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ISLAMABAD: The Supreme Court granted interim order that only 50 per cent of the deemed income tax be paid at the moment till the appeal is pending final adjudication.

A three-judge bench, headed by Chief Justice Umar Ata Bandial, and comprising Justice Yahya Afridi and Justice Ayesha Malik, on Wednesday, heard the appeals of 155 resident taxpayers against the SHC’s judgment.

The SHC on 28-10-22 had dismissed the petitions and held that no exception can be drawn to the competence of the Federal Legislature, while introducing Section 7E through Finance Act, 2022, in the Income Tax Ordinance. It declared that the impugned levy is neither ultra vires to the constitution, nor it is confiscatory or discriminatory; hence the Federal Legislature is fully competent to impose a tax on deemed income pursuant to Section 7E of the Ordinance.

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The court told the department that they should expand the tax base rather than taxing away the same persons who are compliant taxpayers.

During the proceeding, the chief justice said that the Federal Board of Revenue (FBR) should create genuine activity not just to collect the tax, but it has to save the flow of foreign exchange. People should be encouraged not only to maintain accounts in local currency but also of foreign currency.

Justice Ayesha Malik observed the FBR should encourage compliant and rich taxpayers to grow and as a result of growth more tax would come. But here (we see) the FBR is hammering at the same set of taxpayers who pay tax.

Justice Yahya said they also have to see that the cases against the deemed income are pending before the Lahore High Court (LHC) and the Islamabad High Court (IHC), and only the SHC has passed an order regarding the matter. He said why only the people in Sindh pay the impugned tax, while people in other provinces do not pay.

Additional Attorney General Aamir Rehman said though the people in Punjab are not paying tax on deemed income at the moment, ultimately they would have to pay it, as well.

The chief justice said there is an extraordinary situation of inflation in the country. You (the FBR) create island of immunity. He inquired from the FBR lawyer why no tax was imposed on shopkeepers. He asked the FBR officials to improve the system and create awareness among the masses about paying of tax. The FBR taxes sometimes are irrational and high, he added.

The petitioners’ counsels have contended that Section 7E of the Ordinance imposes tax on property which is not within the competence of the Federal Legislature pursuant to Entry 50 of the Federal Legislative List provided in the Fourth Schedule to the Constitution. It is only the Provincial Legislature who can tax an immovable property; that Section 7E within itself is discriminatory as it provides certain exceptions and exclusions without providing any rationale to such exclusions and or exemptions.

The FBR’s counsel contended that the concept of deemed income is not alien to the Income Tax Law, whereas, it has been validated in a number of cases by the superior courts; that it is a tax on income and not on the property; hence, is within the competence of the Federal Legislature under Entry 47 to the Fourth Schedule of the constitution. It is not a tax on the very property in question but on the deemed income from the said property.

The department lawyer submitted that the impugned judgment was on the basis of the law laid down in the Supreme Court judgment in “Elahi Cotton case”, which held that income tax on the deemed income was valid. Accordingly, the amount of tax is liable to be recovered from the petitioners, who seek a stay order against the recovery.

The court considered the AAG’s argument to the effect that the law promulgated by legislature cannot be suspended in the pending cases. He relied on the Supreme Court which laid down certain rules in this regard. The court has not prevented the FBR officials from the recovery of the amount. Presently, the same position is before the apex court.

The bench said the final adjudication in this case has to be made, and noted that while adjudicating a case under Section 4(C) of the Ordinance this Court had granted relief against the coercive measures taken by the FBR upon the deposit of 50 per cent amount assessed against them. Therefore, only 50 per cent of the deemed income tax be paid at the moment till the appeal is pending final adjudication, the court further said.

Copyright Business Recorder, 2023


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