The Supreme Court (SC) has issued instructions to the High Courts to expeditiously decide the matter of tax on a “deemed income” basis on immovable properties.
According to the order of the SC, the petitioners have challenged the tax on “deemed income” (“impugned tax”) inserted in the Income Tax Ordinance 2001 (“Ordinance”) through the Finance Act, 2022. It is contended that the said tax is unconstitutional.
The petitioners have taken the plea that the Federal legislature lacks competence in the matter as the ambit of the said tax falls outside the scope of entries 47 and 50 of the Federal legislative list. The impugned tax is discriminatory and violative of Article 25 of the Constitution in as much as Section 7E(2)(d) of the Ordinance is concerned whereby certain categories of persons have been excluded without any lawful justification or intelligible differentia.
It is further contended that the tax has been imposed on absolutely “nothingness” as there is no economic activity, no receipt and no income in real terms and fails to meet the requirements of “income” laid down in the judgment of this Court passed in the case of Messrs Elahi Cotton Mills Ltd and others v. Federation of Pakistan through Secretary M/ o Finance, Islamabad and 6 others (PLD 1997 SC 582).
The counsel for the petitioners has referred to the budget speech for the financial year 2022-2023 of the then Finance Minister  Miftah Ismail that the major part of the wealth of rich people is parked in the real estate sector in Pakistan. This is a double-faceted menace. It leads to the accumulation of unproductive assets and raises the prices of housing for the poor and lower-income groups. We intend to correct this imbalance.
Therefore, all persons who have more than one immovable property exceeding Rs. 25 million situated in Pakistan shall be deemed to have received rent equal to 5% of the fair market value of the immovable property and shall pay tax at the rate of 1% of the fair market value of the said property. However, one house of each individual will be excluded.
In this background, it is submitted that the real intention behind the impugned tax was to impose restrictions and discourage the unproductive use of money by investing the same in real estate. However, this objective has been achieved through unconstitutional means in the shape of impugned tax.
SC order added that the instant matter has arisen out of the decision of the Sindh High Court. In contrast, similar matters are pending before the Lahore High Court, Islamabad High Court, and the High Court of Balochistan. It would be appropriate that we benefit from the decisions from the said High Courts on the said questions.
“We, therefore, expect that the said High Court will decide the instant matters pending before them expeditiously. A copy of this order is dispatched to the Registrars of the aforementioned High Courts. To come up on 19th February  2024. If the matters are decided by the respective High Courts till then, this case will be taken up on day-to-day basis”, SC order said.
The interim relief granted on March 22, 2023, may continue till the next date of hearing. It is further clarified that the interim relief may continue in the next financial year. It is also pointed out that there will be no further adjournment on the next date of hearing, SC order added.
