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Petitioner: Muhammad Ali Tabba, Karachi VS Respondent: The Commissioner Inland Revenue, Aeoi, Zone, Lto, Karachi
Court Name: Appellate Tribunal Inland Revenue Judge(s): Sardar Muhammad Ajaz Khan, Imtiaz Ali Solangi Title:Muhammad Ali Tabba, Karachi vs The Commissioner Inland Revenue, Aeoi,
Zone, Lto, Karachi Case No.: I.T.A. No.645/KB of 2023 Date of Judgment:2023-06-09 Reported As: 2023 PTD (Trib.) 1103 Result: Appeal dismissed Judgment ORDER SARDAR M. AJAZ KHAN, JUDICIAL MEMBER.----The titled appeal is pertaining to the levy of Capital Value Tax on foreign assets of resident individual for the Tax Year 2022. The appeal has been preferred on behalf of appellant/taxpayer, challenging the validity of the order dated 16.03.2023 passed by the learned CIR (Appeals-I), Karachi. The appellant/taxpayer has assailed the impugned order of learned Commissioner Inland Revenue (Appeal-I) on the following grounds: 1) The order passed by the Commissioner Inland Revenue - Appeals I, Karachi (CIRA) is bad in law and on the facts of the case. 2) These grounds of appeal are being filed without prejudice to all objections raised against the levy of Capital Value Tax (CVT) by the appellant taxpayer before the Hon'ble Supreme Court of Pakistan. 3) The CIR(A) erred in confirming the order passed by the Deputy Commissioner Inland Revenue, Unit-AEOI-4, Range -B-AEOI, Zone-AEOI, Large Taxpayers Office, Karachi (DCIR) under section 8(7) of the Finance Act, 2022 (Capital Value Tax 2022). 4) The CIR(A) erred in confirming the DCIR's order who did not adhere to the principles of natural justice and fair play, by passing the order-in-original in undue haste, and without allowing proper opportunity of being heard to the appellant taxpayer. 5) The CIR(A) erred in passing the impugned order by not adhering to the principles of natural justice and fair play, by passing the impugned order in undue haste, and without allowing proper opportunity of being heard to the appellant taxpayer particularly with regard to comments received from the DCIR on written arguments filed on behalf of the appellant/taxpayer.
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6) Without prejudice to the grounds of Appeals Nos. 2 to 5 above, the CIR(A) erred in confirming the DC1R's action of levying CVT on assets which have been duly declared under Foreign Assets (Declaration and Repatriation) Act, 2018 (2018 Act) and are, thus, immune from any tax in Pakistan on their principal amount as envisaged in the provisions of the 2018 Act. 7) Without prejudice to the grounds of Appeals Nos. 2 to 6 above, the CIR(A) erred in confirming the DCIR's erroneous calculation of CVT under Section 8(7) of the Finance Act, 2022 by including in the value of foreign assets the assets which are located in Pakistan' and beneficially owned through a foreign entity by the appellant, being a resident person. Such assets do not represent foreign assets' under the law and circular issued by the Federal Board of Revenue. 8) Without prejudice to the grounds of Appeals Nos. 2 to 6 above, the CIR(A) erred in not annulling the order of the DCIR who had not given any view on the matter raised in ground No. 7 above despite the fact that the same was appropriately raised in the reply given by the appellant which is also reproduced by the DCIR in his impugned order. 9) Without prejudice to the grounds of Appeals Nos. 2 to 6 above, the CIR(A) erred in confirming the DCIR's calculation of the CVT liability in foreign currency using the rate of exchange prevalent on June 30, 2022. The general and this specific law requires that all taxes under the Constitution of Pakistan are to be levied on the cost of assets in Pakistan rupees. 10) Without prejudice to the grounds of Appeals Nos. 2 to 6 above, the CIR(A) failed to take into consideration that the order passed by the DCIR was in contravention of Entry 50 of the Federal Legislative List of the Constitution of Islamic Republic of Pakistan, 1973. II) Without prejudice to the foregoing grounds of appeal the CIR(A) erred in confirming the DCIR's incorrect calculation of the cost of foreign assets inter alia by not taking into account the impact of foreign liabilities. 2. Brief facts as gathered from the record arc that the appellant/taxpayer is an individual, who filed income tax return, wealth statement and foreign income and assets statement. As per tax declarations, appellant is the owner of foreign assets with value of more than One Hundred Million Rums 3. According to Section 8(4)(g) of the Finance Act, 2022-read with Rule 3 of Capital Value Tax Rules, 2022, the appellant was liable to file Capital Value Tax (CVT) declaration along with its due payment. However, the appellant failed to discharge above mentioned liability. Therefore, appellant's default in respect of CVT under section 8(6) of the Finance Act, 2022 stand established, which entailed proceedings under section 8(7) of the said Act. 4. Since the appellant failed to file prescribed C.V.T. declaration, the value of foreign assets was needed to be determined in the light of Section 8(3)(c)(i) of the Act. 5. Accordingly, notice was issued on 03.01.2023 under section 8(7) of the Finance Act, 2022 for compliance by 10.01.2023. In response, the AR of the appellant submitted written application for extension of time which was allowed till 19.01.2023. On the due date, the AR of the appellant furnished written reply which was examined by the DCIR. Therefore, DCIR passed the impugned order under section 8(7) of the Ordinance on 31.01.2023, creating Capital Value Tax demand amounting to Rs 7,053,514/- 6. The appellant/taxpayer felt aggrieved with the order passed by the Deputy Commissioner Inland Revenue (DCIR) Unit-AEOI-4. The appellant preferred the appeal before the learned CIR(A), Karachi vide order dated 16.03.2023 who confirmed the order of DCIR. 'the appellant/taxpayer again felt aggrieved and dissatisfied with the treatment meted out by the learned CIR(A), hence filed second appeal before this Tribunal on a number of grounds, as reproduced in para 1 above. 7. The case finally came up for hearing on 30.05.2023. Messrs Syed Shabbar Zaidi and Asim Zulfiqar, FCA appeared on behalf of the appellant/taxpayer while Mr. Ajaz Ahmed, DR and Barrister, Dr. Huma Sodher (Legal Advisor) both appeared on behalf of the Department.
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8. We have considered the verbal and written submissions of the appellant and perused the grounds of appeal and also considered the comments on the grounds of appeal submitted by the department along with impugned order. The main thrust of the arguments of the appellant side raising numerous technical and legal objections. OUR FINDINGS Grounds Nos.1 and 2, Jurisdiction 9. The Appellant's AR challenged the impugned order on the basis of jurisdiction and asserted that the impugned order is bad in law and on the facts of the case. The Appellant's counsel argued that no jurisdiction for the collection of CVT has been notified by the FBR. He further argued that jurisdiction notification to AEOI Zones as per F. No 6 (154) IR-jurisdiction/2017/51066-R dated 20 April 2017 does not include the powers conferred under Section 8 of the Finance Act, 2022. Further, by way of another Notification F.No.6.(154) Jurisdiction/2017-56206-R issued on March 17th 2022, these powers have been restricted to the provisions contained in that notification and the order passed by the DCIR of the AEOI Zone is without jurisdiction. 10. While rebutting the above arguments, the Department has responded that powers under section 8(7) of the Finance Act, 2022 have been vested in the Officer of Inland Revenue as original jurisdiction, which needs no delegation of powers from any other authority. For the jurisdiction over persons, the OIR has jurisdiction over persons under section 8(7) of the said Act, whose Income tax records and income tax affairs the OIR can examine for their income tax matters. Thus OIR has inherent jurisdiction in respect of persons, whose jurisdiction is already available to him for income tax purposes. The Rule 6(2) of the CVT Rules, 2022 has settled the issue of jurisdiction over persons by that the OIR having jurisdiction over the person for the purpose of the Income Tax Ordinance, 2001 to collect the amount of unpaid or short paid CVT. 11. The Department further responded that the jurisdiction Notification F.No.6.(154) Jurisdiction/2017- 56206-R issued on March 12, 2022, is in addition to earlier notification bearing F., No.6 (154) IR Jurisdiction 2017/51066-R dated 20th April, 2017 and no notification was rescinded or cancelled. The said notifications have conferred all powers of the Income Tax Ordinance, 2001 on AEOI Zones. 12. We have considered rival arguments on the issue of jurisdiction. We find that the Sections 8(6) to 8(11) of the Finance Act, 2022 read with Rule 6 (1) of Capital Value Tax Rules, 2022 provide the relevant provisions for jurisdiction of different authorities in respect of collection, recovery and refund of CVT. It will be advantageous to reproduce the said provisions for ready reference: Sections 8(6) to 8(11) of the Finance Act, 2022 (6) Where a person fails to pay tax, or to collect tax or fails to pay to the credit of the Federal Government after having collected the tax the person shall be personally liable to pay-- (a) the amount of tax; and (b) the default surcharge at a rate equal to twelve per cent per annum on the tax unpaid computed for the period commencing on the date on which the tax was due and ending on the date on which it was paid. (7) Where subsection (6) applies, the officer of Inland Revenue may pass an order after giving the person an opportunity of being heard and proceed to recover the tax under the provisions of the Income Tax Ordinance, 2001 (XLIX of 2001) and the Income Tax Rules, 2002 as if the tax were an arrear of Income tax. (8) The Commissioner, on an application by the person, may revise any order made under this section. (9) The provisions of the Income Tax Ordinance, 2001 (XLIX of 2001) and the Income Tax Rules, 2002 in so far as relevant, shall apply to the collection, payment, recovery or refund of tax under this section.
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(10) Any person dissatisfied with any order passed by the Commissioner or an officer of Inland Revenue under this section may prefer an appeal before the Commissioner (Appeals) against the order as provided in section 127 of the Income Tax Ordinance, 2001 (XLIX of 2001) and all provisions of Part III of Chapter X of the Income Tax Ordinance, 2001 (XLIX of 2001) shall apply accordingly. (11) The Federal Board of Revenue may, by notification in the official Gazette, prescribe the manner and procedure relating to the collection, recovery, refund or any other matter relating to the capital value tax. Rule 6(1) of Capital Value Tax Rules, 2022 6. Collection of tax from defaulter.-(1)Where, for any reason, the capital value tax is not paid or short paid, by way of credit to Federal Government, by the person liable to pay the tax, the Officer Inland Revenue having jurisdiction over the person for the purposes of the Ordinance, shall proceed to collect the amount of tax so unpaid or short paid end the default surcharge at the rate as provided under section 8 of the Act on the tax unpaid or short paid for the period commencing on the date on which the tax was due and ending on the date on which it was paid. 13. The plain reading of above quoted relevant provisions of the Finance Act, 2022 and Capital Value Tax Rules, 2022, has persuaded us to agree with the contention of the Department, that the OIR has inherent jurisdiction for the purpose of collection of CVT over persons whose income tax records and income tax affairs, the OIR can examine for their income tax treatment. We have further observed that while challenging the powers of AEOI (Automatic Exchange of Information) Zones in respect of CVT, the Appellant's AR has failed to mention as to which Zone or RTO, holds jurisdiction over the case of Appellant. The Appellant's AR contended that the AEOI Zones have restricted powers under jurisdiction Notification F.No.6.(154) Jurisdiction/2017-56206-R issued on March 12th, 2022; however, he could not mention which Zone or RTO has the remaining powers of the Income Tax Ordinance, 2001 over the Appellant. We have observed that the IRIS access to issue online notices is only available to AEOI Zone over the Appellant and no other Zone or RTO can exercise any power of the Income Tax Ordinance, 2001. 14. In view of what has been discussed above, we are not persuaded to agree that the impugned order is without any jurisdiction, this argument of appellant is rejected. The appeal fails on this count and we confirmed the findings given by the learned Commissioner Inland Revenue (Appeals) on the grounds of jurisdiction. Grounds Nos.3, 4 and 5 15. The Appellant's AR contended that order was passed in haste by the DCIR and without following the principles of natural justice and fair play. The learned AR pleaded that the DCIR, raised the tax demand without granting an adequate opportunity to the appellant. We have given anxious consideration to the plea taken by the learned counsel for the appellant that he has not been provided fair and reasonable opportunity to be heard and principle of natural justice has been violated. As per our view is that the Article 10A of the Constitution of Islamic Republic of Pakistan, gives every person a right of fair and free-trial and discourages condemning of a person without being heard. Non-compliance of the constitution and against the spirit of law that clearly provides that no adverse order should be passed against any person without giving him an opportunity of being heard and after giving due notice within reasonable time. Section 24-A of the General Clauses Act provides for exercising of power with fair and reasonable manner. For ease of reference we reproduce section 24-A of General Clauses Act: Exercise of power under enactments 1) Where, by or under any enactment, a power to make any order or give any direction is conferred on any authority officer or person such power shall be exercised reasonably fairly, justly and for the advancement of the purposes of enactment.
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2) The authority office or person making any order or issuing any direction under the powers conferred by or under any enactment shall, so far as necessary or appropriate give reason for making the order, or as the case may be, for issuing the direction and shall provide a copy of the order or, as the case may be, the direction to the person affected prejudicially. 16. The matter has been considered. Perusal of the Impugned order reveals that before resorting to action, the appellant was provided ample opportunities of being heard, hence the plea that appellant has been condemned unheard is not well founded as per fact of the case, the appellant has been provided fair, sufficient and reasonable opportunities to be heard. The appeal fails on this ground. Arguments on this ground is rejected. Ground No.6 17. We have perused the comments of the Department as reproduced in above paras, and observed that the Department has furnished plausible explanations citing the judgment of Honorable Sindh High Court In C.P.No.4942 of 2022, dated 30.12.2022 and judgment of Honorable Lahore High Court, Lahore in 2023 PTD 268. The arguments advanced by the Appellant's AR regarding immunity from tax the assets declared under Foreign Assets (Declaration and Repatriation) Act, 2018, have already been answered by the two Honorable High Courts. The relevant observation of the Hon'ble Lahore High Court, Lahore passed in above mentioned 2023 PTD 268 is reproduced here in below: 34. It is argued that some of the petitioners have declared the factum of foreign assets by availing Amnesty Scheme introduced by the Federal Government - and assets are immune from any taxation. Besides being absurd, arguments is self-defeating. At the time of availing Amnesty Scheme, law legislated by the Parliament was acknowledged and availed, which sought declaration of foreign assets. No objection was raised that Amnesty Schemes have extra territorial operations. Constitutionality of Wealth Tax Act, 1963 was consistently upheld by our Constitutional courts, which law has taxed the assets, either inside or outside Pakistan. No case for arbitrariness and unintelligible classification arises within the class of persons subjected to tax, which constitute a reasonably and intelligibly defined classification. Reference is made to the case of Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others" (PLD 1997 SC 582). 18. We respectfully following the decisions of the superior courts, we have no option except to dismiss the plea taken by the Appellant's AR regarding Immunity to appellant from payment of Capital Value Tax on Foreign Assets. We reject the ground of appeal in view of above submission. Grounds Nos.7 and 8 19. The Appellant's AR has categorically stated that he is not pressing the Grounds Nos.7 and 8 on the specific instruction of the appellant. Therefore, we do not comment on the grounds Nos. 7 and 8, as mentioned above. Ground No. 9 20. The Appellant's AR argued that the DCIR erred in calculating the CVT liability in foreign currency using the rate of exchange prevalent on June 30, 2022. The general and this specific law requires that all taxes under the Constitution of Pakistan are to be levied on the cost of assets in Pakistan rupees. He further argued that the DCIR incorrectly calculated the cost of foreign assets inter alia by not taking into account the Impact of foreign liabilities. We find it beneficial to reproduce the findings of the learned DCIR on this issue which are reproduced hereunder:- 7. The response of the taxpayer in the light of applicable provisions of law and tax declarations was examined and following observations have been made. a. The Honorable High Court of Sindh in C.P. No. 4942/2022 has upheld the constitutionality of CVT law vide judgment dated 30-12-2022. Furthermore, there is no restraining order in respect of enforcement and collection of Capital Value Tax (CVT).
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b. It was obligation of the taxpayer to file CVT declaration and pay due tax, which he failed to do so. Therefore, show-cause notice was issued. c. Taxpayer's default to file CVT declaration necessitated computation of value of foreign assets in US dollar on the basis of tax declaration (reasonable accuracy measure as referred in Section 8(3) (c) (ii) of Finance Act, 2022), rather than on the basis of actual document relating to creation/purchase of foreign asset in foreign currency. The burden of proof was on the taxpayer to submit the documentary evidence (including purchase documents) to substantiate the exact cost in foreign currency. However, the taxpayer remained non-compliant toward the CVT law. d. Taxpayer's objection regarding CVT computation confronted through show-cause notice is also fragile and unsubstantiated. The taxpayer, despite availing sufficient time and being holder of exact purchase document, failed to file any computation of Capital Value Tax or submit CVT declaration. Mere raising objection does not absolve him from his statuary tax liability. Had the taxpayer been tax-compliant, he would have filed CVT declaration form along with its payment or even submitted his own CVT computation. The taxpayer has been applying delaying approach through objecting on the basis of technicalities. e. Taxpayer's argument regarding amnesty declared assets is factually and legally incorrect on the following rationale. i) Through CVT law, foreign assets, which are now part of wealth statement for Tax Year 2022, are being taxed (not specifically amnesty declared assets). ii) This legal issue of amnesty-declared foreign assets and their subsequent declaration in Wealth Statements, Income Tax Return has also been decided by Honorable High Court of Sindh in Para- 12 of judgment dated 30.12.2022 in C.P. No. 4942 of 2022 and others in the favour of department The Honorable High Court of Sindh held that what is being taxed is the capital value of foreign assets which now stand declared and is part of wealth statements and Income Tax Returns. iii) Furthermore, the Honorable High Court of Lahore also decided the said issue in Judgment dated 23.01.2023 in 2023 PTD 268. In following words (para-34). "It is argued mat some of petitioner have declared the factum of foreign assets by availing Amnesty Scheme - Introduced by Federal Government- and assets are immune from any taxation. Besides being absurd arguments is self-defeating". f. Taxpayer's another argument relating to accounting practices is also devoid of merit because law overrides accounting practices. The CVT law has specified the basis of computation of Income for CVT purpose and its rate of taxation. 21. Furthermore, the Department has furnished detailed response to these objections. The DR explained that the provisions of section 8(3)(c) of Finance Act, 2022 has prescribed the method of determination of value of foreign assets which the total cost of foreign assets on the last day of the tax year to be taken in relevant foreign currency and is to be converted into PKR as per exchange rate notified by SEP for the said day. Department had taken the exchange rate as on the last day of the tax year as per section 8 (3)(c). AR's argument that the tax should be levied on the cost of the Assets in Pak Rupee at the time of availing Amnesty Scheme. 22. We have considered rival contentions and have the considerate view that principles of tax equity demands levy of higher tax on individuals with higher ability to pay tax. Imposition of capital value tax on foreign assets of resident individuals by legislature is to bring fairness in taxation by imposing direct tax on the rich Individuals in Pakistan. However, as individuals having foreign assets up 100 million rupees have been exempted from such tax, therefore, this tax can be said to have been imposed on super rich instead of even rich individuals. Such persons were required to file declaration for capital value tax and pay capital value tax on or before the 15-12-2022 under the CVT Rules, 2022, but, instead of filing the CVT declaration and making payment thereof under the CVT Rules, 2022, the petitioner filed constitution petition before the Honourable Sindh High Court.
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However, they still failed to file CVT declaration and failed to make payment CVT even after dismissal of their petitions by the Honourable Sindh High Court. 23. It has also been noted that taxpayer has failed to submit his own CVT declaration even during the appellate proceedings. As taxpayer has failed to discharge his legal obligation by filing his own CVT declaration to the Department, therefore, taxpayer has not come up with clean hands in appeal. 24. The unfair conduct on the part of the taxpayer is obvious. He has so far failed to come up with his own CVT version and his own CVT liability as per his own value of foreign assets. Department insists that foreign assets have to be valued and the valuation made by the Department is in accordance with section 8(3) of the Finance Act, 2022 the plain reading thereof shows that foreign assets have to be valued as per exchange rate notified by SBP as on the last day of the tax year. Taxpayer always had the opportunity to apply to the Commissioner for revision of the order under the provisions of section 8(8) of the Finance Act, 2022, by working out his own CVT declaration. The Hon'ble Supreme Court of Pakistan has held in number of judgment's that one who seeks equity must have equities in his favour and anyone who seeks justice must come with clean hands. The duties and taxes are correctly payable or to be ascertained consistency and uniformity on the touch stones of revenue loss and are to be strictly followed by the tax authorities. The Hon'ble Supreme Court of Pakistan has also held in number of decisions that non-provision and non- production of documents does not give the taxpayer right to enjoy while sitting on the fence. It is settled principle of law of evidence, in Article 117 of Qanun-e-Shahadad Order, 1984, that one who asserts existence of facts must prove that the fact exists. We reject the argument on the above ground and confirm the findings of learned CIR(A). Ground No.10 25. The Appellant's AR argued the order passed by the DCIR is in contravention of Entry 50 of the Federal Legislative List of the Constitution of Islamic Republic of Pakistan, 1973. It is pertinent to mention that the vires of levy of Capital Value Tax introduced by the Finance Act, 2022 were challenged under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 before the Honourable High Court of Sindh at Karachi. The Honourable High Court has decided the issue vide judgment dated 30.12.2022 in C.P. D-4942/2022 along with other petitions in favour of the…
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