Deemed income tax on ownership of vacant plot of land incorrect—IV

For the sake of clarity we reproduce the gist of the Order passed by the Sindh High Court as under. This fundamental issue has been missed by the Sindh High Court and is presumably not presented before the Supreme Court of Pakistan. The Sindh High Court in its order has stated:

16. Therefore, insofar as the concept of deemed income is concerned, it is not in dispute that it is an approved concept of taxation and is not dependent on the actual amount of money or income being received by a taxpayer.

The best example which has been dealt with in respect of a deemed income in India as well as Pakistan, is in respect of the annual rental income from a property whether it has been rented out by a taxpayer or otherwise.

Deemed income tax on ownership of vacant plot of land incorrect—III

Time and again disputes had arisen as to the actual income received or receivable as well as concealment by the taxpayer in respect of rent from the property and therefore, the legislature introduced a concept of deemed income, whereby, tax was levied on a fixed amount of income, whether or not the property was being let out; or the taxpayer was actually receiving such income.

Insofar as the present levy is concerned, from perusal of Section 7E ibid, it clearly reflects that it is not a tax on property per-se; but a tax on deemed income for holding of a capital asset as defined in Section 7E ibid, along with the exceptions and or exemptions as are also applicable to the Petitioners.

As we understand, in essence, it is a tax on the income being deemed from such immovable properties and in that case, it would clearly fall within Entry 47 of the Federal Legislative List as provided under the Fourth Schedule to the Constitution.

Deemed income tax on ownership of vacant plot of land incorrect—II

The argument that it is a tax on property; hence, will fall under Entry 50 ibid; and then it can only be levied by the Provincial Legislature, if at all, is misconceived and not tenable inasmuch as no tax is being levied on the property itself; rather it is a tax on deemed income of the property.

As to the argument that a tax has been levied without there being any transaction not resulting in any income, it would suffice that again the same does not appear to be a correct approach as apparently holding of property beyond the threshold as provided in Section 7E(2)(g) is by itself a transaction which has been deemed to be an income within the ambit of Section 7E ibid.

Similarly, the argument that a transaction only occurs when an actual amount of income has been received is also misconceived as apparently a deemed income concept has been upheld by the Hon’ble Supreme Court in the Elahi Cotton Mills Limited case and we need not go any further to elaborate the said concept of deemed income which apparently is an income, notwithstanding that it is being received in terms of money or otherwise.

Deemed income tax on ownership of vacant plot incorrect–I

It is a fictional income concept, and if at all, it is to be relatable to an actual transaction or an attempt to generate an income, as contended, it would then not be an income deemed to have arisen. Deemed Income of a tax-payer is always not an actual income; hence, if the conditions of an enactment are satisfied, it is deemed income, irrespective of the actual transaction.

This is what the concept of a deemed income is. Any other interpretation and meaning would not be a deemed income; but an actual income. A fictional income is not needed to create a situation which already exists in reality.

It is an income which is deemed to have arisen and that is all. Once it is so, then any other relative happenings are materially irrelevant. The definition of income is an inclusive definition; it enlarges the meaning of income. An income from property which has been made liable to tax is not its actual income in money but an artificial or statutory income as explained in the impugned section 7E of the Ordinance.

In fact, by way of insertion of this Section another head of income has been created; though fictionally.

“Therefore, the fact that the owner of the property receives no income in fact or even that there is no possibility of his receiving an income is irrelevant for the consideration of the question as to what the artificial or statutory income of an assessee is from property. Fictions always conflict with reality, whereas presumptions may prove to be true. Legal fictions create an artificial state of affairs by a mandate of the legislature. They compel everybody concerned including the courts to believe the existence of an artificial state of facts contrary to the real state of facts. When a fiction is created by law, it is not open to anybody to plead or argue that the artificial state of facts created by law is not true, barring the only possible course if at all available is to question the constitutionality of the fiction.”

(To be continued)

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