All the arguments and contentions made by the Sindh High Court in the aforesaid order which have been emphasised are factually, and legally incorrect. These are produced below as under;
1- The contention 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” is factually and contextually wrong as the concept of notional Annual Letting Value of Property as used as the basis of the order has been discarded in the Income Tax Ordinance 2001.
The concept of ALV was a deeming provision which has been referred to in the order which is no more applicable. The relevant texts of the statutes are reproduced as under.
Deemed income tax on ownership of vacant plot incorrect–I
Income Tax Ordinance 2001
- Income from property.— (1) The rent received or receivable by a person for a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Property”.
(2) Subject to sub-section (3), “rent” means any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building.
Deemed income tax on ownership of vacant plot of land incorrect—II
(3) This section shall not apply to any rent received or receivable by any person in respect of the lease of a building together with plant and machinery and such rent shall be chargeable to tax under the head “Income from Other Sources”.
Income Tax Ordinance 1979
- Income from house property.- (1) The annual value of property shall be chargeable under the head “Income from house property”.
(2) For the purposes of sub-section (1),-
Deemed income tax on ownership of vacant plot of land incorrect—III
(a) “house property” means any property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, but does not include any such property (or any portion thereof) which is occupied by the assessee for purposes of any business or profession carried on by him the profits whereof are chargeable to tax under this Ordinance; and
(b) “annual rental value” of any property shall be deemed to be the sum for which the property might reasonably be expected to be let from year to year;
Provided that where the property is let on rent, the annual value shall not be less than the rent payable by the tenant.
Deemed income tax on ownership of vacant plot of land incorrect—IV
(3) Nothing contained in this section shall apply in the case of any such property which is in the occupation of the owner for purposes of his own residence.
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The law as applicable now is completely different from what had been applicable from 1922 to 2001. There cannot be any deemed income under the head income from house property and the sum taxable is the rent received or receivable by the owner. This establishes the fact that the whole premise in the order by the Sindh High Court has been raised on the basis of an incorrect reading of a law that has been specifically made redundant by the new Income Tax Ordinance, 2001.
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There is another contention that “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.” Notwithstanding and without prejudice to the argument in relation to change of law it is stated that the income from house property has been taxed under Section 15 of the Ordinance on a certain basis. This is the exclusive section for income house property. The question is whether or not there can be a separate income tax under the same Income Tax Ordinance on such property.
4. Summary and conclusion
a. certain major issues on the matter have not be taken up in the Order of the Sindh High Court and the appellate arguments available;
b. Tax if any under Section (7E) can be levied under Entry 50 of the Federal Legislative List for which a separate law is required and the this tax cannot be legislated as a part of Income Tax Ordinance, 2001, which is governed by Entries 47, 48, or 52 of the List;
c. There are precedents on such matter like Capital Value Tax 1987 and Capital Value Tax 2022,
d. Even if the decision in the case of the Elahi Cotton Mills Limited case is treated as valid under the guidelines provided in that decision in paragraph 31 there cannot be ‘deeming of income’ for any non-income generating economic transaction;
e. The Sindh High Court has based its arguments on the concept of Annual Letting Value for taxing property income, which has been discarded by the Income Tax Ordinance, 2001.
f. The taxation in any manner for income can be made in relation to cost not the fair value of assets.
(Concluded)
Copyright Business Recorder, 2024
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