Assignment on Tax Law

Q1. What do you understand by the Alternative Dispute Resolution (ADR) system and how far it
is better than the normal Appellate mechanism available under the Income Tax Ordinance 2001 as
quick disposal of appeals is concerned through this mechanism?
Introduction:

The concept of Arbitration is defined in the Black’s Law Dictionary as “any procedure
for settling the dispute by means other than litigation, as by arbitration or mediation”. Alternative
Dispute Resolution (ADR) is one of the amicable settlements in response to litigation that is much
more lengthy and time-consuming as well. To emphasize this is not the replacement of the
conventional method of resolving the issues but it is a supplement that could be traced back to
centuries. However, regarding tax issues, ADR is introduced recently. These days this is one of
the methods that is being used to resolve the dispute and give the parties quick relief which is less
costly and less expensive as well. This method of resolving the dispute is outside the court where
the parties bring their issue. This mechanism works side by side with the conventional methods
but has simple procedures and less technicalities. There are many advantages as compared to
disadvantages of ADR these days. Due to this awareness, many parties add the ADR clause in their
contracts to avoid conflicts later on and to get relief on time without any hindrance as well.
Similarly, the ADR system is also used and available in the Income Tax Ordinance, 2001 due to
its advantages. Nonetheless, there is a limited period and other procedures that are important to be
followed to avail the option of ADR for resolving the issue in the Income Tax Ordinance.

Alternative Dispute Resolution (ADR) in Tax Matters:

Alternative Dispute Resolution (ADR) was introduced in the fiscal statutes through the
Finance Act, of 2004. Basically, under the Constitution of Pakistan, 1973 as well there are some
important basic fundamental rights among them is Article 10A which is “Right fair trial” and also
“expeditious and efficacious” relief. These both are connected with this alternative dispute
resolution as it is a speedy and efficacious remedy available for an aggrieved party. Moreover,
section 134-A of the Income Tax Ordinance, 2001 was the first important section through which
ADR was introduced and acted as a para material for all other fiscal statutes as well such as the
Customs Act, 1969, Sales Tax Act, 1990, and Federal Excise Act, 2005.

There are many advantages, any aggrieved taxpayer or tax department can apply for
ADR to save time and energy in comparison to getting relief from any normal Appellate Authority
or Tribunal. It is quick hence there are fewer delays which upholds the rule of law. In addition,
any taxpayer or department can write an application to the FBR Department for the appointment
of a committee for the resolution of any issue pending before the Appellate Authority/Tribunal.
There is a limitation of time in which FBR has to appoint the committee within 90 days or if it
fails to do so a new committee shall be appointed within the same time frame or else the Board
shall refer the matter to the appropriate forum. If the Committee makes any recommendations the
Board shall pass any order and submit that Order to the Appellate Authority or Tribunal where the
matter is pending or is sub-judice and orders accordingly.

Nevertheless, ADR is a new mechanism and fewer people are aware of it. Therefore,
it is preferred less by people but once people get awareness about this mechanism and its
advantages a lot of people will opt for this mechanism to get instant relief. Moreover, the key
importance of ADR is the expeditious resolution of contentious issues that are between the
taxpayer and tax collector with less or no hardship to the taxpayer as there are independent experts
involved and free of cost. Hence, this alternative mechanism is given to the taxpayer to resolve the
issue in tax disputes. ADR provides an expedient and more flexible approach to resolving the
dispute for the taxpayer or department. This mechanism provides a cooperative and less adversarial
dispute resolution process, where it is convenient for both parties and they can discuss and explore
potential settlements that may be mutually acceptable.

Appellate Mechanism:

A taxpayer or the department has the right to appeal before the Commissioner
(Appeals) or Collector (Appeals) for any order that the taxpayer thinks is unjust or against the
rights of the aggrieved party. Even after the decision by the first Appellate Authority, the aggrieved
party (taxpayer or department) has the right to appeal before the Appellate Tribunal, the second
appeal is basically in the form of reference before the High Court or further in the form of a petition
can also be moved to the Supreme Court. The judicial system is there to look into the redressal of
public grievances. Therefore, it needs to be an efficient one. These are some of the conventional
methods under which the aggrieved party can get relief but these conventional methods move
around the laws and facts. Most importantly, the laws have technical language, and decisions take
their own time. Many cases are pending before the courts and the aggrieved parties are still
suffering to get relief. However, a person cannot deny that these are the only methods through
which the conventional methods of law have developed and matured. Considering these situations
the government provided the opportunity of ADR to the taxpayer and department in the Finance
Act, 2004 which was previously only available under the Sales Tax Law, Federal Excise, Customs,
and Income Tax Laws as well. Any aggrieved individual can request ADR which includes:

1. An Individual
2. An Association of Persons
3. A Company
4. A Trust
5. Any Partner or Member of the Association
6. The Principal Officer of the Company
7. Any Trustee of the Trust

In the case of the deceased person any individual who is the representative of the deceased or in
case of any person who is with legal disability or non-resident person his/her/its representatives.

The Procedure to Apply for ADR:

The aggrieved party needs to write an application for referring the matter to the ADR,
this application in writing needs to be submitted to the Chairman, of the Federal Board of Revenue,
in the format provided. An aggrieved party needs to mention the nature of the hardship in the
dispute and common grounds for referring the matter to the Alternative Dispute Resolution
Committee (ADRC). The basic grounds could be:

1. Serially numbered
2. Written in Urdu or English
3. Precise
4. Stated separately and distinctly for each matter of dispute or cause of hardship

Upon review of the application the FBR will appoint a Committee to resolve the dispute. The
Committee will consist of Income Tax Officer and two representatives from a notified panel
of Advocates , Chartered or Cost Accountants, Income Tax Practitioner, or respectable
taxpayers. In its discretion the Committee may order an audit to be carried out, conduct an
investigation, or consult an expert. Section 134-A (4) based on the Committee
recommendations. Once the payment is made as directed by the FBR, all rulings, decrees, and
judgements will be adjusted accordingly in behalf of the aggrieved party.
 The aggrieved party should also mention the relief or prayer for which the application is
written to the ADR Committee. Most importantly, there is no time limit for applying for ADR
however, the conditions must be met that the matter should be pending before the court and it is
not decided. All the documents on which the applicant has relied are attached to the application as
well. However, it is essential to mention that the particular period given for the appeal or reference
has not expired. Notice for the proceedings will be informed to the person before seven days about
the proceedings. However, the person can attend the proceeding himself or by his representative.

Comparison of ADR with Conventional Mechanism:

Most importantly, ADR is not supposed to replace the conventional method of resolving
the issue that is going to the courts but this is the “Alternative Method” to resolve the issue which
moves side by side with the existing appellate mechanism. The interpretation of law is solely the
responsibility of the courts and existing stage hence it does not fall in the scope of ADR. The scope
of ADR resolves around the facts and circumstances of the case. There are already a lot of cases
pending in the courts at the appellate stage. Therefore, the ADR is instant relief to the taxpayer or
department to resolve the dispute as soon as possible. Mainly compared to the appellate
mechanism, ADR provides a quick and less formalistic process, which can save time and resources
for both the taxpayer and the department. Most importantly, the ADR allows the parties to have
control over the outcome of the dispute, as the parties can actively participate in resolving rather
than solely relying on the solution given by the appellate authorities.

The condition to go for ADR is that the matter should already be pending before the
appellate stage, and then the matter can be referred to ADR.1 Moreover, no prosecution or criminal
proceedings have been initiated. No interpretation of the law is involved. The provisions about
ADR are section 134(A) in the Income Tax Ordinance, 2001, section 47A of the Sales Tax Act,
1990, and Chapter 10 of the Sales Tax Rules, 2004. Then there is section 195C of the Customs
Act, 1969, and Chapter XVII of the Customs Rules, 2001. Then there is section 38 of the Federal
Excise Act, 2005, and Rule 53 of the Federal Excise Rules, 2005. The Board examines the
application for ADR to ascertain that the conditions for ADR are met that is the matter is pending
before any authority, court, or tribunal, it is not a past and closed transaction, all the necessary

1 2021 PTD 1568 Karachi High Court

documents are attached, and the matter is of such nature that it is appropriate for ADR. Moreover,
an incomplete application is sent back to make proper changes, and an application that is complete
on its basis the committee is formed. Then the application of the aggrieved party along with the
documents is forwarded to the Committee. For the Income Tax application, the board is appointed
within 60 days. The decision that is given by the Committee is not to be used as a precedent. The
applicant has the option of withdrawing the application as well but it is important that the
committee has not given its recommendation.

Conclusion:

To conclude, ADR reduces the burden on the court due to a backlog of cases.
Overall, the ADR has a positive effect and is a favorable mechanism for the quick disposal of
appeals under the Income Tax Ordinance, 2001 as it promotes a cooperative and efficient approach
to resolving the dispute and provides an alternative to the traditional appellate mechanism. A
complete record of the proceedings of the cases resolved under ADR is maintained by the
concerned Collectorate and the concerned Collector shall ensure that proper arrangements are
made to maintain such records appropriately. Moreover, the board after examining the
recommendation by the committee shall decide on the dispute and make such a decision that is
just under the intimation of the applicant, and on receipt of the Board’s order the Collectorate shall
implement the order under the period that is specified by the Board. Most importantly, ADR saves
money along with all other important positive effects which is why it is preferred by the aggrieved
parties.