Income Tax Ordinance 1984 needs clarification
Wednesday, 17 March 2010
Akhter Zamil
In order to check tax evasion and ensure speedy tax collections from certain nature of income, the government introduced the new section 82c in the I. T. Ordinance 1984, through F.O. 1998. This decision has been largely welcomed by the business communities as a whole with expectations of escaping litigations and quick assessment of their business profit. The area of income is being expanded every year by inclusion of new income sources. There are 20 items of income have been brought under sub-sections of the section 82c. One of such items is the amount received on account of transactions of shares and securities of listed companies by the members of a stock exchange for which tax is realisable under section 53 BBB of the I. T. Ordinance 1984. Although such collection of tax has the direct conflict with section 32(7) (where income has been made fully Tax- free) but the assessees being members of the stock exchange have to accept this unfair taxation. They are very often used to face harassment in the course of regular assessment. Tax collected at source from the gross value of shares, debentures, mutual funds, bonds or securities as sold and purchased are to be considered as full and final discharge of tax liability by an assessee under section 82c of the I. T. Ordinance 1984. In consideration of the above advantage, (final discharge of tax liability), the members of the stock exchange including some brokerage house run by schedule banks with due permission from Security Exchange Commission and Bangladesh Bank have accepted the method of assessment. The members of the stock exchange and brokerage houses of schedule banks duly declare their commission earned from purchase and sales of shares and securities through B. O. Account and due tax paid at source on the total turnover basis without claiming any other actual charges normally required to determine actual profit. Such schedule banks have taken into their actual audited account full amount of brokerage commission as income and accordingly submitted their tax returns to the taxation department. But tax authority while making assessment has taken business net profit which included brokerage commission earned through sales and purchase of shares, securities, bonds etc. as income and adjusted the tax paid at source and claimed in the return as contemplated in sub-section 82C(2) (l e) of the I. T. Ordinance 1984. Thus the action of the tax officials is conceptually wrong and un-acceptable from the view point of relevant section 82C. Actually, the amount of profit shown in the audited accounts and return need to be deducted first from the relevant income and the resultant income on the basis of TDS arrived at may be added as envisaged in sub-section 82C(5) of the I. T. Ordinance 1984. As the action of the tax officials appears to be addition of income twice, the assessed income becomes arbitrary, unlawful and inconsistent with reference to section 82C.
To the utter surprise of the assessee, the tax authority arbitrarily and unilaterally adds it own computed income arrived on the basis of tax collected at source divided by the rate of tax applicable and multiplied by 100 percent, which have resulted the income equal to the Tax liability. The resultant income on the basis of such calculation is added with the net profit already shown in the audited accounts and tax return by the assessee, which is prima facie addition of a single income twice. As a result, the profit computed by tax authority inflated the income unjustly and more tax is demanded from the assessee in violation of the section 82c of the I. T. Ordinance 1984 where tax collected at source is considered and deemed to be the final discharge of tax liability. This is absolutely a misconception of the Tax authority and is considered as whimsical action. This situation could be overcome, if the DCT would have applied his judicial mind to deduct such brokerage commission first from the net profit shown in the accounts and then add the computed income as referred in section 82(c), sub-section 5.
But the tax officials do not follow the relevant section in its true spirit hindering fulfillment of the government commitment towards assessees in general. On the other hand, the tax authority by its discretionary power makes the assessment of income related to brokerage commission arbitrary and unlawful. In some cases, such income had computed discriminately allowing full relief to some banks while in case of other banks such relief was disallowed outright for the reasons best known to the tax authority.
This sort of obstinacy should be checked immediately for the interest of revenue collection so as to enable the government to maintain pace of development of the country.
In this connection, we draw the recent comments of the honourable finance minister of the country regarding tax department stating that due to harassment by tax officials revenue collections are being obstructed. Detrimental attitudes towards assessee by unscrupulous tax officials resulted in poor collection of revenue.
Moreover, sub-section 5 of section 82c appears to be contradictory whereby an assessee declared his income u/s 82c by paying tax at source on the gross transaction value as required by law instead of paying tax on the normal profit (gross income minus gross expenses) for the relevant business. In consideration of the TDS being full and final discharge of tax liabilities, there should not be any restriction in taking any excess amount of profit to the credit of assessee. If any excess profit is found and brought into the ambit of tax by the Tax Department again, justification of enacting section 82C shall prove to be inconsistent and against the cause of natural justice. The assessees will prefer assessment of profit under normal assessment. The application of section 82c on the assessee will be injustice and contradictory to sub-section 82C(2) (a) (section related to contractor) of the I. T. Ordinance 1984. If the purpose of the government is to collect more tax under sub-section 5 of the 82c the rates of tax deduction may be increased to allow the assessee to avail of the benefit of section 82c.
Moreover, the objective of the government to collect tax frequently in the form of TDS may be achieved as mentioned in the section and asssessee will avail of the benefit of tax as expressed in the line "shall be deemed to be final discharge of tax liability under this Ordinance" as referred in sub-section 4 of 82c. In this situation, neither assessee nor the tax officials will have any scope to foul play in collecting revenue for the government and question of excess profit shall not arise and transactions will be accountable and transparent.
In order to remove the impediments in the collection of revenue, it has become a necessity for the NBR to issue clarification in this respect and remove the misinterpretation of the relevant section of the ordinance by the tax officials and help the assessee discharge his due tax liability truly in accordance with the section. Other-wise purpose of the section 82c will be questionable and objectives of the government policy will be defeated.
The inclusion of sub-section 5 in section 82c is contradictory, superfluous and double taxation on assessee when assessee paid tax on the gross transactions of total receipts as well as expenditure. Further demand of tax in the name of excess credit is an injustice to the assessee.
(The author is an FCA and senior audit and tax partner of Howladar Yunus &Co. Chartered Accountants. He can be reached at e-mail: hyc@howladaryunus.com)
In order to check tax evasion and ensure speedy tax collections from certain nature of income, the government introduced the new section 82c in the I. T. Ordinance 1984, through F.O. 1998. This decision has been largely welcomed by the business communities as a whole with expectations of escaping litigations and quick assessment of their business profit. The area of income is being expanded every year by inclusion of new income sources. There are 20 items of income have been brought under sub-sections of the section 82c. One of such items is the amount received on account of transactions of shares and securities of listed companies by the members of a stock exchange for which tax is realisable under section 53 BBB of the I. T. Ordinance 1984. Although such collection of tax has the direct conflict with section 32(7) (where income has been made fully Tax- free) but the assessees being members of the stock exchange have to accept this unfair taxation. They are very often used to face harassment in the course of regular assessment. Tax collected at source from the gross value of shares, debentures, mutual funds, bonds or securities as sold and purchased are to be considered as full and final discharge of tax liability by an assessee under section 82c of the I. T. Ordinance 1984. In consideration of the above advantage, (final discharge of tax liability), the members of the stock exchange including some brokerage house run by schedule banks with due permission from Security Exchange Commission and Bangladesh Bank have accepted the method of assessment. The members of the stock exchange and brokerage houses of schedule banks duly declare their commission earned from purchase and sales of shares and securities through B. O. Account and due tax paid at source on the total turnover basis without claiming any other actual charges normally required to determine actual profit. Such schedule banks have taken into their actual audited account full amount of brokerage commission as income and accordingly submitted their tax returns to the taxation department. But tax authority while making assessment has taken business net profit which included brokerage commission earned through sales and purchase of shares, securities, bonds etc. as income and adjusted the tax paid at source and claimed in the return as contemplated in sub-section 82C(2) (l e) of the I. T. Ordinance 1984. Thus the action of the tax officials is conceptually wrong and un-acceptable from the view point of relevant section 82C. Actually, the amount of profit shown in the audited accounts and return need to be deducted first from the relevant income and the resultant income on the basis of TDS arrived at may be added as envisaged in sub-section 82C(5) of the I. T. Ordinance 1984. As the action of the tax officials appears to be addition of income twice, the assessed income becomes arbitrary, unlawful and inconsistent with reference to section 82C.
To the utter surprise of the assessee, the tax authority arbitrarily and unilaterally adds it own computed income arrived on the basis of tax collected at source divided by the rate of tax applicable and multiplied by 100 percent, which have resulted the income equal to the Tax liability. The resultant income on the basis of such calculation is added with the net profit already shown in the audited accounts and tax return by the assessee, which is prima facie addition of a single income twice. As a result, the profit computed by tax authority inflated the income unjustly and more tax is demanded from the assessee in violation of the section 82c of the I. T. Ordinance 1984 where tax collected at source is considered and deemed to be the final discharge of tax liability. This is absolutely a misconception of the Tax authority and is considered as whimsical action. This situation could be overcome, if the DCT would have applied his judicial mind to deduct such brokerage commission first from the net profit shown in the accounts and then add the computed income as referred in section 82(c), sub-section 5.
But the tax officials do not follow the relevant section in its true spirit hindering fulfillment of the government commitment towards assessees in general. On the other hand, the tax authority by its discretionary power makes the assessment of income related to brokerage commission arbitrary and unlawful. In some cases, such income had computed discriminately allowing full relief to some banks while in case of other banks such relief was disallowed outright for the reasons best known to the tax authority.
This sort of obstinacy should be checked immediately for the interest of revenue collection so as to enable the government to maintain pace of development of the country.
In this connection, we draw the recent comments of the honourable finance minister of the country regarding tax department stating that due to harassment by tax officials revenue collections are being obstructed. Detrimental attitudes towards assessee by unscrupulous tax officials resulted in poor collection of revenue.
Moreover, sub-section 5 of section 82c appears to be contradictory whereby an assessee declared his income u/s 82c by paying tax at source on the gross transaction value as required by law instead of paying tax on the normal profit (gross income minus gross expenses) for the relevant business. In consideration of the TDS being full and final discharge of tax liabilities, there should not be any restriction in taking any excess amount of profit to the credit of assessee. If any excess profit is found and brought into the ambit of tax by the Tax Department again, justification of enacting section 82C shall prove to be inconsistent and against the cause of natural justice. The assessees will prefer assessment of profit under normal assessment. The application of section 82c on the assessee will be injustice and contradictory to sub-section 82C(2) (a) (section related to contractor) of the I. T. Ordinance 1984. If the purpose of the government is to collect more tax under sub-section 5 of the 82c the rates of tax deduction may be increased to allow the assessee to avail of the benefit of section 82c.
Moreover, the objective of the government to collect tax frequently in the form of TDS may be achieved as mentioned in the section and asssessee will avail of the benefit of tax as expressed in the line "shall be deemed to be final discharge of tax liability under this Ordinance" as referred in sub-section 4 of 82c. In this situation, neither assessee nor the tax officials will have any scope to foul play in collecting revenue for the government and question of excess profit shall not arise and transactions will be accountable and transparent.
In order to remove the impediments in the collection of revenue, it has become a necessity for the NBR to issue clarification in this respect and remove the misinterpretation of the relevant section of the ordinance by the tax officials and help the assessee discharge his due tax liability truly in accordance with the section. Other-wise purpose of the section 82c will be questionable and objectives of the government policy will be defeated.
The inclusion of sub-section 5 in section 82c is contradictory, superfluous and double taxation on assessee when assessee paid tax on the gross transactions of total receipts as well as expenditure. Further demand of tax in the name of excess credit is an injustice to the assessee.
(The author is an FCA and senior audit and tax partner of Howladar Yunus &Co. Chartered Accountants. He can be reached at e-mail: hyc@howladaryunus.com)