President Asif Ali Zardari Upholds FTO Decision Against Telcos

President Asif Ali Zardari has upheld the decision of the Federal Tax Ombudsman (FTO) regarding cases of telecom operators that no maladministration was committed by the Federal Board of Revenue (FBR) during the implementation of the Alternative Dispute Resolution Committee’s recommendations. In this regard, the President of Pakistan has issued the order in the matter of cases of telecom operators. Brief facts of the cases are that, as per complaints, the complainant company is principally engaged in providing cellular telecommunication services and has established a cellular mobile network in Pakistan under the licenses issued by the Pakistan Telecommunication Authority. Over the years, amendments in the company’s income tax returns have resulted in various tax disputes spanning the Tax Years from 2006 to 2017. Consequently, the companies suffered a reduction in their assessed tax losses while simultaneously being forced to contest these disputes with the Large Taxpayer Office (LTO). Fed up with the litigation, the companies decided to take up the following disputes for settlement (that were pending adjudication before various appellate fora), before the ADRC which provides for the settlement of disputes outside the normal appellate process u/s 134A of the Income Tax Ordinance, 2001 (the Ordinance). As a result of these deliberations and the evidence, the ADRC issued certain recommendations for the settlement of the subject disputes. According to the complainant companies, the said recommendations were subject to payment of Rs. 8.25 billion by the company. The committee further recommended that a payment of Rs. 8.25 billion be made against income tax demand/liability of any tax year between 2009 and 2021. The complainant companies further stated that after fulfilling all the requirements as laid down in the ADRC order as well as Section 134A of the Income Tax Ordinance, the concerned commissioner was requested to give effect to the ADRC’s recommendations as stated in his order. However, the DCIR rejected the plea of the complainant which, according to the complainant, violated his legal rights and justice due to them under the ADRC ruling by unlawfully declaring ADRC recommendations as null and void. On the other hand, the department in its comments before FTO, stated that the subject complaint mainly revolves around the taxpayer’s demand for giving effect to the recommendations of the ADRC in its order dated 10.11.2021. The department stated that complainants had filed applications for the implementation of the ADRC orders on June 1, 2022. The said applications were scrutinized and accordingly disposed of on its merits, wherein, it was explained that the taxpayer’s plea to effectuate the ADRC’s recommendations could not be upheld for its failure to fulfill the requirements as given in ADRC’s order. While concluding the subject investigations, the FTO has observed that the ADRC recommendations bound the taxpayers to make payments against income tax liability for any year from 2010 to 2020. However, as per the record, the payment of Rs 3.25 billion has been made against the liability for tax year 2021. The record further revealed that no tax arrears were outstanding for tax year 2021 on the date ADRC’s decision was made. Therefore, the stance of the department to the effect that no demand for tax year 2021 existed at the time of the decision of the ADRC on 10.11.2021 and that payment of tax was not permissible against tax year 2021 carries weight. The payment of Rs. 3.25 billion was therefore made against future tax liability against the demand raised after the issuance of ADRC recommendation through an order passed on 23 December 2021 u/s 122 5(A) of the Ordinance. Furthermore, the record showed that when the complainants took up the matter for getting the effect of the recommendations of ADRC with the concerned tax office, they disagreed with the contention of the complainant and passed an order adopting detailed reasons for not putting into effect recommendations of ADRC. The said order was made after considering written correspondence and lengthy deliberation held with tax authorities. The Tax Ombudsman has, therefore, concluded that payment of Rs. 3.25 billion has been made by the complainant companies against the tax liability of the year which was not the subject matter of ADRC and the same was, in fact, current demand of tax and not the arrear demand. Being aggrieved with the order of FTO, the complainant filed a representation before the Hon’ble President of Pakistan. The President of Pakistan decided the case on August 12, 2024, and upheld the decision of the Tax Ombudsman.