ISLAMABAD: The Lahore High Court (LHC) directed the Federal Board of Revenue (FBR) chairman and the Ministry of Law and Justice federal secretary to appear before it tomorrow (17-11-2022) to answer the hardship, and assist the Court about the rationale behind omitting Section 7 from Finance Act, 1989, after the 18th Amendment and taxation of immovable property as deemed income, and Entry 47, instead of Entry 50 of the 4th Schedule to the Constitution.
Justice Shahid Jamil Khan, who heard the case, noted that the Wealth Tax Act, 1963, driving legislative competence from the Entry 50 was repealed earlier, without any apparent logic, where the yardstick for taxation was Annual Letting Value, having a rational basis, whereas, fair market value is speculative.
The single-member bench of the LHC adjourned the case for further arguments on the matter and the connected petitions until today (16-11-2022). During the proceeding, Additional Attorney General Mirza Nasar Ahmed adopted the arguments of Khalid Ishaq, who appeared on behalf of the respondent/ the FBR.
Without prejudice to the arguments from the respondents’ side, he submitted that reading of Section 7E, ignoring the phrase for deeming income, the incidence of tax is value of immovable property, i.e., five per cent of the fair market value of capital assets.
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He also referred to the arguments by Khalid Ishaq that competence can be derived from different entries and two different taxes can be imposed in one statute. He further submitted that based on the principle of interpretation that Court should strive hard to save legislation, the impugned provision can be read down to harmonise it with the competence available under Entry 50.
He reiterated that the actual incidence of taxation is five per cent of the fair market value of the capital assets and not deeming income to derive competence from Entry 47. He submitted that competence is available under Entry 50, which allows taxation on the capital value of assets and term assets include immovable property.
The court confronted that on reading down the deeming phrase in subsection (2) of Section 7E, the yardstick to determine the value of an immovable property would be market value, which is speculative in nature, particularly when the value of assets as declared under Section 116 by the taxpayer is accepted.
In this Court’s opinion, the declaration under Section 116 becomes part of deemed assessment order under Section 120. Justice Shahid said if the arguments of the AAG are accepted, then the court will after reading down the deeming provision will have to look into the conflict between Section 116 and 7E.
The judge said that the court is not convinced with the arguments that this being a procedural matter cannot be looked into. If this Court attempts to reconcile both sections, the yardstick of fair market value being speculative and in conflict with the accepted declaration under Section 116 will be a hurdle.
He further said if this Court eventually, attempts to read down number of clauses in Section 7E, the same would amount to re-writing of the impugned provision. The immovable property was being taxed under Section 7 of the Finance Act, 1989, which was included in the capital assets for the purpose of taxation. The value of the immovable property, as declared in the Wealth Statement under Section 116, was accepted for taxation.
Upon that, Tahir Mehmood Butt, the counsel for the petitioners, submitted, without prejudice to challenge to the vires, that legislation of the impugned Section 7E is in haste and in absence of any procedure for determination of immovable property. He further said that the link of the procedure was provided on 12-10-2022 and till that time about 12,000 returns have already been filed. He contended that there is still confusion regarding levy of tax under the impugned provision.
Copyright Business Recorder, 2022
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