Islamabad, January 18, 2024 – The Lahore High Court (LHC) has issued a landmark directive to the Federal Board of Revenue (FBR), instructing them to caution taxation officers against forceful tax recovery measures that infringe upon the fundamental rights of taxpayers.
The court’s decision comes in response to a writ petition (No 71690 of 2023) filed by a petitioner company aggrieved by the unauthorized withdrawal of funds from its personal account under Section 140 of the Income Tax Ordinance, 2001.
The LHC’s judgment, delivered on January 18, 2024, emphasized the necessity of adhering to due process and respecting the fundamental rights enshrined in the Constitution. The court directed the FBR to issue notifications to all taxation officers, warning them of potential disciplinary proceedings if they misuse their powers during tax recovery.
In the specific case addressed by the LHC, the court ruled that the petitioner’s fundamental rights under Article 10A of the Constitution had been violated due to the failure to follow due process. Furthermore, the court invoked Article 19A, emphasizing the right to access necessary information, stating that recovery notices must contain essential details about the assessment, finality under the law, consequent demand, and previous notices to which the taxpayer did not respond.
The LHC underscored that any notice, particularly those related to recovery, lacking vital information would be deemed unacceptable. The court insisted that Section 140 notices addressed to third parties must also include the same details to justify the necessity of coercive measures for demand recovery.
The court categorically declared that forceful withdrawal of funds from personal and business accounts, without due process, constitutes a violation of fundamental rights under Article 23 of the Constitution. The court criticized the use of Section 140, emphasizing that it should only be invoked when the Commissioner genuinely believes the taxpayer might evade the demand, which would become irrecoverable forever.
The judgment went further to state that such actions, in the absence of due process, amount to “robbery.” Until rules are incorporated, the Commissioner is barred from invoking Section 140 without prior approval from the FBR.
The LHC has previously criticized reckless recovery actions by taxation officers, attributing non-compliance to the pursuit of achieving revenue targets. In response to this, the court directed the FBR to issue notifications warning taxation officers of potential disciplinary proceedings for misuse of powers and infringement of fundamental rights.
The court reminded the FBR that recovery under Section 140 must align with the constitutional commands of Articles 10A and 19A, and failure to comply with statutory procedures and binding judgments constitutes misconduct, subject to disciplinary action under service laws. The court also clarified that protection under Section 227 of the Income Tax Ordinance of 2001 is applicable only to actions taken in good faith, allowing the FBR to recommend disciplinary proceedings for violations of fundamental rights or non-compliance with superior court judgments.
As a result of this judgment, the FBR is expected to implement reforms to ensure tax recovery procedures align with constitutional rights and due process, preventing arbitrary actions that negatively impact taxpayers and businesses.
