PkRevenue.com – In a significant ruling, the Balochistan High Court has declared Section 7E of the Income Tax Ordinance 2001, which imposed a tax on immovable properties based on deemed income, as ultra vires to the Constitution.
The detailed judgement was issued on a day earlier, striking down the controversial provision as void ab initio.
The petitioners challenged Section 7E, introduced through the Finance Act of 2022, arguing that it exceeded the Federal Legislature’s authority and infringed upon constitutional rights by being discriminatory and confiscatory. The court’s decision resonates deeply with property owners and legal experts alike, marking a pivotal moment in tax legislation.
The Balochistan High Court’s judgement aligns with rulings from the Islamabad and Peshawar High Courts, both of which also declared Section 7E unconstitutional. Conversely, the High Courts of Sindh and Lahore had upheld the provision, creating a patchwork of legal interpretations across the country.
In its judgement, the Balochistan High Court referenced the Supreme Court of Pakistan’s decision in the Elahi Cotton Mills case. This precedent, despite predating the Eighteenth Amendment, provides a crucial principle: while Parliament may define income broadly, it cannot arbitrarily tax items that do not constitute income in any rational sense. The Supreme Court had established that income should logically arise from an economic transaction or event, which is absent in mere ownership of property.
The court observed that Section 7E attempted to impose tax based solely on property ownership, without any corresponding economic transaction. This approach was deemed irrational, as it conflicts with the fundamental principle that income must result from an economic activity. The court noted that without an actual economic transaction or accrual of income, the deemed income tax on immovable properties was fundamentally flawed.
The judgement elaborates that taxing property ownership without an economic event contradicts the essence of income taxation. The court asserted that legal fictions cannot create income where none exists, thereby rendering Section 7E’s deeming provisions irrational and unconstitutional.
The decision has far-reaching implications, potentially affecting similar tax provisions and sparking debates on the limits of legislative power in defining taxable income. Property owners who had been subject to this tax may now find relief, as the court’s ruling invalidates Section 7E and declares it null from its inception.
This landmark judgement underscores the judiciary’s role in upholding constitutional rights against legislative overreach. It also highlights the importance of rational basis and economic reality in tax legislation. As legal experts and stakeholders digest this ruling, it is likely to influence future tax laws and judicial interpretations across Pakistan.
The Balochistan High Court’s decision to strike down Section 7E of the Income Tax Ordinance 2001 as ultra vires reinforces the constitutional boundaries of legislative power and affirms the principle that taxation must be grounded in economic reality. This judgement not only provides relief to property owners but also sets a precedent for scrutinizing tax laws that appear to overstep rational and constitutional limits.
