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Petitioner: Usman Arshad VS Respondent: Federation of Pakistan through Secretary Revenue, Islamabad JUDGMENT
Court Name: Islamabad High Court Judge(s): Babar Sattar Title:Usman Arshad vs Federation of Pakistan through Secretary Revenue, Islamabad
JUDGMENT
Reported As: 2022 PTD 1235 Result: Petition dismissed Judgment JUDGMENT BABAR SATTAR, J. Through this judgment the instant writ petition together with W.P No. 890/2021 (Gul AsRhar Khan v. Federation of Pakistan and others) and W.P No. 924/2021 (Muhammad Saleem v. Federation of Pakistan and others) will be decided as they raised common questions of law impugning S.R.O. No.115(I)/2015 dated 09.02.2015 ("Impugned SRO") for being ultra wires the provisions of Sections 230, 208 and 209 of the Income Tax Ordinance, 2001 ("Ordinance") and further impugn notices issued in exercise of powers under Section 176(1)(b) of the Ordinance by tax officials serving in the Directorate General (Intelligence and Investigation), Inland Revenue ("DGI&I"). 2. The learned counsel for the petitioners stated that DG(ICI) has been vested with authority by the Federal Board of Revenue (FBR) through the Impugned SRO, in exercise of which the impugned notices have been issued. He further stated that the Impugned SRO was challenged before the learned Lahore High Court in Nestle Pakistan Limited and another v. Federation o Pakistan and others (2021 PTD 521), wherein the Impugned SRO was declared ultra virus the provisions of the Ordinance, and the PBR was directed to initiate the process of specifying the functions and Jurisdiction of the officers of the DO(I&I) within a period of two month, That the Impugned SRO was declared ultra vires for providing no rational basis for delegation of authority to the DO(I&I). That the impugned notices issued under the authority of such SRO have been issued without lawful authority and mar from jurisdictional defect. The learned counsel for the petitioner while relying on Nestle Pakistan submitted that through the Impugned SRO the FBR had exercised the authority vested in it under Section 230 read together with Sections 208 and 209 of the Ordinance in an arbitrary manner, which was liable to be judicially reviewed. He submitted that the powers, functions and jurisdiction of the DG(I&I) had not been defined in the Impugned SRO, which made such exercise of discretion unreasonable. He further submitted that through the Impugned SRO a parallel structure had been created in the form of DG(I&I) and neither tax
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officials working within the hierarchy of the DG(I&I) nor taxpayers subject to jurisdiction of the DG(I&I) had any basis to determine whether the powers vested in Inland Revenue Officers under the Ordinance in relation to their affairs was to be exercised by the Regional Tax Office or DG(I&I). And consequently such exercise of discretion was contrary to principles underlying the concept of rule of law, whereby citizens have a right to know who is authorized to exercise discretion on behalf of the executive authority of- the State. He further submitted that the tax officials working in the hierarchy of the DG(I&I) did not have the expertise to scrutinize accounts and documents for purposes of Section 177(1)(b) of the Ordinance. 3. The learned counsel for FBR submitted that the petitions were not maintainable -as through them show- cause notices have been impugned, which were not without jurisdiction or coram non judice or mala fide and in view of the law settled in relation to bringing legal challenges against show-cause notices through writ petitions, the petitions were liable to be dismissed. He further submitted that the distinction between powers, functions and jurisdiction, which was relied upon by the learned counsel for the petitioners in order to seek declaration that the Impugned SRO is ultra vires provisions of the Ordinance was settled by the august Supreme Court in The Commissioner Inland Revenue, Zone-III, RTO-II, Lahore v. Messrs Hamza Nasir Wire and others (2020 PTD 1790), wherein it had been held that where functions of an office are allocated to an authority, the power under law also stand vested in the appointee. He further contended that the judgment of the learned Lahore High Court in Nestle Pakistan was not binding on this Court. That the Impugned SRO was challenged before the learned Sindh High Court as well in Saleem Butt v. Pakistan through Secretary Revenue Division and others (Suit No. 1872 of 2016) in which after discussing the law laid down by the august Supreme Court in Hamza Nasir Wire the Court held that the impugned-SRO was not ultra vires the Ordinance for amounting to excessive delegation or for its failure to comply with requirements of Section 230 of the Ordinance. He submitted that FBR had now enacted SRO 272(1)/2021 which had superseded the impugned SRO. He submitted that the petitioners had failed to point out how the impugned SRO was ultra vires the Ordinance, and given that the petitions had essentially been challenged show-cause notices they were liable to be dismissed for not being maintainable. 4. This Court shares emphatically the admiration expressed by the learned Sindh High Court for the learned Judge of the Lahore High Court who authored Nestle Pakistan and further agrees with the learned Sindh High Court in expressing its inability to adopt the reasoning in Nestle Pakistan. By holding that the Impugned SRO did not suffer from infirmity on ground of excessive delegation, the learned Sindh High Court in Saleem Butt held the following: 9. Short of stating that "essential legislative power" cannot be delegated, learned counsel for the Plaintiff was unable to demonstrate how the specifying of functions and area-jurisdiction of the DC 1&1 and its officers, and permitting them to exercise specified powers, can be said to be an 'essential' legislative power. In fact, the powers conferred on the FBR under subsection (2) of section 230 of the Ordinance are more of "administrative" powers than "legislative" powers, which also align with the powers of the FBR under section 4 of the Federal Board of Revenue Act, 2007. Therefore, reliance placed by learned counsel for the Plaintiff on the doctrine of excessive delegation is misconceived. 10. There is a more critical aspect of the matter. In Lahore Development Authority v. Imrana Tiwana (2015 SCMR 1739), while observing that the power to strike down or declare a legislative enactment void has to be exercised with the greatest care and caution, the Supreme Court summarized as follows the rules which must be applied before declaring laws to be unconstitutional: "I. There is a presumption in favour of constitutionality and a law must not be declared unconstitutional unless the statute is placed next to the. Constitution and no way can be found in reconciling the two; II. Where more than one interpretation is possible, one of which would make the law valid and the other void, the Court must prefer the interpretation which favours validity; III. A statute must never be declared unconstitutional unless its invalidity is beyond reasonable doubt. A reasonable doubt must be resolved in favour of the statute being valid;
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IV. If a case can be decided on other or narrower grounds, the Court will abstain from deciding the constitutional question; V. The Court will not decide a larger' constitutional question than is necessary for the determination of the case; VI. The Court will not declare a statute unconstitutional on the ground that it violates the spirit of the Constitution unless it also violates the letter of the Constitution; VII. The Court is not concerned with the wisdom or prudence of the legislation but only with its constitutionality; VIII. The Court will not strike down statutes on principles of republican or democratic government unless those principles are placed beyond legislative encroachment by the Constitution. Imrana Tiwana went on to reiterate : "71. This Court has on several occasions held that where a statute is not ex-facie repugnant to Fundamental Rights but is capable of being so administered it cannot be struck down unless the party challenging it can prove that it has been actually so administered". Therefore, it was never sufficient for the Plaintiff to argue that subsection (2) of section 230 of the Income Tax Ordinance was unconstitutional for being excessive delegation of legislative power, and the Plaintiff had also to demonstrate that the use of powers under said provision had lead to an infringement of his Fundamental Right under Article 25 of the Constitution. Whether that has been done by the Plaintiff or not, is dealt with under Issue No. (iv) infra. The upshot is that the challenge to the vires of subsection (2) of section 230 of the Income Tax Ordinance on the ground of excessive delegation, cannot succeed. 5. While addressing arguments impugning the SRO for being in breach of provisions of section 230 of the Ordinance, the learned Sindh High Court held the following in Saleem Butt: 20. Given that the challenge in this suit to the jurisdiction of the DG l&I emanates from a notice issued under section 176(1) of the Income Tax Ordinance, it will suffice to examine SRO 115 only for that power. As already observed, sub-section (2) (b) of section 230 of the Ordinance unambiguously empowers the FBR to "confer the powers of authorities specified in section 207" upon the DG I&I and its officers. Therefore, there is no room for intendment, and it is not sufficient to argue that the same powers as that of authorities listed under section 207 cannot be conferred on the DG MI and its officers. As regards the requirement of subsection (2) (a) of section 230, viz., to specify the functions and jurisdiction of the DO 1&I and its officers, in my view that too was fulfilled simultaneously by SRO 115 by stipulating the specific provision of section 176 of the Ordinance along with subject-matter and territorial jurisdiction, and nothing more was required to be stated to enable the concerned officer to perform said function. Such convergence of powers and functions has also been explained by the Honourable Supreme Court in Commissioner Inland Revenue Zone-III, RT0-11 Lahore v. Hamza Nasir Wire (2020 PTD 1790) as under: "The learned Judge has relied to a great extent on this distinction between functions and powers to quash the disputed show cause notices. There is no cavil with the proposition that to exercise the functions of an office a statutory functionary must possess the relevant powers. However, what was perhaps not highlighted to the learned Court was that the exercise of powers forms part of the performance of the functions of an office. Therefore, when functions of an office are allocated by a competent instrument, the powers appurtenant thereto under the law stand vested in the appointee for exercise thereof " In other words, SRO 115 was in sufficient compliance of subsection (2) of section 230 of the Income Tax Ordinance. The instant challenge fails to appreciate that section 230 of the Income Tax Ordinance, 2001 and SRO 115 issued thereunder, are provisions in aid of assessment and recovery of tax, and thus relate to the machinery of tax assessment and recovery. It is settled law that unlike a charging provision, a machinery provision in a fiscal statute has to be construed liberally and in a manner that facilitates the realization of tax. It was imperative to view said provisions from that vantage point. 21, Having concluded that SRO 115(1)/2015 was within the jurisdiction of the FBR, the impugned notice issued by the DG I&I pursuant thereto is not without jurisdiction. Issue No. (ii) is answered in the negative. However, since. the FBR has issued the superseding SRO 272(1)/2021, the effect of this enunciation, as discussed in
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para 18 above, would be that in the Province of Sindh, SRO 115(1)/2015 would be taken to have been repealed with the consequence of section 6 of the General Clauses Act, 1897. 6. The learned Sindh High Court in Saleem Butt also relied on Hassan Shahjehan v. FPSC (PLD 2017 Lahore 665) to conclude that a declaration issued by the learned Lahore High Court in Nestle Pakistan with regard to the impugned SRO would have effect within the territorial jurisdiction of such court and not in territory beyond the jurisdiction of such court. It also noted that in view of a judgment rendered by a High Court, if a federal authority made necessary amendments in the law in question the erstwhile law in other provinces would be treated as having been repealed with attendant consequences in terms of Section 6 of the General Clauses Act, 1897. 7. This Court is in an envious position for having the benefit of two reasoned judgments rendered by two High Courts in relation to whether or not the impugned SRO is ultra vires the provisions of the Ordinance. The petitioners have relied exclusively on the reasoning of the learned Lahore High Court in Nestle Pakistan. The learned counsel for the petitioners had very fairly submitted, when asked whether Nestle Pakistan was binding on FBR in relation to exercise of jurisdiction within Islamabad Capital Territory, that the Judgment would only have effect within the territorial jurisdiction of the learned Lahore High Court in view of the law laid down by the learned Lahore High Court in Hassan Shahjehan, as also held in Saleem Butt. 8. The challenge to the vires of Section 210 read together with section 122 of the Ordinance on ground of excessive delegation came before this Court in Pakistan Tobacco Company Ltd. v. Federation of Pakistan and others (2016 PTD 596), wherein the following was held. 19. It is, therefore, settled law that legislative power cannot be delegated, as this would tantamount to violation of the letter of the Constitution. The doctrine of excessive delegation and its extent has been settled as discussed above. By no stretch of the imagination can sections 122 and 210 of the Ordinance be construed as conferring any legislative powers or functions to the Commissioner. The argument advanced by the learned counsel for the petitioners in this regard is misconceived and fallacious. 20. Sections 122 and 210 of the Ordinance are in the nature of machinery provisions. They provide for the machinery and procedure for assessment and collecting tax. It is settled law that unlike the principle of strict construction in the case of charging sections, the machinery provisions are construed liberally so as to effectuate the charging provisions. The august. Supreme Court has observed and held in the case of 'Pearl Continental Hotel and another v. Government of N.-W.F.P. and others' 12010 PTD 2018) that 'We are in no doubt that the machinery provisions, where provided, have to be construed liberally and in a manner aiding the realization of proper tax and to prevent avoid the of the tax'. 9. The dictum of this Court in Pakistan Tobacco Company supports the reasoning of the learned Sindh High Court in Saleem Butt. In Pakistan Tobacco Company this Court, while also relying on the law laid down by the august Supreme Court in Lahore Development Authority v. Ms. Imrana Tiwana (2015 SCMR 1739) in relation to the general principles to be taken into account while considering a challenge to vires of the law as well as the law developed in relation to fiscal statutes, held the following: "A fiscal statute cannot be declared ultra vires on the touchstone of reasonableness or otherwise, as the same has been declared by the august Supreme. Court to be a matter of legislative policy and not for the Court to adjudicate upon. " 10. In his treatise titled The Judicial Review of Public Actions (PP 1828, Second Edition, Pakistan Law House, 2018), Justice (R) Fazal Karim after discussing the law laid down by superior courts observed that, "subordinate legislation is construed and interpreted in the same way as the primary legislation and the general principles applicable to the interpretation of statutes apply to the interpretation of subordinance legislation." Justice (R) Fazal Karim identified the main grounds on which subordinate legislation may be held ultra vires as follows: I. Contravention of the Constitution. ii. Inconsistency with or contravention of the enabling statute. iii. Subordinate legislation seeking to take away or diminish the jurisdiction of the courts.
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iv. Contravention of law other than the enabling enactment. v. Subordinate legislation seeking to affect vested rights retrospectively. 11. While enumerating the principles of judicial control vis-a-vis administrative actions in Fundamental Law of Pakistan, A.K Brohi relied on commentary from Brundaban Chandra v. State of Orissa (AIR (1953) Orissa 121), wherein the following was observed: "At this stage it is well to recapitulate the well-known principles with reference to which the exercise of a discretionary power vested by the statute in an administrative authority is open to be canvassed by the Courts. To start with, it may be taken as axiomatic that when power is conferred on somebody or authority by a Statue, the validity of the exercise of the power depends on its being strictly within the limits of the statute. As stated by Lord Justice J. Turner in -Tinkler v. The Bard of Works for the Wansworth District (1858), 2 De G & J 261 at P. 274, although it may not be obligatory upon persons who have obtained an Act of Parliament empowering them to do something to do it at all, still if they do proceed to exercise the powers conferred on them by the Act, it is their bounden duty to keep strictly within those powers. Similarly it has been held in R.H Galloway v. Mayor and Commonalty of London (1866), English and Jr AC 34-43 that it is a well-recognized principle that when persons have received authority from the Legislature to exercise certain extraordinary powers interfering with private rights of individual, the persons so authorized should be kept by the Courts strictly within the limits of the power conferred by statute and the Court should not allow them to exercise the powers for any collateral purposes." 12. The provisions of the Ordinance relevant for our present purposes are Section 230 read together with Sections 207, 208 and 209 of the Ordinance and Sections 4 and 5 of the Federal Board of Revenue Act, 2007. Section 230 of the Ordinance details the composition of DG (I&I) and subsection (2) of Section 230 of the Ordinance provides the following: 230. Directorate General (Intelligence and Investigation), Inland Revenue. (2) The Board may, by notification in the official Gazette,-- (a) specify the functions and jurisdiction of the Directorate General and its officers; and (b) confer the powers of authorities specified in section 207 upon the Directorate General and its officers. Section 230(2) of the Ordinance clarifies that the powers conferred on officers that comprise DG(I&I) are those vested in authorities specified in Section 207. In other words, while specifying the functions and jurisdiction of DG(I&I) the Ordinance does not identify any powers to be exercised by DG(I&I) that are in addition to or otherwise not vested with any other authority identified by the Ordinance. The Ordinance confers powers on officers comprising DG(I&I) that are conferred on authorities identified in Section 207 of the Ordinance. Section 230 of the Ordinance thus does not require that the Board while conferring powers on authorities specified under Section 230(b) of the Ordinance do so while taking away those powers from the authorities in whom such powers are vested under Section 207 of the Ordinance. In other words Section 230 of the Ordinance does not prohibit the same powers being 'simultaneously vested in authorities specified in Section 207 of the Ordinance as well as officers of DG(I&I) in exercise of powers by the Board under section 230 of the Ordinance. 13. Section 207 identifies authorities that for purposes of Ordinance and Section 207(2) explicitly provides that, "the Board shall examine, supervise and oversee the general administration of this Ordinance." The scope of authority vested in the Board is further clarified by Section 208(1)(2) of the Ordinance, which provides the following: 208. Appointment of income tax authorities.----(1) The Board may appoint as many Chief Commissioners Inland Revenue, Commissioners Inland Revenue, Commissioners Inland Revenue (Appeals), Additional Commissioners Inland Revenue, Deputy Commissioners Inland Revenue, Assistant Commissioners Inland Revenue, Inland Revenue Officers, Inland Revenue Audit Officers, District Taxation Officer Inland Revenue, Assistant Director Audit, Superintendents Inland Revenue, Inspectors Inland Revenue, Auditors Inland Revenue and such other executive or ministerial officers and staff as may be necessary. (2) Subject to such orders or directions as may be issued by the Board, any income tax authority may appoint any income tax authority subordinate to it and such other executive or ministerial officers and staff as may be necessary.
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14. Section 209 of the Ordinance vests in. the Board authority to determine the jurisdiction of the tax authorities and states the following: 209. Jurisdiction of income tax authorities.----(1) Subject to this Ordinance, the Chief Commissioners, the Commissioners and the Commissioners (Appeals) shall perform all or such functions and exercise all or such powers under this Ordinance as may be assigned to them in respect of such persons or classes of persons or such areas as the 4 [Board] may direct: Provided that the Board or the Chief Commissioner, as the case may be, may transfer jurisdiction in respect of cases, or persons from one Commissioner to another. (2) The Board or the Chief Commissioner may, by an order, confer upon or assign to any officer of Inland Revenue all or any of the powers and functions conferred upon or assigned to the Commissioner, under this Ordinance, in respect of any person or persons or classes of persons or areas as may be specified in the order: Provided that the Board may also confer upon or assign to any Officer of Inland Revenue the aforesaid powers and functions through Automated Case Selection System: Provided further that the Board may make rules for conferment or assignment of such powers and functions through Automated Case Selection System. Explanation.--For the purpose of this subsection, the expression "Automated Case Selection System" means an algorithm for randomized allocation of cases by using suitable technological modes. (3) An order under subsection (2) by the Chief Commissioner shall be made only with the approval of the Board. (4) The Officer of Inland Revenue referred to in subsection (2) shall, for the purposes of this Ordinance, be treated to be the Commissioner. (5) Within the area assigned to him, the Commissioner shall have jurisdiction, - (a) in respect of any person carrying on business, if the person's place of business is within such area, or where the business is carried on in more than one place, the person's principal place of business is within such area; or (b) in respect of any other person, if the person resides in such area: (6) Where a question arises as to whether a Commissioner has jurisdiction over a person, the question shall be decided by the Chief Commissioner or Chief Commissioners concerned and, if they are not in agreement, by the Board. (7) No person shall call into question the jurisdiction of a Commissioner after that person has furnished a return of income to the Commissioner or, where the person has not furnished a return of income, after the time allowed by any notice served on the person for furnishing such return has expired. (8) Notwithstanding anything contained in this section, every Commissioner shall have all the powers conferred by, or under, this Ordinance on him in respect of any income arising within the area assigned to him. (8A) The power to confer jurisdiction under this section shall include the power to transfer jurisdiction from one income tax authority to another. (9) Where, in respect of any proceedings under this Ordinance, an income tax authority is succeeded by another, the succeeding authority may continue the proceedings from the stage it was left by that authority's predecessor. 15. In essence what Section 230 of the Ordinance does is include within the list of authorities that may be permitted to exercise powers and functions pursuant to provisions of the Ordinance, officers of DG(I&I). It does so in a circular way by stating that the Board may confer on them the power of the authorities specified in Section 207 of the Ordinance and further specify their functions and jurisdiction. The powers of authorities mentioned in Section 207 of the Ordinance are provided under various provisions of the Ordinance and consequently Section 230 of the Ordinance does not delegate to the Board the power to create any fresh power to be exercised by the officers of DG(I&I), which is not otherwise…
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