ISLAMABAD: While restoring the powers of the intelligence and investigation directorate of Federal Board of Revenue (FBR), the Islamabad High Court (IHC) has held that the directorate can take cognisance of and has legal jurisdiction to issue notices under Section 175(1) of the Income Tax Ordinance, 2001 for the enforcement of any provision of the ordinance.

A division bench of the IHC on Tuesday accepted intra-court appeal of the FBR’s intelligence and investigation directorate and set aside the judgment of a single judge, dated of March 18, 2016.

Advocate Ahsaan Ahmad Khokhar represented the directorate before the bench.

Taxpayer M/S KK Oil and Ghee Pvt Ltd had earlier challenged before the IHC a notice, dated June 23, 2015, issued by the directorate under Section 175 of the ITO. The petitioner claimed that the notice was ‘illegal’, based on wrong assumption of jurisdiction and misapplication of law, and it was liable to be set aside.

IHC says intelligence, investigation directorate of the revenue board can issue notices under income tax ordinance

A single-member bench accepted the contentions of the taxpayer in writ jurisdiction and decided against the taxing agency vide judgment dated March 18, 2016. The judge held that the notice issued by the directorate under Section 175 of the ITO was without jurisdiction.

The FBR’s directorate then challenged the impugned judgment before the IHC division bench through an intra-court appeal.

The FBR counsel argued that the directorate was established under ITO’s Section 230, with the entrustment of functions to deal with all tax related issues and to gather information regarding tax evasion, fiscal fraud and revenue leakages, and accordingly FBR issued SRO 115/2015 dated Feb 9, 2015 regarding further detailed functions with reference to different provisions of ITO, wherein Section 175 has also been included therein.

According to the counsel, a notice issued to the respondent taxpayer was legal and within the jurisdiction.

He argued that taxpayer claimed wrong exemption under Section 65-D of the ordinance read with Section 159 of the Income Tax Ordinance, which caused a huge loss to the exchequer.

He further argued that though Section 65-D had provided tax exemptions, it was required with certain investment and requirements prescribed in the same section, whereas in the present case, it had not been fulfilled, rather it was violated.

Concluding the arguments, he said that the intention behind the establishment of directorate of I&I was to investigate and to initiate proceedings with a mandate to dig out the malpractices and to make coercive measures for avoidance of tax fraud, thus the notice under section 175(1) was legally valid, rightly issued to the taxpayer, and such legal points were not considered by the court while issuing the impugned judgment.

On the other side, the counsel for the taxpayer insisted that the intelligence and investigation directorate of the FBR could not issue notice to the taxpayer under Section 175 of the ordinance and the order passed by the single-member bench was lawful.

The IHC division bench, after hearing argument from both sides, held that the sole issue before the court was whether the notice issued under Section 175 of the ordinance by the FBR’s directorate of intelligence and investigation was legal and according to law or it was a procedural section that could not be restricted to specific event or substantive provision of the ordinance.

The court held that the intelligence and investigation directorate of the FBR could initiate proceedings under Section 175 (1) of the Income Tax Ordinance, 2001 to enforce any provision of the ordinance.

Published in Dawn, October 26th, 2022