01 / ANALYSIS
Overview of the Case
This matter involves constitutional challenges against the insertion of Section 7E in the Income Tax Ordinance, 2001, introduced via the Finance Act, 2022, which was variously adjudicated upon by the provincial High Courts and the Islamabad High Court. The key principle laid down is that the provision lacks constitutional sanction, resulting in the setting aside of all actions, proceedings, and notices initiated thereunder by the tax authorities.
02 / ANALYSIS
Brief Facts
The Finance Act 2022 inserted Section 7E into the Income Tax Ordinance, 2001, introducing a tax measure concerning deemed income from capital assets. Taxpayers challenged the provision in petitions before the Lahore, Sindh, Peshawar, Balochistan and Islamabad High Courts. The High Courts issued differing decisions: some struck down the provision, another read down part of it, and others upheld it. Appeals and petitions arising from these different rulings were brought before the Federal Constitutional Court for a common determination.
03 / ANALYSIS
Questions of Law
- Whether Section 7E of the Income Tax Ordinance, 2001, is ultra vires the Constitution of Pakistan?
- Can actions and notices initiated under Section 7E of the Income Tax Ordinance, 2001, be declared without lawful authority?
04 / ANALYSIS
The Court's Answers
Whether Section 7E of the Income Tax Ordinance, 2001, is ultra vires the Constitution of Pakistan?
Answer. Yes. In its short order the Court declared Section 7E ultra vires the Constitution.
“Having heard the learned counsel for the parties at considerable length and upon due deliberation, we are persuaded to hold that Section 7E of the Income Tax Ordinance, 2001, is ultra vires the Constitution, and is accordingly struck down, being void ab initio.”
Can actions and notices initiated under Section 7E of the Income Tax Ordinance, 2001, be declared without lawful authority?
Answer. The Court also set aside actions, proceedings and notices issued on the basis of that provision.
“Consequently, all actions, proceedings, and notices initiated or taken by the FBR/C.I.R under Section 7E are declared to be without lawful authority and are hereby set aside.”
05 / ANALYSIS
Practical Relevance
Taxpayers and advisers affected by deemed-income proceedings under Section 7E should examine the operative constitutional order, its scope, and any subsequent developments before determining the status of assessments and pending litigation.