The Central Board of Revenue has issued the following clarification regarding CBR's circulars with respect to Section 21(L) - Finance Act, 2006. Apropos to an article entitled "CBR's ultra vires Circulars" by Mr Muhammad Ashraf, published in Business Recorder dated October 21, 2006.
2. The crux of the article is of two folds.
(a) Firstly, as per the author of the article [author] paragraph 6 of Board's Circular No 1 of 2006 relating to section 21(L) has not only increased the obligation over the taxpayers but also gave explanation which was not the intention of law at the time of introduction of amendment in the said section. This assertion is based on clause 17(4)(ii) of Notes on Clauses of Finance Bill, 2006, which reads as under:-
"Seeks to clarify allowability of expenditure made other than through normal banking channels". (b) Secondly, "although CBR has withdrawn circular No 11 of 1998 through Finance Act, 2006 but paragraph 4 of Circular No 6 of 1990 dated July 15, 1990 has not been withdrawn. Therefore, it remains intact."
3. Comments on the above issues are that the author of article has mis-construed the legality of enactment of the law and has deviated from settled canons of interpretation of the statute. It is cardinal law of interpretation of statute that while interpreting the statute jurist must adhere to its text and should be guided by words of law, if these are clear and unambiguous then there is no need to find out the intention and purpose of enactment of the statute. Further, no externalities should be brought into, to interpret the statute. To find out the intention of the law the author has relied upon on "Notes on Clauses" which is not part of the law or Finance Act, 2006. Therefore, the assumption of the author on the matter is mis-conception and ultra vires in the eyes of law.
4. The second issue raised in the article that "paragraph 4 of Circular No 6 of 1990 dated July 15, 1990 has not been withdrawn by the Board and it remains intact", is also mis-construed and is not of much weight. Since section 24(ff) was inserted by Finance Act, 1990 in the repealed Income Tax Ordinance, 1979 which was substituted by Finance Act 1998 by bringing substantial changes in the law, which is evident from its language.
5. A conjoint reading of two clauses indicates that whole construction of the clause has been changed, through the Finance Act, 1998. Therefore, it was needed to clarify the substituted clause by Circular No 11 of 1998. Meaning thereby, the clarification issued in paragraph 4 of Circular No 6 of 1990 became redundant with the substitution of clause (ff) of section 24, through the Finance Act, 1998. Consequently, Board's circular No 11 of 1998 dated July 25, 1998 was in the field and holds good after 1998 till June 30, 2006.
Further, section 239(10) provides to save such direction, instruction, notification, order etc issued by the Board under the repealed Ordinance which was in force or valid at the commencement of Income Tax Ordinance, 2001, so far as it was not inconsistent with the corresponding provision of said Ordinance.
Since Circular No 6 of 1990 was not in force or valid at the time of commencement of Income Tax Ordinance, 2001, therefore, the assumption of the author that paragraph 4 of Circular No 6 of 1990 is intact is not prudently argued.
6. Keeping in view the position explained above, you are requested to carry this clarification in you esteemed paper for the benefit of the readers.-PR
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