President confirms FTO verdict: no tax payable, no penalty for late filing When no tax was payable, penalty for late filing of income tax return is illegal. This tantamount to maladministration, as President has confirmed the landmark verdict issued by the Federal Tax Ombudsman (FTO), according to sources. Sources told Business Recorder, here on Wednesday that the President has rejected a representation filed by the Federal Board of Revenue (FBR) under section 32 of the FTO Ordinance, 2000 as the recommendations issued by the FTO on the issue of penalty for late filing of income tax return, has been endorsed by the President and questioning the jurisdiction of the FTO by the FBR on the basis of availability of remedy through appeal has been rejected. When contacted, a Lahore-based tax lawyer Waheed Shahzad Butt told this correspondent that present case is one instance of rule of law and principles of natural justice, when it comes to penalising taxpayers. Former FTO Muhammad Shoaib Suddle had issued recommendations to the FBR to direct the Commissioner to revisit the penalty order, as per law, by invoking the provisions of Section 122A because act of imposition of penalty being illegal tantamount to maladministration. Sources further informed that earlier complainant approached the FTO feeling aggrieved on imposition of penalty for late filing of returns while determining refund as claimed in both the returns; the complainant approached the FTO stating that provisions enhancing penalty was introduced vide Finance Act, 2010 and could not have been applied retrospectively in the matter of tax year 2010. It was further contended that no tax was payable in both the years. Agency replied that since Returns were filed late penalty was lawfully imposed. There is a vast difference between Tax payable and Tax chargeable. Under the provisions of Income Tax Ordinance, 2001 (Ordinance) the aggregate of all taxable income shall be charged to tax as per law and the gross levy/charge of income tax shall be tax chargeable on taxable income, however, taxpayer is allowed to deduct all payment/deductions of taxes against the tax chargeable and the resultant figure shall be termed as Tax Payable. For instance against income of Rs 10 million a taxpayer is liable to pay Rs 3.5 million tax, which shall be treated as Tax Chargeable but after adjustment of tax payments/deductions under different section of Ordinance (Rs 3 million) resultant Tax Payable shall become Rs 0.5 million only, Waheed added. Tax lawyer said that for the purposes of quantification, penalty has been prescribed under section 182 of the Ordinance. This section has specified that penalty shall be imposed on the basis of the tax payable. For imposing the penalty for default under section 114, the pre-requisite is the tax payable by such taxpayer. Penalty for default of section 114 only becomes leviable when there is a tax payable. If we look at the nature of penalty which seems to be only in the nature of mark-up for the late payment or utilising the public money for taxpayers own use. Section 182 of the Ordinance provides that whoever commits any offence meaning thereby who fails to deposit the amount of income tax due or any part thereof in time or in the manner laid down under the Ordinance shall be liable to penalty. Once committing of offence is established then the offending person is liable to penalty besides other liabilities under the law. In case of non-filing or late filing of income tax return where no tax was payable then obviously there was no question of deliberate or wilful default liable to penalty for late filing of income tax return because said taxpayer is not utilising the public money for his own use. When the pivotal issue of committing offence is missing then question of imposing penalty under the law does not arise at all, Waheed said. This representation has been filed by Agency questioning jurisdiction of the FTO as remedy of appeal was available. Accordingly, the President has been pleased to reject the above referred representation, the order added.
Posted on: Thu, 09 Oct 2014 05:35:35 +0000
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