SC quoted irrelevant marketing dictionary of A&C Black series as Black’s Law Dictionary

ISLAMABAD: The definition of ‘asset’ relied upon by the Supreme Court (SC) in its July 28 judgment, quoting the Black’s Law Dictionary, has in fact been taken from not so relevant Marketing Dictionary published under A & C Black series.

The SC, while defining “asset”, had referred to Black’s Law Dictionary but none of its editions carried the definition as explained in the court order. The definition is actually taken from the Marketing Dictionary -- published under A & C Black Series -- which has nothing to do with the Black’s Law dictionary.

A & C Black is a British book publishing company, owned by Bloomsbury Publishing whereas Black’s Law Dictionary is the most widely used law dictionary and was founded by Henry Campbell Black. Black’s Law Dictionary is considered as a credible document and is relied upon by courts across the world if some term is not explained in the law of the land.

The News has verified that the definition of word ‘asset’ as used by the apex court is word-to-word 100 percent same as given in one Marketing dictionary published by A & C Black series.  

In its July 28 judgment, the apex court referred to Black’s Law Dictionary as follow; “The word asset as defined in Black’s Law Dictionary means and contemplates “an asset can be (i) something physical such as cash, machinery, inventory, land and building (ii) an enforceable claim against others such as accounts receivable (iii) rights such as copyright, patent trademark etc (iv) an assumption such as goodwill”. The same definition with exact words is only given in a Marketing dictionary which is available online on Monash Business School website https://business.monash.edu as well as www.businessdictionary.com.

The basic point is that apex court while referring to ‘Black’s Law Dictionary’ declared that as term ‘asset’ is not defined in Representation of People Act (ROPA) 1976 and thus it has to take assistance from dictionaries. However, the law of the land relevant to the definitions of terms like ‘asset’, ‘receivables’ and ‘salary’ was Income Tax Ordinance (ITO) 2001 and which was not consulted.

The assumption that un-withdrawn salary constitute ‘receivables’ and that receivables are asset and thus were supposed to be reflected in asset statement of nomination papers as relied by SC quoting “Black’s Law Dictionary” is not followed by any accountant in Pakistan for salaried persons. It is true while maintaining account books of a business, ‘receivables’ are considered as ‘asset’ in accrual based accounting system and same concept is also supported by Black’s Law Dictionary but it is different in case of salaried individuals. Under section 12 of the ITO 2001, only ‘received’ amount is considered as salary. Section 15 of ITO, which deals with ‘income from property,’ clearly declares ‘received’ as well as ‘receivable’ as the income clearly differentiating salary income from property or business income. Some people confuse explanation of word ‘received’ as given in section 69 of ITO 2001 according to which anything made available to a person will be considered as received. It is not relevant in case of declaration to be made for salary which under the law and prevalent practices is only reflected when received.

The basic thing is that there are two systems of accounting which are as follow; the Accrual Based Accounting and Cash Based Accounting. The accrual based accounting is based on the accrual principle, under which revenue is recorded when earned, and expenses are recognised when incurred. However, in cash based accounting system, income is recorded when cash is actually received, and expenses are recorded when cash is paid out.

Interestingly, the only relevant law, the ITO 2001, also defines both the systems but for the business from income but Section 33 and 34 of the ITO reads as, 33. Cash-basis accounting.— A person accounting for income chargeable to tax under the head ‘Income’ from Business on a cash basis shall derive income when it is received and shall incur expenditure when it is paid.

34. Accrual-basis accounting.— (1) A person accounting for income chargeable to tax under the head ‘Income’ from Business on an accrual basis shall derive income when it is due to the person and shall incur expenditure when it is payable by the person.

Now the section 32 of Income Tax Ordinance clears whole confusion by declaring that companies are bound to adopt accrual system of accounting whereas individuals can adopt any of the two systems but they will have to stick with one system. Section 32 of ITO 2001 reads; Tax Accounting

32. Method of accounting.—(1) Subject to this Ordinance, a person‘s income chargeable to tax shall be computed in accordance with the method of accounting regularly employed by such person.

(2) Subject to sub-section (3), a company shall account for income chargeable to tax under the head ‘Income from Business’ on an accrual basis, while other persons may account for such income on a cash or accrual basis.

(3) The Board may prescribe that any class of persons shall account for income chargeable to tax under the head ‘Income from Business’ on a cash or accrual basis.

Clearly, the apex court judgment was in contradiction with the Section 12 and 32(1) of the ITO 2001. In addition to clear definition of salary in section 12, the ITO 2001 gives a choice to citizens to adopt any accounting system and thus an adverse decision could not have been given. A citizen is not at all supposed to go through dictionaries to find out definition of financial terms and supposed to follow the law of the land and prevalent practices.

Ironically, the real Black’s law dictionary not only supports all the concepts given in Pakistani tax law but also raises serious questions on the unique concept given in Pakistani apex court July 28 judgment.

In an edition of real Black’s Law Dictionary, the ‘asset’ is defined as; “1- An item that is owned and has value. 2- The entries on a balance sheet showing the items of property owned, including cash, inventory, equipment real estate, accounts receivable and goodwill. 3- All the properties of a person (esp. a bankrupt or a deceased person) available for paying debts or for distribution.”

It is clear that account receivables are shown as asset for entries of a balance sheet. Though Black’s Law Dictionary is for elaboration of legal terminologies but the online version of Black’s Law Dictionary also briefly discusses most of these accounting terms.

It defines Accrual basis accounting as; Accrual Basis Accounting: Accounting based on the accrual principle. Revenue is recorded when earned as is with expenses.

The online edition of real “Black’s Law Dictionary” defines Cash Basis Accounting as; Cash Based Accounting: An accountancy reporting method that recognises cash inflows or outflows when actually expended or received.

It discusses the term “Basis of Accounting” as; The way loss and gains are recognised by a firm and placed on a statement. The two styles are accrual and cash basis accounting. Now even the online edition of real Black’s Law Dictionary defines “Accounting Concepts” as follows;

Accounting Concepts: The accounting rules governing financial statement preparation. Once a method is chosen should be used throughout. Despite all this, it is clear that even if apex court wants to give a unique new interpretation of word ‘asset’, it should have ordered Election Commission of Pakistan to evaluate all the parliamentarians on the same touchstone and follow the same in future but it was also not done.