Form No: HCJD/C-121

JUDGMENT SHEET.
IN THE ISLAMABAD HIGH COURT,
ISLAMABAD.

Writ Petition No.213/2023

Waheed Ashraf
Versus
Federation of Pakistan, etc.

Petitioner(s) By : Hafiz Muhammad Idris, Syed Farid Ahmed

Bukhari, Mr. Usman Kiyani, Mian Haseeb
Ali Bhatti, Mr. Muhammad Aslam Hayat,
Mr. Muhammad Naeem Siddique Bhatti,
Mr. Asif Farid, Mr. Sajid Naseem, Mr.
Usman Ahmed Ranjha, Ms. Sabila Daraz
Khan, Syed Ali Murtaza Abbas, Mirza
Saqib Siddique, Mr. Waqar Javed, Ms.
Fatima, Ms. Aiema Asrar, Malik Nasir
Abbas Awan, Mr. Asif Saeed Mughal, Mr.
Muhammad Musawar Gill, Mr. Khalil ur
Rehman, Mr. Faisal Rasheed Ghouri, Mr.
Faisal Jaffar Khan, Mr. Imran Ul Haq, Ms.
Shazia Nadeem Malik and Mr. Hamid
Jalal, Advocates.
Mr. Ejaz Hussain Rathore, Petitioner in
person.

Respondents By : Mr. Ghulam Qasim Bhatti, Syed Ishfaq

Hussain Naqvi, Barrister Atif Rahim Burki
and Barrister Sohail Nawaz, Advocates.
Syed Ahsan Raza Kazmi, Deputy Attorney
General.

Assisted By : Ms. Maheen Zeeshan Law Clerk

Date of Hearing : 15.01.2024.

AAMER FAROOQ, C.J. – This judgment shall decide the

captioned writ petition as well as writ petitions mentioned in the schedule,

attached herewith, as common question of law is involved.

2. The Petitioners, in all the petitions, have challenged the provision of

section 7E of the Income Tax Ordinance, 2001 (―the Ordinance”),

inserted through the Finance Act, 2022, on the basis that it is ultra vires
W.P. No.213/2023 & Others 2

the Constitution of Islamic Republic of Pakistan, 1973 (―the

Constitution”) for being beyond the competence of the Federal

Legislature, and for being discriminatory and confiscatory violating

Constitutional rights, hence is liable to be struck down.

3. In order to avoid any overlap or conflict, and for the ease of

reference, the submissions made by all the Petitioners in the captioned

petition, and the scheduled connected petitions, are discussed jointly.

Learned counsels for the Petitioners1 submitted, inter alia, that through

section 7E of the Ordinance (―the impugned provision”), tax has been

levied on deemed income derived from immovable assets, as specified

therein, equal to 5% of the fair market value of the assets at the rates

specified in Division VIIIC of Part-I of the First Schedule to the Ordinance.

It was contended that the impugned provision is tantamount to levy of tax

on immovable property, which is beyond the competence of the Parliament

pursuant to the Eighteenth Amendment to the Constitution. In this behalf,

it was contended that with respect to Entries No.47 & 50, as provided in

the Fourth Schedule to the Constitution, the Parliament does have

competence to impose income tax, however, it has no competence to levy

any tax on immoveable property, whereas, in essence, the impugned tax is

on immoveable property. Learned counsels further contended that while

interpreting relevant Schedule entries and the tax levied, the pith and

substance of the levy is to be examined and the same is not to be taken on

its face value. It was further argued that since levy in question is on

1
Hafiz Muhammad Idris, Syed Farid Ahmed Bukhari, Mr. Usman Kiyani, Mian Haseeb Ali Bhatti, Mr.
Muhammad Aslam Hayat, Mr. Muhammad Naeem Siddique Bhatti, Mr. Asif Farid, Mr. Sajid Naseem, Mr.
Usman Ahmed Ranjha, Ms. Sabila Daraz Khan, Syed Ali Murtaza Abbas, Mirza Saqib Siddique, Mr. Waqar
Javed, Ms. Fatima, Ms. Aiema Asrar, Malik Nasir Abbas Awan, Mr. Asif Saeed Mughal, Mr. Muhammad
Musawar Gill, Mr. Khalil ur Rehman, Mr. Faisal Rasheed Ghouri, Mr. Faisal Jaffar Khan, Mr. Imran
Ul Haq, Ms. Shazia Nadeem Malik and Mr. Hamid Jalal, Advocates.
Mr. Ejaz Hussain Rathore, Petitioner in person.
W.P. No.213/2023 & Others 3

immovable property, it is beyond the competence of Federal Legislature,

and it is, thus, ultra vires the Constitution. Learned counsels for the

Petitioners contended that the tax in question is confiscatory in nature

inasmuch as no income is actually generated through the immoveable

property specified therein, and payment of the same is to be made from

the personal resources of the taxpayer rather than from any income

generated from the assets. It was contended that, in light of the judgment

of the Supreme Court of Pakistan reported as M/s Elahi Cotton Mills Ltd.

versus Federation of Pakistan (PLD 1997 SC 582), where tax is confiscatory

in nature, it violates the fundamental rights guaranteed under the

Constitution, hence it is liable to be struck down. It was added that under

sub-section 2 of the impugned provision, certain exemptions have been

granted for payment of tax and bare reading of the same shows that those

exemptions are discriminatory in nature, and thus are in violation of Article

25 of the Constitution. It was also contended that the method of payment

of the tax is unreasonable and vague as tax is to be paid on 5% of the fair

market value of the capital assets as deemed income. It was also

submitted that ―capital asset‖ has been defined and explained in the

impugned provision as immoveable property; and that the impugned

provision has been given retrospective effect. Learned counsels apprised

the Court that petitions challenging vires of section 7E of the Ordinance

were also filed before the Sindh High Court as well as the Lahore High

Court and the Peshawar High Court. In this behalf, it may be noted that

that the Sindh High Court upheld the impugned provision, whereas the

Lahore High Court undertook the exercise of reading down and suggested

certain modifications, while the Peshawar High Court struck down the

impugned provision as being ultra vires the Constitution.

W.P. No.213/2023 & Others 4

4. Learned counsel for the Respondents2 contended, inter alia, that

Entry No.47 to the Fourth Schedule to the Constitution empowers the

Parliament to legislate and the Federal Government to levy tax on any

income other than agricultural income. It was submitted that the basic

definition of ―income‖ is provided in clause 29 of section 2 of the

Ordinance, which is inclusive, meaning it is not exhaustive. It was

contended that in the landmark judgment of the Supreme Court of

Pakistan in M/s Elahi Cotton Mills Ltd. versus Federation of Pakistan (PLD

1997 SC 582), various principles have been laid down and tax on the

capacity of any company was held to be intra vires. It was contended that

in order to declare a statute ultra vires, the principles laid down in Lahore

Development Authority versus Ms. Imrana Tiwana (2015 SCMR 1739) are

to be followed, which provide that the law is to be saved rather than

destroyed and that the provision under challenge ought to be retained in a

way so as to save it rather than to destroy by striking it down. It was also

contended that the law cannot be struck down simply for being

confiscatory in nature as it does not amount to violation of the Constitution

or fundamental rights. It was also submitted that the law can be made

applicable retrospectively insofar as any vested rights are not taken away

which is not the case. Reference was made to the following case law qua

the submissions addressed: Army Welfare Sugar Mills versus Federation of

Pakistan (1992 SCMR 1652), Muhammad Husain and others versus

Muhammad and others (2000 SCMR 367), Annoor Textile Mills Ltd. versus

The Federation of Pakistan (PLD 1994 SC 568), Haji Dossa Limited, Karachi

versus Province of Punjab through Collector Sahiwal and others (1973

2
Mr. Ghulam Qasim Bhatti, Syed Ishfaq Hussain Naqvi, Barrister Atif Rahim Burki and Barrister
Sohail Nawaz, Advocates.
W.P. No.213/2023 & Others 5

SCMR 124), Zaman Cement Company (Pvt) Limited versus Central Board of

Revenue and others (2002 SCMR 312), Zakaria H.A SattarBilwani versus

Inspecting Additional Commissioner of Wealth Tax (2003 SCMR

271),Sardar Sher Bahadar Khan versus Election Commission of Pakistan

(PLD 2018 SC 97), Mst. Sarwar Ja versus Mukhtar Ahmad (PLD 2012 SC

217), Zila Council Jehlum versus Messrs Pakistan Tobacco Company Ltd.

(PLD 2016 SC 398), Government of Pakistan versus MessrsMardan

Industries and another (1988 SCMR 410), Ashraf Sugar Mills versus

Federation of Pakistan (1996 PLC 145), Pakistan through Ministry of

Finance versus Fecto Belarus Tractors Ltd. (PLD 2002 SC 208), Molasse

Trading & Export versus Federation of Pakistan (1993 SCMR 1905),

Province of East Pakistan versus Sharafatullah (PLD 1970 SC 514), Shell

Pakistan Ltd. versus Federation of Pakistan (2023 PTD 607 Sindh),

Muhammad Khalid Qureshi versus Province of Punjab (2017 PTD 805

Lahore), Province of Punjab versus National Industries Cooperative Credit

Corporation (2000 SCMR 567), Education Services (Pvt) Ltd. versus

Federation of Pakistan (PLD 2016 Islamabad 141), A.M. Khan Leghari

versus Government of Pakistan (PLD 1967 Lahore 227), NihayatUllah

versus Secretary Local Government (PLD 2004 Peshawar 54), Federation of

Pakistan versus Haji Muhammad Sadiq (2007 PTD 67 (SC), Lahore

Development Authority versus Ms. ImranaTiwana (2015 SCMR 1739),

Muhammad RamzanKatiar versus Pakistan Refinery Limited (2013 CLD 233

Sindh), Muzaffar Khan versus Evacuee Trust Property (2002 CLC 1819

Lahore), M/s Dewan Textile Mills Ltd. versus Pakistan (1984 CLC 1740

Karachi), Amin Textile Mills versus Federation of Pakistan (2002 CLC 1714

Karachi), Syed Manzoor Hussain Bokhari versus SP City Lahore (1990 MLD

1807 Lahore), Call Tell versus Federation of Pakistan (2005 PTD 833
W.P. No.213/2023 & Others 6

Karachi), Human Rights Commission of Pakistan versus Government of

Pakistan (PLD 2009 SC 507), Shafique Ahmed versus Government of

Pakistan (PLD 2004 SC 168), M/s Shappire Textile Mills versus Federation

of Pakistan (PLD 2006 Karachi 554), M/s Pioneer Traders versus Province

of Sindh (PLD 2006 Karachi 648), Imdad Hussain versus Province of Sindh

(2007 Karachi 116), Sarfraz Ahmad Tarar versus Province of Punjab (PLD

2007 Lahore 57), District Magistrate Lahore Commissioner, Lahore Division

versus Syed Raza kazim (PLD 1961 SC 178), State of M.P versus Rakesh

Kohli (2013 SCMR 34), Jibendra Kishore Achharyya versus The Province of

East Pakistan (Revenue Department) (PLD 1957 SC (Pak) 9), Mr.

FazlulQuaderChowdhry versus Mr. Muhammad Abdul Haque (PLD 1963 SC

486), President Reference No.2 of 2005 (PLD 2005 SC 873), M/s Elahi

Cotton Mills Ltd. versus Federation of Pakistan (PLD 1997 SC 582).

5. Submissions of the parties have been heard and the documents

placed on record examined with their able assistance.

6. Before embarking upon appreciation of the submissions made by

the parties, it is apt to reproduce the impugned provision and dissect the

same. The impugned provision is as follows:-

“7E. Tax on deemed income.- (1) For tax year 2022 and onwards, a tax shall
be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule
on the income specified in this section.
(2) A resident person shall be treated to have derived, as income chargeable
to tax under this section, an amount equal to five percent of the fair market value
of capital assets situated in Pakistan held on the last day of tax year excluding the
following, namely:–
(a) one capital asset owned by the resident person;
(b) self-owned business premises from where the business is carried
out by the persons appearing on the active taxpayers‘ list at any
time during the year;
(c) self-owned agriculture land where agriculture activity is carried out
by person excluding farmhouse and land annexed thereto;
(d) capital asset allotted to –
W.P. No.213/2023 & Others 7

(i) a Shaheed or dependents of a shaheed belonging to Pakistan

Armed Forces;
(ii) a person or dependents of the person who dies while in the
service of Pakistan armed forces or Federal or provincial
government;
(iii) a war wounded person while in service of Pakistan armed
forces or Federal or provincial government; and
(iv) an ex-serviceman and serving personal of armed forces or ex-
employees or serving personnel of Federal and provincial
governments, being original allottees of the capital asset duly
certified by the allotment authority;
(e) any property from which income is chargeable to tax under the
Ordinance and tax leviable is paid thereon;
(f) capital asset in the first tax year of acquisition where tax under
section 236K has been paid;
(g) where the fair market value of the capital assets in aggregate
excluding the capital assets mentioned in clauses (a), (b), (c), (d),
(e) and (f) does not exceed Rupees twenty-five million;
(h) capital assets owned by a provincial government or a local
government; or
(i) capital assets owned by a local authority, a development authority,
builders and developers for land development and construction,
subject to the condition that such persons are registered with
Directorate General of Designated Non-Financial Businesses and
Professions.
Provided that the exclusions mentioned at clauses (a), (e), (f) and
(g) of this sub-section shall not apply in case of a person not appearing in
the active taxpayers‘ list, other than persons covered in rule 2 of the
Tenth Schedule.
(3) The Federal Government may include or exclude any person or property
for the purpose of this section.
(4) In this section–
(a) ―capital asset‖ means property of any kind held by a person,
whether or not connected with a business, but does not include –
(i) any stock-in-trade, consumable stores or raw materials held
for the purpose of business;
(ii) any shares, stocks or securities;
(iii) any property with respect to which the person is entitled to a
depreciation deduction under section 22 or amortization
deduction under section 24; or
(iv) any movable asset not mentioned in clauses (i), (ii) or (iii);
(b) ―farmhouse‖ means a house constructed on a total minimum area
of 2000 square yards with a minimum covered area of 5000 square
feet used as a single dwelling unit with or without an annex:
W.P. No.213/2023 & Others 8

Provided that where there are more than one dwelling units in a
compound and the average area of the compound is more than 2000
square yards for a dwelling unit, each one of such dwelling units shall be
treated as a separate farmhouse.‖

Examination of section 7E ibid shows that tax has been imposed for the tax

year 2022 and onward at the rates specified in Division VIIIC of Part-I of

the First Schedule to the Constitution on the income as specified therein.

Sub-section (2) of the impugned provision is the charging section and it

levies income tax on an amount equal to 5% of the fair market value of

the capital assets (deemed income), situated in Pakistan held on the last

date of the tax year. In this behalf, sub-section (2) ibid states that a

resident person shall be treated to have derived as income 5% of the fair

market value of the capital assets, hence derivation of the income is

deemed and not actual. Certain exemptions have been created, which are

provided from sub-section (2) (a) to (i). Under sub-section (3) of the

impugned provision, the Federal Government has been empowered to

include or exclude any person or property for the purposes of section 7E.

Sub-section (4), which the definition clause, defines ―capital asset‖ as

property of any kind held by a person, whether or not connected with a

business but does not include any stock-in-trade, consumable stores or raw

materials held for the purpose of business; any shares, stocks or

securities;any property with respect to which the person is entitled to a

depreciation deduction under section 22 or amortization deduction under

section 24; or any movable asset. The same also excludes farmhouses

constructed on a minimum area of 2000 square yards with a minimum

covered area of 5000 square feet used as a single dwelling unit with or

without an annex.
W.P. No.213/2023 & Others 9

7. Before delving into detailed examination of the relevant precedents,

it is pertinent to note a few key characteristics of tax laws in general. The

power of the State to impose tax upon its citizens is inherent in the power

to govern and such power is limited only by constitutional provisions3. It is

also a well settled principle that all taxes are confiscatory in nature,

however the element of confiscation is to be justified by the public purpose

for which a particular tax has been enforced. Constitutional rights and

provisions act as the safeguard for citizens, and as a check on legislative

authority, while enacting tax law. Where the public purpose is such that is

in line with the spirit of the Constitution and the tax enacted is a

proportional measure to achieve such purpose, the element of confiscation

shall not render the particular tax to be illegal or ultra vires to the

Constitution. Where, however, the element of confiscation is not so

justified, the tax may be regarded as violating Constitutional rights and

thus may be liable to be struck down. Where the constitutionality of a tax

law is in issue, the nature of the tax, the measure of the tax and its

incidence must be considered while determining its validity 4. In the instant

case, while deliberating on the constitutionality and vires of the impugned

provision,this Court is faced with the following key issues: Legislative

Competence, Confiscatory Nature, Discriminatory Nature.

Determination of Constitutionality and Vires

8. Since vires or the legality of the Federal Statute has been put to

challenge, this Court, at this stage, deems it essential to examine the case

law developed over a period of time for adjudicating vires of any statute

and the principles evolving from the referred case law. The most recent

and authoritative judgment on the question of principles for striking down

3
II. Taxing Power, Limitations, and Constitutional Restrictions – Corpus Juris Secundum Vol. 84.
4
II. Taxing Power, Limitations, and Constitutional Restrictions – Corpus Juris Secundum Vol. 84.
W.P. No.213/2023 & Others 10

the law or upholding the same is Lahore Development Authority versus Ms.

Imrana Tiwana (2015 SCMR 1739). In the referred judgment, the Supreme

Court of Pakistan, after examining the law on the subject laid down

principles on the touchstone of which vires of law can be examined. The

principles are summarized in paragraph 65 of the judgment and are as

follow:-

―I. There is a presumption in favour of constitutionality and a law must not be

declared unconstitutional unless the statute is placed next to the Constitution and
no way can be found in reconciling the two;

II. Where more than one interpretation is possible, one of which would make the
law valid and the other void, the Court must prefer the interpretation which
favours validity;

III. A statute must never be declared unconstitutional unless its invalidity is

beyond reasonable doubt. A reasonable doubt must be resolved in favour of the
statute being valid;

IV. If a case can be decided on other or narrower grounds, the Court will abstain
from deciding the constitutional question;

V. The Court will not decide a larger constitutional question than is necessary for
the determination of the case;

VI. The Court will not declare a statute unconstitutional on the ground that it
violates the spirit of the Constitution unless it also violates the letter of the
Constitution;

VII. The Court is not concerned with the wisdom or prudence of the legislation
but only with its constitutionality;

VIII. The Court will not strike down statutes on principles of republican or
democratic government unless those principles are placed beyond legislative
encroachment by the Constitution;
IX. Mala fides will not be attributed to the Legislature.‖

In Amin Textile Mills versus Federation of Pakistan (2002 CLC 1714

Karachi), the Division Bench of the Sindh High Court held that while

looking from the standpoint of interpretation of statutes or from the angle

of interpretation of legislative entries in the Constitution, the ordinary, plain

and grammatical meaning of the words will have to be seen. The Courts
W.P. No.213/2023 & Others 11

have to look at whether in pith and substance the subject matter of levy in

question comes within the ambit of the relevant entry in the Constitution.

It was also observed that the Courts have to give a very liberal and

stretched connotation to the Constitutional entries and in pith and

substance, the ordinary, grammatical and literal meaning of the terms will

have to be seen. In Shell Pakistan Ltd. versus Federation of Pakistan (2023

PTD 607 Sindh), the Sindh High Court held that scope of a provision

cannot be extended by analogy or beneficent/equitable construction in

order to prevent an anomaly and if a section of a taxing statute creates

doubt or ambiguity then it should not to be construed to extract a new

added obligation, not formerly cast upon the taxpayer. It was also

observed that provision of Article 25 of the Constitution envisages equality

between citizens, however, it allows for differential treatment of persons

not similarly placed under a reasonable classification. In Province of Punjab

versus National Industries Cooperative Credit Corporation (2000 SCMR

567), it was held that if it is found that the impugned legislation is in the

nature of legislative judgment impinging on judicial power of judiciary, it

would prime facie be ultra vires the Constitution. In Education Services

(Pvt) Ltd. versus Federation of Pakistan (PLD 2016 Islamabad 141), this

Court observed that a High Court under Article 199 of the Constitution has

jurisdiction to examine the validity of any Act of the Parliament and/or

delegated legislation including notification; in case any law/Act of the

Parliament violates any provision of the Constitution including fundamental

rights, the same can be struck down by a High Court in exercise of powers

under Article 199 of the Constitution; the law can also be struck down if it

provides unfettered powers/discretion to be exercised in a discriminatory

manner. In A.M. Khan Leghari versus Government of Pakistan (PLD 1967

W.P. No.213/2023 & Others 12

Lahore 227), the Larger Bench of the Lahore High Court observed that it is

but a corollary to the general rule of literal construction that nothing is to

be added to or to be taken from a statute, unless there are similar

adequate grounds to justify the inference that the Legislature intended

something which it omitted to express. It was also observed that it is a

strong thing to read into an Act of Parliament words which are not there

and in the absence of clear necessity, it is a wrong thing to do. The Court

is not entitled to read the words into an Act of the Parliament unless clear

reason for it is to be found within the four corners of the Act itself. In

Federation of Pakistan versus Haji Muhammad Sadiq (2007 PTD 67 (SC),

the Supreme Court of Pakistan held that language used in fiscal statute

would be interpreted in literal and ordinary meanings in favour of the

taxpayer and that the law should be interpreted in such a manner that the

same should be saved rather than destroyed. In Messrs Sui Southern Gas

Company Ltd. versus Federation of Pakistan (2018 SCMR 802), the

Supreme Court of Pakistan laid down principles for interpretation of entries

in the legislative lists. It was observed as follows:-

―(1) The entries in the Legislative Lists of the Constitution are not powers of
legislation but only fields of legislative head.
(2) In construing the words in an Entry conferring legislative power on a
legislative authority, the most liberal construction should be put upon the
words.
(3) While interpreting an Entry in a Legislative List, it should be given widest
possible meaning and should not be read in a narrow or restricted sense.
(4) Each general word in an Entry should be considered to extend to all
ancillary or subsidiary matters which can fairly and reasonably be said to
be comprehended in it.
(5) If there appears to be apparent overlapping in respect of the subject-
matter of a legislation, an effort has to be made to reconcile the Entries
to give proper and pertinent meaning to them.
(6) A general power ought not to be so construed so as to make a particular
power conferred by the same legislation and operating in the same field a
nullity.
W.P. No.213/2023 & Others 13

(7) Legislation under attack must be scrutinized in its entirety to determine its
true character in pith and substance.
(8) After considering the legislation as a whole in pith and substance, it has
to be seen as to with respect to which topic or category of legislation in
the various fields, it deals substantially and directly and not whether it
would in actual operation affect an item in the forbidden field in an
indirect way.‖

In Messrs Aisha Spinning Mills Ltd. versus Federation of Pakistan (1995

PTD 493), the Division Bench of the Lahore High Court also considered the

principles for construction of entries in the Legislative Lists as contained in

the Schedule to the Constitution. It was observed that the entries in the

Schedules to the Constitution are not be given any circumscribed pedantic

construction; instead they are to be examined in widest possible spectrum;

entries are the fields in which the Legislature of the State are empowered

to act and frame laws. In Lahore Development Authority versus Ms.

ImranaTiwana (2015 SCMR 1739), the Supreme Court affirmed that Article

4 of the Constitution was not accepted as criterion to test the vires of

legislation. In celebrated judgment of M/s Elahi Cotton Mills Ltd. versus

Federation of Pakistan PLD 1997 SC 582 (the said judgment will be

discussed in detail subsequently), the Supreme Court of Pakistan reiterated

that the law is to be saved rather than to be destroyed and in case of any

anomaly or ambiguity, provisions of the Statute are to be read down to

save the law. In State of M.P versus Rakesh Kohli (2013 SCMR 34), the

Indian Supreme Court held that legislative enactment could be struck down

by Court only on two grounds, firstly where the appropriate Legislature did

not have competency to make the law and secondly, where it (enactment)

abridged any of the fundamental rights enumerated in the Constitution or

any other constitutional provisions. It was furthered that no enactment can

be struck down merely for the reason that it was arbitrary or unreasonable
W.P. No.213/2023 & Others 14

or irrational but some constitutional infirmity had to be found and

specified.

9. The principles emerging from the above case law are as follow:-

(i) This Court, under Article 199 of the Constitution, has

jurisdiction to examine the validity of an Act of the Parliament

or Rules framed thereunder.

(ii) The constitutionality of any enactment can be examined on

the touchstone of fundamental rights and/or any provision of

the Constitution and if an enactment fails to pass the test of

conformity or is derogatory to the fundamental rights or

provisions of the Constitution, without a legitimate purpose to

justify such derogation, it may be struck down.

(iii) Vires of an enactment can also be examined on the basis of

competence of the Legislature.

(iv) The interpretation of the enactment under challenge should

be done in such a way that the law should be endeavored to

be saved rather than to be struck down.

(v) While interpreting an entry in the Legislative Lists of the

Schedules to the Constitution, pith and substance of the entry

is to be examined and they are to be given an expansive

rather than narrow pedantic interpretation.

(vi) In order to save the legislation, it should be read down in

such a way so as to harmonize the fundamental rights

enshrined in the Constitution and/or other provisions of the

statutes.

10. From the above, it follows that the first and foremost priority for the

Court is to endeavor to save law instead of destroying it; and, while the
W.P. No.213/2023 & Others 15

language of the provisions of Constitutional Rights may provide for

derogation from such rights, such derogation is not the general rule, rather

it is the exception to the general rule. Such derogation is allowed not only

on the basis of a public purpose, but where the measure taken to achieve

such purpose is proportional to the same. In light of the above enumerated

principles and parameters of determination of constitutionality and/or vires

of any legislation, this Court shall now adjudicate upon the aforementioned

key issues with regard to the impugned provision.

Legislative Competence

In the assault made on the impugned provision on the basis of

constitutionality and competence, much was said, on behalf of the

Petitioners, about the competence of the Legislature on the basis that the

charging provision or the provision levying tax on deemed income derived

from capital assets is in actuality a tax on immoveable property. In this

regard, reference was made to Entries No.47 and 50in the Fourth Schedule

to the Constitution. Under Article 70 sub-Article 4 of the Constitution, the

―Federal Legislative List‖ means the Federal Legislative List in the Fourth

Schedule. This List provides subjects on which the Parliament/Majlis-e-

Shoora can legislate on a particular subject within its competence. The

Entries relevant for the present purpose are Entries No.47 and 50, as

reproduced below:-

―47. Taxes on income other than agricultural income.

………….
50. Taxes on the capital value of the assets, not including taxes on
immoveable property.‖

Examination of Entry No.47 shows that it provides for levy of tax on

income other than agricultural income and Entry No.50 provides for taxes

on capital value of assets, not including taxes on immoveable property.

W.P. No.213/2023 & Others 16

11. The crux of the submissions made by the learned counsels for the

Petitioners was that in essence, the charging section imposes tax on the

immoveable property, which is beyond the legislative competence of the

Parliament and after the Eighteenth Amendment to the Constitution, it is

the domain of the Provincial Legislature. In order to appreciate the said

argument, at this juncture, it is pertinent to take guidance from the

principles enunciated in a very authoritative pronouncement on various

aspects of examining the vires of a statute, an entry in the Legislative Lists,

and levy of tax on particular subject viz. Messrs Elahi Cotton Mills Ltd.

versus Federation of Pakistan (PLD 1997 SC 582) supra. The Supreme

Court of Pakistan in the said judgment after examining the power of the

State to levy tax and also the various aspects thereof, summarized the

principles in paragraphs-31 of the judgment, which are as follow:-

―(i) That in view of wide variety of diverse economic criteria, which are to be
considered for the formulation of a fiscal policy, Legislature enjoys a wide
latitude in the matter of selection of persons, subject-matter, events, etc.
for taxation. But with all this latitude certain irreducible desiderata of
equality shall govern classification for differential treatment in taxation
law as well.
(ii) That Courts while interpreting laws relating to economic activities view
the same with greater latitude than the laws relating to civil rights such as
freedom of speech, religion etc., keeping in view the complexity of
economic problems which do not admit of solution through any
doctrinaire or straitjacket formula as pointed out by Holmes, J. in one of
his judgments.
(iii) That Frankfurter J., in Morey v. Doud (1957) U.S. 457 has remarked that
"in the utilities, tax and economic regulation cases, there are good
reasons for judicial self-restraint if not judicial deference to the legislative
judgment";
(iv) That the Legislature is competent to classify persons or properties into
different categories subject to different rates of tax. But if the same class
of property similarly situated is subject to an incidence of taxation, which
results in inequality amongst holders of the same kind of property, it is
liable to be struck down on account of infringement of the fundamental
right relating to equality.
W.P. No.213/2023 & Others 17

(v) That "a State does not have to tax everything in order to tax something.
It is allowed to pick and choose districts, objects, persons, methods and
even rates for taxation if it does so reasonably". (Willi's Constitutional
Law).
(vi) That the tests of the vice of discrimination in a taxing law are less
rigorous. If there is equality and uniformity within each group founded on
intelligible differentia having a rational nexus with the object sought to be
achieved by the law, the Constitutional mandate that a law should not be
discriminatory is fulfilled.
(vii) That the policy of a tax, in its operation, may result in hardships or
advantages or disadvantages to individual assessees which are accidental
and inevitable. Simipliciter this fact will not constitute violation of any of
the fundamental rights.
(viii) That while interpreting Constitutional provisions Court should keep in
mind, social setting of the country, growing requirements of the
society/nation, burning problems of the day and the complex issues
facing the people, which the Legislature in its wisdom through legislation
seeks to solve. The judicial approach should be dynamic rather than
static, pragmatic and not pedantic and elastic rather, than rigid.

(ix) That the law should be saved rather than be destroyed and the Court
must lean in favour of upholding the constitutionality of a legislation
keeping in view that the rule of Constitutional interpretation is that there
is a presumption in favour of the constitutionality of the legislative
enactments unless ex facie it is `violative. of a Constitutional provision.

(x) That as per dictionary the word 'income' means "a thing that comes in".
Its natural meaning embraces any profit or gain which is actually
received. However, while construing the above word used in an entry in a
legislative list, the above restricted meaning cannot be applied keeping in
view that the allocation of the subjects to the lists is not by way of
scientific or logical definition but by way of mere simplex enumeration of
broad categories.
(xi) That the expression "income" includes not merely what is received or
what comes in by exploiting the use of a property but also what one
saves by using it oneself. For example, use of a house by its owner.

(xii) That what is not "income" under the Income Tax Act can be made
"income" by a Finance Act. An exemption granted by the Income Tax Act
can be withdrawn by the Finance Act or the efficacy of that exemption
may be reduced by the imposition of a new charge, of course, subject to
Constitutional limitations.
(xiii) That the question, whether a particular kind of receipt is income or not
would depend for its answer on the peculiar facts and circumstances of
the case. If the nature of the receipt and its source are not satisfactorily
W.P. No.213/2023 & Others 18

explained by an assessee, facts which are generally within his peculiar

knowledge, the Income Tax Officer may legitimately presume that the
amount in question is an income of the assessee from an undisclosed
source.

(xiv) That the expression "clothes make the man" would be more nearly right if
it were "Income makes the man". Knowledge about the income of a
person will reveal most about him. It is a barometer to evaluate about his
habits and views.
(xv) In Haig's language income is "the increase or accretion in one's power to
satisfy his wants in a given period in so far as that power consists of (a)
money itself or (b) anything susceptible of valuation in terms of money,
whereas Simons equates personal income with algebraic sum of
consumption and change is net worth".
(xvi) That the process of income determination is often expressed as one of
the matching costs and revenues. It involves the process of working out
costs used in connection with the earning of the revenue in a particular
accounting period.
(xvii) That generally the effect of a deeming provision in a taxing statute is that
it brings within the tax net an amount which ordinarily would not have
been treated as an income. In other words, it brings within the net of
chargeability income not actually accrued but which supposedly to have
accrued notionally.
(xviii) That when a statute enacts that something shall be deemed to have been
done which in fact and in truth was not done,the Court is entitled and
bound to ascertain for what purposes and between what persons the
statutory fiction is to be resorted to.
(xix) That where a person is deemed to be something the only meaning
possible is that whereas he is not in reality that something, the Act
required him to be treated as he were with all inevitable corollaries of that
state of affairs.
(xx) That the legal fictions are limited for a definite purpose, they cannot be
extended beyond the purpose for which they are created.
(xxi) That income-tax is a tax on a person in relation to his income. It is a tax
imposed upon a person (natural or artificial) in relation to his income.
(xxii) That any legislation whereby either the prices of marketable commodities
are fixed in such a way as to bring them below the cost of production and
thereby make it impossible for a citizen to carry on his business or tax is
imposed to such a way so as to result in acquiring property of those on
whom the incidence of taxation fell, then such legislation would be
violative of the fundamental rights to carry on business and to hold
property as guaranteed in the Constitution.
W.P. No.213/2023 & Others 19

(xxiii) That the taxing power is unlimited as long as it does not amount to
confiscation and that the Legislature does not have the power to tax to
the point of confiscation.
(xxiv) That the word 'reasonable' is a relative generic term 'difficult of adequate
definition. It inter alia connotes agreeable to reason; conformable to
reason; having the faculty of reason; rational; thinking, speaking, or
acting rationally; or according to the dictates of reason; of sensible; just;
proper and equitable or to act within the Constitutional bounds.
(xxv) That a direct tax is one which "is demanded front the very person, who it
is intended or desired should pay it, whereas indirect taxes are those,
which are demanded from tine person in the expectation and intention
that lie shall indemnify himself at the expense of another, like custom
duties, excise taxes and sales tax, which are borne by the consumers.
(xxvi) That levy of building tax on the basis of the covered area without taking
into consideration, the class to which a particular building belongs, the
nature of construction, the purpose for which it is used, its situation and
its capacity for profitable use and other relevant circumstances bearing on
the matters of taxation is not sustainable in law for want of reasonable
classification.
(xxvii) That there is a clear distinction between the subject-matter of a tax and
the standard by which the amount of tax is measured keeping iii view the
practical difficulties, which are encountered by the Revenue to locate the
persons and to collect the tax due in certain trades, if the Legislature in
its wisdom thought that it would facilitate the collection of tax due from
specified traders on a presumptive basis, the same is not violative of the
Fundamental Right relating to equality.

(xxviii) That denial of reliefs provided by sections 28 to 43-C of the Indian

Income Tax Act to the particular business or trades covered by section
44-AC thereof without showing some basis fair and rational and without
having nexus to the object sought to be achieved by the Legislature, held
unfair, arbitrary, disproportionate to the prevalent evil and constitutes
denial of equal treatment. Consequently, the Indian Supreme Court did
not press into service non obstante clause of section 44-AC by applying
theory of reading down as a rule of interpretation.
(xxix) That it is an accepted canon of taxation to levy tax- on the basis of ability
to pay. The section 115-J and 115-JA incorporated in Indian Income Tax
Act, 1961, were intended and designed to bring within the tax net the
companies, which though making huge profits and also declaring
substantial dividends, but have been managing their affairs in such a. way
by availing of tax concessions etc., as to avoid payment of income-tax.
(xxx) That the theory of reading down is a rule of interpretation which is
resorted to by the Courts when they find a provision read literally seems
W.P. No.213/2023 & Others 20

to offend a fundamental right or falls outside the competence of the

particular Legislature.
(xxxi) That though the Legislature has the prerogative to decide the questions
of quantum of tax, the conditions subject to which it is levied, the manner
in which it is sought to be recovered, but if a taxing statute is plainly
discriminatory or provides no procedural machinery for assessment and
levy of the tax or that is confiscatory, the Court may strike down the
impugned statute as unconstitutional.
(xxxii) That the rule of interpretation that while interpreting an entry in a
Legislative List it should be given widest possible meaning does not mean
that Parliament can choose to tax as income as item which in no rational
sense can be regarded as a citizen's income. The item taxed should
rationally be capable of being considered as the income of a citizen.
(xxxiii) That before charging tax, an assessee must be shown to have received
income or the same has arisen and accrued or deemed to be sounder the
statute. Any amount which cannot be treated as above is not an income
and; therefore, cannot be subject to tax.
(xxxiv) That there is a marked distinction between a tax on gross revenue and a
tax on income, which for taxation purposes, means gains and profits:
There may be considerable gross revenues, but no income taxable by an
income-tax in the accepted sense.‖

The upshot of the above principles is that the State is the sovereign and

has competence to legislate on matters specified under the Legislative List

within its domain. Further, the State as a sovereign is competent to impose

tax in furtherance of economic activities and to generate the income in

order to run the affairs of the government.

12. In light of this discussion, if the charging section of the impugned

provision i.e. sub-section (2) is re-read, which provides for deemed income

derived from the capital value of assets, defined as essentially immoveable

property, it shows that the same is not really a tax on the immovable

property as by virtue of fiction, i.e. deeming clause, it is deemed that a

capital asset is deriving income which it might not actually derive. In light

of Elahi Cotton Mills Ltd (supra) there is no prohibition on the Legislature

from creating legal fiction so long as the same is within the purpose of the

basic legislation; likewise, there is no prohibition against taxation on such

W.P. No.213/2023 & Others 21

deemed income, which in actuality may not be earned but is to be taxed.

In view of the said interpretation, it cannot be said that this imposition of

tax by fiction of law falls within Entry No.50 of the Fourth Schedule to the

Constitution, rather falls within Entry No.47, which provides for imposition

of tax on income other than agricultural income. In reaching this

conclusion, this Court is fortified by all the principles on the subject which

have been reiterated, and a deeming effect can be given to generation of

income. In order to further elaborate the concept of a deeming provision in

the context of a presumptive tax regime, it must be understood that such a

deeming enactment is something which the Legislature taxes on

presumption, regardless of whether it exists in reality, as is the case in the

instant provision, and that any capital asset owned by a resident person

which may not actually be generating any income but it has been

presumed by Legislature that it is deriving income equal to 5% of the fair

market value of the said asset. Such deeming provisions are never

regarded as alien to the concept of the legislation provided that it falls

within the basic purpose of that enactment. It is only when it fails the basic

purpose that the Court shall presume to deem them or would declare such

assumption to be repugnant or beyond the scope of Legislature.

13. I, therefore, do not agree with the Petitioners‘ submissions

regarding sub-section (2) of the impugned provision being a tax on the

immoveable property of a resident person taking it beyond the legislative

competence of the Parliament. Furthermore, it is re-capitulated that it is, in

fact, a fiction of law which presumes generation of income from the capital

asset which is then taxed. The tax in question is, therefore, levied on the

deemed income and not on the immovable property. The question of

competence of the legislature is therefore answered in the affirmative, and

W.P. No.213/2023 & Others 22

the impugned provision is, therefore, well within legislative competence of

the Parliament.

Elements of Discrimination

14. The concept of income is defined in the Ordinance in section 2(29)

and is as follow:-

―Income‖ includes any amount chargeable to tax under this Ordinance, any
amount subject to collection [or deduction] of tax under section 148, [150,
152(1), 153, 154, 156, 156A, 233, sub-section (5) of section 234, [section 236Z]
[and] [any amount treated as income under any provision of this Ordinance] and
any loss of income.‖

Bare reading of the definition shows that any amount may be treated as

income under any provisions of the Ordinance. To fortify my

understanding, I have referred to the detailed examination of all the

various aspects of the concept of tax, more specifically tax on income and

its nature, as provided in the Corpus Juris Secundum5. Tax is a revenue-

raising exaction imposed through generally applicable rates to defray public

expenses6. In the elaboration it is provided that the primary purpose of a

tax is to raise money, and not to regulate; in other words, it represents the

legislature‘s definition of the measure of every citizen‘s duty in support of

public burden.7 The purpose of the theory of taxation is essentially to

support and fund the functioning of the government in return for the

general advantages and protection which the government affords to the

taxpayer citizens and their properties. Taxes can be classified as being

either direct or indirect8and the character of a tax depends on the

legislative intent as expressed in the statute imposing it 9. The power of the

State to levy taxes is inherent in the power to govern and, except as

5
Corpus Juris Secundum Vols. 84 and 85.
6
II. Taxing Power, Limitations, and Constitutional Restrictions – Corpus Juris Secundum Vol. 84.
7
II. Taxing Power, Limitations, and Constitutional Restrictions – Corpus Juris Secundum Vol. 84.
8
Ibid.
9
Ibid.
W.P. No.213/2023 & Others 23

limited by constitutional provisions, is practically without limit, extending to

all persons, property and business over which the sovereign power of the

State extends10. In this behalf, elements of neither equality nor

reasonableness are regarded in the exercise of the State‘s power to tax as

unjust or oppressive. However, the constitutional provisions regarding

equality and uniformity in terms of taxation are mandatory and constitute a

limitation on the legislative power to tax, so that statute relating to

taxation must comply therewith, and a tax law which violates the

prescribed rule of equality and uniformity is invalid. These mandatory

requirements cannot be frittered away by judicial construction11. A tax law

which violates the prescribed rule of equality and uniformity is, therefore,

invalid. Any unreasonable discrimination between taxpayers on whom

taxes have been levied and who are assessed on the same class of

subjects constitutes a lack of equality and uniformity in violation of the

constitutional provisions. Inequality will materialize where a taxing

provision imposes upon one taxpayer payment of a heavier exaction than

another merely because the former is assumed to be financially able to

bear the exaction with less distress than the latter, and such inequality

offends the constitutional principles of uniformity and equality12.

Keeping in view the above principles and also those enunciated in the Elahi

Cotton Mills Ltd case (supra), I am fortified in my view that the Legislature

has the prerogative to decide the questions of quantum of tax, the

conditions subject to which it is levied, and the manner in which it is

sought to be recovered. But if a taxing statute is plainly discriminatory or

provides no procedural machinery for assessment and levy of the tax or

10
Ibid.
11
Ibid.
12
II. Taxing Power, Limitations, and Constitutional Restrictions – Corpus Juris Secundum Vol. 84.
W.P. No.213/2023 & Others 24

where it is confiscatory, the Court may strike down the impugned statute

as being unconstitutional13.

Elements of Confiscation and Inequality

In a certain way, every tax is confiscatory inasmuch as through sanction of

the Parliament/government, part of an income derived by persons is taken

away. This concept of the confiscation or confiscatory nature, as defined in

Oxford Dictionary, is ‗to take or seize by the authority‘. Words and Phrases

defines the term ‗confiscatory‘ with regards to taxation as a tax which not

reasonably related to a substantial public purpose14. If the taxing statute

is confiscatory per se, it might not be in grave violation of constitutional

provisions, especially the fundamental rights, since derogation therefrom is

provided for to a certain extent within the same provisions. However,

where confiscation is to such an extent that it is not reasonable, or it is

beyond the extent of derogation as provided for within the same

constitutional provisions, the statute in question will then be a grave

violation of the fundamental rights of a person, thus, its validity cannot be

upheld.

In order to elaborate this observation further, it is essential to reproduce

Articles 23 & 24 of the Constitution. Article 23 of the Constitution provides

right for every citizen to acquire, hold and dispose of property in any part

of Pakistan, subject to the Constitution and any reasonable restrictions

imposed by law and Article 24 provides for protection of property rights.

The referred Articles are reproduced below:-

“23. Every citizen shall have the right to acquire, hold and dispose of property in
any part of Pakistan, subject to the Constitution and any reasonable restrictions
imposed by law in the public interest.

24. (1) No person shall be deprived of his property save in accordance with law.

13
Ibid.
14
Words and Phrases Vol. 8A – p. 560, 561.
W.P. No.213/2023 & Others 25

(2) No property shall be compulsorily acquired or taken possession of save for a

public purpose, and save by the authority of law which provides for compensation
therefore and either fixes the amount of compensation or specifies the principles
on and the manner in which compensation is to be determined and given.

(3) Nothing in this Article shall affect the validity of—

(a) any law permitting the compulsory acquisition or taking possession of
any property for preventing danger to life, property or public health;
or
(b) any law permitting the taking over of any property which has been
acquired by, or come into the possession of, any person by any unfair
means, or in any manner, contrary to law; or
(c) any law relating to the acquisition, administration or disposal of any
property which is or is deemed to be enemy property or evacuee
property under any law (not being property which has ceased to be
evacuee property under any law); or
(d) any law providing for the taking over of the management of any
property by the State for a limited period, either in the public interest
or in order to secure the proper management of the property, or for
the benefit of its owner; or
(e) any law providing for the acquisition of any class of property for the
purpose of—
(i) providing education and medical aid to all or any specified class of
citizens; or
(ii) providing housing and public facilities and services such as roads,
water supply, sewerage, gas and electric power to all or any
specified class of citizens; or
(iii) providing maintenance to those who, on account of
unemployment, sickness, infirmity or old age, are unable to
maintain themselves; or

(f) any existing law or any law made in pursuance of Article 253.

(4) The adequacy or otherwise of any compensation provided for by any such law
as is referred to in this Article, or determined in pursuance thereof, shall not be
called in question in any court.‖

Bare reading of Article 23 shows that every citizen has the right to acquire,

hold and dispose of the property, provided there are no reasonable

restrictions imposed by law in the public interest. As discussed above,

taxation laws are confiscatory per se, but such confiscation is limited to the

specific purpose in pursuance of which the law in question has been

W.P. No.213/2023 & Others 26

enacted. Where a certain portion of a resident person‘s earning is being

taken away as payment of tax, such exaction made as to certain

percentage of a larger amount earned or derived might not be as such

harmful to any statute since the tax is being paid, or the exaction is being

made out of an amount actually earned and only a portion of such actual

earning is being taken away, however, where no income is actually earned

and nothing is coming in yet a resident taxpayer is asked to pay something

out of nothing, it may be regarded as confiscatory in the very sense of the

concept and such confiscation would be unreasonable. As discussed above,

the legislature can create a legal fiction by way of a deeming provision,

and as such income which is not actually earned may be deemed to be

earned, however, where to a certain extent a tax liability is to be imposed

which is to be paid from a capital asset not generating any income may be

considered as derogatory to Article 23 of the Constitution. Inasmuch as the

referred Article does provide for reasonable restriction to be imposed on

holding of the property, however, if a resident person who is a taxpayer is

not generating any income which would fall within the definition of income

as provided in section 2(29) of the Ordinance, but only by virtue of the fact

that said person owns a capital asset which may as well have been gifted

to him/her is being asked to pay liability on the same by treating the said

assets as generating income is unreasonably confiscatory because

eventually the taxpayer might have to dispose of the assets in order to pay

such liability.

14. In civilized society, the purpose of fundamental rights, as are

provided in every legal system, is to provide basic protection to persons

and though they are not absolute and do not exist in a vacuum, such rights

can only be taken away or restricted in accordance with law. Fundamental

W.P. No.213/2023 & Others 27

rights are to be given broader interpretation and also are to be interpreted

in such a way that they fulfill the requirements of modern society. The

Constitution is an organic document and stagnancy cannot be attributed,

and expansive interpretation is to be given to the same. In stating the said

principles, I derive the wisdom of the Supreme Court of Pakistan as laid

down Mian Muhammad Nawaz Sharif versus President of Pakistan (PLD

1993 SC 473); any curb on the fundamental rights is to be given a strictly

restrictive interpretation. 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. The Lahore High Court in D.G. Khan Cement

Company Ltd. versus Federation of Pakistan (PLD 2013 Lah 693), while

striking down section 8(1)(ca) of the Sales Tax Act, 1990, founded its

reasoning on the basis of the relevant provision being in derogation of

Article 23 of the Constitution. The referred judgment was authored by the

Hon‘ble Mr. Justice Syed Mansoor Ali Shah, who, after referring to the said

principle of reasonableness and while relying on the concept of the

fundamental rights as contained in the United Nations Charter, held that

the referred law was in violation of the Article 23 of the Constitution.

This brings us to the next aspect of the impugned provision, i.e. how the

elements of discrimination and confiscation unjustifiably infringe

constitutional rights, and examination of the same in light of the principles

laid down in Elahi Cotton Mills case, where the taxing statute is

discriminatory and/or does not provide adequate machinery for recovery

and/or otherwise is vague or unreasonable may be struck down. Reading

of the impugned provision reveals that the tax is levied on 5% of the fair
W.P. No.213/2023 & Others 28

market value of a capital asset as defined therein, however there is no

provision as to who shall determine the fair market value and the criteria

thereof. Such determination of fair market value has been left upon the

whims of the tax-master. Additionally, the language of the impugned

provision is vague and does not provide for the machinery for recovery

and, as already noted above, a resident person who is a taxpayer and is

not generating income eventually might be forced to dispose of the

property if the person is unable to pay such tax. This makes the provision

not only simply confiscatory but also, since no machinery for recovery of

the assessment and is provided, makes it vague.

There is no cavil to the position that the Courts must endeavor to save the

law rather than destroy it and as such, Courts must interpret a statute in a

manner which is harmonious to the spirit and provisions of the

Constitution. Where the vires of a law has been challenged on the

touchstone of its constitutionality, while engaging in the interpretive

exercise, Courts may read down the statute in an attempt to harmonize it

with the constitutional principles and provisions. Albeit that such an

exercise is undertaken for the purpose of saving the law instead of striking

it down, where the interpretive exercise of reading down either yields an

absurd conclusion, or does not bring the law under challenge within the

constitutional parameters, in such cases there is no other option but to

strike it down. This approach, though avoided by the Courts, becomes

essential in cases where the law cannot be interpreted or read down to

achieve harmony, for the reason that the Constitution is supreme and shall

always prevail.

15. The charging provision may also be regarded as discriminatory on

the basis that there exists no criterion for the required exaction to be
W.P. No.213/2023 & Others 29

made. The Legislature has provided certain inclusion and exclusion from

the impugned charging provision but there does not seem to be any basis

thereof. Though sub-section 4 does provide for inclusion and exclusion of

the categories of persons who are to be taxed, there does not seem to be

any cogent reason thereof. Article 25 of the Constitution prohibits

discrimination and provides for equality of all citizens. It says that all

citizens are equal before the law and are entitled to equal protection of

law. By imposition of tax on the resident person, who only holds a capital

asset and does not fall within the exemptions can be said to be

discriminatory against such person. The interpretation rendered to Article

25 of the Constitution in the authoritative pronouncement reported as I.A

Sherwani and others versus Government of Pakistan (1991 SCMR 1041) is

that there can be reasonable classification and where intelligible differentia

exists between the said classifications, there shall be no instance of

discrimination. The term ―intelligible‖ connotes that it must be intelligible,

or understandable, to a person of ordinary intelligence15.If the principles

enunciated in I.A. Sherwani case and the concept of a criteria being

intelligible are applied to the exemptions provided under the impugned

provision, there seems to be neither any basis for classification, nor is

there an intelligible differentia to form the basis of such classification, and

the Legislature has deemed it on its whims. The lack of classification in the

charging section, coupled with the absence of any intelligible differentia

between the said persons who are to be taxed or exempted there from

results in a confiscation which, in effect, translates to inequality. A similar

question was decided by the Supreme Court of India in a case16, which has

also been relied upon by the Supreme Court of Pakistan in its judgment in

15
Words and Phrases Vol. 21B p. 495
16
KunnathaThathunniMoopil Nair etc. v. State of Kerala and another (AIR 1961 SC 552)
W.P. No.213/2023 & Others 30

the case of Elahi Cotton Mills (supra), wherein a tax had been imposed

requiring every person holding land to pay such tax at a prescribed flat

rate, regardless of whether or not any income was being derived the said

property or whether the said property was capable of yielding any income

at all. The Court in this case explored the effect of such tax through a

hypothetical scenario as follows:

―…Under the Act in question we shall take a hypothetical case of a number

of persons owning and possessing the same area of land. One makes

nothing out of the land, because it is arid desert. The one does not make

any income, but could raise some crop after a disproportionately large

investment of a labour and capital. A third one, in due course of

husbandry, is making the land yield just enough to pay for the incidental

expenses and labour charges besides land tax or revenue. The fourth is

making large profits, because the land is very fertile and capable of

yielding good crops. Under the Act, it is manifest that the fourth category,

in our illustration, would easily be able to bear the burden of the tax. The

third one may be able to bear the tax. The first and the second one will

have to pay from their own pockets, if they could afford the tax. If they

cannot afford the tax, the property is liable to be sold, in due process of

law, for realization of the public demand. It is clear, therefore, that

inequality is writ large on the Act and is inherent in the very provisions of

the taxing section. It is also clear that there is no attempt at classification

in the provisions of the Act. Hence, no more need be said as to what could

have been the basis for a valid classification. It is one of those cases

where the lack of classification creates inequality. It is, therefore, clearly

hit by the prohibition to deny equality before the law contained in Article

14 of the Constitution. Furthermore, section 7 of the Act, quoted above,

particularly the latter part, which vests the Government with the power

wholly or partially to exempt any land from the provisions of the Act, is
W.P. No.213/2023 & Others 31

clearly discriminatory in its effect and, therefore, infringes Article 14 of the

Constitution. The Act does not lay down any principle or policy for the

guidance of the exercise of the discretion by the Government in respect of

the selection contemplated by section 7."

On these basis, the Court declared the provisions to be ultra vires.

Furthermore, in light of paragraph-31 (xxxi) of Elahi Cotton Mills case, if

tax is levied in such a way that it operates in a discriminatory manner

against any person, it can be struck down.

16. In lieu of the detailed discussion above regarding the different

elements of a taxing provision, I will now deliberate upon the nature and

purpose of section 7E and whether the same, in pith and substance, is in

violation of the constitutional rights and provisions. At the cost of

repetition, it is understood that tax laws are by nature confiscatory, and as

such, do infringe constitutional rights. This confiscation is supposed to be

justified by a reasonable purpose which is in the public interest, and the

proportionality of the measure of tax in context of said purpose. Section 7E

requires tax to be paid on income deemed to be derived from capital

assets as defined therein; it however does not classify any categories of

the capital assets. The tax is to be imposed, at the rates specified in the

relevant Schedule to the Ordinance, on 5% of the fair market value of the

capital asset. No mechanism for determination of such fair market value

has been provided for, neither is there any clarity with regards to different

classes of properties. A person owning a large commercial plot, for

instance, may be in a better position to pay such tax, however an owner of

a small residential plot, or otherwise a plot which may not even have the

capacity to yield any income whatsoever, may not have the ability to fulfill

this burden. Although hardship is not ground enough for declaring a taxing
W.P. No.213/2023 & Others 32

statute unconstitutional, but the tax under challenge would force the

taxpayer who cannot pay the same to dispose of the capital asset. It is a

settled principle that ordinarily, a tax on land or on land revenue is

assessed on the actual or the potential productivity of the land sought to

be taxed17. Similarly, a tax on income deemed to be derived from land

must be imposed according to the potential capacity of the said land to

yield income, deemed or otherwise. Though the presumptive tax regime

has been upheld by the Supreme Court through numerous judgments,

including that of Elahi Cotton Mills case, such presumptive taxation must

be based on a comprehensive structure and must fall within the

parameters of the Act itself, as well as constitutional provisions. The

impugned provision lacks any such comprehensive structure, parameters or

guidelines, it does not specify any method of computation of the fair

market value of the asset in question, neither does it provide any

classification of assets nor any machinery for recovery. Furthermore, the

exemptions provided within the impugned provisions create classification

which is not justified by any intelligible differentia; and in its effect, the

impugned tax would force a taxpayer to dispose of property upon failure to

pay such tax. This imposition of tax is, therefore, arbitrary and the

elements of inequality, discrimination and the extent of confiscation are not

justifiable by any measure and are thus tantamount to an illegal derogation

from constitutional rights and provisions.

17. It is pertinent to state that vires of the impugned provision was

under challenge before the three other High Courts i.e. the Sindh High

Court, the Lahore High Court and Peshawar High Court. The Hon‘ble Sindh

High Court upheld the vires of section 7E, whereas the learned Single

17
AIR 1961 SC 552 (ibid); PLD 1997 SC 582 (ibid)
W.P. No.213/2023 & Others 33

Bench of the Lahore High Court, in its judgment, suggested changes and

endeavored to read down the provision; this judgment was however set

aside by the learned Division Bench. The Peshawar High Court has struck

down the law for being ultra vires. The judgments of the referred High

Courts are not binding on this Court, but I do have the benefit of their

wisdoms, however, I fail to bring myself in agreement with their respective

views and reasoning, even with that of the Hon‘ble Peshawar High Court

which has struck down the law, however, at this juncture, it is only

appropriate to observe that every High Court has territorial jurisdiction and

the matter falling within the territorial jurisdiction is brought to the Court

and is accordingly decided and if any particular issue is decided by any of

the High Courts, the judgment is in personam and the principles laid down

therein are of general obligation and the same are not binding but a

judgment handed down in a case such as this, where vires of the statute is

under challenge and if declared to be ultra vires, the judgment cannot be

said to be in personam but is in rem and the effect thereof is ultimately to

be examined by the Supreme Court of Pakistan in an appropriate case. I

am of the view that if one High Court strikes down a law, the judgment

being in rem, the legal obligation thereunder disappears and it cannot be

said that such disappearance is only to the extent of territorial area to

which the jurisdiction of the said High Court extends. The concept of a

judgment in rem was discussed in detail by the Supreme Court of Pakistan

in Pir Bakhsh and The Chairman, Allotment Committee and others (PLD

1987 SC 145). The concept was explained as follows:-

―The terms "in rem" and "in personam" are of Roman Law used in
connection with actio, that is, actio in rem and actio in personam to denote the
nature of actions, and with the disappearance of the Roman forms of procedure,
each of the two terms "in rem" and "in personam" got tagged with the word
judgments to denote the end-products of actions in rem and actions in personam.
W.P. No.213/2023 & Others 34

Thus, according to the civil law an actio in which a claim of ownership was made
against all other persons was an action in rem and the judgment pronounced in
such action was a judgment in rem and binding upon all persons whom the Court
was competent to bind, but if the claim was made against a particular person or
persons, it was an action in personam and the decree was a decree in personam
and binding only upon the particular person or persons against whom the claim
was preferred or persons who were privies to them.

The point adjudicated upon in a judgment in rem is always as to the

status of the res and is conclusive against the world as to that status, whereas in
a judgment in personam the point, whatever it may be, which is adjudicated
upon, it not being as to the status of the res, is conclusive only between parties or
privies. A decision in rem not merely declares the status of the person or thing,
but ipso facto renders it such as it is declared.
Section 41 of the Evidence Act, 1872 does not use the term
"judgment in rem", but it incorporates the law on the subject of "judgments in
rem" and makes them relevant not only against strangers but also conclusive of
certain matters such as whether a person was entitled to a legal character or to
any specific thing not as against any specified person but absolutely.

Judgments in rem are an exception to the rule of law that no man should
be bound by the decision of a Court of justice unless he or those under whom he
claims were parties to the proceeding in which it was given. This rule of law is
referable to the maxims of Roman Law namely, "Res inter alios judicata nullun
inter aliosprejudicium facit," or "Res inter aliosactaalteri nocere non dibet"
Such exception of the judgment in rem in the Roman Law was the foundation of
the exception in English Law. Section 41 of the Evidence Act is the foundation for
the exception of judgment in rem in our corpus juris. The reason why a judgment
should not be used to the prejudice of a stranger is that he is denied the funda
mental right to make a defence, or to examine or cross-examine witnesses or to
appeal from a judgment which aggrieves him. This is the requirement of most
manifest justice and good sense.‖

This view was followed by this Court in Bannu Woolen Mills Ltd. versus

Federation of Pakistan (2015 PTD 1058 Islamabad).

17. Summing up the reasoning as stated hereinabove, sub-section 2 of

the impugned provision is confiscatory in nature and also discriminatory in

its effect, and thus constitutes a violation of Article 25 of the Constitution.

It also violates Article 23 of the Constitution and goes beyond the ambit of

reasonable restrictions as provided thereunder, hence, is liable to be struck

W.P. No.213/2023 & Others 35

down. Moreover, the classes or exemptions provided from payment of the

tax does not seem to have any proper basis and has been created at

whims of the Legislature which cannot be regarded as reasonable

classification or classification based on intelligible differentia, hence violates

Article 25 of the Constitution. Neither the machinery for assuming the fair

market value has been provided, nor the recovery mechanism, and on the

touchstone of Messrs Elahi Cotton Mills (supra), such deficiencies may form

the basis for striking down a statute.

18. For the above reasons, the instant petition as well as petitions

mentioned in the schedule are allowed and sub-section 2 of the impugned

provision i.e. Section 7E of the Ordinance, is declared to be ultra vires the

Constitution, hence it is struck down and is declared to be void ab initio.

Consequently, the notices issued by the department under section 7E ibid

are also set aside for being without lawful authority.

Before parting, I would like to acknowledge the hard work put in by Ms.

Maheen Zeeshan, Advocate (my law clerk). It was only her ceaseless

efforts to research the material with respect to legal issues involved that

made the above reasoning possible.

(CHIEF JUSTICE)

Announced in open Court this 19th day of February, 2024.

(CHIEF JUSTICE)
M.Shah/.

Approved for reporting.

W.P. No.213/2023 & Others 36

SCHEDULE
LIST OF PETITIONS CONNECTED WITH W.P No.213/2023

S.No. Case No. Title

1. W.P. No.4880/2022 Ejaz Hussain Rathore

Versus
Federation of Pakistan, etc.
2. W.P. No.191/2023 Waseem ur Rehman
Versus
Federation of Pakistan, etc.
3. W.P. No.192/2023 Sami ur Rehman
Versus
Federation of Pakistan, etc.
4. W.P. No.247/2023 Muhammad Naeem
Versus
Federation of Pakistan, etc.
5. W.P. No.343/2023 Mrs. Beena Riaz Malik
Versus
Federation of Pakistan, etc.
6. W.P. No.344/2023 Syed Waqar Ali Bokhari
Versus
Federation of Pakistan, etc.
7. W.P. No.345/2023 Syed Zulfiqar Ali Bokhari
Versus
Federation of Pakistan, etc.
8. W.P. No.397/2023 Shah Khalid
Versus
Federation of Pakistan, etc.
9. W.P. No.440/2023 Irfan ul Wahab Khan
Versus
Federation of Pakistan, etc.
10. W.P. No.442/2023 Saeed Ashraf
Versus
Federation of Pakistan, etc.
11. W.P. No.443/2023 Muzaffar Ahmad Virk
Versus
Federation of Pakistan, etc.
12. W.P. No.478/2023 M/s Imex Associates
Versus
Federation of Pakistan, etc.
13. W.P. No.541/2023 Muhammad Sabeeh Khawaja
Versus
Federation of Pakistan, etc.
14. W.P. No.544/2023 Mrs. Razia Saeed
Versus
Federation of Pakistan, etc.
15. W.P. No.545/2023 Naseer Ahmed Malik
Versus
Federation of Pakistan, etc.
16. W.P. No.548/2023 Chaudhry Muhammad Tahir
Versus
Federation of Pakistan, etc.
W.P. No.213/2023 & Others 37

17. W.P. No.549/2023 Muhammad Kaleem Ullah

Versus
Federation of Pakistan, etc.
18. W.P. No.579/2023 Muhammad Usman Rafi
Versus
Federation of Pakistan, etc.
19. W.P. No.629/2023 Chaudhary Farrukh Raza
Versus
Federation of Pakistan, etc.
20. W.P. No.680/2023 Dr. Kamran Masud
Versus
Federation of Pakistan, etc.
21. W.P. No.695/2023 Chaudhry Tariq Mehmood Toor
Versus
Federation of Pakistan, etc.
22. W.P. No.771/2023 Muhammad Tariq
Versus
Federation of Pakistan, etc.
23. W.P. No.918/2023 Hashmat Iqbal
Versus
Federation of Pakistan, etc.
24. W.P. No.958/2023 Tahir Idris
Versus
Federation of Pakistan, etc.
25. W.P. No.1042/2023 Mst. Zill e Huma
Versus
Pakistan through Federal Secretary, M/o Finance,
etc.
26. W.P. No.1043/2023 Atif Ikram
Versus
Pakistan through Federal Secretary, M/o Finance,
etc.
27. W.P. No.1155/2023 Ch. Amir Mumtaz
Versus
Federation of Pakistan, etc.
28. W.P. No.1248/2023 Mrs. Mona Akbar, etc.
Versus
Federation of Pakistan, etc.
29. W.P. No.1520/2023 Muhammad Ali
Versus
Federation of Pakistan, etc.
30. W.P. No.2106/2023 Chaudhary Mukhtar Ahmed
Versus
Federation of Pakistan, etc.
31. W.P. No.2353/2023 Naveed Yousaf
Versus
Federation of Pakistan, etc.
32. W.P. No.2361/2023 Zulfiqar Ali
Versus
Federation of Pakistan, etc.
33. W.P. No.2521/2023 Muhammad Abid
Versus
Federation of Pakistan, etc.
W.P. No.213/2023 & Others 38

34. W.P. No.2522/2023 Muhammad Asad

Versus
Federation of Pakistan, etc.
35. W.P. No.2563/2023 Muhammad Saeed
Versus
Finance Division, through Secretary, M/o Finance,
etc.
36. W.P. No.2588/2023 Muhammad Mudassar
Versus
Federation of Pakistan, etc.
37. W.P. No.2589/2023 Noor-ul-Amin
Versus
Finance Division, through Secretary, M/o Finance,
etc.
38. W.P. No.2652/2023 Misbah ul Hassan
Versus
Finance Division, through Secretary, M/o Finance,
etc.
39. W.P. No.2675/2023 Hamayun Naseer, etc.
Versus
Federation of Pakistan, etc.
40. W.P. No.3009/2023 Hafiz Mohsin Akhtar
Versus
Federation of Pakistan, etc.
41. W.P. No.3011/2023 Shabbir Ahmad
Versus
Federation of Pakistan, etc.
42. W.P. No.3083/2023 Daud Abid
Versus
Federation of Pakistan, etc.
43. W.P. No.3232/2023 Maleeha Hammad
Versus
Federation of Pakistan, etc.
44. W.P. No.3233/2023 Muhammad Shafique Malik
Versus
Federation of Pakistan, etc.
45. W.P. No.3234/2023 Sabahat Talha
Versus
Federation of Pakistan, etc.
46. W.P. No.3235/2023 Mahreen Binte Talha
Versus
Federation of Pakistan, etc.
47. W.P. No.3370/2023 Muhammad Talha Mehmood
Versus
Federation of Pakistan, etc.
48. W.P. No.3375/2023 Muhammad Shamroz Khan Aryan
Versus
Federation of Pakistan, etc.
49. W.P. No.3463/2023 Muhammad Mustafa Bin Talha
Versus
Federation of Pakistan, etc.
50. W.P. No.3464/2023 Muhammad Qasim Bin Talha
Versus
Federation of Pakistan, etc.
W.P. No.213/2023 & Others 39

51. W.P. No.3580/2023 Malik Muhammad Akmal

Versus
Federation of Pakistan, etc.
52. W.P. No.3581/2023 Raza Abbas Rajput
Versus
Federation of Pakistan, etc.
53. W.P. No.3735/2023 Mst. Robena Aryan
Versus
Federation of Pakistan, etc.
54. W.P. No.3789/2023 Waheed Ashraf
Versus
Federation of Pakistan, etc.