DECODING FISCAL LAWS:A JURISPRUDENTIAL PERSPECTIVE

II.CONCEPT OF DELEGATED LEGISLATION

Delegated (also known as subordinate) legislation is legislation made not directly by an Act of the Parliament, but under the authority of an Act of the Parliament. Parliament has regularly and extensively delegated to the Executive Government limited power to make certain regulations under Acts. Delegated legislation can take a multitude of forms?:determinations ,orders?and rules by-laws;? standards, principles, guidelines, declarations, notices, plans of management and approvals.

Parliament retains ultimate legislative authority over delegated legislation.

Delegated legislation undoubtedly has its uses and is vital actually for effective implementation of primary legislation at times.The ever-increasing mass of detail in statutory instruments cannot be scrutinised by Parliament if it formed part of primary legislation. The need to change detailed provisions from time to time would place impossible burdens on Parliament if the changes always required the introduction of new legislation.?

What are the limits to Delegated Legislation? . A Constitution Bench of Seven Judges of hon’ble SC in Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Another (1968) SCC OnLine SC 13, has held that the legislature must retain with itself the essential legislative function. ‘Essential legislative function’ means the determination of the legislative policy and its formulation as a binding rule of conduct. Therefore, once the legislature declares the legislative policy and lays down the standard through legislation, it can leave the remainder of the task to subordinate legislation. In such cases, the subordinate legislation is ancillary to the primary statute. It aligns with the framework of the primary legislation as long as it is made consistent with it, without exceeding the limits of policy and standards stipulated by the primary legislation. The test, therefore, is whether the primary legislation has stated with sufficient clarity, the legislative policy and the standards that are binding on subordinate authorities who frame the delegated legislation.

THE BIGGEST DANGER IN DELEGATED LAW,the learned commentators all over agree, is ?it can be made and changed without having to be debated and passed by the Parliament. The guiding principle of course is that once Parliament has by statute laid down the principles of a new law, the Executive may by means of delegated legislation work out the application of the law in greater detail within, but not exceeding, those principles. Delegated legislation is necessary and often justified by its facility for adjusting administrative detail without undue delay, its flexibility in matters likely to change regularly or frequently, and its adaptability for other matters such as those of technical detail. Once Parliament has by statute laid down the principles of a new law, the Executive may by means of delegated legislation work out the application of the law in greater detail within, but not exceeding, those principles.Therein lies the danger.éxcess’’ cannot be defined generically.It depends.

This is all very well but it is in the abstract.A newbie would find it hard ,even impossible to relate to it in a practical sort of way: ’’Ok,so I get it but where does it all take me so far as my practice of law is concerned?’’

This is probably where all the educators,teachers,guides and mentors falter.Practical connectivity .So that one can not only relate to ,but understand,remember and apply it.

Here is the missing link.

Can we indicate some illustrations from the Income Tax Act 1961?

Let us see.

Take s 17(2)(viii).

17. "Salary", "perquisite" and "profits in lieu of salary" defined—For the purposes of sections 15 and 16 and of this section,—

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(2) "perquisite" includes—

(i) the value of rent-free accommodation provided to the assessee by his employer computed in such manner as may be prescribed;

(ii) the value of any accommodation provided to the assessee by his employer at a concessional rate.

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(viii) the value of any other fringe benefit or amenity as may be prescribed

This clause is delegated legislation. After specifically stipulating what is included and taxed as ‘perquisite’, clause (viii) to Section 17(2), as a residuary clause, intentionally leaves it to the rule-making authority to tax ‘any other fringe benefit or amenity’ by promulgating a rule. The residuary clause is enacted to capture and tax any other ‘fringe benefit or amenity’ within the ambit of ‘perquisites’, not already covered by clauses (i) to (viia) to Section 17(2).

In terms of the power conferred under Section 17(2)(viii), CBDT enacted Rule 3(7)(i) of the Rules.[DELEGATED LEGISLATION CREATED]. Rule 3(7)(i) states that interest-free/concessional loan made available to an employee or a member of his household by the employer or any person on his behalf, for any purpose, shall be determined as the sum equal to interest computed at the rate charged per annum by SBI, as on the first date of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by interest, if any, actually paid. However, the loans made available for medical treatment in respect of diseases specified in Rule 3A or loans whose value in aggregate does not exceed Rs.20,000/- , are not chargeable.

The effect of the rule is twofold. First, the value of interest-free or concessional loans is to be treated as ‘other fringe benefit or amenity’ for the purpose of Section 17(2)(viii) and, therefore, taxable as a ‘perquisite’. Secondly, it prescribes the method of valuation of the interest-free/concessional loan for the purposes of taxation.

Legality thereof has been challenged and negatived in Courts.It is not excess of delegation.

[: see All India Bank Officers?? Confederation decision: (2024)05 SC CK 0005]

However there may be a situation where the Courts uphold the charge of abuse of process. CBDT INSTRUCTION DATED 11.5.2022 ON S 148 is a classic illustration of executive overreach leading to judicial censure. .In Rajeev Bansal VS Union Of India And 3 Others WRIT TAX No. - 1086 of 2022 dated 22.02.2023 (Alld HC) there are three very interesting paras which censure CBDT for its executive overreach in interpreting Ashish Agarwal decision as well as the Statute.In my view ,it is gross abuse of process of a Court and seriously undermines their judicial wisdom in framing Instructions u/s 119.

Let us look at what the Court held:

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‘’89. At the cost of repetition, it may be noted here that the Apex Court has permitted the revenue to proceed further with the reassessment proceedings under the substituted provisions of Sections 147 to 151 of the Income Tax Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of the Income Tax Act and which may be available under the Finance Act, 2021 and in laws.

90. Now coming to the CBDT Instructions dated 11.5.2022 is concerned, we find that the third bullet to clause (6.1) which states that the Apex Court has allowed time extension provided by TOLA and the “extended reassessment notices” will travel back in time to their original date when such notices were to be issued and then Section 149 of the Act is to be applied at that point, is a surreptitious attempt to circumvent the decision of the Apex Court. The observations in paragraph ‘7’ of the judgment in Ashish Agarwal (supra) of the Apex court has been noted in piecemeal in the said bullet point to clause (6.1) of the CBDT instructions dated 11.5.2022 to give it a distorted picture.

91. The directions issued in clause 6.2 to deal with the cases of the assessment years 2013-14 to 2017-18 are based on the misreading of the judgment of the Apex Court in Para 6.1 of the Instructions.Terming reassessment notices issued on or after 1.4.2021 and ending with 30.6.2021 as “extended reassessment notices”, within the time extended by the Enabling Act (TOLA 2020) and various notifications issued thereunder, in Para 6.1 is an effort of the revenue to overreach the judgment of this Court in Ashok Kumar Agarwal (supra) as affirmed by the Apex court in Ashish Agarwal (supra).

92. In any case, the CBDT Instruction No. 1/2022 dated 11.5.2022, issued in exercise of its power under Section 119 of the Income Tax Act, as per own stand of the revenue, is only a guiding instruction issued for effective implementation of the judgment of the Apex Court in Ashish Agarwal (supra). The instructions issued in the offending clauses (third bullet to clause 6.1) and clause 6.2 (i) and (ii), being in teeth of the decision of the Apex Court have no binding force.’’

The stand of the revenue is astonishing saving your face stand where the remedy is worse than the disease.How can a 119 instruction be a ‘’guiding’’ instruction where the very language of the statute and settled judgements like UCO bank (1999) 237 ITR 0889(SC)have held otherwise.The stand is a joke,and they got lucky that the faux pa escaped a Court censure for self contradiction.

Historically, delegated legislation was designed for prescribing matters of administrative and technical detail, not substantive policy decisions. Gradually, however, the threshold between primary and delegated legislation shifted. One study,by Hansard Society in UK informs us the perils.It found that the powers given to Ministers to make delegated legislation are frequently too broad. Too many Bills are now ‘skeleton’ Bills worldwide (or have ‘skeleton’ parts to them) that contain powers rather than policy – reflecting administrative convenience, incomplete policy development or Ministers’ wish for the greatest freedom to act at a later date. In ‘skeleton’ Bills the majority of the content is left to be decided at a later date through delegated legislation.The skeletal drafting leads to broad based drafting of statutory clauses leading to possibility of exercise of a substantial discretion.This exercise is via ‘’power to remove difficulties’’ type of clause in substantive law.

This is classically called a ‘Henry VIII power’ in law: is a delegated power in an Act of Parliament that enables Ministers to amend, repeal or otherwise alter the effect of primary legislation by delegated legislation.

The power to amend Acts of Parliament 'by order' is known as a 'Henry VIII power', is a slightly tongue in cheek reference to King Henry VIII's supposed preference for legislating via Royal Proclamations rather than through Parliament.

Any clause present in the statute, providing the executive rulemaking powers WITHOUT LEGISLATIVE SCRUTINY, is presumed to be the Henry VIII Clause. In India, Henry VIII clause was sparingly adopted but has seen an upturn of late.

Any legislature which drafts the statute in a skeletal manner, broadly terms the individual provisions . This ensures that the Executive gets to exercise a significant amount of discretion.The resultant danger is that power under the parent law allows the Executive to clarify or interpret the meaning of the provisions given.The ambiguity or generality or skeletality enables the Executive:the Federal Govt. or CBDT in Indian context-to virtually amend the main law or make it amenable to their objectives. Authorities may follow the dictatorial principle?and may create room for abuse of power by unelected officials.

Fortunately ,the Judiciary is a recourse available to the assessee but only to the well heeled ones-time,energy,effort and money(cost of litigation) required –is not within reach of many.

The delegated legislation can be challenged in India in the courts of law as being?unconstitutional, excessive and arbitrary. It can be controlled by the Judiciary on either being? substantial ultra vires or on the ground of procedural ultra vires.

Hopefully this exposition will remain with the reader and enable him/her to be alive to the situations of executive overreach and make timely intervention by seeking judicial relief.

? Anadi Varma

Proprietory material.Copyright reserved.

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