Constitutionality of Section 7E of IT Ord, 2001: LHC issues notices to federal, Punjab secretaries and FBR

ISLAMABAD: The Lahore High Court (LHC) issued notices to the federal and the Punjab secretaries of Finance and the Federal Board of Revenue (FBR) regarding the constitutionality of Section 7E of the Income Tax Ordinance, 2001.

The court also issued notice to the attorney general for Pakistan (AGP) as a substantial question of interpretation of the constitutional provision is involved.

Petitioner Zulfiqar Ali Anjum through advocate Chaudhary Anwarul Haq Arif has questioned the constitutionality of Section 7E – tax on deemed income of the Income Tax Ordinance, 2001, inserted through the Finance Act, 2022 on the premise of legislative incompetence of the Parliament to enact law outside the scope of Entry 50 of the Federal Legislative List, Fourth Schedule of the 1973 Constitution.

Entry 50 says: “Taxes on the capital value of the assets, not including taxes on immovable property.”

The fundamental objection raised is that tax added through Section 7E is in pith and substance, tax on the immovable property, to which extent Parliament is not competent to make laws, as after the 18th Constitutional Amendment, 2010, only the provincial legislature is eligible and competent to tax immovable property.

Capital assets in Pakistan: Tax on ‘deemed income’ challenged in LHC

Adds that tax was imposed in lieu of the holding/owning of immovable property, equal to five percent of the fair market value of capital assets, by declaration as deemed income, when no question of any gain thereupon arises, which is in fact and law an attempt to hoodwink the mandate of Entry 50.

The petitioner’s counsel informed the court that the tax in question is not classified or covered under the head “Capital Gains”. He further submitted that the exclusion of certain categories of persons from the tax net is discriminatory and the classification prescribed infringes the constitutional guarantee of equality of citizens, not founded on rational intelligible differentia.

The court noted that the questions pleaded prima facie call for interpretation of Entry 50 of the Fourth Schedule, in the context of Section 7E, and to adjudge the challenge thrown on the ground of discriminatory enactment.

The court declined the request to grant an interim injunction, in the wake of the challenge thrown to the vires of the statutory provisions, deemed to have validly legislated unless declared invalid, said the court order.

Copyright Business Recorder, 2022