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Official Citation: 2024 SHC 594
Court / Jurisdiction: Sindh High Court
Year of Decision: 2023
Decision Date: 2023-12-31
Petitioner: Irfan Hussain Halai & others, Khurram Inam & Others, Rahman Naseem JUDGMENT
Ruling Summary: This decision was rendered by the Sindh High Court on 2023-12-31, officially reported as 2024 SHC 594. In this matter between Irfan Hussain Halai & others, Khurram Inam & Others, Rahman Naseem JUDGMENT and the Respondent, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2024SHC594
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar, Agha Faisal Title:Irfan Hussain Halai & others, Khurram Inam & Others, Rahman Naseem
JUDGMENT
Reported As: 2024 SHC 594, PLD 2024 Sindh 453, 2024 PTD 1478 Result: Petition Dismissed Judgment JUDGMENT Muhammad Junaid Ghaffar, J. All these Petitions involve a common legal question and are therefore, being decided through this common Judgment. Through these petitions, the Petitioners have challenged vires of Section 8 of the Finance Act, 2022, whereby, a tax has been levied on the value of assets at the rates specified in the First Schedule to that Section for tax year 2022 and onwards, whereas, the present challenge of the Petitioners is in respect of and only to the extent of Section 8(2)(b) i.e. levy of tax on foreign assets of a resident individual as defined in Section 8(13) (c) ibid which includes moveable and immoveable properties. The challenge is mainly on the ground that Parliament has no legislative competence to levy such a tax on foreign assets of the Petitioners. 2. At the very outset we may state, and this is without disrespect to any of the learned Counsel for the Petitioners as well as Respondents, that their arguments have been noted and recorded in this judgment collectively for ease, convenience and to avoid overlapping, if any Learned Counsel[1] appearing on behalf of the Petitioners have contended that the Parliament / Federal Legislature is not competent to levy this tax on immovable properties abroad; that the powers of the Parliament pursuant to 18th Amendment to the Constitution are now curtailed in respect of levying any tax on immovable properties; that even otherwise, the properties as well as other assets in question are abroad and outside the territorial jurisdiction of Pakistan; hence it is not within the competence of the Parliament to levy any such tax in view of Article 142 of the Constitution; that once it is outside the competence of the Parliament to levy any tax on an immovable property, then the parliament
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cannot even legislate in respect of properties outside the territorial limits of Pakistan; that the words "not including taxes on immovable property" has to be read as a Proviso to Entry-50 of the Federal Legislative List to the 4th Schedule of the Constitution as it intends to exclude something; which but for the proviso would have otherwise been covered by Entry-50; that the use of the word "not including" qualifies generality of the main enactment by providing an exception; that all along starting from the Government of India Act, 1935 up to the 18th Amendment to the present Constitution in 2010, tax on immovable properties have always been a provincial subject and even post 18th Amendment, after insertion of the words "not including" in Entry-50 will have a consequence by specifically excluding the competence of the Parliament to legislate or impose taxes on immovable properties; that the powers of the Parliament to legislate pursuant to Article 141 of the Constitution is qualified by the words "Subject to Constitution" and it must be interpreted in a manner, which brings it in conformity with other provisions of the Constitution; that Article 141 of the Constitution does not enhance the powers conferred by the Constitution or Parliament; that Article 142(a) of the Constitution empowers the Parliament to legislate on subjects enumerated in the Federal Legislative List; whereas, Article 142(c) of the Constitution stipulates that Parliament shall not have powers to make laws in respect of any matter not provided in the Federal Legislative List; that it is only when the Parliament is competent to legislate on the Subject pursuant to the Federal Legislative List then the extent of legislation can be determined under Article 141 of the Constitution; that in the same line where the powers to legislate on a subject does not exist or has been specifically excluded, then the extent of legislation as provided under Article 141 of the Constitution is not relevant; that in terms of Article 142(d), Federal Legislature has been granted powers to legislate on any subject with respect to areas not falling within any Province; however, it specifically limits these powers by using the word "in the Federation"; hence when a subject is not within the competence of the Parliament, then the territorial limits are not of any consideration; that per settled law, the Parliament can only impose taxes in terms of Entries 43 to 53 of the said list and not otherwise, and therefore, for a tax to fall under the competence of the Parliament pursuant to the Federal Legislative List, it must be covered by any of these Entries; that the contention of the Respondents that when certain amnesty schemes were introduced in respect of immovable properties abroad, no such objection as to the competence of the Federal Legislative was raised and Declarations were made by the Petitioners under the said Scheme; hence they are barred to raise any objection as to the competence of the Parliament is not correct inasmuch as pursuant to the said Scheme it was the income which had escaped taxation and was taxed accordingly; whereas, it was not by itself a tax on immovable property; that on the other hand under the Foreign Assets (Declaration and Repatriation) Act, 2018 ("Foreign Assets Act"), pursuant to Section 14 ibid, there was a complete protection for the taxpayer to make a declaration, and therefore, neither any further tax can be levied on such properties; nor any question could be asked from the taxpayers; that the tax in question is violating the fundamental rights of the Petitioners to acquire and hold properties as provided under Article 23 & 24 of the Constitution; that any reliance placed on Entry- 58 of the Federal Legislative List by the Respondents to justify imposition of the impugned tax is misconceived and does not confer any unbridled powers; that Entry-58 cannot be used to enlarge the scope of Entry-50, which by itself restricts the powers of the Parliament in respect of taxes on immoveable property; that post 18th Amendment, the powers of the Federation or Parliament are not residuary, rather the powers of the Provinces to legislate are now residuary; that once the power to impose tax on immovable property is beyond the competence of the Parliament, then it is not relevant as to where the property is located; that per settled law, which cannot be taxed directly cannot be taxed indirectly; that under the garb of Capital Value Tax, an immovable property cannot be taxed; that even otherwise this levy is not harmonious; rather is in conflict with The Income Tax Ordinance, 2001 and so also various tax treaties; that the levy is discriminatory as it
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is only on individuals and not on all persons who had declared their foreign assets pursuant to the amnesty scheme, and therefore by placing reliance on the reported cases[2] they have prayed that the levy in question be declared as beyond the competence of the Parliament; hence, is ultra vires to the Constitution. 3. On the other hand, Respondents' Counsel[3] have controverted the arguments of the Petitioners' Counsel and have contended that after availing amnesty under the Foreign Assets Act, which was also legislated by the Parliament in respect of Immoveable Properties, the Petitioners now cannot object as to the competence of the Parliament; that the capital value of a property located abroad can be taxed by the Parliament pursuant to Articles 141 & 142 read with Article 97 of the Constitution; that even otherwise it is within the competence of Federal Legislature to levy such tax pursuant to Entry-50, which must be read along with Entry-58 of the Federal Legislative List; that admittedly provinces cannot legislate in respect of immovable properties located abroad; but the Parliament can; that within the Constitution there are various Articles, which empowers the Federation to deal with legislation beyond the territorial waters of Pakistan; that for the purposes of taxation the principle of a resident is applicable; whereas, the properties in question are declared properties in terms of the Income Tax Ordinance, 2001, the Tax and Wealth Tax Return; hence can be taxed by the Parliament; that under the Foreign Assets Act, the protection was provided in respect of any adverse action in relation to the conduct of the taxpayer by concealing any such declaration; but no protection has been provided to the effect that no further tax can be levied on such properties; that the mandate of the Constitution as to Articles 23 and 24 does not prohibit or restrict the powers of the Parliament to levy any tax; that per settled law, wide latitude has been given to the Legislature to impose taxes; that whatever cannot be taxed by a Province falls within the competence of the Parliament and since a Province can only legislate or levy tax within its territorial boundaries; hence a tax on a property situated outside Pakistan falls within the competence of the Parliament; that in essence it is a not a tax on the property; but on the capital value of the assets as declared in the Wealth Reconciliation Statement by the taxpayer; that there cannot be a vacuum in respect of legislation and once Province cannot legislate, then the powers of the Parliament cannot be restricted; that per settled law a purposive interpretation must be adopted and if an immovable property does not fall within the competence of the Province, then it falls within the competence of Parliament; that it must be understood that any of the two legislatures i.e. the Province or the Parliament must have powers to legislate and impose tax; and by placing reliance upon the reported cases[4], they have jointly prayed for dismissal of these petitions. 4. Learned Assistant Attorney General in addition to adopting the arguments of the Respondents' Counsel has contended that pursuant to Articles 141 & 142 of the Constitution, including geographical restrictions upon the provinces, it is within the competence of the Parliament to levy the impugned tax as it is always within the competence of the Parliament to legislate in respect of extra territorial limits; that use of the words "including laws having extra-territorial operation" in Article 141 of the Constitution expressly vests competence in the Parliament to levy the impugned tax; that any other interpretation to it would amount to redundancy; that the Indian Constitution under Article 245 (1) & (2) has dealt with the doctrine of nexus and extra territorial limits, which is fully applicable in the instant matter; that since the tax in question cannot be levied competently by the Province; hence it is not a case of encroachment of any of the provincial legislative powers; that per settled law entries in the legislative list should be given as broad and wide meaning as possible; hence, by placing reliance on the case of KESC[5] he has sought dismissal of these petitions. 5. We have heard all the learned Counsel for the parties as well as learned Assistant Attorney General and have also perused the record. It appears that the Petitioners before us own foreign
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assets (movable and immovable) and pursuant to the Foreign Assets Act (not all, but most of them) availed the benefit of the scheme initiated by the Federal Government pursuant to which by paying a one-time tax they had declared such foreign assets. The same are now a part of their respective Wealth Statement(s) filed in terms of Section 116(2) of the Income Tax Ordinance, 2001. Through impugned levy, introduced by way of Section 8 of the Finance Act, 2022, these foreign assets (movable and immovable) including various other assets have now been taxed on their capital value. Insofar as the Petitioners before us are concerned, they have challenged the imposition of such Capital Value Tax on foreign assets (movable and immovable) as defined in Section 8 (13)(c) of the said Act. Though one of the learned Counsel[6] for the Petitioners also made submissions regarding imposition of impugned tax on movable foreign assets; however, in essence the Petitioners' challenge is in respect of Capital Value Tax on immovable properties situated outside the territorial limits of Pakistan. The precise challenge is based upon the argument that the Parliament / Federal Legislature has no authority to impose any tax on immovable property post 18th Amendment introduced by way of Act No. X of 2010 dated 19.10.2010 in view of the present status of Entry-50 of the Federal Legislative List to the Constitution of Pakistan. It would be advantageous to refer to the relevant provisions of Section 8 of the Finance Act, 2022 as well as Entry-50 ibid in its present form. "8. Capital value tax 2022. - (1) A tax shall be levied, charged, collected and paid on the value of assets at the rates specified in the First Schedule to this section for tax year 2022 and onwards: provided that the tax shall be charged from the 1st day of July, 2022 in case of motor vehicles in Pakistan. (2) Capital value tax shall be charged on the following assets- (a) motor vehicle held in Pakistan where-- (i) the engine capacity exceeds 1300 cc; or (ii) in case of electric vehicles, the battery power capacity exceeds 50kwh; (b) foreign assets of a resident individual where the value of such assets on the last day of the tax year in aggregate exceeds Rupees one hundred million; (3) Value of the assets, for the purposes of this tax, shall be determined in the following manner, namely:- (a) .................... (b) .................... (c) in case of foreign assets mentioned in clause (b) of sub-section (2) above, the value shall be- (i) the total cost of the foreign assets on the last day of the tax year, in relevant foreign currency converted into Rupees as per exchange rates notified by State Bank of Pakistan for the said day; (ii) where the cost of foreign asset as provided in paragraph (i) cannot be determined with reasonable accuracy, the fair market value of the asset on the last day of the tax year, in relevant foreign currency converted into Rupees per as exchange rates notified by State Bank of Pakistan for the said day; and (13) In this section - (a) .................... (b) .................... (c) "foreign assets" means any moveable or immovable assets held outside Pakistan, whether directly or indirectly, and includes but not limited to real estate, mortgaged assets, stock and shares, bank accounts, bullion, cash, jewels, jewelry, paintings, accounts and loan receivables, assets held in dependents' name, beneficial ownership or beneficial interests or contribution in offshore entities or trusts; Entry 50 of the Federal Legislative List: 50. Taxes on the capital value of the assets, not including taxes on immoveable property;
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6. Perusal of Section 8, as above, reflects that a tax has been levied / charged and is to be collected and paid on the value of assets at the rate specified in the First Schedule to this Section for tax year 2022 and onwards. This Capital Value Tax has been levied in respect of various immovable and movable assets; however, for the present purposes under challenge is the Capital Value Tax on foreign assets [as defined in Section 8(13) (c)] of a resident individual where the value of such assets on the last day of the tax year in aggregate exceeds One Hundred Million. The "Foreign Assets" have been defined in Section 8(13) (c) of this Act, and means any moveable or immovable assets held outside Pakistan, whether directly or indirectly, and includes but not limited to real estate, mortgaged assets, stock and shares, bank accounts, bullion, cash, jewellery, paintings, accounts and loan receivables, assets held in dependents' name, beneficial ownership or beneficial interests or contribution in offshore entities or trusts. The Petitioners' case is that since the Parliament cannot impose any tax on an immovable property, and if this is so, then it cannot impose tax on an immovable property, which is even outside Pakistan. To buttress this argument, their main emphasis is on Entry-50 of the Federal Legislative List to the Constitution. This according to them, post 18th Amendment, has taken away the powers of the Parliament to impose any tax on immovable properties. It would be advantageous to refer to Entry-50 as it stood prior to and post 18th Amendment as well as in the earlier Constitutions of the Country: CONSTITUTIONS FEDERAL EGISLATIVE LISTPROVINCIAL LIST/CONCURRENT Government of India Act 1935Seventh Schedule Federal Legislative List: 55. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies.List II Provincial Legislative List 42. Taxes on lands and buildings, hearths and windows. 1956 ConstitutionFifth Schedule Federal list 26. Duties of customs (including export duties) duties of excise (including duties on salt, but excluding alcoholic liquor, opium and other narcotics), corporation taxes and taxes on income other than agriculture income, estate and succession duties in respect of property other than agricultural land; taxes on the capital value of assets exclusive of agricultural land, taxes on sales and purchases, terminal taxes on goods or passengers carried by sea or air, taxes on their fares and freights; taxes on mineral and natural gasProvincial list 75. Taxes on lands and buildings 1962 ConstitutionMatters with respect to which the Central Legislature has exclusive power to make Laws: 43. Duties and taxes, as follows: (e) taxes on the capital value of assets, not including taxes on capital gains on immovable property;No Provincial List 1972 Interim ConstitutionFederal Legislative List 57. Taxes on the capital value of assets, not including tax on capital gains on immovable property List II Provincial Legislative 40. Taxes on lands and buildings, hearths and windows.
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Constitution of Pakistan 1973 Pre 18th Amendment Constitution of Pakistan 1973 Pre 18th AmendmentFederal Legislative List 50. Taxes on the capital value of assets, not including tax on capital gains on immovable property 50. Taxes on the capital value of the assets, not including taxes on Immovable propertyConcurrent Legislative List 11. Transfer of property other than agricultural land, registration of deeds and documents No Provincial or Concurrent list
7. As is well known that prior to the 18th Amendment, under the present Constitution of 1973, there were two separate Legislative Lists, namely Federal Legislative List and the Concurrent Legislative List, whereas, Article 142(e) ibid provided that a Provincial Assembly shall and the Parliament shall not, have power to make laws with respect to any matter not enumerated in either the Federal Legislative List or the Concurrent List. Prior to 18th Amendment, introduced through Act X of 2010 dated 19.4.2010, Entry-50 of the Federal Legislative List read as "Taxes on the capital value of assets, not including tax (on capital gains)[7] on immovable property". This means that the Parliament had all the powers to levy taxes on immoveable property; but not including only one tax i.e. on capital gains on immoveable property. At the same time Entry-11 of the Concurrent Legislative List empowered the Province to legislate (no specific taxing power being specified) in respect of transfer of property other than the agricultural land, registration of deeds and documents. Post 18th Amendment, now the words "on capital gains" stands omitted from this Entry which now reads as taxes on the Capital Value of the assets, not including taxes on immovable property. This use of the words not including taxes on immovable property is in fact the entire gist of the case of the Petitioners regarding challenge to the levy of tax on their immoveable properties abroad. Their case is that use of these words has taken away all powers of the Parliament in respect of any legislation or imposition of tax on any sort of immoveable property; hence, the properties abroad cannot be taxed as well, notwithstanding, that the said properties also do not fall within the territorial limits of the Provinces. It may also be relevant to note that post 18th amendment since there is no Concurrent List or a separate list for the Provinces, it has been argued that the use of the words not including taxes on immovable property now vest all powers and authority upon the Provinces to legislate and tax all such immoveable properties. With respect we are unable to agree with this for a number of reason to follow. The entry in question empowers the Parliament to levy taxes on the capital value of assets which includes all assets i.e. moveable and immoveable. This use of the words not including taxes on immovable property is to be read as no tax can be levied by the Parliament on the capital value of an immoveable property. And that is all. It wouldn't be fair, to interpret this as contended by the Petitioners Counsel that this excludes competence of the Parliament to legislate in all manners including imposition of taxes of any sort on immoveable property. It is only taxes on immoveable property which now can be taxed by Province; however, subject to the property being falling within its territorial limits. The subject of immoveable property still remains with the Parliament subject to that the property is beyond the territorial limits of the Province. In fact, if it is not within the competence of the Province to impose tax on any immoveable property due to restriction in respect of its territorial limits, then it reverts back to the Parliament. This is the only interpretation which can be arrived at when the entire scheme of the Constitution and the Legislative entries are read as a whole and understood accordingly. While proceeding further, it will also be advantageous to refer to the relevant Articles of the Constitution regarding legislative competence of the Parliament and the Province as there is also a change in such
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authority post 18th amendment. Relevant Articles being Article 141 and Article 142 of the Constitution which reads as under: - 141. Extent of Federal and Provincial laws.- Subject to the Constitution, 1[Majlis-e-Shoora (Parliament)] may make laws (including laws having extra-territorial operation) for the whole or any part of Pakistan, and a Provincial Assembly may make laws for the Province or any part thereof. 142. Subject-matter of Federal and Provincial laws.- Subject to the Constitution-- (a) 1[Majlis-e-Shoora (Parliament)] shall have exclusive power to make laws with respect to any matter in the Federal Legislative List; [(b) Majlis-e-Shoora (Parliament) and a Provincial Assembly shall have power to make laws with respect to criminal law, criminal procedure and evidence;] [(c) Subject to paragraph (b), a Provincial Assembly shall, and Majlis-e-Shoora (Parliament) shall not, have power to make laws with respect to any matter not enumerated in the Federal Legislative List;] [(d) Majlis-e-Shoora (Parliament) shall have exclusive power to make laws with respect to all matters pertaining to such areas in the Federation as are not included in any Province]. 8. Before discussing Article 141 we would like to discuss Article 142 first. Article 142 deals with Subject matter of Federal and Provincial laws and 142(a) provides that Subject to Constitution, Parliament shall have exclusive power to make laws with respect to any matter in the Federal Legislative List. Article 142(b) provides that Parliament and a Provincial Assembly shall have power to make laws with respect to criminal law, criminal procedure and evidence. Similarly, Article 142(c) provides that Subject to Paragraph (b), a Provincial Assembly shall, and Parliament shall not have power to make laws with respect to any matter not enumerated in the Federal Legislative List. The Petitioners' case is primarily premised on the provision of Article 142(c) of the Constitution and it has been contended that since imposition of tax on immovable property is not provided in the Federal Legislative List; rather, use of the words "not including tax on immovable property" in fact, excludes such powers of the Parliament, and therefore, it means that it is not enumerated in the Federal Legislative List; hence Parliament cannot impose taxes on any immovable property irrespective of the fact that it is beyond the territorial limits of the Province. However, this does not appear to be a correct approach, if the provision of Article 142(c) is looked into as a whole. Article 142(c) when read in conjunction with Sub-Article (a) and Sub-Article (b) of Article 142, reflects that while enacting the 18th Amendment, the Provincial Autonomy has though being expanded by only providing a Federal Legislative List in respect of competence of the Parliament, and whatever has not…
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