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Subverting Tax Tribunals

Huzaima Bukhari & Dr. Ikramul Haq

“….the raison d’être of establishing special tribunals has been to dispense better quality of justice where people, better trained in particular fields and disciplines could provide quality decisions and resolution of disputes…. Appointing members to these tribunals on political basis or who are otherwise incompetent or have doubtful integrity would prove completely counterproductive…..”—2000 PTCL CL 515

January 25, 2020 will mark 78 years of establishment of Income Tax Tribunal [it was renamed as Appellate Tribunal Inland Revenue (ATIR) on October 28, 2009 through a Presidential Ordinance in the wake of amalgamation of income tax and sales tax cadres into one unified group, Inland Revenue Service (IRS)]. Tragically, a month before this auspicious occasion,   through Tax Laws (Second Amendment) Ordinance, 2019, promulgated on December 26, 2019, ATIR and Customs Appellate Tribunal were made subservient to the Executive, administratively captive in the hands of Prime Minister of Pakistan, in utter violation of the principle laid down by the Supreme Court of Pakistan in Government of Baluchistan v Azizullah Memon PLD 1993 SC 31 that “separation of judiciary from executive is the cornerstone of independence of judiciary”.

All judicial/quasi-judicial organs and appellate authorities as a matter of principle and in consonance with the Constitution of Islamic Republic of Pakistan [“the Constitution’] should be totally separated from the Executive to ensure their independence in the true sense of the word. On this issue, many articles appeared in this newspaper, namely,Draft law on National Tax Tribunal’, Business Recorder, November 3 & 4, 2017, Platinum jubilee of Tax Tribunal, Business Recorder, January 22, 2016, Revamping tax justice system, Business Recorder, December 19 & 20, 2014,  Recuperate tax justice system, Business Recorder, November 29, 2013, Hoodwinking Dar, Business Recorder, August 23 & 24, 2013 and Tax Appellate System: Need for paradigm shift,Business Recorder, June 2, 2009.

It is a matter of record that none of the governments in Pakistan, military or civilian alike, has ever followed directions of the apex court of making tax appellate system independent of Executive—free from the clutched of Ministry of Law,  as also suggested repeatedly in the above cited articles. In fact, in the two-part series, Draft law on National Tax Tribunal’, Business Recorder, November 3 & 4, 2017, the suggested structure of National Tax Tribunal was meant to ensure independence and efficient administration of the entire tax appellate system but the government of Pakistan Muslim League (Nawaz) then in power showed no interest whatsoever and the Parliament also demonstrated apathy in implementing the clear direction of the Supreme Court of Pakistan. Writ petitions on this issue are still pending for final adjudication in High Courts of Sindh and Islamabad. Now in utter defiance of Article 189 of the Constitution and knowing that the matter is sub judice, the Government of Pakistan Tehreek-e-Insaf (PTI) through Tax Laws (Second Amendment) Ordinance, 2019 substituted section 130 of the Income Tax Ordinance, 2001 and 194 of the Customs Act, 1961 to subvert independence of Tax Tribunals under their respective laws. This is highly undesirable, rather an unconstitutional act, amounting to open violation of Articles 189 and 203 of the Constitution, though the following justification is given at the website of Federal Board of Revenue (FBR):

Section 130 of the Income Tax Ordinance, 2001 provides for the establishment of an Appellate Tribunal Inland Revenue. In order to streamline the affairs of the Tribunal and to impart greater efficiency and transparency in the working of the Tribunal for ensuring maximum disposal of cases the constitution, functioning of benches and procedure of the Appellate Tribunal shall henceforth be regulated by rules which the Prime Minister may prescribe. The scope of qualifications for eligibility as a judicial member has also been enlarged”.     

Section 194 of the Customs Act, 1969 provides for the constitution of a Customs Appellate Tribunal by the Federal Government which is competent to adjudicate upon appeals filed against orders passed by the Collector (Appeals). The said section specifies various pre-requisites for appointment as a judicial or technical member and empowers the Federal Government to appoint Chairman of the Customs Appellate Tribunal. In order to complement revenue collection efforts by FBR, streamline the affairs of the Tribunal(s), bring about greater transparency in the manner of appointment of judicial and technical members of the Tribunal(s) and to impart greater efficiency in the working of the Tribunal for ensuring maximum disposal of cases it is proposed that in addition to the prerequisite as already mentioned, the qualification of Judicial Members may also be prescribed under rules made by the Prime Minister. Furthermore the constitution and functioning of benches and procedure of the Appellate Tribunal may be regulated by rules approved by the Prime Minister”.

The Tax Laws (Second Amendment) Ordinance, 2019 substituted section 130 of the Income Tax Ordinance, 2001 as under:

           130.   Appellate Tribunal.– (1) There shall be established an Appellate Tribunal to be called the Appellate Tribunal Inland Revenue to exercise the powers and perform the functions conferred on the Appellate Tribunal Inland Revenue by this Act.

              (2)   The Appellate Tribunal Inland Revenue shall consist of a chairman and such other judicial and accountant members who shall be appointed in such numbers and in such manner as the Prime Minister may prescribe by rules, which may be made and shall take effect notwithstanding anything contained in section 237 or any other law or rules for the time being in force.

              (3)   No person shall be appointed as judicial member of an Appellate Tribunal Inland Revenue unless he–

  • has been a Judge of a High Court;
  • is or has been a District Judge; or
  • is an advocate of a High Court with a standing of not less than ten years; or
  • possesses such other qualification as may be prescribed under sub-section (2) of this section.

              (4)   No person shall be appointed as an accountant member of a Appellate Tribunal Inland Revenue unless he–

  • is an officer of the Inland Revenue Service equivalent in rank to that of Regional Commissioner;
  • is a Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) having not less than three years experience as Commissioner or Collector;
  • has for a period of not less than ten years practiced professionally as a chartered accountant within the meaning of the Chartered Accountants’ Ordinance, 1961 (X of 1961); or
  • has for a period of not less than ten years practiced professionally as a cost and management accountant within the meaning of the Cost and Management Accountants’ Act, 1966 (XIV of 1966).

              (5)   The constitution, functioning of benches and procedure of the Appellate Tribunal Inland Revenue shall be regulated by rules which the Prime Minister may prescribe.

(6)     The rules in respect of the matters covered under this section made prior to commencement of the Tax Laws (Second Amendment) Ordinance, 2019 shall continue in force unless amended or repealed”.

[underlined by us for emphasis]

Similar amendments are made in section 194 of the Customs Act, 1961 by Tax Laws (Second Amendment) Ordinance, 2019 by its as under:  

           194.   Appellate Tribunal.– (1) There shall be established an Appellate Tribunal to be called the Customs Appellate Tribunal to exercise the powers and perform the functions conferred on the Customs Appellate Tribunal by this Act.

              (2)   The Customs Appellate Tribunal shall consist of a chairman and such other judicial and technical members who shall be appointed in such numbers and in such manner as the Prime Minister may prescribe by rules, which may be made and shall take effect notwithstanding anything contained in section 219 or any other law or rules for the time being in force.

              (3)   No person shall be appointed as judicial member of a Customs Appellate Tribunal unless he–

  • has been a Judge of a High Court;
  • is or has been a District Judge; or
  • is an advocate of a High Court with a standing of not less than ten years; or
  • possesses such other qualification as may be prescribed under sub-section (2) of this section.

              (4)   No person shall be appointed as a technical member of a Customs Appellate Tribunal unless he–

  • is an officer of the Pakistan Customs Service equivalent in rank to that of member of the Board or Chief Collector of Customs or Director General; or
  • is a Collector or Director or Chief of the Board having not less than three years experience in that position.

              (5)   The constitution, functioning of benches and procedure of the Customs Appellate Tribunal shall be regulated by rules which the Prime Minister may prescribe.

              (6)   The rules in respect of the matters covered under this section made prior to commencement of the Tax Laws (Second Amendment) Ordinance, 2019 shall continue in force unless amended or repealed.”

            [underlined by us for emphasis]

In the substituted section 130(4)(a) of the Income tax Ordinance, 2001 through Tax Laws (Second Amendment) Ordinance, 2019, the term used is “Regional Commissioner”, which is no longer operational as it was substituted with “Chief Commissioner” way back in 2010 but the inept people sitting both in FBR and Ministry of Law failed to take note of it while doing typical job of cut and pasting from old files! This testifies to the level of competency and supervision by higher officials in FBR and Ministry of Law. Even the Ministers consider/pass such badly-drafted law without even reading the same. Even if they do read, then obviously they have no knowledge of the existing text of the statutes they want to amend! This is the height of inefficiency and/or callousness.

The legislators are equally to be blamed that they act as rubber stamps though many leading lawyers are elected members of the National Assembly and Senate. The relevant Standing Committees do not care to invite subject experts to give their inputs. This is the reason that when cases go up to higher courts, the judges express reservations about quality of legislation.

Before substitution by Tax Laws (Second Amendment) Ordinance, 2019, section 130 of the Income Tax Ordinance, 2001 as amended from time to time and up to Finance Act, 2019, read as under:

130. Appointment of the Appellate Tribunal.– (1) There shall be established an Appellate Tribunal to be called the Appellate Tribunal Inland Revenue to exercise the powers and perform the functions conferred on the Appellate Inland Revenue tribunal by this Ordinance,

(2) The Inland Revenue Appellate Tribunal shall consist of a chairman and such other judicial and accountant members as are appointed in such numbers and in the manner as the Prime Minister may prescribe by the rules.

(3) A person may be appointed as a judicial member of the Appellate Tribunal if the person–

  •  has exercised the powers of a District Judge and is qualified to be a Judge of a High Court; or
  • is or has been an advocate of a High Court and is qualified to be a Judge of the High Court. 

            (4) A person may be appointed as an accountant member of an appellate tribunal if,–

  • he is an officer of Inland Revenue Service equivalent to the rank of Regional Commissioner;
  • a Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) having at least three years experience as Commissioner or Collector;
  • a person who has, for a period of not less than ten years, practiced professionally as a chartered accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961) ; or
  • a person who has, for a period of not less than ten years, practiced professionally as a cost and management accountant within the meaning of the Cost and Management Accountants Act, 1966 (XIV of 1966).

(5) The Federal Government shall appoint a member of the Appellate Tribunal as Chairperson of the Tribunal and, except in special circumstances, the person appointed should be a judicial member.

(6) The powers and functions of the Appellate Tribunal shall be exercised and discharged by Benches constituted from members of the Tribunal by the Chairperson of the Tribunal.

(7) Subject to sub-section (8), a Bench shall consist of not less than two members of the Appellate Tribunal and shall be constituted so as to contain an equal number of judicial and accountant members, or so that the number of members of one class does not exceed the number of members of the other class by more than one.

(8) The Federal Government may direct that all or any of the powers of the Appellate Tribunal shall be exercised by–

          (a)     any one member; or

          (b)     more members than one, jointly or severally.

(8A). Notwithstanding anything contained in sub-sections (7) and (8), the Chairperson may constitute as many benches consisting of a single member as he may deem necessary to hear such cases or class of cases as the Federal Government may by order in writing, specify.

(8AA). The Chairperson or any other member of the Appellate Tribunal authorized, in this behalf by the Chairperson may, sitting singly, dispose of any case where the amount of tax or penalty involved does not exceed one million rupees.

(9) Subject to sub-section (10), if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority.

(10) If the members of a Bench are equally divided on a point, they shall state the point on which they differ and the case shall be referred by the Chairperson for hearing on that point by one or more other members of the Appellate Tribunal, and the point shall be decided according to the opinion of the majority of the members of the Tribunal who have heard the case including those who first heard it.

(11) If there are an equal number of members of the Appellate Tribunal, the Federal Government may appoint an additional member for the purpose of deciding the case on which there is a difference of opinion.

(12) Subject to this Ordinance, the Appellate Tribunal shall have the power to regulate its own procedure, and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions including the places at which the Benches shall hold their sittings.

[underlined by us for emphasis]

The amendments made in section 130 of the Income Tax Ordinance, 2001 and the Customs Act, 1961 through Tax Laws (Second Amendment) Ordinance, 2019 as discussed above were never debated in public or in Parliament and made effective from December 26, 2019. These are vital changes relating to appointment of members which should be by the superior judiciary. These are aimed at snatching away the powers of Tribunals to regulate their own procedure e.g. constituting of Benches, discharge of their functions including the places at which they hold their sittings. It is denying them independence which is cornerstone of free and fair dispensation of justice and in utter violation of Articles 4, 10A, 175, 189 and 203 of the Constitution.  

The right to appointment of members in both the Tribunals historically was with the Federal Government [which means as per interpretation of the Supreme Court in Mustafa Impex & other v Government of Pakistan & Other (2016) 114 TAX 241 (S.C. Pak.) not the Prime Minister but entire Cabinet]. In gross violation of the Constitution, the sole/exclusive authority is now given to the Prime Minister, in other words to Minister for Law as Chief Executive [Prime Minister], who will present and finalise the names of members—any such act on the part of Executive even on merit will be termed having political overtones/choices/ and/or to accommodate the favourites, if role of the Public Service Commission, as independent body above party lines, is eliminated in rules yet to be framed by Prime Minister using power now assigned under section 130(2) of the Income Tax Ordinance, 2001 and under section 194(2) of the Customs Act, 1961 as under:

Section 130(2): “The Inland Revenue Appellate Tribunal shall consist of a chairman and such other judicial and accountant members as are appointed in such numbers and in the manner as the Prime Minister may prescribe by the rules”.

Section 194(2): The Customs Appellate Tribunal shall consist of a chairman and such other judicial and technical members who shall be appointed in such numbers and in such manner as the Prime Minister may prescribe by rules, which may be made and shall take effect notwithstanding anything contained in section 219 or any other law or rules for the time being in force.

By the above amendment and those inserted vide section 130(5) of the Income Tax Ordinance, 2001 and section 194(5) of the Customs Act, 1961, the exclusive powers of appointing members now vests with the Prime Minister, who will prescribe rules for the same as well as regarding the constitution, functioning of Benches of Tribunal! In other words, the bureaucrats sitting in Ministry of Law will now take over the role of Public Service Commission, as apprehended by many in appointing, especially Accountant Members. Though, it is still not certain till the time rules are prescribed by the Prime Minister and made public.

It is travesty of justice that tax appellate, which are final fact finding bodies have been made subservient to the Prime Minister!! It is sheer subversion and sabotaging of their independence.  One wonders what the motives are. Who has advised the Prime Minister to allow such amendments through a Presidential Ordinance?

Will the National Assembly and Senate [where Tax Laws (Second Amendment) Ordinance, 2019, marked as Money Bill will not go for passage but only for recommendations] consider utter violations of command of the Supreme Court of separation of tax tribunals from executive, being the cornerstone of independence of judiciary? How can Prime Minister, excluding the entire Cabinet, be given sole power/prerogative to appoint members of Tribunal—both Accountant and Judicial—and also regulate their internal affairs?   

It was imperative for the PTI Government to ensure independence of all judicial and quasi-judicial authorities working in tax appellate system but it has done quite the opposite as discussed above!

We suggested in Draft law on National Tax Tribunal’, Business Recorder, November 3 & 4, 2017 that both Customs and Inland Revenue Tribunals should be merged into National Tax Tribunal and be regulated/supervised by the Supreme Court of Pakistan as is the case with Federal Service Tribunal. This is the only way to ensure independence of tax justice system in its true substance and to fulfil constitutional requirements as discussed above.

It is tragic that some vested interests wrongly advised the Prime Minister to make Appellate Tribunal Inland Revenue (ATIR) and Customs Appellate Tribunal so toothless that they cannot even frame their own rules to regulate affairs relating to constituting of benches and their working!!

This is complete captivation and subservience of tax appellate tribunals to the Executive for which the Supreme Court should take suo muto action or All Pakistan Tax Bar should file a writ petition in Islamabad High Court or in any other High Court, if the Parliament does not pass resolution against Tax Laws (Second Amendment) Ordinance, 2019 to make it ineffective [which has yet not been done under Article 89(2)(i)) of the Constitution or in case it is passed as Act of the Parliament before its expiration after 120 days or extended for another term once]. All the action(s), taken in the meantime, for appointment of members or framing rules for their functioning will be void ab initio as Tax Laws (Second Amendment) Ordinance, 2019 itself is ultra vires of the Constitution.     

____________________________________________________________________

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

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