Dr Kanag Isvaran PC prevails on Supreme Court to amend the Inland Revenue Bill

COLOMBO : The Supreme Court issued the judgment recently, that upon the suggested amendments to the Inland Revenue (Amendment) Bill submitted by the Additional Solicitor General being effected, the Bill and its provisions will cease to be inconsistent with the Constitution. This judgement has been issued further to three petitions being filed that certain clauses in the Bill is inconsistent with the Constitution.

Dr. Kanag – Isvaran President’s Counsel, appearing on behalf of the Bar Association of Sri Lanka and Nihal Hettiarachchi, Chartered Accountant explained the draconian nature of two Clauses of the Inland Revenue Bill which was placed on the Order paper on the 26th March. The petitions were filed under Article 121 of the Constitution to invoke the Consultative Jurisdiction of the Supreme Court. As per the procedure laid down at Article 121, a citizen may file a petition within one week of a bill being placed on the Order Paper as to the Constitutionality of the Clauses therein.

Faiz Mustapha PC appeared on behalf of the 3^rd petition, which was filed by Mr Nadeeka Suranjana, a Partner of a consultancy firm (S.C.(S.D.)03/2021).

The three petitions were taken up for hearing on 5^th April 2021 against the Inland Revenue (Amendment )Bill .on whether clause 40 & 47 of the Inland Revenue Bill was inconsistent with Article 4 (c)  read  with Article 3  and Articles 11, 12 (1) , 14(1) (a) and 14 (1) (g) of the Constitution.

The Inland Revenue (Amendment) Bill includes among others an introduction of a new Section  (S.190 A) to the Principal enactment by way of Clause 47 which sorts to penalize an auditor, tax practitioner, tax advisor or approved accountant other than a full-time employee of the taxpayer in discharging his professional duties to the client.

Further clause 40 of the Bill which is an amendment to S.126(5) of the Principal enactment attempts to  impose a burden on every other person (other than a full time employee) who ‘prepared, filled or assisted to prepare or fill for a payment’ the return or part of the return to  place the signature without any qualification/ condition while such person will necessarily have to rely on the information provided by the taxpayer and/or his employee.

The Petitions were heard by Hon Judges, Priyantha Jayawardena P.C, L.T.B. Dehideniya and A.L.S.Gooneratne

Ms Farzana Jameel P.C Additional Solicitor General with N . Wigneshwaran , senior State Counsel for the Attorney General appeared for  Attorney-General. On 7^th April, the Additional Solicitor General submitted to the Supreme Court, amendments to the Bill in relation to Clause 40 & 47 as approved by the Cabinet of Ministers.

Clause 40 of the Bill

Learned President’s Counsel for the Petitioner submitted that the principle enactment and the other clauses of the bill have used the words ‘any other person’. However, Clause 40 of the Bill has used the word ‘some other person’. It was submitted that such inconsistency could lead to ambiguity. Further Clause 40 which amends Section 126 (5) of the Principal Enactment excludes a ‘full time employee’ of the taxpayer such exclusion and classification is arbitrary, capricious and in violation of Article 12 (1) of the Constitution.

Further Counsel argued that clause 40 of the Bill will have serious implications for employees of persons and companies providing tax consultancy services, including Attorneys at Law providing consultancy services on tax matters. Thus, it was submitted that the said clause violates the freedom to engage in any lawful occupation or profession enshrined in article 14 (1) (g) of the Constitution. Accordingly, President’s counsel for the petitioner submitted that clause 40 of the bill is inconsistent with article 12 (1) and 14 (1) (g) of the Constitution. 

The following is the amendment to Clause 40 of the Inland Revenue (Amendment) Bill

Clause 47 of the Bill

Dr. Kanag – Isvaran P.C. analyzing the terms “Auditor, tax practitioner, approved accountant & tax advisor” the parties on whom the penal provisions sought to be imposed on by Clause 47 of the Bill opined that an array of personnel not merely confined to Chartered Accountants are captured therein. As the terms tax practitioners are not defined it could extend to anybody including retired Inland Revenue Officers engaged in assisting tax payers to fulfill their tax obligations to the State, an Attorney at Law providing tax advice to clients or representing  tax payers before the Tax Authorities or any person competent in taxation assisting tax payers. Dr. Kanag – Isvaran P.C. also clarified the ambit of the term “auditor” referred to in the Bill whilst citing S.157 of the Companies Act the Accounting & Auditing Standards Act as well.

The Bill also sought to introduce a phrase “deliberate misinterpretation” a concept unknown in the context of Rules of Interpretation of Statutes. Interpretation is to convey one’s ideas of the meaning of any word or conduct or event etc there can be no doubt whatsoever that legal provisions by their very nature are subject to interpretation vis a vis their scope, applicability, relevance consequences etc

Dr K Kanag Isvaran further argued that the words ‘deliberately misinterprets’ are wholly ambiguous and  entirely meaningless and therefore will necessarily result in the taxpayer and/or his ‘auditor, tax practitioner, tax advisor or approved accountant’ being subjected to duress and intimidation.

The President’s Counsel pointed out that a tax professional owes the Professional Duty of Care to his / her client and not to the Commissioner General of Inland Revenue.

The President Counsel submitted Clause 47 of the bill is applicable to the preparation of tax appeals and objections, and the restrictions placed on such matters by the said clause would in effect deter the freedom of expression enshrined in Article 14 (1) (a)  of the Constitution.

The Bill also sought to impose a prohibition Order preventing the specified categories of persons from practicing pursuant to a conviction after summary trial before a Magistrate. Dr. Kanag – Isvaran P.C. pointed out to the oversight and the ignorance of the drafters of the Bill that only the Supreme Court possess the jurisdiction to bar an Attorney at Law from practicing and that such power cannot be exercised by a Magistrate. Therefore the vesting of the said jurisdiction on the Magistrate’s Court by clause 47 of the bill is an erosion of the judicial power of the Supreme Court, and therefore it was submitted that the said clause violates article 4(c) read with article 3 of the Constitution.

It was submitted that the words ‘prohibition order preventing him from practicing in such capacity’ in clause 47 of the Bill, permanently disbars a person from engaging in a lawful occupation or profession of his choice. Such a punishment is disproportionate and cruel, and therefore violates Article 11 of the Constitution.

The following is the amendment to Clause 47 of the Inland Revenue (Amendment) Bill

The Supreme Court issued the Judgment recently that upon the suggested amendments (as provided above) being effected, the Bill will not be inconsistent with the Constitution and that the Bill can be passed in to Law with a simple majority in Parliament.