ISLAMABAD: Justice Aminuddin Khan questioned whether the definition of “tax” in clause 63 of Section 2 of Income Tax Ordinance, 2001 conflict with the definition of “tax” given in Article 260?
He was heading a five-judge Constitutional Bench of the Supreme Court, which on Thursday heard the appeals of 354 taxpayers against Section 4B, which was inserted in the Income Tax Ordinance, 2001.
Justice Amin noted that the definition of “tax” in Article 260 of the constitution says; “tax on income” includes a tax in the nature of an excess profits tax or a business profits tax, while in Section 2 (63) “tax” means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance.
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Makhdoom Ali Khan, representing many taxpayers, stated that taxes are mentioned in Entries 47 to 53, while the “fee” is given in Entry 54. He said the Court has to analyse the amount collected is a tax on income.
Makhdoom contended that when the levy is a general burden for raising revenue, and used for the general well-being of the people then it is a tax. However, where the levy is imposed for a specific purpose for a specific class of people then it does not fall under the definition of the tax.
He argued that the super tax was imposed for the rehabilitation of the temporary displaced persons (TDPs). When the purpose is specific then it should be applied for the specific class. He said that the Supreme Court judgments in Workers Welfare Funds, Income Support Levy, Durrani Ceramics, and Khursheed Soap, were not followed in the imposition of super tax.
Justice Jamal Khan Mandokhail questioned why then Parliament despite the apex court’s judgments legislated. Makhdoom submitted that consistently the orders have been bypassed, adding the legislature and the executive always have different approach.
Justice Mandokhail then asked if the super tax is passed by both the Houses of the Parliament then what will happen. Makhdoom replied that then the Court may examine it on other grounds; does it match up with the specific constitutional provisions, and does it come up in Fourth Schedule of the Constitution.
Justice Muhammad Ali Mazhar asked the counsel, “Have you gone through the judgments of Peshawar High Court and the Lahore High Court?” He replied that the reasoning is almost the same in all the judgments.
He said if the apex court comes to the conclusion that this is not a tax then it would apply to all the taxpayers. But if the Court declares it is tax then judgments of the High Courts will be upheld.
Justice Mazhar then inquired about Section 4C of the Income Tax Ordinance. Makhdoom replied that it was struck down on the grounds of retrospectivity and double taxation.
Justice Mandokhail questioned that when the amount collected by the Federal Board of Revenue (FBR) under Section 4B is divided among the provinces and the federation, then can the federation use its share for the rehabilitation of TDPs of erstwhile FATA.
Makhdoom argued that the federation then has to get the province’s approval. He said after the 18th Amendment, the social welfare law is the domain of the provincial government.
The case is adjourned until today (Friday).
Copyright Business Recorder, 2025
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