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By
DR IKRAMUL HAQ
Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 7226953, e-mail: irm@brain.net.pk). He is also a member of the visiting faculty of the Institute of Direct Taxes in Lahore. He served for 12 years as Deputy Commissioner of Income Tax. He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law, some of which are co-authored with his wife, Ms Huzaima Bukhari, Additional Commissioner of Income Tax. He has been awarded Doctorate of Law for his research: Tax Reform in Quasi-Constitutional Perspective.
The Central Board of Revenue (CBR), which is the apex revenue administrative authority, has been flouting laws and judicial verdicts unabatedly in the democratic (sic) and military regimes alike. It has established itself as a body above law, although its statutory role under the Central Board of Revenue Act of 1924 is to administrative the fiscal laws and not to enact or interpret them. With the passage of time, the CBR is becoming bolder and bolder in flouting laws as its past violations remained unpunished.
The open defiance of law through excessive use (rather abuse) of delegated powers by the CBR has become a routine now. Unfortunately, this blatant transgression of power (which is fully documented[1]) remains unchecked, even under the present regime, and the citizens are just silent sufferers. There are numerous examples where the CBR exceeded its defined administrative powers.[2] In 1998, a detailed discussion with each and every abuse of power on its part was cited, yet neither the CBR has paid any heed to it, nor the competent authority or the courts decided to take strong notice. This apathy portrays the present state of affairs in the country where neither there is rule of law, nor is there any respect for law.
The CBR has been blatantly violating the judgements of the Superior Courts which are binding on all courts and authorities under Article 189 and 201 of the Constitution of Pakistan, yet nobody has taken the persons responsible to task. Disrespect of law, flagrant violation of established rules, open defiance of judgements of Superior Courts and perpetual abuse of powers is what CBR now stands for. It is simply because of this fact that people are so scared of our tax system that they prefer to remain outside the tax net even if they have to pay more than their tax due as bribe. The latest example of unprecedented abuse of power by CBR has come in the form of SRO 457(I)/2000 dated 1st July 2000, which reads as under:
“S.R.O. 457(I)/2000, Islamabad, the 1st July, 2000. – In exercise of the powers conferred by sub-section (2) of section 14 of the Income Tax Ordinance, 1979 (XXXI of 1979), the Federal Government is pleased to direct that the following further amendments shall be made in the Second Schedule to the said Ordinance, namely: –
In the aforesaid Schedule, –
(a) In Part III, in clause (1B):–
(i) in the entry at serial number “7” in the last column, the figure “10%” shall be substituted by the figure “20%”;
(ii) the entry at serial number “8”, shall be substituted by the following entries:–
| “8. Where income exceeds Rs. 500,000 but does not exceed Rs. 1,000,000 | 10% | |
| 9. Where income exceeds Rs. 1,000,000 | 5%”; and |
(b) in Part IV, after clause (60), the following new clause shall be added, namely:–
“(61) The provisions of paragraph C of Part V of First Schedule to this Ordinance, in so far as these relate to surcharge, shall not apply in respect of any assessment year commencing on or after the 1st day of July, 2000.”.
Through this SRO a new clause (61) has been inserted in Part IV of the Second Schedule to the Income Tax Ordinance, 1979 (hereinafter “the Ordinance”). It refers to paragraph C of Part V of the First Schedule to the Ordinance, which is reproduced below:
“C. No super tax and surcharge shall be payable by a company in respect of any assessment year beginning on or after the first day of July, 1992.”
The benefit available to the companies that in their case no surcharge could be levied has been withdrawn through an SRO issued under delegated power available in terms of Section 14(2) of the Ordinance. Section 14(2) which reads as under:
“14(2) the Federal Government may, from time to time, by notification in the official Gazette, make such amendment in the Second Schedule by-
(a) adding any clause or condition therein;
(b) omitting any clause or condition therein; and
(c) making any change in any clause or condition therein,
as it may think fit, and all such amendments shall have effect in respect of any such year beginning on any date before or after the commencement of the financial year in which the said notification is issued:
Provided that the Federal Government shall place before the National Assembly all amendments made by it in the Second Schedule during a financial year.”
It is worthwhile to mention that this delegated power is in utter violation of Article 162 of the Constitution of Pakistan, but that is a different subject. Even if these delegated authorities are lawful, how can they be used to increase the tax burden of an assessee? The whole aim of this delegated power is to provide exemption or reduce tax liability of a person. Sub-section (1) of Section 14 of the Ordinance says:
“14. Exemptions. –(1) The incomes or classes of income, or persons or classes of persons specified in the Second Schedule shall be-
(a) exempt from tax under this Ordinance, subject to the conditions and to the extent specified therein; or
(b) liable to tax at such rates, which are less than the rates specified in the First Schedule, as are specified therein; or
(c) allowed a reduction in tax liability, subject to the conditions and to the extent specified therein; or
(d) exempt from the operation of any provision of this Ordinance, subject to the conditions and to the extent specified therein:
Provided that, where any income which is exempt from tax under any provision of the Second Schedule, such income, as may be specified in the said Schedule and subject to such conditions as may be specified therein, shall be included in the total income, so however that the tax shall not be payable in respect of such income.”
A combined reading of sub-section (1) and (2) of section 14 will show that through the Second Schedule to the Ordinance only rigours of law can be removed or exemptions can be provided as a matter of public interest. This section does not give any power to an administrative authority to increase a tax liability of a person.
The benefit of Paragraph C of Part V of the First Schedule, available to the companies, could only have been withdrawn through the Finance Ordinance, 2000 and not through an SRO. The insertion of clause (61) to part IV of the Second Schedule to the Ordinance is, therefore, unlawful, having no legal force whatsoever. Besides, this constitutes an unprecedented transgression of power on the part of CBR.
The CBR through this insertion has tried to cover up a blunder committed by it in the Finance Act 2000 by imposing surcharge on the companies, without first deleting paragraph C of Part V of the First Schedule to the Ordinance. The following remarks about this amendment appeared in an article, published in the Business Recorder on 1st July 2000:
“Surcharge on companies
With effect from assessment year 2000-2001, companies, other than banking companies, have been asked to pay surcharge equal to 5% of the amount of income tax payable, excluding the amounts of presumptive tax u/s 80C or 80CC.
The enhancement of tax in the case of corporate sector is highly unjust. The corporate sector was actually promised way back in 1992 of gradual reductions in rates till the assessment year 1999-2000. The graduated tax reduction Table was also provided in Part IV of the First Schedule but was never implemented beyond the assessment year 1996-97. Through Finance Act, 1996 a new Table substituted that Table and now this 5% surcharge has been levied retrospectively. The amendment is also faulty. Para C of Part V of the First Schedule says that no surcharge shall be payable by a company in respect of any assessment year beginning on or after the 1st July 1992.
It is pertinent to mention that Para A of Part V starts with “Not withstanding anything contained in this Schedule except Part IV” This means that Para C read with Para A of Part V will override Part III of this Schedule. In view of this conflicting position, surcharge cannot be recovered from the companies for assessment year 2000-2001 in terms of newly inserted Para C in Part III of this Schedule unless Para C of Part V is first omitted.”
The CBR tried to cover up this legal lacuna through an SRO and has committed even a bigger blunder. It has delegated authority to provide exemptions or reduce tax liability, but has no power to take away a benefit that is not already a part of the Second Schedule. CBR has power to withdraw or modify an exemption that is already available in the Second Schedule but has no authority whatsoever to take away any benefit or concession that is available in any other Part of the Ordinance. Section 14(2) of the Ordinance only gives powers to add, remove or modify a clause in the Second Schedule. If it has to add a clause, it should be of a beneficial nature and not having an adverse impact on an assessee. Clause (61) added in Part IV of the Second Schedule is an adverse amendment taking away a benefit which is available elsewhere in the Ordinance.
The learned Income Tax Appellate Tribunal (ITAT) in a recent judgement [(2000) 82 Tax 37 (Trib.)] has authentically opined:
“Now, when we read section 14(1)(d) with the opening words in Part-IV of the Second Schedule, we find that the purpose of insertion of any clause in Part-IV of the Second Schedule is to exempt any income or classes of income or persons or classes of persons from the operation of such provisions of the Ordinance subject to such conditions and to the extent as specified in each clause. Thus the exemption allowed in Part-I or Part-IV of the Second Schedule would always mean, an exception to the rule i.e. exclusion of any income from the total income for the purpose of computation of tax, as it is further manifested from a reading of section 49 or to exclude any income or classes of income or persons or classes of persons from the operation of any provision in the Ordinance. If any income is otherwise not taxable or any transaction is not to be subjected to the levy of tax or any persons or classes of persons are not included in or governed by the Charging provisions they cannot be so included or subjected to tax by insertion of any clause in Part-I or Part-IV of the Second Schedule to the Income-tax Ordinance. Such interpretation would be against the manifest scheme of the taxation contained in the Income-tax Ordinance and shall be against the clear provisions of law. Since the purpose of the section 14 and Second Schedule in pursuance thereof is to allow relief to the assessee from the charging of tax, it would amount to straining the provisions of law and the language to the extent of doing violence to the manifest scheme which emerges by reading the entire statute, if it is held to the contrary.”
[Underlined by me for emphasis]
The learned ITAT has very rightfully interpreted the law that the provisions contained in the Second Schedule to the Ordinance are for the benefit of assessees and can never be strained to the detriment or disadvantage of an assessee. The benefit available to companies in Paragraph C of Part V of the Ordinance could have been taken away only by an amendment through the Finance Ordinance and not by an SRO.
Can CBR show the authority for this SRO? Can it explain how it used delegated powers to take away a legally available benefit to the companies? Since it failed to properly impose surcharge on companies in the Finance Ordinance 2000, it should have gone again to the President of Pakistan for an amending Ordinance to withdraw this benefit. Obviously, if this legal course was adopted, it could have exposed the incompetence of the CBR wizards. So they tried to fool everybody by unlawfully amending the law at their own through an administrative SRO, being fully confident that as in the past nobody would take them to task, even if this legal lacuna were pointed out.
In the past when such transgressions were exposed, they termed those as “mere oversights”. Neither those nor the present one is a mere oversight. It constitutes a blatant and shameful transgression of power. This is the worst example of administrative highhandedness. In a civilized society, it would have resulted in the resignation of CBR’s Chairman and Member Income Tax (of course, not here in Pakistan where self-realisation of a wrongdoing is an alien concept. On the contrary, they will try to justify it in the name of public interest!).
Those who matter in the land, especially the mighty NAB people, should take notice of this abuse and ask the CBR under what authority they are imposing surcharge on the companies by inserting a clause through illegal exercise of powers. On the one hand the government is striving hard to revive the sick industry and on the other the CBR through such illegal measures is causing another deathblow to the fragile corporate sector, and all is being done under the very nose of the so-called vigilant, military government. The monitoring cells established to curb malpractice of the civil beauracracy cannot understand the wickedness of the revenue authorities as fiscal laws are hard to comprehend even by the GHQ.
The CBR’s policy makers (sic) have already caused losses worth billions of rupees by confrontation with the public and traders. Now they seem to be playing havoc with the corporate sector by imposing surcharge illegally through an SRO. One hopes that their perpetual transgression of power, blatant violation of authority and utter disrespect of the rule of law will not go unquestioned this time.
[1] See articles by Ikramul Haq in Taxation, Vols. 78 & 79 at page 82, 99 and 87 respectively
[2] See Article CBR Flouting Laws and Judicial Verdicts, (1998) Taxation, Volume 78, page 98.