COMMISSIONER CANNOT REJECT A LOWER ESTIMATE OF PAYMENT OF ADVANCE TAX
03rd OF 2024 Karachi Tax Bar Association (KTBA) ONE PAGER CASE LAW UPDATE (July 25, 2024)
Appellate Authority:
Sindh High Court Appellants: SICPA Inks Pakistan (Private) Limited Section: 147 of the Income Tax Ordinance, 2001 (the Ordinance) Detailed judgment was issued on July, 23 2024.
Background:
The department rejected the lower estimate filed after the 1st quarter under Section 147(6) and issued demand notices for advance tax payments, claiming its authority to verify, reassess and recover shortly-paid tax. The petitioners argued that the Commissioner cannot object to estimates until after the final tax return is filed and pleaded the impugned Orders, Demands and Notices be set asided. On the other hand the department insisted that despite the removal of the 2nd proviso, it can still assess the estimates, claiming that some adjustments by the Petitioners are inadmissible.
Decision of the Court:
First Ruling of the Court:
NO AUTHORITY OR JURISDICTION IN ADVANCE TAX PAYMENT DISPUTES
On the question of non-acceptance or rejection of an estimate of advance tax the court ruled that there is no specific provision allowing action against the taxpayer where the estimate is incorrect for any reason. An Assessing Officer had no authority to pass any order if the taxpayer paid less advance tax for any reason. The Court concluded that the law does not grant any authority or jurisdiction to act against a taxpayer who fails to pay or delays payment or makes a short payment of advance tax instalments as it does not provide any immediate penalty for such actions.
Second Ruling of the Court:
JUDICIAL INTERPRETATION OF SECTION 147 IN KPT CASE
In the case of Karachi Port Trust, the Court examined the Section 147 of the Ordinance and concluded that once an advance tax estimate is filed, the department has no authority to reject it or to demand additional tax payments based on subsections (1) and (4). The only recourse available to the commissioner is to levy default surcharge after completing the assessment if applicable
The Court also addressed Section 137(2) noting that while it authorizes recovery of unpaid advance tax as if it were tax due under an assessment order, it does not grant authority to pass orders for such recovery. Consequently, the Taxation Authority's orders were deemed without jurisdiction. This KPT judgment is binding and the reliance by the department on a Lahore High Court judgment from a different period (2018-2021) was found to be inapplicable.
Third Ruling of the Court:
AMENDMENT AND SUBSEQUENT OMISSION OF AUTHORITY TO REJECT ADVANCE TAX ESTIMATES in TY 2021
To counteract previous judgments, the Federal Government amended the Ordinance by adding a 2nd proviso to Subsection (6) of Section 147, thereby allowing the Commissioner to reject advance tax estimates if unsatisfied with the provided evidence. However, this proviso was omitted through the Finance Act, 2021. The omission indicates that a Commissioner no longer has the authority to examine or reject advance tax estimates, reflecting a legislative intent to remove such powers. The FBR's Circular No. 02 of 2021-2022 confirms this by noting the withdrawal of the Commissioner's power to reject estimate.
Fourth Ruling of the Court:
LATEST AMENDMENT BY FINANCE ACT, 2024
The newly inserted Section 6B by Finance Act, 2024 now includes the second proviso, allowing the Commissioner to reject advance tax estimates if unsatisfied with the documentary evidence or details provided. This change indicates that for the cases in question, the Commissioner had no authority to reject estimates earlier
CONCLUSION: Given the settled law in Pak Saudi Fertilizer, Karachi Port Trust, and Pakistan Petroleum Limited, the department's actions based on misconceptions are deemed inappropriate. Although the actions may amount to contempt, the Court will not pursue further action against the officials due to potential confusion caused by the Ordinance amendments from 2018 to 2021, Officials are cautioned to avoid such violations in the future, and the FBR is advised against issuing internal instructions that contradict the Court's judgments.
DISCLAIMER: This update has been prepared for KTBA members and carries a brief narrative on a detailed Judgment and does not contain an opinion of the Bar, in any manner or sort. It is therefore, suggested that the judgment alone should be relied upon. Any reliance on the summary in any proceedings would not be binding on KTBA.
Source: Karachi Tax Bar Association (KTBA)
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