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Law prevails over rules!

Huzaima Bukhari & Dr. Ikramul Haq

The concept of delegated or secondary legislation is not extraordinary. The parliaments from where emanate various statutes, cannot be expected to work out the detailed application of the general principles embodied in the acts for their enforcement, therefore this work is handed down to the executive, local government/bodies as well as the judiciary. Under this power of delegated legislation, rules, decrees, byelaws and proclamations are made for the benefit of the public, and to bring about certainty and ease of doing business. There is no denying the fact that delegated legislation is an integral part of the entire process of governance and plays a pivotal role in adapting to the changing environment, localized culture and amendments in law.

Some conditions are precedent to embarking upon secondary legislation. These need to be kept in mind before enacting subordinate regulations. Thus, the purpose of the relevant act/statute cannot be ignored. It must be remembered that delegated legislation must be conducted with great responsibility because it has the same legal standing as the act of parliament from which it is evolved until the time something is taken to the courts for adjudication. Secondary legislation is meant to complement the parent act, not supplement it. This means that it should fulfill the requirements of the statute and not extend it or change its objectives to suit some vested purpose.

Judicial pronouncements have clearly restricted the scope of delegated legislation to within four corners of the parent statute. There can be no exercise of power by the delegate, which is not explicitly mentioned in the statutory provisions. The Supreme Court of India in JK Industries v. Union of India [2005 (103) ECC] has aptly said that though the Legislature has wide powers of delegation, it cannot delegate uncontrolled power and the same is confined by legislative policies and guidelines. Rules cannot be made that are in conflict with the main law in which case, the courts would in all probability declare them unlawful.

Now coming to the rule with respect to filing online return of income for the tax year 2019, a glaring discrepancy has been noted. Sub-section (2) of section 116 of the Income Tax Ordinance, 2001 (hereinafter “the Ordinance”) requires every resident individual to furnish a wealth statement along with wealth reconciliation for the year. The online return cannot be submitted if this part remains unfilled. As far as a resident is concerned, this is fine but where a non-resident has to file a return, the law does not require him/her to submit a wealth and reconciliation statement but this format (rule prepared under delegated legislation) forces filing the statement or else the return is declared invalid. There is no justification for asking details about assets and liabilities of a non-resident voluntarily filing return, especially when the statute does not require such information. This being totally against the main provision of the law, the online return format must be immediately brought in conformity with the legal requirements.

Section 101 of the Ordinance lays down the scope of income of a non-resident that is limited to Pakistan source only and not the world income as in the case of a resident. Unless a person declares worldwide sources of income, worldwide assets and liabilities, reconciliation of wealth is not possible as a big chunk would remain outside the ambit of declaration. Such is the bizarre nature of this online format.

Conversely, for salaried persons trying to submit a wealth statement, there is no scope for filling out details of assets and liabilities. The only slots available in the e-return format are total value of assets as on the close of the earlier tax year and on the close of the current tax year, and some room for showing inflows and outflows justifying accretion/decrease in wealth. There is no opportunity for someone who voluntarily wants to disclose all his/her assets being the first year of declaration in order to keep his/her history clean.

In the yester years when manual returns were in vogue, there were separate formats for individuals and other entities and different forms for filing returns of income and wealth statements thus facilitating taxpayers in filing their declarations. With advancement in technology, it was all the more necessary to design formats that could be claimed as user-friendly. Instead of easing out things, a return covering tens of pages (around 54 to be precise) has been prescribed because of which taxpayers and their consultants are deeply entrenched in confusion. Besides, there is now no manual return prescribed to help those persons who have no access to computers and in the case of those persons who are not caught in the mischief of rule 73(2DD) of chapter XI of the Income Tax Rules, 2002.

Interpretation of law is everyone’s right and the return format calls for strict adherence to the interpretation of revenue authorities that can be devious in the sense that it may create a burden on the taxpayer that could be avoided but for the automatic computation of income, tax and tax credits. There is no room for a different view or conflict that could be settled in the courts. Here too the rule is in violation of the main provisions as understood by the taxpayer and as interpreted by the authorities. The right to a certain interpretation has been conveniently snatched from the taxpayer, forcing resort to appeal, meaning thereby, increase in litigation, expenses and waste of time.

In their enthusiasm to collect more and more revenue, the authorities have become totally berserk with an attitude that reflects nothing but ferocity and desperation. For example, the noose around non-filers has been tightened to such an extent that even where some relief has been provided under the Ordinance to erstwhile FATA, PATA and Gilgit Baltistan areas, other statutes, specifically Protection of Economic Reforms Act, 1992 prevents residents of these areas from depositing cash in their foreign currency accounts. This shows complete lack of co-ordination between different laws rendering lives of the people in utter disarray.

One hopes that those sitting at the helm of affairs have the sensibility to reconsider these discrepancies and remove all ambiguities for the convenience of taxpayers and also for improving the general structure of the procedural part of the taxation system.


The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)

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