ALTERNATE DISPUTE RESOLUTION AND INCOME TAX LAW
By Aga Faquir Mohammad
Advocate Supreme Court of Pakistan
1 What is Alternate Dispute Resolution?
Alternate (or Alternative) Dispute Resolution is a generic term. It is any mean of resolving dispute between the parties through any mode other than litigation in the court of law. It is out of court settlement of disputes through compromise. There are several recognized ADR procedures. Negotiation is the most common, and involves the parties themselves attempting to resolve the dispute. Various forms of resolving disputes outside the court are mediation, conciliation, arbitration, neutral evaluation, Expert Determination
2 Development of alternate dispute resolution
After the advancement of national and international business, the commercial litigations in the court of law involving government agencies increase through out the world and as a result the courts of law could not provide justice speedily. Because of such increasing burden of cases also delayed justice in other cases as well. In 70’s developed countries thought to find out ways and means to resolve disputes between citizens and government as well as between multinationals and national companies and persons and companies who have disputes to adjudicate the same outside the court. Such mode of resolving disputes out side the court has further developed with the passage of time. The Alternate Dispute Resolution (hereinafter referred to ADR) as a subject of law, has developed so much after 70’s that it has become a specialized field for the lawyers in developed countries. It is now a mean to settle disputes between the litigants outside courts. Alternate Dispute Resolution is now inserted in every statute dealing with the civil disputes. Even special act as Alternate Dispute Resolution Act is also promulgated by a number of developed countries. Many countries have inserted such provisions in their various statutes. Such provisions of law ( Mediation ) are now popularly termed as ADR.
3 ADVANTAGES OF ALTERNATE DISPUTE RESOLUTION (ADR)
Introduction of ADR in various statutes to get the dispute settled outside the court has not only reduced the burden of the court but also saved time and money of the litigants. It has also controlled the corruption and maladministration in the various Government agencies. The advantages of the ADR are as under:-
In the court dispute between the parties is adjudicated by a judge or several different judges, who, whilst being independent, may have limited knowledge of the dispute and therefore need advise from expensive counsels. In ADR the persons appointed in complex disputes are well versed with the subject and the law involved. They may not only act as a neutral, but also have all of the necessary knowledge of the subject as well as law involved.
In litigation there are strict rules as to where civil proceedings can be commenced, and, as a party to the dispute the litigant will have little control over the location. In ADR, disputes will be resolved, where possible, by documents only, so parties in dispute do not face the upheaval of attending court, or the stress of giving evidence in front of a judge, and the other party in a court room. If a hearing is required for Resolution of the dispute, the parties to the dispute and the Penal of persons who have to resolve the dispute agree a venue and time as convenient as possible to all concerned. The process is always in private which means that any sensitive knowledge is preserved.
In litigation there are rules of procedure laid down by the court which both parties have to follow. In ADR there are also rules, but they are very flexible. The parties and the neutral persons so appointed to settle the dispute can mutually agree to change them as the process matures.
In litigation there may be a time table, but it is usually designed to suit the needs of the court and not the parties’ .However, in ADR timetables are specified in the agreed rules that the parties have signed up to, and can be made more flexible with the agreement of the parties and the neutrals.
The courts do have powers to ensure that parties stick to the timetable, but they often do not seem inclined to use them and a party can delay matters for years before the court will strike out the claim or defence. On the other hand, the court can be inclined to enforce the rules without any regard to the personal circumstances of the parties, and therefore can strike out cases too early. In ADR, because the Procedures can be tailored to meet the demands of the parties and the neutrals, take into account the personal circumstances of the parties and therefore allow greater flexibility. This means that the neutrals have powers which have been agreed by the parties and can, therefore, deal with delays in the appropriate manner.
In litigation in the court more cases may be listed for the judge and the Judge may not cope with all the cases that day and the cases not heard may be put off to some other day, several weeks or months later. In ADR if there is a hearing or meeting of the parties and the neutral, the hearing date is set by the neutral after close liaison with the parties, to ensure that everyone is available and therefore limit the possibility of cancellations.
In litigation there is discretion on costs, although they normally follow the event. Therefore, the loser generally pays the winner. In ADR the issue of costs is dealt with as a preliminary matter and the parties know in advance the likely range of costs and who will be liable to pay. Experience shows that in a well-managed ADR procedure costs are almost invariably substantially lower than for litigation. In many countries such expenses are shares by both the parties.
ADR is a great balancer of power between parties. ADR allows the parties an opportunity to have a dispute resolved quickly, cost-effectively and privately rather than suffering from an imbalance in representation leading to an expensive and public mauling in the courts.
(ix) For the businessmen and professionals, ADR reduces litigation costs and saves valuable management time. Under ADR parties can avoid the expense, delay, stress and divergence of time in bringing case to court.
4 ALTERNATE DISPUTE RESOLUTIONS IN PAKISTAN
Resolution of disputes out side the court is not a new concept in Pakistan. Arbitration, mediation, resolution of disputes through Punchayat, Jirga,, through interference of elders, arbitration, mediation, reconciliation etc are the ways to resolve disputes between parties are existing in Pakistan since long. Reasonable commercial disputes are resolved through Arbitration in Pakistan. The disputes between the Government agencies and the citizens in Pakistan are increasing in geometrical progression in the courts of law. The increase in litigation by or against the Government is not only time consuming but the delay of such disputes cause loss to both the Government and citizens. Such disputes between the state agencies and citizens are one of the causes that justice is delayed in Pakistan and the people are loosing faith in the courts of law.
ADR between state agencies and citizens which is developed in advance countries by making laws are thought to be introduced in Pakistan for the reasons that the overgrowing disputes between the Government agencies and the citizens had on the one hand burdened more work on the Courts of law and on the other hand such disputes benefit neither the Government nor the citizens. Such disputes are also hurdle in the growth of economy of the country.
The Law and Justice Commission of Pakistan recommended for implementation of alternate mode of dispute resolutions. The Government of Pakistan in the year 2002 amended Civil Procedure Code, 1908. Section 89 gives powers to the civil courts to adopt, subject to the consent of the parties, to settle dispute by Alternate Dispute Resolution. Complementary addition was also made in Order X of Civil Procedure Code whereby the court is empowered to pass necessary orders for expediting the trial proceedings. However as no effort is made to know the benefits of such amendments by the Bar and the concerned department of the judiciary by way of holding seminars and using other media, the amendment in Civil Procedure court, remains only in the statute book and fail to serve the purpose for which ADR was inserted in Civil Procedure Code, 1908
Reportedly on the recommendation of the Hon’ble Federal Tax Ombudsman, amendment in Central Excise, Customs, Income Tax and Sales Tax laws are made through Finance Act, 2004 whereby provisions regarding Alternate Dispute Resolution is introduced in the tax laws.
5 RESOLUTION OF DISPUTE BY ALTERNATE DISPUTE RESOLUTION UNDER INCOME TAX ORDINANCE, 2001
(i) Section 134 A is inserted in the Income Tax Ordinance 2001 by Finance Act, 2004. It is reproduced hereunder
134A. Alternate Dispute Resolution.- (1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder, any aggrieved person in connection with any matter of income tax pertaining to liability of income tax, admissibility of refund, waiver or fixation of penalty or fine, relaxation of any time period or procedural and technical condition may apply to the Central Board of Revenue for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application.
(2) The Central Board of Revenue after examination of the application of an aggrieved person shall appoint a committee consisting of an officer of Income Tax and two persons from a notified panel of Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers for the resolution of the hardship or dispute.
(4) The committee constituted under sub-section (2) shall examine the issue and may, if it deems necessary, conduct inquiry, seek expert opinion, direct any officer of Income Tax or any other person to conduct an audit and make recommendations in respect of the resolution of dispute as it may deem fit.
(5) The Central Board of Revenue may, on the recommendation of the committee, pass such order, as it may deem appropriate.
(6) The aggrieved person may make the payment of income tax and other taxes as determined by the Central Board of Revenue in its order under sub-section (4) and all decisions, orders and judgements made or passed shall stand modified to that extent and all proceedings under this Ordinance or the rules made thereunder by any authority shall abate.
(7) Provided that, in case the matter is already sub-judice before any authority or tribunal or the court, an agreement made between the aggrieved person and the Board in the light of recommendations of the committee shall be submitted before that authority, tribunal or the court for consideration and orders as deemed appropriate.
(8) In case the aggrieved person is not satisfied with the orders of the Central Board of Revenue, he may file an appeal or reference with the appropriate authority, tribunal or court under the relevant provisions of this Ordinance within a period of sixty days of the order passed by the Board under this section has been communicated to the aggrieved person.
(9) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.
6 (i) Central Board of Revenue (hereinafter referred to as “the Board ”), in exercise of the powers conferred on it by Section 237 (1) of the Ordinance inserted Rule 231 C in the Income Tax Rules, 2002 (hereinafter referred to as the Rules ) vide S.R.O 748 (I)/2004 for providing rules and procedures for ADR.
(ii) Under sub-section 1 of section 134A any person (as defined under section 80 of the Ordinance) aggrieved in connection the following matters may apply to the Board for the appointment of a Committee for the resolution of the disputes
(i) liability of income tax;
(ii) admissibility of refund;
(iii) waiver or fixation of penalty or fine
(iv) relaxation of any time period or procedural and technical condition
Under Sub-Rule 3 of Rule 231 of the Rules such aggrieved person has to make a written application to the Board in the prescribe form which is set out in the Schedule of the Rule 231 C of the Rules along with three additional copies of the application and the annexure thereto to the Chairman of the Board. The prescribe form of the application is reproduced hereunder:-
APPLICATION FOR ALTERNATE DISPUTE RESOLUTION
UNDER SECTION 134 A OF THE INCOME TAX ORDINANCE,2001
To,
The Chairman,
Central Board of Revenue,
Islamabad
Dear Sir,
The undersigned being duly authorized hereby apply _________________ (name and address of the applicant) for dispute or hardship resolution under section 134A of the Income Tax Ordinance, 2001 (XLIX of 2001).
2. Necessary details of the dispute or hardship are set out below and in the annexure to this application.
3. A request is made to constitute a Committee as provided under sub-rule (4) of rule 231C of Income Tax Rules, 2002.
4. The following documents as are necessary for the resolution of the dispute or hardship are enclosed.
(a) _____________________________________________________
(b) _____________________________________________________
(c) ______________________________________________________
Yours faithfully,
Signature ____________
Name _______________
(in block letters)
NTN ________________
Address ______________
Date _________________
Annexure
[See paragraph 2 of the Schedule]
(1) Name of the applicant _________________________________________
(in block letters)
(2) National tax number ___________________________________________
(3) Address of the applicant ________________________________________
(4) Telephone Number ___________________ Fax Number _____________
(5) The Commissioner with whom a dispute has arisen __________________
(6) The following is the statement of the relevant facts and law with respect to dispute or hardship having bearing on the question(s) on which the resolution is required (Please annex extra sheet, if required):-
(7) Statement containing the applicant’s interpretation of law or facts, as the case may be, in respect of question(s) on which resolution is required (Please annex extra sheet, if required) is as follows:-
(8) The extent or the amount of tax which the applicant agrees to pay, if any.
(9) The undersigned, solemnly declare that,-
(a) full and true particulars of the dispute or hardship for the purposes of resolution have been disclosed and no material aspect affecting the determination of the application filed under the Income Tax Ordinance 2001, in this behalf has been withheld;
(b) that the above issue(s) is/are pending before ____________ (name of the appellate forum, ITAT or court)/ not pending before any forum, ITAT, High Court or Supreme Court of Pakistan for adjudication; and
(c) I shall pay the remuneration of the members, other than a public servant, of the Committee to the extent as the Chairman of the Committee may decide.
Yours faithfully,
Signature ____________
Name _______________
(in block letters)
Designation ____________
Date _________________.”.
On receipt of the application the board after examination of the application under sub-section(1) of 134 of the Ordinance and after being satisfied that the case is fit for ADR appoint a committee consisting of an officer of Income Tax and two persons from a notified panel of Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers for the resolution of the hardship or dispute.
Though there is no condition precedent for qualification of an Income Tax Practitioner or an advocate as a member of the Committee in section 134 (A), the CBR has put a condition for qualifying an Income Tax Practitioner for appointment as a member of the Committee. According to the Rule Income Tax Practitioner must have at least twenty five reported cases in reputable journal to his credit and condition for an advocate to be qualified to be member of the committee to be an advocate of the High Court.
vide Circular No. 20 of 2004 Income Tax dated September 4th, 2004 the Board has constituted following committees under sub-section 2 of section 134 A
Lahore
Committee No. I
1. Kh. Habibullah Chairman.
83/1 Raze-View Jail Road
Opp. Services Hospital, Lahore
Ph.042-7586447
2. Mr. Ahmad Rauf Member
Advocate
M/s. Ahmad Rauf & Associates
24/BS, Gulberg-II, Lahore
3. CIT Special Zone Lahore Member
Committee No. II
1. Dr. Pervaiz Hassan Chairman
Hassan & Hassan Advocates
PAAF Building, 7-D Kashmir
Agerton Road, Lahore
(Ph No. 042-8360800-4)
2. Mr. Muhammad Aslam Khan, CA Member
M/s. Aslam Khan & Co11-Happy Home, 38-A,
Main Gulberg, Lahore
(Ph No 042-5716691-93)
3. CIT Companies Zone-I, Lahore Member
Committee No. III
1. Mr. Javed Iqbal Chairman
C/o Pak Kuwait Textile Mills Ltd
Lahore
2. Mian Ashiq Hussain Member
Advocate Supreme Court
16-Link Farid Kot Road
Lahore
3. CIT Companies Zone-II, Lahore Member
Karachi
Committee No. I
1. Mr. Mushtaq Ahmad Vohra Chairman
Chairman, Taxation & Fiscal Committee
APTMA House, 44-A, Lalazar, Karachi
2. Mr. Younus Rizwan Sheikh, CA Member
M/s. Avais Hyder Nauman Rizwani
Karachi
3. CIT Special Zone, Karachi Member
Committee No. II
1. Mr. M A M Siddiqui Chairman
Bait-ul- Hameed 18/N, Phase-IV DHA,
Karachi.
2. Mr. Shabbar Zaidi, FCA Member
M/s. A F Ferguson & Co
3. CIT Companies Zone-I, Karachi Member
Islamabad
1. Mr. Ahadullah Akmal Chairman
House No. 299, St No. 20
E-7, Islamabad (Ph: 2271515)
2. Mr. Abdul Basit, FCA Member
M/s. Amir Alam Khan & Co
55/1, Bank Road
Rawalpindi
3. CIT Companies Zone Islamabad Member
Rawalpindi
1. Mr. Alvi Abdul Rahim Chairman
House No. 169, St No. 54, I-8/3
Islamabad
2. Mr. Shahid Sadiq, CA Member
M/s. A F Ferguson & Co
49-A, PIA Building, Blue Area
Islamabad
3. CIT (MTU), Rawalpindi Member
Sialkot
1. Ch. Ahmad Zulfiqar Hayat, Chairman.
M/s. Leather Field (Pvt) Ltd
Capital Road, Sialkot
(Ph No. 0432-556272)
2. Pirzada Syed Saeed Ahmad Shah, Member.
Advocate, Allama Iqbal Market,
Paris Road, Sialkot (0432-589312)
3. CIT Sialkot Zone Sialkot Member.
Faisalabad
1. Mr. Munawar A Sheikh Chairman
President
Yarn Merchant Association
Faisalabad
2. Mr. Salman Zahid Jamil, CA Member
M/s. Zahid Jamil & Co
Faisalabad
3. CIT Companies Zone, Faisalabad Member
RESOLUTION OF DISPUTE UNDER
It is pertinent to note that in Alternate Dispute Resolutions whether it is Arbitration, Mediation or any other method under the law whether it is national or international dispute, an advocate is appointed as an arbitrator or a member of the Committee. Appointment of an advocate specialized in the law relating to the subject of dispute is considered for the reason that such an advocate proves to be more helpful in resolving legal issues in the dispute and observe the rules for such Alternate Dispute Resolutions but, for the reason best known, appointment of Advocates of High Court as a member of the committee is discouraged by the CBR. Except Committees for Lahore Advocate for High Court are not appointed in any of the Committees. It is, therefore, feared that due to absence of an advocate in the Committees constituted by the CBR may not achieve the result that must be achieved in order to make it a success. It is feared that ADR under Income Tax Ordinance may have the same faith as other scheme introduced in tax laws such as settlement commission in the past have met. If the ADR scheme failed it will have adverse effect on the whole reform that the Government is making for access to justice possible to the people
2 Under the Rule the Chairman of the Committee after receiving the application decides the place of sitting of the committee, specify the date and time of conducting proceedings and notify the same to the applicant by issuing notices by courier or registered post or electronic mail requiring him to attend the proceedings on the date and time at the placed of sitting of the Committee. The applicant may appear in person for hearing or he may be represented through an advocate or representative of a tax consultant .Such authorized person has to submit the authority from the applicant authorizing him to attend and represent the case of the applicant ,on the first date of hearing of the application.
The Chairman of the Committee has to intimate the applicant remuner
