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Petitioner: Sufi Muhammad Farrukh Amin VS Respondent: Federation of Pakistan & others
Court Name: Lahore High Court Judge(s): Shahid Karim Title: Sufi Muhammad Farrukh Amin vs Federation of Pakistan & others Case No.: W.P No.19763 of 2013 Date of Judgment:2016-06-17 Reported As: 2016 LHC 1862 Result: N/A
Judgment Shahid Karim, J:- This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (Constitution) invites this Court to hold upon the constitutionality of the Income Support Levy (the levy) at the rate of 0.5% on the value of net movable assets/wealth as being ultra vires the Constitution and without lawful authority. The challenge has been laid to the provisions of Income Support Levy Act, 2013 (Act, 2013) promulgated through Finance Act, 2013. 2. Some of the provisions of the Act, 2013 which will come into play and will have to be considered during the course of this opinion are reproduced as under: "2. Definitions.- (1) In this Act, unless the context otherwise requires - (a) "Levy" means the Income Support Levy leviable or payable under this Act; (b) "net moveable wealth" means the amount by which the aggregate value of the moveable assets belonging to a person as declared in the wealth statement for the relevant tax year, is in excess of the aggregate value of all the liabilities owed by that person on the closing date of the tax year. Explanation.- For the purpose of this clause,- (i) where liability claimed relates wholly and exclusively to an immovable asset, it shall not be claimed and allowed while computing the net moveable wealth. However, where the liability claimed relates wholly and exclusively to a moveable asset, it shall be claimed and allowed as a straight deduction while computing net moveable wealth; and (ii) where the gross wealth of a person, declared in the wealth statement includes both moveable and immoveable assets and the nature of assets to which the liability relates is not determinable, the liability to be allowed while determining the net moveable wealth shall be calculated by the following formula: (A / B) x C Where - A is the gross value of moveable assets; B
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is the gross value of both moveable and immoveable assts; and C is the gross value of debts owed;" "(h) "wealth statement" means a wealth statement required to be filed under section 116 of the Income Tax Ordinance, 2001." "3. Charge of Levy.- Subject to the provisions contained in this Act, there shall be charged for every tax year commencing on and from tax year 2013 a Levy, in respect of value of net moveable assets held by a person on the last date of the tax year at the rate specified in section 9 and in the manner specified hereunder. 4. Time and manner of payment of Levy.- A person who is liable to pay the Levy under this Act shall pay the Levy along with wealth statement." "9. Rate of Levy.- The rate of levy payable under this Act shall be 0.5% of the net moveable wealth exceeding one million rupees." 3. This judgment shall decide the connected petitions (Appendix-1) which also involve a similar question of law and a common thread which runs through these petitions is the challenge to the constitutionality of the levy under the Act, 2013. 4. A report on behalf of the respondent No.2 was filed which sought to justify the imposition and exaction of the levy on the ground that it was intended to provide financial assistance, social protection and other net safety measures to economically distressed persons and families as enshrined under the principles of policy given in the Constitution. Accordingly, according to the report, the charge of levy for the well being for the economically distressed citizens which is a state obligation and, therefore, is in accord with the letter and spirit of the Constitution. Submissions of Petitioners Counsel: 5. Three primary and related submissions have been made by the learned counsel for the petitioners. It has been argued that: The levy is not within the domain of the Federal Government and is outside the Entry 50 of the Federal Legislative List under which the Parliament is empowered to legislate on the capital value of assets and not on the net value of wealth and assets. The levy is fee and not a tax and, therefore, could have been imposed through a money bill and offends the mandate of Article 73 of the Constitution. The levy is discriminatory legislation as it only applies to those who file their wealth statement and whose net movable wealth exceeds 1 million rupees. 6. The learned counsel for the respondents has Supreme Court of Pakistan as also a judgment of the Karachi High Court and that of Lahore High Court from which those cases arose in the Supreme Court of Pakistan and submitted that the question whether the net value of assets/wealth is included in the broader concept of capital levy of assets has been conclusively determined by the Supreme Court of Pakistan in the precedents cited by the learned counsel for the respondents and, therefore, a challenge on this ground does not lie. It has also been contended by the learned counsel for the respondents that the levy is a tax and not a fee and, therefore, the submission with regard to the imposition having been made through the money bill is without substance. Entry 50 of the Federal Legislative List: 7. Entry 50 of the Federal Legislative List of the 4th Schedule to the Constitution reads as under: Taxes on the capital value of the assets, not including taxes on capital gains on immovable property. 8. It will be recalled from a reading of section 3 of the Act, 2013 that the levy is in respect of value of net movable assets held by a person on the last date of the tax year. This, according to the learned counsel for the petitioners, is beyond the legislative domain of the Parliament as Entry 50 merely permits the Parliament to legislate in respect of the capital value of assets held by persons
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and not with regard to the net movable assets which are two distinct and separate concepts. This submission of the learned counsel for the petitioners should receive a short shrift. 9. But prior to that, one of the fundamental principles of interpretation must be underscored. It is that "an interpretation that validates outweighs one that invalidates." Justice Cardozo of the US Supreme Court in Panama Refining Co. v Ryan, 293 U.S. 388, 439 (1935) remarked: "When a statute is reasonably susceptible of two interpretations, by one of which it is unconstitutional and by the other valid, the court prefers the meaning that preserves to the meaning that destroys." 10. In at least two judgments of the Supreme Court of Pakistan, this question has been conclusively determined with regard to laws and provisions in those laws, which were in pari materia with the provisions of Act, 2013. The first of these cases is reported Haji Muhammad Shafi and others v. Wealth Tax Officer and others (1992 PTD 726). This judgment arose out of the judgment of the Karachi High Court penned by Saeeduzzaman Siddiqui J., and reported as Haji Muhammad Shafi and 3 others v. Wealth Tax Officer, Circle IV, Karachi and 3 others (1989 PTD 488). It will be useful firstly to refer to the judgment of the Karachi High Court which was affirmed by the Supreme Court of Pakistan in the first instance. The challenge before the Karachi High Court was to the provisions of Wealth Tax Act, 1963 (Act, 1963) on the touchstone of Entry 50 of the Federal Legislative List in the Fourth Schedule to the Constitution. The precise submission of the learned counsel for the petitioners in that case also was that the term `capital value on assets' used in the entry cannot be equated with the expression `net wealth' as defined under the Act, 1963 and as such the imposition and recovery of tax on net wealth was not a tax on the capital value on assets as envisaged by the Constitution. The provisions of Act, 1963, so far as relevant for our purposes and in order to lend actuality to the analysis and comparison of the two provisions contained in the Act, 1963 and the Act, 2013, are reproduced by way of reference: 3. Charge of Wealth tax:--Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of July, 1963, as a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual (Hindu undivided family, firm, association of persons or body of individuals, whether incorporated or not, and company) at the rate or rates specified in the Schedule. 2(m)--=net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under that Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than- (i) debts which under section 6 are not to be taken into account; and (ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable under this Act: Explanation: For the purposes of this clause-- (i) any property, other than agricultural land, owned by any minor child of the assessee shall be deemed to belong to the assessee; (ii) 'assessee' shall be the (parent) determined by the Wealth Tax Officer; and than agricultural land vests in more than one person, such person shall, in respect of such property, be assessed as an association of persons and the value of such right, title or interest, shall not be included in the net wealth of an individual. (Provided Wealth Tax is charged on such right, title or interest." 11. While drawing a comparison between the provisions of Act, 2013 and the Act, 1963, it will be seen that the provisions of the two Acts with regard to the charging of the imposition under the respective laws are similar and couched in the same language. In both these laws, the levy is in
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respect of the net wealth of an individual/person. Under section 3 of the Act, 2013, the term `net movable assets' has been used. The question peripherally arose in the Karachi High Court judgment as to whether the term `net wealth' included the term `assets of a person' as well. The answer to this question was given in the affirmative by the Karachi High Court and it was held that: Reading the above dictionary meanings of the words Wealth and Assets" together it cannot be doubled that they are similar in concept and import. The concept of aggregation of different kinds of properties belonging to a person is common in the meaning of both the words. We are, therefore, of the view that the legislature when promulgating the Act and providing for levy of tax on wealth in its preamble were in fact intending to tax the `assets' of a person. The contention of the learned counsel for the petitioner, however, is that `net wealth' as defined in the Act is different in concept from the "capital value of he assets" as envisaged in entry No.50 of the Federal Legislative List. The argument of the learned counsel has not impressed us. We have already pointed out above that on the basis of dictionary meaning of words `Capital Value' and `Assets' the expression `Capital Value of Assets' would mean the value expressed in terms of money of the properties of all kinds possessed by a person and it is in this sense that this expression is also commonly understood in commercial and business parlance. The learned counsel has not been able to point out to us anything either in the Constitution or in the Act or in any of the reported cases cited at the Bar to indicate that the legislature had used the above expression in entry No.50 of the Federal Legislative List in any other sense... " 12. However, this question loses relevance in the context of levy under the Act, 2013 as by an amendment in the Act, 1963, the words "or assets" were inserted in section 3 of the Act, 1963 by the Act of 1997 dated 16.4.1997. Therefore, the ambiguity, if any, regarding the term `assets' to be included in the expression "Wealth" was clarified by an amendment brought about by the legislature and referred to. The argument was raised before the Karachi High Court that while determining the wealth tax payable by an assessee under section 3 of the Act, 1963, the net wealth of the assessee was calculated by allowing the deduction of all liabilities of debts owed by the assessee and thereafter to determine the tax on the next assets of the assessee which takes the levy out of the ambit of the expression capital value of assets" as employed in entry No.50 of the Federal Legislative List. This arguments was also repelled by the Karachi High Court. The relevant portions of the Karachi High Court judgment are reproduced as under: ..The expression 'capital value of the assets' is neither defined in the Constitution nor in any Act concerning the field of commerce and taxation, where this expression is in vogue. It is not contended before us by the learned counsel for the petitioner that the expression `capital value of the assets' has been used by the legislature in any particular sense or meaning. It is, therefore, necessary to understand the meaning of this expression, to first look for its ordinary dictionary meaning and then the manner in which it is commonly understood in the field of commerce and taxation.." "The whole gamut of the argument of learned counsel for the petitioner in this regard is that the authorities while determining the wealth tax payable by an assessee under section 3 of the Act first calculate net wealth of the assessee by allowing deduction of all the liabilities of debts owed by him and then determine the tax on the net assets of the assessee whereas the impression `capital value of the assets' employed in entry No.50 of Federal Legislative List of Constitution admits of no such deduction in the value of the assets of a person. Firstly, we are unable to find any material difference between the concept of taxation under section 3 of the Act and entry No.50 of the Federal Legislative List of Constitution on the above ground. The underlying object of aggregation of all the properties of an assessee for the purposes of levy of tax is common both in section 3 of the Act as well as under entry No.50 of Federal Legislative List of the Constitution. The fact that the authorities while providing for determination of tax liability of an assessee under the Act allowed
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reduction of all his outstanding liabilities from the aggregated value of his assets has no bearing on the character or nature of the tax. This feature of the Act only indicates a mechanism or a method provided under the Act for calculation of the tax liability of an assessee under it which certainly cannot affect or change the character or nature of the tax. There is no justification for the above reasons to hold that the tax levied under section 3 of the Act on the 'net wealth' is in any manner different from the tax on the capital value of the assets as contemplated by entry No.50 of the Federal Legislative List of Constitution. There are no words in entry No.50 of the Federal Legislative List of the Constitution which could be interpreted as placing any fetter on the power of legislature while providing for tax on the capital value of assets of a person, to allow deduction of liabilities outstanding against him from the value of his assets. It need not be mentioned here that while interpreting a basic document like Constitution, the Court must adopt a liberal interpretation of its various clauses and articles. The Courts while interpreting an entry in the legislative lists of a Constitution have always given it the widest connotation as there is no presumption that the framers of Constitution have withheld certain powers from the legislature to frame laws. The written Constitution of a country is a living organism which should be interpreted in the widest and most liberal manner so as to advance the objective of its framers. The Constitution is the fountainhead of all powers derived by its various organs, like executive, legislature and the judiciary which are its creature. Interpretation of such a document in a narrower sense would defeat the preservation of powers contemplated by its framers..." "Suffice it to say that the fact that the legislature had allowed deduction of debts under the Act in ascertaining the capital value of assets could in no way change the nature of tax which is contemplated under entry No.50 of the Federal Legislative List of the Constitution..." 13. Upon a reading of the portions, reproduced above, it is clear that the Karachi High Court arrived at the conclusion that the term `net value of net wealth' was included in the broader concept of capital value of assets by reference to the dictionary meaning of the term capital value of assets". By so doing, the Karachi High Court concluded that the term `value of net wealth' was a term included in the expression capital value of assets". Also the Karachi High Court drew a distinction between the case before it and the cases of the Indian Supreme Court referred to by the petitioners and held that those cases were not applicable. 14. In Haji Muhammad Shafi, the Supreme Court affirmed the view taken by the Karachi High Court. It was held that the Karachi High Court had, for valid reasons, disagreed with the observations made in the judgment passed by the Indian Supreme Court. In its opinion, the Supreme Court of Pakistan instructed that: 4. We are in full agreement with the observation made by the learned Judges of the High Court. Item 50 of the fourth Schedule provides for tax on capital value of the assets not including taxes on capital gain on immovable property. Therefore, tax on capital value of assets can be levied which is not disputed at all. Wealth Tax is one of those taxes which intends to subject the assets to taxation. It is nobody's case that the Wealth Tax Act does not charge the assets. The Act has provided a mechanism for imposing and calculating the tax on capital assets. The provision for calculating such tax is provided by the Act. Section 3 denotes which part of the capital value shall be taken into consideration for the purposes of charging wealth tax. It is nobody's case that the net value of assets is not a part of the capital value. The capital value of the assets includes the net value of the assets. The definition of the net wealth under section 2(m) clearly provides that first the aggregate value of all the assets belonging to the assessee has to be taken into consideration. This is the basis for charging the tax. Now, in order to calculate the tax the aggregate value of liabilities and debts are to be deducted from the aggregate value of assets and the excess so calculated has been termed as 'net wealth' on which tax is calculated at the specified rate. This
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process of calculating the tax does not exclude the capital value of assets from wealth tax charged under section 3.1. 15. It is clear from a reading of the judgment of Supreme Court of Pakistan that the value of net wealth or assets was taken as part of the capital value of assets of a person and not as two distinct and separate concepts. One was held to be included in the other and was a species of the same genre. The purpose was merely to categorize the two terms and not to hold it out as a separate concept. Also a distinction was sought to be drawn on the basis of the concepts of assessment and imposition of tax and its collection. In other words, the arguments raised before the Supreme Court of Pakistan were primarily and substantially similar to the ones which are now being raised by the learned counsel for the petitioners and as can be seen from the portions, reproduced above, that they were stunted and responded to by the Supreme Court of Pakistan by holding that no challenge could be laid on the basis of placing the two expressions of capital value of assets and value of net wealth or assets into different compartments. 16. The second judgment which analyses and expands upon the proposition under similar circumstances is the judgment reported as Messrs I.C.C. Textile Ltd. and others v. Federation of Pakistan and others (2001 PTD 1557). This case arose out of a judgment of this Court reported as ICC Textiles Limited v. Federation of Pakistan through Secretary of Finance, Islamabad and 2 others (PLD 1999 Lhr. 251), in which an attack was laid to the imposition of Corporate Assets Tax by section 12 of the Finance Act, 1991. The tax was levied in respect of value of assets held by a company as on the specified date. The precise submission of the learned counsel for the petitioner in that case was also on the basis of entry No.50 in the Federal Legislative List which was in relation to the capital value of assets and a distinction was sought to be drawn on the basis thereof as against the term value of assets used in section 12 of the Finance Act, 1991. On the basis of the Sindh High Court judgment as affirmed by the Supreme Court of Pakistan, it was held by the Lahore High Court that: "16. It is obvious from the above reproduced paras that the learned Judges were of the view that there is no limitation placed on the use of word assets" in item No.S0 of the 4th Schedule and the question as to whether gross assets" or net assets" are to be taxed was relatable to mechanism and could be determined by the Federal Legislature while further legislating on the subject. I am, therefore, unable to agree with the learned counsel on the interpretation being placed on Item No.50 of 4th Schedule to the Constitution. No doubt tax can only be levied by the Parliament as ordained by Article 77 of the Constitution but as by promulgating section 12 of the Finance Act, 1991, the tax is being levied on the capital value of assets, no valid exception can be taken thereto." 17. Thus, the Lahore High Court was of the view that the question whether gross assets or net assets are to be taxed, are relatable to the mechanism of recovery and which can be determined by the Federal Legislature while legislating on the subject. 18. The Supreme Court of Pakistan in Messrs ICC Textiles Ltd., upheld the decision of the Lahore High Court. In doing so, the view taken by the Sindh High Court in Haji Muhammad Shafi was referred and reaffirmed in the following words: "After having read the ratio decidendi of both these judgments referred to hereinabove we feel that there should not be any doubt that the Corporate Assets Tax is tax on the capital value of the assets as per Item No.50 of the Legislative List and merely in view of the manner prescribed under section 12(12)(d) of the Act for calculating and imposing tax it cannot be held contrary to this entry or unconstitutional nor its constitutionality can be objected to for such reason. It is thus held that legislature had power to promulgate section 12 of the Act under Article 142 of the Constitution to levy Corporate Assets Tax on the value of the assets held by a company on a specified date, therefore, the gross assets of the Company as per section 12(12)(d) of the Act are liable to tax inclusive of the liabilities of the company as per Entry No.50 of the Federal Legislative List Part I
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Fourth Schedule of Constitution and there is absolutely no ambiguity of whatsoever nature in imposing the Corporate Assets Tax. As such the judgment relied upon by Mr. Ziaullah Kiani ASC and Mian Ashiq Hussain ASC in the case of B.P. Biscuits Factory (Supra) has no application on instant case, thus the contention raised in this behalf is also repelled. 19. It can be seen from a cumulative reading of the judgment, reproduced above, that the term `capital value of assets' was held to be broad-based and by encompassing and including within it the term `net assets' or `net movable assets' as used in the Act, 2013. On the basis of this holding, the Supreme Court of Pakistan has on more occasions than one held imposition under different laws on the basis of this concept to be constitutionally valid and intra vires. The challenge in this case on a similar basis must meet the same fate and must be repelled on the basis of two judgments of the Supreme Court of Pakistan referred to above. 20. While on the subject we may refer to the concept and the true nature of the entries in Legislative List of the Constitution. That concept was eruditely brought forth in Messrs Elahi Cotton Mills Ltd. in the following words: 16. We may point out that in a Federal Constitution like we have in Pakistan, the legislative power is distributed between the Provincial and the Federal Legislatures. With that view legislative lists are prepared. The entries contained therein indicate the subjects on which a particular Legislature is competent but they do…
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