The Hindu Business Line : Delegated power needs diligent exercise

A GOOD deal of government legislation gets enacted outside of the Legislature. It bears varied nomenclature, such as rides, regulations, byelaws, schemes, orders, notifications, and so on.

The Executive does not have any general power to make such legislation; it is derived through delegation under specific enactments made by the Legislature. This power of the Executive to supplement legislation is known as delegated or subordinate legislation.

Delegated legislation

Section 295 of the Income-Tax Act, 1961 confers on the Central Board of Direct Taxes (CBDT) the power to make rules by notification in the Official Gazette.

In exercise of this power, the Board has made the Income-tax Rules, 1962. The rule-making power is subject to the control of the Centre. Parliamentary control is prescribed in Section 296 of the Act, requiring the rules to be placed before each House of Parliament

Rules are part of law

The I-T rules, if validly made, become part of the I-T law by their publication in the Gazette. Section 59(5) of the 1922 Act specifically stated that the rules made shall, on publication in the Gazette, have `effect as if enacted in this Act'. That provision was otiose. As such, it was not repeated in the 1961 Act. The rules have the same force as the various provisions of the Act.

The aforesaid proposition got the Supreme Court's approval in the Karimtharuvi Tea Estates Ltd vs State of Kerala (1963 48 ITR 83 SC) case. In this case, the challenge was to a State law providing for the disallowance of the expenses incurred in the upkeep and maintenance of immature plants from which no agricultural income was derived during the year.

This was contrary to the computation of income under the I-T Act and the rules framed thereunder.

Rejecting the argument that one should look to the definition of `agricultural income' in the I-T Act and not in the rules, the apex court observed that the rides `has effect as if enacted in that Act'. Subsection (1) of Section 295 authorises the Board to make rules for carrying out the purposes of the Act. Where specific guidelines have been given, as in sub-section (2) of Section 295, the rulemaking authority has to act within the limits of the powers so granted. Such an authority has no plenary powers. This was held by the Supreme Court in the Bimal Chandra Banerjee vs State of W (1971 81 ITR 105 SQ) case. A similar view was expressed in the Lohia Machines Ltd vs UOI (1985 152 ITR 306 SC) case as well.

The Rules cannot be violative of the purpose behind the Act nor can they take away what is conferred by the Act. These cannot also effect, control or detract from the full operative effect of the provisions of the various sections. Any rule which purports to do so would be ultra vires and void.

Income-Tax Rules, 1962

The Income-Tax Rules were notified through Notification No. SO-969 of March 26, 1962. Prior to this, the Indian Income-tax Rules, 1922, notified by the Board of Inland Revenue (No.3-IT dated April 1, 1922) as amended from time-to-time, were in force.

Since the 1962 Rules were notified on March 26, 1962, there have been continuous additions to these every year, particularly after the passing of the annual Finance Acts by Parliament. Currently, the book containing the Rules is as voluminous as the one containing the Act.

Exercise of rule-making power

The Rules, initially promulgated in 1962, have swelled in number and size, consequent to frequent additions — every year.

However, a study of the ways and manner in which these have been framed from time-to-time clearly indicates that there had been no system, planning and methodology in issuing the same. The approach had been ad hoc and haphazard.

In 2004, the CBDT issued 18 amendments (see Table) to the I-T Rules, 1962. The practice in the earlier years has been more or less the same.

Issues for consideration

The issues that crop up for consideration on the basis of data given in the Table can be summarised thus:

Why have multiple notifications each time new rules or amendments to the existing rules are made? For example, six notifications on January 12, 2004 and four on November 30, 2004, could have been consolidated into one on each occasion rather than have 10 notifications on the same date.

Why issue separate notifications for making inconsequential changes. For example, the 10th amendment in 2004 is only for making a small change in Rule 28AB for the omission of sub-Rule (2). Likewise, the 15th amendment is merely for substituting 10 per cent for 25 per cent in Form No.3AA in the notes in item 4. Such changes can be combined with some bigger changes and not separately notified.

Frequent changes to the Rules make it difficult for taxpayers, tax consultants and tax administrators to keep track of the same and they also make the rule books obsolete.

Barring urgent ones, the Rules should preferably be changed only on a quarterly or half-yearly basis.

The Rules that are required to be notified consequent to the enactment of annual Finance Act should be made in one go and not spread over in the form of various amendments, as being done at present.

The I-T law by its very nature is complex. It should not be made more complicated by exercise of delegated power by issuing Rules/notifications haphazardly and in an ad hoc manner. The CBDT needs to give serious thought to change the current system of making Rules.

(The author is a former chairman of the CBDT.)

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