IHC takes up FBR challenge to tax ombudsman powers

ISLAMABAD:

The Islamabad High Court (IHC) has issued notices to respondents on a petition filed by the Federal Board of Revenue (FBR) challenging suo motu proceedings initiated by the Federal Tax Ombudsman (FTO) in dozens of matters, in a case that may determine the legal contours of the ombudsman's jurisdiction vis-a-vis statutory tax authorities.

A single bench comprising Justice Khadim Hussain Soomro heard the FBR petition, in which the Revenue Division and the tax authority challenged the FTO's assumption of jurisdiction in 43 suo motu proceedings initiated during 2022–2023, arguing that the matters fell outside the statutory scope of the ombudsman's mandate.

The Revenue Division and FBR were represented by Hafiz Ahsaan Ahmad Khokhar.

During the proceedings, counsel for the petitioners submitted that the Federal Tax Ombudsman, while purporting to act under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000, initiated a broad range of suo motu proceedings during 2022–2023 which, in their true legal character, did not fall within the statutory definition of "maladministration" under Section 2(3) of the Ordinance.

It was argued that, instead of addressing administrative lapses or abuse of authority, the proceedings ventured into core fiscal and adjudicatory domains, including tax assessments, determination of liability, appellate functions, audit mechanisms, withholding tax compliance, digital tax systems, and internal regulatory processes of the FBR.

According to the petitioners, such matters are expressly excluded from the jurisdiction of the FTO under Section 9(2) of the Ordinance, which bars intervention in matters relating to assessment, adjudication, and determination of tax liability where statutory remedies such as appeal, review, or revision are available under the Income Tax Ordinance, 2001.

The counsel contended that the assumption of jurisdiction by the FTO in such matters was coram non judice, ultra vires, and without lawful authority, rendering the entire proceedings void ab initio.

The petitions also challenged the consolidated presidential orders dated December 17 and 21, 2025, passed under Section 32 of the Ordinance.

Counsel further argued that although the President acknowledged the existence of a jurisdictional bar under Section 9(2), the simultaneous observation that the ouster clause was "not absolute" was legally inconsistent, self-contradictory, and contrary to the plain language of the statute.

It was submitted that where Parliament has expressly excluded jurisdiction, no executive authority can dilute, reinterpret, or partially negate such exclusion.

The petitioner argued that both the FTO's recommendations and the presidential orders suffered from fundamental legal infirmities, including misreading, non-reading, and misconstruction of Sections 2(3), 9(1), and 9(2) of the Ordinance.

Counsel maintained that jurisdictional defects strike at the root of the matter and cannot be cured through endorsement, ratification, or subsequent implementation actions.

It was further submitted that the proceedings did not involve any actionable "maladministration" as contemplated under Section 2(3), which requires demonstrable elements such as negligence, abuse of authority, undue delay, or failure to act by public officials.

Instead, the impugned actions related to policy-oriented fiscal matters and statutory tax processes are governed by a complete adjudicatory framework under tax laws, falling outside the ombudsman's lawful remit.

The petitioners also asserted that the impugned proceedings undermined the independence, finality, and statutory sanctity of tax adjudication mechanisms, including decisions rendered by Commissioners Inland Revenue (Appeals) and other competent forums.

By creating what was described as a parallel oversight structure, the FTO had allegedly exceeded its statutory mandate and encroached upon areas reserved exclusively for tax authorities under the law.

A major aspect of the challenge also concerns implementation orders issued by the FTO during 2025–2026, through which earlier recommendations were sought to be operationalised.

According to the petitioners, these implementation directives extended beyond advisory recommendations and sought enforcement through audits, compliance monitoring, scrutiny of institutional records, verification of financial transactions, and directives affecting ongoing tax proceedings.

The petitioners argued that such actions amounted to direct interference in statutory and quasi-judicial functions vested exclusively in Inland Revenue authorities and appellate fora established under the law.

On these grounds, the Revenue Division and FBR requested the Islamabad High Court to declare the presidential orders dated December 17 and 21, 2025, along with the FTO's recommendations dated November 27, 2023, October 24, 2023, and December 15, 2023, as illegal, without lawful authority, and of no legal effect.

The petitioners further sought the setting aside of all recommendations issued in relation to the 43 suo motu proceedings initiated during 2022–2023, along with all consequential implementation orders issued during 2025–2026.

They also prayed that the entire proceedings be declared ultra vires, coram non judice, and void ab initio, and sought restraint against any enforcement or coercive action under the impugned framework.

After hearing the arguments, the Islamabad High Court issued notices to the respondents and adjourned the hearing until June 8.

According to the petitioner's counsel, the matter is now set for adjudication and is expected to determine the constitutional contours of the Federal Tax Ombudsman's jurisdiction vis-à-vis statutory tax authorities, as well as the legal validity of enforcement measures undertaken under the impugned regime.