Critics say concept of ‘deemed’ income alien to income tax law

LAHORE: The critics of the concept of deemed income have termed it discriminatory, saying that it provides certain exceptions and exclusions without providing any rationale to such exclusions and or exemptions. It outlines no transaction on the basis of which any deemed income can accrue and even properties which cannot be let out or generate any income have also been included under it, they added.

According to these circles, the concept of ‘deemed income’ is alien to the income tax law. They said the federal legislature was not competent to impose tax on deemed income. Therefore, the levy was confiscatory.

A large number of tax experts are of the view that the concept of deemed income imposes tax on property, which is not within the competence of the Federal Legislature pursuant to Entry 50 of the Federal Legislative List. Instead, they said it is only a provincial legislature that can tax an immovable property. They said it is also in violation of the concept of income received or income receivable, as there is no concept of any fictional income as it is alien to the Income Tax Ordinance.

They further pointed out that the concept of deemed income has also failed to take or provide basis and differentiation in the nature of property; its location, and the earning potential, if at all a tax has to be sustained and even such properties have been taxed for which there is no permission to raise any construction. Also, they said, there is an anomaly in the holding period of the property in question.

According to them, as and when deemed income has been held to be valid and legal; it always has nexus with respect to generation of income or a transaction that can lead to an income.

The critics are of the view that the federal government had the intent of discouraging holding the properties that do not fall within the domain of the federal legislature. They said a tax can only be levied when there is an earning potential. In essence, they said, it imposes tax on property and in pith and substance it is not a tax on income or deemed income, therefore, it is confiscatory in nature as the tax payer, notwithstanding holding of various properties, is not generating any income so as to pay the tax on its deemed.

According to them, the concept of deemed income lacks a triggering event, i.e., receiving of income or money; that mere holding of immovable property cannot lead to any tax by way of a fictional income.

Copyright Business Recorder, 2024