Taxing immoveable property and taxing income arising from immoveable property are two different concepts. The former is the burden on immovable property whereas the latter is the burden on the owner of the property—Syed Arshad Ali J, Latif Hakeem v Federation of Pakistan & Others

In the referred backdrop, the imposition of tax on 5% of the fair market value of the capital asset on the basis that any capital asset which a resident person might hold is treated to be deriving income is confiscatory in nature, hence is in violation or derogation of Article 23 of the Constitution—Aamer Farooq, Chief Justice, Islamabad High Court in Waheed Ashraf v Federation of Pakistan, etc.

Entry 50 was the subject matter of discussion in a number of appeals before a Division Bench of which one of us (Shahid Karim, J.) was a member and it was held that tax on capital value of immovable property was beyond the legislative competence of the Parliament and was within the power of the Provincial Assemblies to legislate upon—Commissioner of Inland Revenue v Muhammad Osman Gul [ICA No.35908 of 2023]

The Elahi Cotton case (it is the most misunderstood and misapplied judgement) makes absolutely clear that any item to be taxed should rationally be capable of being considered as the “income” of a citizen”— Taxing what is not ‘income’—I, Business Recorder, December 11, 2020

The conflicting judgements by high courts of the country in writs challenging section 7E of the Income Tax Ordinance, 2001 [“the Ordinance”], inserted retrospectively with effect from tax year 2022, by the Finance Act, 2022,have raised some fundamental issues relating to its validity under the Constitution of Islamic Republic of Pakistan [“the Constitution”] as well real import of amendment made in Entry 50, Part I of Federal Legislative List (FLL) of the Fourth Schedule by Constitution (Eighteenth Amendment) Act, 2010 [“18th Amendment”].

The Sindh High Court (SHC) was the first to hold section 7E of the Ordinance as intra vires of the Constitution—see detailed judgement at its website. A critical analysis of this judgement is contained in Legal fiction, Section 7E & Constitution, Business Recorder, December 2, 2022—its extended/detailed/updated version is also available at:https://www.linkedin.com/pulse/legal-fiction-section-7e-constitution-dr-ikramul-haq/.

After Division Bench’s judgement of SHC came an admirable verdict (curative) by Justice Shahid Jamil Khan of the Lahore High Court (LHC), an illustrious jurist, who resigned on February 2, 2024 after serving for 10 years. He later characterised his decision to resign as a “rebellion against a system held hostage by vested interests”.

The single judge judgement of LHC was later disapproved in the intra-court appeal by a Division Bench endorsing the view of the Sindh High Court that through legal fiction anything not income (even by any stretch of imagination) can still be brought to income taxation under Entry 47, Part I of FLL, Fourth Schedule to the Constitution. Needless to say that this view is not based on correct appreciation of the supreme law of the land as elaborated in https://www.linkedin.com/pulse/legal-fiction-section-7e-constitution-dr-ikramul-haq/.

The judgement of single judge of LHC, curative part aside, clearly and unambiguously holds: There is a difference between taxes on immoveable property and tax on income arising from immoveable property. Burden of income tax, including capital gain tax is on........

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