Allowing credit of exempt agriculture income: FTO asked for a suo motu intervention against FBR
July 08, 2013
A tax lawyer has approached Federal Tax Ombudsman (FTO) Office to investigate whether tax department has properly followed rules and procedures while allowing credit of exempt agriculture income to taxpayers claiming as exempt source of income under section 41 of the Income Tax Ordinance, 2001.
Sources told Business Recorder here on Sunday that suo motu action has been sought from FTO against the failure on the part of field formations of Federal Board of Revenue (FBR) to analyse, while allowing credit of exempt agricultural income under section 41 of the Ordinance, with income tax paid by the agriculturist under the relevant Provincial Agricultural Income Tax Laws.
Sources further stated that the agricultural income is exempted from Federal taxation under section 41 of the Income Tax Ordinance, however, it is taxable in all provinces including Punjab, KPK, Sindh and Balochistan. The issue has elaborately been dealt by Peshawar Bench of Appellate Tribunal Inland Revenue, Pakistan in I.T.A. No. 210(PB)/2010.
Sources stated that a tax lawyer Waheed Shahzad Butt filed a representation before the FTO Dr Muhammad Shoaib Suddle for suo motu intervention against the FBR functionaries stating that reforms introduced to examine exemption claimed on account of agriculture income through the Finance Act, 2013 to ask people to provide evidence that they have paid AIT in their respective provinces, are already in vogue but most field formations of FBR failed to examine the issue while allowing credit of exempt agricultural income. The lawyer stated that no doubt a complete exemption is available under section 41 of the Ordinance to actual agricultural income from Federal taxation but it did not mean that the taxpayer was scot-free to declare such income at his sweet wish and will.
He further added that a major change in Section 111 has been made by adding a proviso, which says “Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.” The other aspect of this flaw is quite sensitive, it appears either taxation authorities are unaware from the relevant laws governing AIT or they are intentionally avoiding it. As the Federal Government cannot tax the income from agriculture due to constitutional restrictions, therefore, present gap between potential tax collection and actual recovery of AIT, simply shows lack of co-ordination between the provincial and federal authorities (FBR). Present move to add proviso in section 111 of the Ordinance is an attempt to cover the past negligence of federal taxation functionaries.
Aforementioned judgement of ATIR says that Taxation Officer for the purpose could lend support from the Provincial statute of Land Tax and Agricultural Income Tax Ordinance. Computation and payment of Government taxes under the two statutes and Government agencies could not be at variance with each other. Income Tax Ordinance, 2001 which was a Federal Statute of taxation was dependent upon the provincial legislation for assessment of true and correct amount of agricultural income which suffered the agricultural income tax. Taxpayer could not be allowed to misclassify his taxable income of federal legislation as being exempt from taxation under the garb of agricultural income thereby to avoid payment of lawful tax. If it was proven fact that the income declared was not the agricultural income then such income was taxable under provision of Income Tax Ordinance, 2001. Declaring agricultural income different under one legislation than other legislation was against the ethics and was violation of income tax law as embodied in Income Tax Ordinance, 2001. If the income declared was found under-assessed or it was inflated and the element of avoidance was involved then the Taxation Officer was well within the authorisation to add such income towards the taxable income of the taxpayer. In this case, taxation officer sought information from District Officer Revenue and Estate (DOR) about the agricultural income. On the basis of the information given by the DOR, on comparison with the declared results, it was found that agricultural income has been inflated.
He further added at present 19 RTOs and 3 LTUs were working all over Pakistan headed by 21 Chief Commissioners of BS-21 in Islamabad, Lahore, Karachi, Rawalpindi, Peshawar, Sialkot, Abbotabad, Hyderabad, Faisalabad, Multan, Sukker, Sargodha, Bahawalpur, Quetta and Gujranwala. Courtesy Business Recorder