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Huzaima Bukhari & Dr. Ikramul Haq
The Federal Board of Revenue (FBR) is allegedly interfering in the quasi-judicial functions of Commissioners of Appeal Inland Revenue. A report published in an English daily, not this newspaper, on September 28, 2021 says: “The Commissioners of Appeals will also have to justify and give reasons about “number of orders where substantial (tax) amount is deleted along with reasons for deletion and overall quality of orders-in-original by the office of Inland Revenue officer”. The report, if correct, shows blatant violation on the part of FBR. It may be noted that in the presence of binding judgements of the Supreme Court that no interference should be made in the affairs of tax appellate authorities can lead to serious consequences for those who issued the same.
The most undesirable aspect of the saga is that FBR wants to show higher collection from demands created in billions (report says Rs. 3 trillion). The Commissioners of Appeal are now, as per report, being asked to “give reasons about number of orders where substantial (tax) amount is deleted along with reasons for deletion.” In other words they are being intimidated for giving relief where due. The report further claims: “The directions came after a sharp increase in tax assessment orders by the FBR against taxpayers and according to legal experts many of these orders lacked judicial grounds. FBR spokesman Dr Asad Tahir Jappa did not respond to questions about the legal base for making commissioners appeals subordinate of a Chief Commissioner”.
The report further said:
“At the end of December 2020, Rs1.8 trillion were stuck in litigation, which has now gone up to Rs3 trillion – an increase of Rs1.3 trillion in just eight months, according to the sources. Eight months ago, about 76,700 cases were under litigation from Commissioner Appeals to Supreme Court of Pakistan, which have increased to nearly 90,000, according to the figures.
About 60% of the disputed tax amount is pending before Commissioner Appeals, which is also a reason for bringing them under the FBR control, said the sources. There are roughly 23,000 cases pending before commissioner appeals, involving Rs1.8 trillion revenues – the highest amount pending before any forum. In just eight months, there was an increase of about 175% in the disputed taxes pending before the commissioner appeals. The FBR’s statistics showed that in the Appellate Tribunal, about 56,000 cases were pending involving another Rs631 billion revenues. In December last year, the Rs442 billion were under litigation before Appellate Tribunals, which have now increased by 43%.
The appellate tribunals comprised members from the FBR and the judiciary, which are notified by the Ministry of Law. In total, about 80% of the disputed amount or Rs2.5 trillion was pending either before commissioner appeals benches or appellate tribunal benches, which are being headed by FBR officers along with judicial members (at the appellate tribunal only).
About 8,500 cases were also pending before various high courts, involving Rs483 billion. There was reduction in pendency in cases before the high courts over the past eight months. There were nearly 2,300 pending cases before the Supreme Court of Pakistan having value of Rs72 billion. The cases pending before the apex courts have reduced by 18% since December.
Sources said that a significant amount of disputed tax liabilities was on account of tax demands raised against the sugar mills. However, they added that these orders by the taxmen had not been issued by following all legal formalities. They said that this was also one of the reasons that the Commissioners Appeals were facing pressures from FBR headquarter”.
Interestingly, when query was sent to Chairman FBR, official spokesperson and Member Legal IRS for veracity of above, it was dubbed as “incorrect” by head of Commissioners Appeals. According to him: “No instructions were issued to CIR Appeals to report performance to field formations. Reasons for deletion are recorded in the Appellate Order. FBR doesn’t interfere with judicial functions of CIR Appeals. Legal Wing looks at the administrative matters only. The writer of the story before writing should have at least obtained first hand info from some CIR Appeals Office”. The scribe of the story clearly mentioned that official spokesperson opted not to respond. He filed story after due diligence and produced evidence. It is up to FBR to refute it.
However, there is another aspect of story which is roaming around among the tax professionals’ fraternity which is based on the administrative aspects of merit-based performance measurement of Commissioner Inland Revenue Appeals [CIRA] instead of legal aspects. These administrative aspects of CIRA Office include abiding by the time period for issuance of decision, responding to stay applications on timely basis, request for early hearings should not remain attended etc.
We are of the considered view that such administrative performance measures should strike a balance between adherence of obligations embodied in various sections of Income Tax Ordinance, 2001 [the Ordinance] including but not limited to section 127 to 129 of the Ordinance ensuring timely dispensation of justice by the Quasi-Judicial forum because justice delayed is justice denied.
These administrative measures for timely dispensation of justice should not compromise over the quality of the decisions because according to another news item, the Chairman FBR has mentioned that 130 more Commissioner Appeals are required while the existing strength of Commissioner Inland Revenue Appeals is merely 30.
Keeping a track of historical development of the issue, It is pertinent to mention that the article, FBR & tax appellate system,Business Recorder, October 1, 2021,was submitted to Business Recorder on September 29, 2021—the deadline fixed by the editor. The next day, came the following letter from Member Legal of Federal Board of Revenue (FBR):
“C.No.3(29)Appeals/2020 Vol-I
GOVERNMENT OF PAKISTAN
REVENUE DIVISION
FEDERAL BOARD REVENUE
Islamabad, the 11th August, 2021
All Commissioners Inland Revenue (Appeals)
Subject: Quarterly review meeting with respective Chief Commissioners Inland Revenue.
I am directed to refer to the directions of Hon’ble Chairman, FBR during the Video Link Conference (VLC) held on 10th August, 2021 and request you to hold regular quarterly review meetings with the relevant Chief Commissioners to discuss the following aspects of the appellate orders:
- Number of orders annulled and reasons for annulment
- Number of orders where substantial amount is deleted alongwith reasons for deletion
- Overall quality of orders-in-original by the Officer of Inland Revenue”.
As evident from above, the said letter was issued during the tenure of Asim Ahmad, who was removed from his position on August 24, 2021. Dr. Muhammad Ashfaq Ahmad, a junior but highly competent officer of Internal Revenue Service (IRS) in grade-21 assumed the charge of Chairman Federal Board of Revenue (FBR) on the said date and he did not respond to the query but official spokesperson politely conveyed that clarification issued by the member Legal of IRS should be considered as official version.
Obviously, there is nothing on record to assume that Dr. Muhammad Ashfaq Ahmad has interfered in the judicial affairs of the Commissioners of Appeals as Chairman or as Member Operations. The letter reproduced above was issued by previous Chairman and thereafter no official communication is available except the story quoted above alleging that “Sources said that a significant amount of disputed tax liabilities was on account of tax demands raised against the sugar mills. However, they added that these orders by the taxmen had not been issued by following all legal formalities. They said that this was also one of the reasons that the Commissioners Appeals were facing pressures from FBR headquarter”.
The question is what was the position when Dr. Muhammad Ashfaq Ahmad was Member Operations—Inland Revenue. The scribe of the above story does not investigate it. It is obvious that demand was created during his tenure as Member Operation and he jealously guarded it. The raising of demand and its recovery under Member Operations—IRS—is undeniable. Since the same member became Chairman FBR, the recovery was given due importance.
There is nothing wrong about it. However, neither Member Legal, nor new Chairman FBR after assuming charge on August 24, 2021, according to Commissioners of Appeals, interfered in their judicial work. The figures released by FBR of month of September 2021, the first quarter of the current fiscal year, tell the real story [no details are provided about collection out of current demands and arrears] as narrated by the same scribe, who on September 28, 2021 alleged interference in the affairs of Commissioner of Appeals, as under:
“Under the Income Tax Ordinance, the Commissioner Appeals is the first grievances redressal forum available to the taxpayers against the orders and tax assessments by the FBR. However, what appears to be interference in judicial process, the FBR has directed all Commissioners Appeals to report to the heads of regional and large tax offices, showed official documents. They commissioners of appeals have been asked to report their “performance” on monthly as well as quarterly basis, according to the documents. The law ensures their independence from the chief commissioners who head these offices to avoid conflict of interest. Commissioners Appeals are grade 20 officers of the FBR but they have been empowered under the law to work independently from the FBR’s Operations wing that is responsible for revenue collection. “All commissioners shall hold regular quarterly review meeting with relevant chief commissioners, LTO, MTO, CTOs, RTOs under intimation to legal wing to discuss number of orders annulled and reasons for annulment,” according to the directions issues by the FBR headquarter last month”.
[underlined and bold by us for emphasis]
The crux of the matter is that appellate authorities, as a matter of law and principle, should be independent in the true sense of the word. The Supreme Court of Pakistan has elaborated this principle in Government of Baluchistan v Azizullah Memon PLD 1993 SC 31 by holding that “separation of judiciary from executive is the cornerstone of independence of judiciary”. The right of access to justice to all is a well-recognized inviolable right enshrined in the Constitution of Islamic Republic of Pakistan [“the Constitution”]. This right requires that every citizen should be treated according to law. All citizens have the right to have a fair and proper trial and right to have an impartial court or tribunal.—PLD 1982 SC 146.
Instead of making the Commissioner of Appeals independent, the government has further strangled the tax appellate system even up to the level of Tribunal. It is open mockery of justice and blatant violation of Articles 4, 10A and 189 of the Constitution as highlighted in Subverting Tax Tribunals, Business Recorder, January 24, 2020.
It is a matter of record that office of Member Legal interfered with the independence of the first appellate forum. It was reported in ‘Commissioners (Appeals): FBR withdraws instructions, Business Recorder, February 27, 2021. It asked the Commissioners (Appeals) “to use powers of inquiry under fiscal laws (income tax, sales tax, and the FED) to avoid unnecessary annulment with directions”. Later it was withdrawn on pressure from tax bars. The above confirmed that Member Legal had in the past interfered in the quasi-judicial functions of his subordinate officers and his claim of only issuing administrative instructions is not correct. The matter is that of rule of law so no one in FBR, even the member Legal, should call meetings of Commissioners of Appeals to discuss their judicial functions. Any Commissioner of Inland Revenue, if dissatisfied, can file appeal against the order of any Commissioner of Appeals, as do the taxpayers.
The root of the problem is lack of independence of tax appellate system. By keeping Commissioner/Collector Appeals under administrative control of FBR, the government is violating Article 189 of the Constitution as elaborated by the Supreme Court in Shahid Pervaiz v Ejaz Ahmad and others 2017 SCMR 206 [page 254, para 105] as under:
“Under Article 189, this Court is the court of last resort and laws declared or principles enunciated by it are binding on all the subordinate courts and authorities in Pakistan as reflected in Farhat Azeem v. Waheed Rasul (PLD 2000 SC 18). We have also held that the decisions of this Court laying down the proposition in law are laws binding on all, regardless whether they were party to the proceedings or not M/S Star Diamond Company v. Union of India (PTCL 1988 FC 229). It has also been held by us that even a decision of Supreme Court for which no reasons are given would be binding upon the Courts in the Country Sardar Ali v. Conservator of forests (1987 PLC (C.S).”
[bold and underlined by us for emphasis]
The non-implementation of dictum laid down in Government of Baluchistan v Azizullah Memon that “separation of judiciary from executive is the cornerstone of independence of judiciary” attracts contempt of court proceedings. It is great tragedy that none of the governments in Pakistan, military or civilian, have ever followed the directions of the honourable apex court cited supra. In the given Pakistani political milieu, it is imperative that all the judicial and quasi-judicial authorities working in tax appellate system should be regulated and supervised by the High Court under whose territorial jurisdiction they work. This is the only way to ensure independence of judiciary in its true substance and as per constitutional requirement [Article 203].
It is time that Supreme Court takes stern action for implementing its order of separation of judiciary from the executive. The request for suo muto action under Article 184(3) by Federation of Pakistan Chambers of Commerce & Industry for implementation of Government of Baluchistan v Azizullah Memon PLD 1993 SC 31 is already pending with the august apex court.
The All Pakistan Tax Bar Association should be on their toes for moving a petition under Article 184(3) of the Constitution where the office of Commissioner of Inland Revenue Appeals compromise the quality of decision under the administrative pressure of FBR administrative machinery because the existing strength of CIRA is 30 while the required strength is 130. It is its duty as Pakistan Tax Bars Association being apex body is bound to safeguard the constitutional rights of all citizens, especially the law-abiding taxpayers who are being unnecessarily harassed by tax officials for their own vested interests.
Abridged version of the article was published by the Business Recorder on October 1, 2021:
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The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE).