Shivakantjha.org - 'In a Nutshell' - 9: FDI: No extraneous purpose can be pursued under our Constitution or the Income-tax Act, 1961
'In a Nutshell' - 9
In the Vodafone Context
FDI: No extraneous purpose can be pursued under our Constitution or the Income-tax Act, 1961
By Shiva Kant Jha
April 7, 2012
Concern to promote the incoming of the FDI cannot be, in our country. a ground for departing, or over-straining, the law and the Constitution. In India all the organs of the State have only conferred powers and prescribed roles: and all these, without an exception, are subject to our Constitution’s limitations. This is the effect of the Articles 53, 73, 245, 246, 253, 265, 363, 368, 372, and 375 of our Constitution. Our Constitution contains no provisions for limitations on national sovereign powers, in the interests of international co-operation, as is the case in the constitutions of Belgium (Art 25bis), Denmark (Art 20), Italy (Art 11), The Netherlands (Art 92), Spain (Art 93), the Federal Republic of Germany (Art 24), nor it lacks the terms of prohibition as fetters on the Executive’s Treaty-Making Power [ as it was found in the U.S. Constitution noted by Justice Holmes to sustain the Migratory Bird Treaty Act of 1918],
Our Executive Government possesses ample powers for economic management , and for policy formulations pertaining to trade and investments. But it has absolutely no power to do such things, howsoever desirable, by invoking the provisions of the Income-tax Act, unless it can draw power on some specific provisions under the Act. There is no scope for invoking the executive power, simplicitor, when the issues pertain to the law of income-tax. Denial of inherent power to the Executive in the field of taxation is designed to achieve an important constitutional mission thus described in The New Encyclopedia Britannica [Vol.28 p.402] :
“The limits to the right of the public authority to impose taxes are set by the power that is qualified to do so under constitutional law. In a democratic system this power is the legislature, not the executive or the judiciary…..”
The Policy quotient available to the Executive under the Income-tax Act is nil. The governmental economic policies, or any other policy, are irrelevant for the tax authorities till they are enacted in the statute itself. And then the tax authorities function not to promote any policy, this or that, but they act to implement the provisions of the law.
Art. 265 of the Constitution authorizes the income-tax law to be made under the legislative field prescribed by the entry 82 of the Union List of the 7th Schedule to our Constitution. As per the preamble and the scheme of the Income tax Act, 1961, the OBJECT of the Act cannot be anything else than what Lord Hewart observed in Rex v. Special Commissioner (20 TC 381 at 384) that the duties imposed upon the Commissioners of Income tax are “in the interest of the general body of tax payers, to see what the true assessment ought to be, and that process, a public process directed to public ends.” To use a law framed in pursuance to the power granted under Article 265 of the Constitution would be a culpable exercise of power if objects extraneous to Art. 265 are sought to be promoted.
As per the preamble and the scheme of the Income tax Act, 1961: the purpose is to collect tax as per the law. Lord Scarman’s observations on the role of Income tax and the functions of the authorities administering the Law of Income tax are revealing. Referring to the duties of the Board of the Inland Revenue he observed: “The duty has to be considered as one of several arising within the complex comprised in the care and management of a tax, every part of which it is their duty, if they can, to collect.”
If the object of our law is to allow the NRIs and FIIs to exploit the Mauritius route to invite foreign funds in our country, the whole pursuit would ‘become mala fides, not in the sense of malice or dishonesty but in the sense of acting unreasonably and using the power to achieve an object other than that for which the authority believed the power had been conferred, even if the intention may be to promote another public interest’ ( see de Smiths Judicial Review of Administrative Action 4th ed. Page 335).