ISLAMABAD: The Supreme Court has asked the Federal Board of Revenue (FBR) to maintain a databank of decided cases on tax matters since the organisation constitutes the economic and financial backbone of the country.

By not maintaining the databank of its cases, the working of FBR’s own officers as well as those of the tribunals and courts was hampered, regretted Justice Qazi Faez Isa in a judgement he wrote.

Justice Isa was a member of a two-judge Supreme Court bench, which also included Justice Syed Mansoor Ali Shah, that had taken up an appeal instituted by FBR’s inland revenue commissioner in Faisalabad against a Sept 15, 2021 decision of the Lahore High Court (LHC) rejecting FBR’s plea.

The controversy at hand revolves around the question whether the contract for rendering labour and carriage services by the taxpayer — labour contractor Abdul Ha­­meed — fell under Section 153(1c) of the Income Tax Ordinance (ITO) of 2001, the­reby treating the income of the taxpayer liable to the final tax regime as opposed to the normal tax regime under Section 153(1b), (6) and (9) of the ordinance.

Justice Isa says negligence ‘unacceptable’ in this age of technology; tax authority directed to submit report in two weeks

In a six-page order, Justice Isa bemoaned that in the age of technology, the FBR’s failure to maintain a databank of decided tax cases was unacceptable.

Justice Isa went on to say that since the FBR was remiss of its duties, a copy of this order be sent to FBR Chairman Asim Ahmed, every member of the board, and secretaries of the finance, law and justice and cabinet divisions. The court also summoned reports within two weeks from the FBR and its inland revenue wing, directing it provide the link to access such decisions and cases, if any.

The issue cropped up during the hearing when the court asked FBR’s counsel, Dr Farhat Zafar, if the department had challenged the LHC’s decision in the Rehman Enterprises — a case relied on the FBR and based on which the high court had dismissed the case in the first round.

However, the counsel along with the departmental representative could not answer the query and instead cited Sindh High Court’s Premier Mercantile case, in which a different view was taken that went in favour of the department.

Besides, it transpired during the hearing that LHC’s decision in Rehman Enterprises was challenged by the FBR before the apex court but was dismissed in February 2011. Later, one of the tax references, which had already been decided by the 2011 order, somehow again landed in the apex court and was again dismissed in April 2017 based on the previous decision.

Therefore, there were contradictory judgements of the two high courts since the view taken by the LHC in Rehman Enterprises was approved by the Supreme Court, not once but twice.

In the present case, the court noted that the services mentioned in Section 153(9) were not exhaustive, and therefore, excluding labour and carriage services would be discrimination, which was not permissible.

Thus, the tax department’s reliance on Section 153(1c), (6) and (9) was misplaced, and the SHC’s judgement was not applicable on account of the change in the law, the apex court said.

The Supreme Court then dismissed FBR’s petition and expressed its dismay over the fact that the tax department did not know what had happened in the two high court cases, which accounted for a lack of proper record-keeping by the FBR.

Published in Dawn, September 11th, 2022