Interpretation of Taxing
Statues
&
Constitution
Seminar
November 24, 2011
DR. IKRAMUL HAQ
Advocate Supreme Court
Money Bill debate
Mir Muhammad Idris v FOP
PLD 2011 SC 213
Sindh High Court Bar v FOP PLD
2009 SC 789
WWF cases by Karachi &
Lahore High Courts reported
as 2010 PLC 306 and 2011
PTR 32 (H.C.Lah) respectively
• Tax is different from fee
• “…tax is levied as a part of common
burden, while a fee is a payment for
special benefit or privilege…a tax is
imposed for public purposes and is not
supported by any consideration for
services in return, while fee is levied in
view of services rendered.”—Biafo
Industries v FOP PTCL 2000 CL 384
• No tax except by or under the
authority of Act of Parliament
[Article 77]
“A fiscal statute should be
construed strictly and no
question of equitable
construction arises”.—CIT East
Bengal v Narayan Roy and others
(1959) 1 TAX (III-207) (S.C.
Pak)
• Fiscal rules are meant for
good governance—Shahtaj
Sugar Mills Ltd v G A
Jahangir and others 2004
PTD 162 (H.C. Lah).
• Literal approach unless it
leads
to
manifest
absurdity—CIT/WT Sialkot
Zone v Thapur (Pvt) Ltd
2002 PTD 2112
does not apply to
machinery provisions—
Deans Associates (Pvt) Ltd
v IAC 2002 PTD 441
• Interpretation is a process
through which the courts seek
to ascertain the intention of
legislation.
• When language of law is
unambiguous, no rule of
interpretation can be
employed—A. Rehman alias
Abdullah and another v FOP
and others 2002 PTD 804
(H.C. Kar).
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Constitutional
perspective
General Comments
Extraterritoriality
Constitutionality
Doctrine of wide discretion
and equality clause
• Taxation rights are unlimited
unless confiscatory
• Theory of reading down
• Pith and substance test
Violation
• Supreme Court in Elahi Cotton Mills Ltd and others v.
Federation of Pakistan (1997) 76 TAX 5 (S. C. Pak.)
held that:
“If we were to construe Entry 52 of the Legislative List
keeping in view the above meanings of the expression
“in lieu of”, it becomes evident that the Legislature has
the option instead of invoking Entry 47 for imposing
taxes on income, it can impose the same under Entry 52
on the basis of capacity to earn in lieu of Entry 47, but
it cannot adopt both the methods in respect of one
particular tax.
• Since presumptive taxes are in lieu of income tax, once
option under Entry 52 is exercised, no income tax can
be levied in addition to presumptive tax. This principle
has been violated in Income Tax Ordinance, 2001
wherever in addition to presumptive tax, other
withheld taxes have been treated minimum tax or unadjustable or un-refundable.
Golden principle
• Letter of the law must be
adhered to
• No taxation by inference
• Tax and equity
• Harmonious construction
• Casus omissus cannot be
supplied by the court except in
the case of clear necessity and
when reason for it is found in
the four corners of the statute
itself
• Avoidance of tax
• Words to be taken in rightful
and lawful sense—rule of
bona partem
• Exceptions to strict rule:
What follows from it
• Machinery provisions
• Purposive approach
• Leading to absurdity
• Remedial statutes
• Beneficial provisions
Tax must be imposed
by clear and
unambiguous language
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Parliamentary debates
Reports of select committees
Statement of objects
Explanatory notes
Legislative history
Contemporanea exposito
Judicial decisions
Acts in pari materia
Construction by executive
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“where two or more words which
are susceptible of analogous
meaning are coupled together,
noscitur sociis. They are
understood to be used in
cognate sense.”—Maxwell on
Interpretation of Statutes
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Preamble
Marginal notes
Interpretation clause
Other relevant provisions in the
context
Ejusdem generis
Noscitur sociis
Redundancy to be avoided
Special overrides the general
Things should be done
as per law or should
not be done at all
• Two possible views
• Construction leading to
massive evasion of taxes
• Penalty provisions
• Curative provisions
• Directory provisions
• Mandatory provisions
• Charging and exempting
provisions
• SROs, Circulars, Circulars
letters, and directions etc
“it is true that the
interpretation of tax laws is
far from being an easy
matter”—Hatz Trust of Simla
v CIT Punjab and NWFP 5
ITC 8 (High Court Lahore)
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Exclusive definitions
Inclusive definitions
General words
General Clauses Act
Technical and legal words
Popular and commercial sense
Context and intent
Schedules
Rules
Beneficial and curative
laws are retrospective
in nature
• General
• Exemptions: burden of proof
• Interpretation of notifications
and exemptions
• Exemption to be construed
strictly
• When exemptions should be
liberally construed
• No estoppel
• Retrospectively
Doctrine of beneficial
interpretation applies to
charging and not machinery
provisions—Barnal
Commission Shop v ITO
1963 PTD 534 (H.C. Lah)
• General
• Machinery provisions
• Distinction between charging
and machinery provisions
• Procedural provisions are
generally retrospective
• Limitation to liberal rule of
interpretation of machinery
provisions
• Retrospectivity and vested
rights
“Legal fictions are only for
definite purpose—a
statutory fiction in one law
cannot be extended to
others”—Elahi Cotton v FOP
1997 PTD 1555
• Tax law being a complete
code is to be read as a
whole—Allied Motors Ltd v CIT
2004 PTD 1173 (H.C. Kar.)
• Double taxation
• Legal fictions
• Territorial nexus
• Rules on interpretation of
bilateral tax agreements
• Delegation of powers and
discretion
Words of caution
“The taxing statutes are a woven
structure of an especial code of
principles, which include norms
not common to other legislative
enactments, and are based on
conceptual perspectives
sometimes at variance with the
accepted norms of general
law.”—R S Pathak, Former Chief
Justice of India and Judge
International Court of Justice at The
Hague
on interpretation of
statutes
• Maxwell’s Interpretation of
statutes
• Craies on Statute Laws
• Crawford Statutory Construction
• Interpretation of Taxing Statutes
by Markandey Katju
• S M Zafar’s Principles of
Statutory Interpretation
• Huzaima & Ikram’s Principles of
Tax Laws with International
Glossary
It was a great honour
and pleasure to interact
with this august
gathering.