The Hindu Business Line : Limits of delegation

At the end of Finance Bill, 2006, there is a lengthy note on delegated legislation. Several Sections in the Income-Tax Act, 1961 have been considerably altered and the Central Board of Direct Taxes (CBDT) has reserved to itself the powers to prescribe rules of procedure for implementing the amendments.

The powers

The Central Government will notify the body or authority, for purposes of exemption under the proposed Section 10(42), in respect of a treaty, agreement or convention entered into by it.

Section 14A(2) enables the Board to make rules for determining the amount of expenditure incurred in relation to income which does not form part of the total income for purposes of disallowance.

Notifications will be issued by the Government for adopting and implementing agreements entered into by specified associations in India with specified associations outside India in terms of the new Section 90A.

The Board is also empowered to lay down the rules for the allotment of Permanent Account Number (PAN) to any person who has not applied for the same.

The newly inserted Section 139B requires the Board to notify the scheme for authorising the tax return preparers to help in filing of returns.

Rules for the recognition of Provident Funds will also be specified by the Board.

Apart from what is stated in the Note on delegated legislation, the Government has also retained the powers to prescribe the eligible conditions for enjoying Section 80C benefits relating to fixed deposits in a bank.

Several other sections require notification by the Government to become operational — Section 10(23D), for example.

It is common for every Finance Act to talk of delegated legislation. But the statute book would not only be incomplete but also misleading unless read with the delegated legislation, which is multitudinous.

Traditional theory lays down that the function of the Executive is to administer the law enacted by Parliament.

The Finance Ministry is taking upon itself the power to lay down rules and some of these can be substantive, encroaching upon the powers of Parliament.

The I-T Department empowered the Board to make rules for carrying out the purposes of the Act and for the ascertainment and determination of any class of income.

The legislative work in Parliament is heavy and it cannot discuss all matters in detail. It formulates the general policy and empowers the Executive to fill in the details by issuing necessary rules, regulation, bye-laws, etc.

American Constitutional experts believe that Congress gets power from the people and, therefore, cannot further delegate its legislative powers to the Executive or any other agency.

In India, the Supreme Court has expressed the view that there is an urgent need to limit the power of delegation. Under the guise of delegation, rules cannot be framed to modify the declared legislative policy.

Uncontrolled, unguided

Excessive delegation of legislative powers will attract unwanted attention of the courts. There have been cases were such delegation has been struck down by the Supreme Court. There cannot be unguided and uncontrolled delegation.

The rule against excessive delegation flows from the principle of sovereignty of the people. The view of individual officers, however competent they may be, cannot substitute the popular will as expressed by Parliament.

The ultimate power should always remain with the legislature, despite delegation. The legislature cannot abdicate its function. That is why there is the requirement that rules made under the Act must be laid before Parliament. Giving an Act retrospective effect is essentially a legislative function and it cannot be delegated.

And then, one has to contend with sub-delegation as well. The statute has conferred legislative powers on the CBDT, but quite often these are delegated to subordinate agencies such as the Chief Commissioner or Commissioner of Income-Tax. This process of sub-delegation may go through many stages, which can raise questions about the validity of the powers exercised by the subordinate authorities.

This practice of sub-delegation has been criticised by jurists on the basis of the legal maxim delegates non potest delegare (a delegate cannot further delegate). It reduces accountability of the administrative authority and weakens the safeguards granted by the Act.

The late Justice Mukherjea observed: "Delegated legislation is an expression which covers a multitude of confusion. It is an excuse for the legislature, a shield for the administrator and a provocation to the constitutional jurists."

While the legislature exceeds the limits of permissible delegation, courts are bound to strike down any arbitrary exercise of powers on the basis of such delegation.

Many of the subordinate legislation visualised in the latest Finance Act — for example, the powers to determine the method of apportionment of expenditure between exempt and non-exempt incomes or the power to frame rules for exemption of bank deposits up to Rs 1,00,000 — are perilously close to excessive delegation and may invite the wrath of the courts.

(The author is a former Chief Commissioner of Income-Tax.)