learned Chairman Federal Board of Revenue, Member Legal and
Member Policy for the purposes of issuing instructions to all officers
adjudicating appeals under section 129 of the Ordinance to comply with the
above said provisions of law and their mandatory nature. They should also be
made aware of serious consequences in case the said provisions are not strictly
adhered to.
21. This order consists of (16) pages and each
page bears my signature.
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Sd/- (M. M. AKRAM) JUDICIAL MEMBER |
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Sd/- (IMTIAZ AHMED) ACCOUNTANT
MEMBER |
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[1] 114(2A) A return of income filed
electronically on the web or any magnetic media or any other computer readable
media as may be specified by the Board shall also be deemed to be a return for
the purpose of sub-section (1); and the Board may, by notification in the
official Gazette, make rules for determining eligibility of the data of such
returns and e-intermediaries who will digitise the data of such returns and
transmit the same electronically to the Income Tax Department under their
digital signatures and other matters relating to electronic filing of returns,
statements or documents, etc.
[2] 118(2A) Where salary income for the tax
year is five hundred thousand rupees or more, the taxpayer shall file return of
income electronically in the prescribed form and it shall be accompanied by the
proof of deduction or payment of tax and wealth statement as required under
section 116 or a foreign income and assets statement under 116A, if applicable.
[3] 165(5) The Board may make rules relating
to electronic furnishing of statements under this section including,- (a)
mandatory electronic filing of statements; and (b) determination of eligibility
of the data of such statements and e-intermediaries, etc.
[4] PLD 2014 SC 232
[5] 2012 SCMR 1235
[6] Rule 73(2DD) In case of an individual declaring taxable income one
million rupees and more or turnover or receipts exceeding fifty million rupees
electronic filing of income tax return and withholding statement shall be
mandatory from the first day of July, 2016 onwards.
[7] 1905 AC 369
[8] 170(5) A person aggrieved by— (a) an order passed under
sub-section (4); or (b) the failure of the Commissioner to pass an order under
subsection (4) within the time specified in that sub-section, may prefer an
appeal under Part III of this Chapter.
[9] 76E. Defective appeals etc.-(1) where an appeal is not
filed electronically in the manner specified in these rules, an electronic
notice shall be issued within three days requiring the appellant or his
authorized representative, if any to bring the appeal in conformity with the
rules, within the time limitation as specified in sub-section (5) of section
127 of the Ordinance subject to just exception under sub-section (6) of the
aforesaid section and the appeal so received shall not be deemed to have been
filed unless the provisions of these rules have been fully complied with.
[10] 73(2) where a person
has notified the Commissioner in writing of an electronic address for service
of documents under the Ordinance or rules, a document required to be served on
the person by the Commissioner or Chief Commissioner shall be considered
sufficiently served if sent to that address.
[11] (1987) 167 ITR 471
[12] 2003 PTD 1784
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