Inland Revenue Amendment Bill taken to Court

• Senior Chartered Accountant Nihal Hettiarachchi files petition in SC challenging constitutionality of new legislation 

By S.S. Selvanayagam

Raja Nihal Hettiarachchi

A senior professional in auditing, taxation and financial consultancy challenges the constitutionality of the new Bill titled ‘Inland Revenue Amendment’ to amend the Inland Revenue Act.

Petitioner Raja Nihal Hettiarachchi filed the petition in the Supreme Court seeking its Special Determination. The case is listed for hearing on Monday. 

Hettiarachchi claims the petition is filed in the interest of the protection of the rights of the taxpayer and of all citizens vis-à-vis due process and a fair and equitable taxation regime.

Clause 47 seeks to make the Commissioner General the prosecutor, the judge, the jury and the executioner, he impugns.

He says that the Finance Minister made the Budget Speech for the period 2021 stating: “I propose to introduce punitive legal provisions to ensure that the private tax consultants and auditors representing tax payers and prepares and certifies fraudulent tax reports, aids and abets in such action will be faced with such consequence, including being barred from practicing.”

In this background, the Bill titled ‘Inland Revenue Amendment’ to amend the Inland Revenue Act No. 24 of 2017 was published as a Supplement to Part II of the Gazette of 12 March. The said Gazette was only issued on 18 March and placed on the Order Paper of Parliament on 26 March, he adds.

Clauses 47 and/or 40 of the Bill infringe upon and derogate from Article 3 and/or Article 4 (c) and/or Article 4 (d) and/or Article 10 and/or Article 12 (1) and/or Article 14 (1) (g) of the Constitution, he contends.

Clause 47 of the Bill seeks to introduce a new section 190A, which reads as follows: 

“Any auditor, tax practitioner, tax advisor or approved accountant other than a full-time employee of the taxpayer who – prepares, fills or certifies or assists in preparing, filling or certifying the tax returns, accounts, records, appeals and objections or any other document or information to furnish to the Commissioner-General; and intentionally disregards or fails to take reasonable care in discharging the professional duty, or fraudulently prepares and certifies such document or information or deliberately misinterprets any provision of this Act or any other Act administered by the Commissioner-General, or any regulation, rule or order made thereunder, commits an offence under this Act, and on conviction after summary trial before a Magistrate, be liable to a fine not exceeding one million rupees or to imprisonment of either description for a term not exceeding six months or for a prohibition order preventing him from practicing in such capacity.”

The Petitioner states the Clause 47 purports to impose a ‘professional duty’ on any ‘auditor, tax practitioner, tax advisor or approved accountant’ vis-à-vis the Commissioner General of Inland Revenue. 

He maintains the ‘professional duty’ that can be owed by any ‘auditor, tax practitioner, tax advisor or approved accountant’ can only be towards his client, and not the Commissioner General of Inland Revenue.

He states that insofar as Chartered Accountants are concerned, the Institute of Chartered Accountants Act No. 23 of 1959 (as amended) regulates the conduct of Chartered Accountants and the Rules of the Court regulate the conduct of Attorneys-at-Law, and both provide for penalties/procedures to be followed for any breach of the professional duty owed to a client.

He points out that the Clause 47 seeks to impose on such professionals a purported ‘professional duty’ towards the Commissioner General of Inland Revenue.

There can be no doubt that, often, the interests of the taxpayer will run counter to the interests of the Commissioner General of Inland Revenue, inasmuch as the Commissioner General will seek to maximise the tax payable by a taxpayer, while a taxpayer will try to minimise his tax exposure. Thus, a professional cannot have a professional duty to both the taxpayer and to the Commissioner General at the same time as both are mutually exclusive, he underlines.

In such a situation the ‘professional duty’ owed by any ‘auditor, tax practitioner, tax advisor or approved accountant’ can only be towards his client, the taxpayer. In the event, Clause 47 is a violation of Article 14 (1) (g) of the Constitution, he alleges.

Clause 47 also empowers the Commissioner General to institute action before the Magistrate Court against any person who in the opinion of the Commissioner General ‘deliberately misinterprets any provision of this Act or any other Act administered by the Commissioner-General, or any regulation, rule or order made thereunder’.

Moreover, any interpretation is a purely subjective point of view of the person interpreting and cannot be visited with criminality only for the reason of taking that point of view as the correct or appropriate one, he states. 

It is also an established norm the world over that the literal interpretation of a Tax Statute should be followed and in the event of any doubt or ambiguity, the interpretation, most beneficial or favourable to the Taxpayer, should be adopted. This is a province expressly reserved for the judiciary and cannot be encroached upon, he claims.

Clause 47 is thus a violation of Article 10 of the Constitution in that inter alia it seeks to impose the Commissioner General’s thought process and/or interpretation upon all others.

Clause 47 is also patently ad hominem (directed against the character rather than their arguments) and discriminatory against the taxpayer and any ‘auditor, tax practitioner, tax advisor or approved accountant’ in that it presumes that the interpretation given by the Commissioner General will necessarily be correct and cannot ever be a ‘deliberate’ misinterpretation, he aggrieves.

If the Commissioner General does not accept a particular interpretation of a tax statute, there is specific provision for the making of an assessment. Under the proposed section 190A the Commissioner General’s interpretation, however absurd, can never be characterised as a deliberate misinterpretation, he states.

Clause 47 goes further to provide for a prevention order prohibiting the ‘auditor, tax practitioner, tax advisor or approved accountant’ from ‘practicing in such capacity’. A Chartered Accountant is subject to the control of the Institute of Chartered Accountants as stipulated in the Institute of Chartered Accountants Act No.  23 of 1959 (as amended), he says.

Such a draconian provision will necessarily undermine the Rule of Law and lead to extreme abuse and rampant corruption in revenue administration and will subject the taxpayer to be at the whims and fancies of the tax officials in respect of Return of Taxes and remedies and thereby, denying the citizen equal protection of the law guaranteed and protected by Article 12 (1) of the Constitution, he contends.

Clause 40 of the Bill seeks to amend section 126 (5) of the principal enactment. 

The proposed amendment permits a full-time employee of the taxpayer to disclaim and/or evade all responsibility and/or liability for the contents of the return, whilst imposing on every other person who ‘prepared, filled or assisted to prepare or fill for a payment’ the return or part of the return responsibility for same. Clearly, therefore, the said Clause 40 is ad hominem (directed against the character rather than their arguments), petitioner blames.