Legal experts drafted Acts and Rules and it is expected from lawmakers that the words and language used in statutes have a little room for interpretation or construction. But the case of fiscal laws has been different. It is quite often that we find courts and lawyers busy in unfolding the meaning of ambiguous words and expressions and resolving inconsistencies.
The interpretation of fiscal legislation is to follow the ordinary rules of statutory interpretation. The court is to consider the purpose of the legislation, its context, and all relevant evidence of legislative intent. After exhausting these interpretive resources, if the intention of the legislature is still unclear, the court may then adopt the interpretation that favours the taxpayer. On this approach, the policy of favouring the taxpayer, of protecting individual rights from interference by the state, comes into play only as a last resort when other means of resolving ambiguity have failed. Reliance is placed on a case reported as “Chairman Federal Board of Revenue v. M/s. Al-Technique Corporation of Pakistan Ltd.1“
Sometimes the Income Tax Ordinance, 2001 artificially declares a thing to be something which it actually is not. It may give a certain meaning to a word or a phrase which it ordinarily does not have. It may declare an event to have taken place when actually it had not taken place and vice versa. The term often used in bringing about this artificiality is “deemed” or “treated to be”. The whole section 101 of the Income Tax Ordinance creates such legal fictions. Sub-section (1) of section 101 says that salary shall be deemed to accrue or arise Pakistan source income, no matter wherever it is paid, if it is received from any employment exercised in Pakistan or paid by Government or a local authority of Pakistan to its employees. This provision of law creates artificiality in respect of place. Although a person is working abroad but since his salary is paid by the Government of Pakistan, it has been deemed to accrue or arise to him in Pakistan.
In Reliance Commodities (Private) Ltd. Versus Federation of Pakistan2, Justice Jawad Hassan cited the Rowlett J that it is a settled law that while interpreting fiscal statutes the Court looks at what is clearly said; there is no room for any intendment; nor is there any equity about a tax; there is no presumption as to tax; nothing was to be read in or implied and one could only look fairly at the language used.
The words “levied” “charged”, “collected”, “paid” and “payable” are generally found connected with charging sections in fiscal enactments. In charging sections the words “levied” generally means to raise, impose or collect tax or duty. In Abdul Rashid v. Central Board of Revenue and others3, the word “levied”, as used in Articles 48 and 237 of the Constitution of 1962, was held to relate to the charging provision i.e. fixation of a rate of duty.
The Supreme Court of Pakistan in PLD 1970 SC 29 observed that while interpreting a deeming clause in a statute, the courts are bound to ascertain for what purpose and object that provision has been enacted.
The Federal Excise Act is also a fiscal statute. The principles of interpreting such statutes are well settled. Some of these principles have been recently repeated in “Messrs Pakistan Television Corporation v. Commissioner Inland Revenue (Legal), Islamabad and others”4 which are summarised as follows:-
- There is no intendment or equity about tax and the provisions of a taxing statute must be applied as they stand;
- The provision creating a tax liability must be interpreted strictly in favour of the taxpayer and against the revenue authorities;
- Any doubts arising from the interpretation of a fiscal provision must be resolved in favour of the taxpayer;
- If two reasonable interpretations are possible, the one favoring the taxpayer must be adopted;
- When a tax is clearly imposed by a statutory provision any exemption from it must be clearly expressed in the statute or clearly implied from it;
- Where the taxpayer claims the benefit of such express or implied exemption, the burden is on him to establish that his case is covered by the exemption;
- The terms of the exemption ought to be reasonably construed; and
- If a taxpayer is entitled to an exemption on a reasonable construction of the law it ought not to be denied to him by a strained, strict or convoluted interpretation of the law.
In “Messrs Hirjina and Co. (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax Central, Karachi”5, Court held that in interpreting a taxing statute the Courts must look to the words of the Statute and interpret it in the light of what is clearly expressed, it cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency.
M/S. Rahman Cotton Mills Ltd., Versus Federation Of Pakistan6: Explanation introduced in Section 214-C of the Ordinance vide Finance Act, 2013 has been introduced to clarify the extent of the authority of the worthy Commissioner to carry out audit of assessees under Section 177 and that of the FBR under Section 214-C. The careful reading of the provision makes it finally clear that the two authorities are independent and can initiate the audit independently.
To examine the validity of fiscal statute, on the touchstone of Constitutional provisions, superior Courts have followed and expounded rules of interpretation. In Elahi Cotton Mills Ltd.7The court held that the power of taxation rests on necessity; it is an essential and inherent attribute of sovereignty belonging, as a matter of right, to every independent State or Government.
It is concluded that in the past, courts have insisted on sticking to the literal meaning of fiscal legislation, ignoring purpose and context and construing the words of the text as narrowly as possible. But nowadays, the interpretation of tax legislation is to follow the ordinary rules of statutory interpretation. The court is to consider the purpose of the legislation, its context, and all relevant evidence of legislative intent.
1. PLD 2017 SC 99; 2. 2020 PLD 632; 3. PLD 1965 Pesh. 249; 4. 2017 SCMR 1136; 5. 1971 SCMR 128; 6. 2016 PLJ 98; 7. PLD 1997 SC 582
Bukhari, H., and I. Haq. Principles of Income Tax Law. Huzaima and Ikram, 2005.
Sullivan, Ruth. Statutory Interpretation in a New Nutshell.