In a major development, the Lahore High Court (LHC) has declared the tax on deemed income basis on immovable properties under section 7E of the Income Tax Ordinance 2001 as ultra vires of the constitution.
According to the order, the judgment examined Federal Legislature’s competence to levy income tax on immoveable property, invoking fiction of law by using the phrase “A person shall be treated to have derived, as income chargeable to tax”, on capital assets owned by a resident person. This presumption is enforced by inserting Section 7E in Chapter II, titled “Charge of Tax”, of Income Tax Ordinance, 2001 through Finance Act, 2022.
The petitioners, being taxpayers, have claimed the taxation under Section 7E as ultra vires of the Federal Legislature’s field of competence, listed in Entries 50 (post eighteenth amendment) and 47 of the Fourth Schedule to the Constitution.
LHC has held that to treat the market value of immovable property as income under Entry 47 is beyond the competence of Federal Legislator hence is declared ultra vires.
The provisions of Section 7E are read down to save the taxation on the Capital Value of Assets, which is within the competence of the Federal Legislature under Entry 50.
Entry 50 for taxing the Capital Value of Assets requires that the assets should be valued as a whole and taxed inseparably. Curative legislation is expected to bring the provisions, of Section 7E, within the spirit of taxing Capital Value of Assets, and to harmonies it with other provisions of the Ordinance of 2001.
LHC order added that the exclusion of persons under clauses (i), (iii), and (iv) of Section 7E(2)(d), is discriminatory, offending the Article 25, therefore, are declared ultra vires.
However, the legislature is expected to remove the pointed out expropriatory and confiscatory aspects in the provisions of Section 7E, the LHC order added.
FBR/Govt is bent upon kiliing middle and salaried persons
The only Hope is from Judiciary to protect us