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Petitioner: Messrs HBL Stock Fund through Trustee and others VS Respondent: Additional
Court Name: Sindh High Court Judge(s): Aqeel Ahmed Abbasi, Abdul Maalik Gaddi Title:Messrs HBL Stock Fund through Trustee and others vs Additional
JUDGMENT
Reported As: PTCL 2021 CL.67, 2020 PT D 1742 Result: Order accordingly Judgment JUDGMENT Above captioned petitions have been filed to challenge the imposition of super tax by inserting Section 4B Division IIA of Part I of the First Schedule of the Income Tax Ordinance, 2001, through Section 9(2) of the Finance Act, 2015, introduced through Money Bill under Article 73(2) of the Constitution of Islamic Republic of Pakistan, 1973, for being ultra-vires to the Constitution. Section 4B Division IIA of Part I of the First Schedule of the Income Tax Ordinance, 2001, which reads as follows:- "4B. Super tax for rehabilitation of temporarily displaced persons.-- (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax year 2015, at the rates specified in Division IIA of Part I of the First Schedule, on income of every person specified in the said Division. (2) For the purposes of this section, "income" shall be the sum of the following:- (i) profit on debt, dividend, capital gains, brokerage and commission; (ii) taxable income under section (9) of this Ordinance, if not included in clause (i); (iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and (iv) income computed under Fourth, Fifth, Seventh and Eighth Schedules. (3) The super tax payable under subsection (1) shall be paid, collected and deposited on the date and in the manner as specified in subsection (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply . (4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance. (5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under subsection (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part I of Chapter XI of
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the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance. (6) The Board may , by notification in the of ficial Gazette, make rules for carrying out the purposes of this section. "Division IIA" RATES OF SUPER TAX PERSON RATE OF SUPER TAX Banking Company 4% of the income Person, other than a banking Company , having income equal to or Exceeding Rs .500 million3% of the income 2. In addition to challenging the vires, petitioners have also challenged various notices issued under Section 122(5A) of the Income Tax Ordinance, 2001, by the Tax Authorities, by raising other ground as well. However , almost in all these petitions, the proposed addition under Section 4B of the Income Tax Ordinance, 2001, has been the common ground of challenge, therefore, all the learned counsel for the petitioners were directed to make their submissions in support of their challenge to the legislative competence to impose super tax under Section 4B of the Income Tax Ordinance, 2001, through Section 9(2) of the Finance Act, 2015, along with Money Bill in terms of Article 73(2) of the Constitution of Islamic of Pakistan, 1973. Since large number of Advocates shown appearance and argued their case on behalf of the petitioners, however , their submissions can be summarized in the following terms:- 3. Learned counsel for the petitioners have mainly argued that the impugned levy has. been introduced for specific purpose i.e. Rehabilitation of Temporarily Displaced Persons, whereas, it is not meant for the purpose of general revenue and therefore, is not a common burden, hence does not fall within definition of tax. According to learned counsel, since super tax does not qualify to be a tax, therefore, could not have been introduced through Finance Act under Article 173(2) of the Constitution. Learned counsel for the petitioners have argued that test to examine as to whether a levy is a tax or otherwise two basic conditions are to be collaterally met, firstly the levy has to be a compulsory exaction, and secondly , the purpose of levy should not be a specific, rather it should be contribution to the general revenue. It has been argued that in terms of Entry 47 of the 4th Schedule to the Constitution of Islamic Republic of Pakistan, 1973, income tax can be imposed, the proceeds whereof are meant to go into general revenue. However , per learned counsel, super tax is a levy for a specific purpose i.e. Rehabilitation of the Temporarily Displaced Persons, whereas, income tax by its nature is not meant for any particular purpose rather it is meant for the contribution into general revenue i.e. being part of the common burden. Therefore, according to learned counsel, super tax could not be introduced pursuant to Entry 47 of the fourth schedule to the Constitution of Islamic Republic of Pakistan, 1973. While referring to Entry 54 of the fourth schedule to the Constitution, it has been contended by the learned counsel for the petitioners that the above entry authorizes the legislation to impose a fee, however , a fee can be imposed if an element of quid pro quo is present against the services provided, whereas, in the instant case, according to petitioners, there is no element of providing services to the persons, who are charged to pay super tax under Sectio n 4B of the Income Tax Ordinance, 2001 . Moreover , if the subject levy is treated as fee then it would not have been imposed through Finance Act under Article 73(2) of the Constitution of Islamic Republic of Pakistan, 1973. According to learned counsel for petitioners, that the very language of the charging provision while imposing super tax under Section 4B of the Income Tax Ordinance, 2001, through Finance Act, 2015, shows that it is a social welfare legislation covered under Entry 25 of the concurrent list of the Constitution of Islamic Republic of Pakistan, 1973 and such levy has been imposed for the Rehabilitation of Temporarily Displaced Persons for tax year 2015, however , according to learned counsel, after 18th amendment to the Constitution of Islamic Republic of Pakistan, 1973, the concurrent list was omitted, therefore, no Federal Legislation can be made in respect of social welfare by the Federation, except having recourse to Article 144(1) of the Constitution of Islamic of Pakistan, 1973. It has been further contended that in view of Article 142(c) of the Constitution there are only three subject matter upon which both the Provincial Assembly and Majlis-e-Shoora have simultaneous power to make laws, the same being (i) Criminal Laws, (ii) Criminal procedure, and (iii) Evidence,
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whereas, social welfare law is an exclusive domain of the Provincial Assembly after 18th amendment to the Constitution. 4. Without prejudice to hereinabove submissions, it has been further contended by the learned counsel for petitioners that imposition of super tax under Section 4B of the Income Tax Ordina nce, 2001, through Finance Act, 2015 along with Money Bill is a coloura ble legislation, therefore, illegal, void, ab-initio as the Federation is not competent to enact any law relating to social welfare after 18th amendment to the Constitution. In addition to hereinabove submissions relating to the legislative competence of the Federation in the instant case, reference to Finance Minister's Speech while introducing Finance Bill for 2015-16 in the Nationa l Assembly relating to imposition of Section 4B of the Income Tax Ordinanc e, 2001, and Circular No.02 of 2015 issued by the FBR has been made, whereas, the relevant extract of the budget speech has also been provided, which reads as under:- "Extract of the Budget speech of the Finance Minister of Pakistan while introducing Finance Bill 2015-16 in, the National Assembly of Pakistan. Revenue Measures 3.- I will not give a brief summary of the Revenue measures proposed in the budget: a. b. . . . k. Revenue for Rehabilitation of T emporarily Displaced Persons: The terrorism and counter-terrorism efforts have resulted in displacement of hundreds of thousands of people of FATA and Khyber Pakhtunkhwa from their homes. The vulnerable sections of the population, women, children, elderly and sick have suffered the most. The host communities have also taken a toll. The cost of rehabilitation of these displaced persons has been estimated at 80 billion rupees. These direct affectees of the war on terror deserve the full support and facilitation of the Nation. To meet enhanced revenue needs for the rehabilitation of Temporarily Displaced Persons in a dignified and befitting manner , it is propose d to levy a one-time tax on the affluent and rich individuals, association of persons and companies earning income above Rs.500 million in tax year 2015 at a rate of 4% of income for banking companies and 3% of income for all others. It is expected that the provinces will also contribute their due share in this national cause and the entire receipts from this source shall be utilized for rehabilitation of TDPs." C) Federal Board of Revenue (FBR) issued Circular No.2 of 2015 in which the FBR clearly stated while explaining the amendments brought about in Income Tax Ordinance, 2001 vide Finance Act, 2015 that Super Tax for Rehabilitation of Temporarily Displaced Persons that: 'Through Finance Act, 2015 a new section 4B has been introduced in the Ordinance according to which super tax has been imposed for tax year 2015." Moreover , super tax is a onetime levy on income as defined in section 4B for tax year 2015. Since super tax is payable for tax year 2015. Few facts emerge from the above paragraph of the Speech of the Finance Minister , the section 4B and the FBR Circular Number 2 of 2015: 1) This was to be a ONE TIME LEVY ie for Tax Year 2015 (FM speech, section 4B, FBR Circular 2 of 2015) 2) The levy was for a specific purpose viz. "needs for the rehabilitation, of Temporarily Disposal Persons" (FM Speech) 3) Further "the entire receipts from this source shall be utilized for rehabilitation of TDP." (FM Speech)" 5. In addition to hereinabove submission s made by the learned counsel for the petitioners, the summary of the written synopsis of arguments along with gist of case laws relied upon by the learned counsel for the petitioners and plaintif fs in Suits can be summarized in the following terms:- Under section 4-B Super tax has been imposed on the income of persons i.e. taxpayers which are mentioned in Division HA of Part 1 of the First Schedule. In other words, section 4-B by itself is a charging section; for this
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attention is invited to the case of Mumtaz Hussain Khan v. Additional Commissioner (2016 PTD 1667 (PARA 10) (Annex A), which holds at p.1674 of the said law report that the section imposing super tax, is a charging section. In Iqbal Zafar Jhagra v. Federation of Pakistan (2014 SCMR 220) S & BB (Annex -- B), it was held that in matters of fiscal laws there can only be one charging section. The charging section in the 2001 Ordinance is section 4 of the said statute. It is respectfully submitted that on this count along section 4-B is ultra vires, the law, Constitution and the very charging section i.e. section 4 of the 2001 Ordinance. In Iqbal Zafar Jhagra's case (supra) section 3(8) of the Sales Tax Act, 1990 was struck down on the ground that no extra/additional tax can be charged over and above the tax imposed under the charging section i.e. section 3(1). Subsequently , section 3(8) was re-enacted, which was challenged in the case of Shakeel Ahmed v. Federation of Pakistan (2016 PTD 577) at para 4 & p. 581A (Annex C), the ground that when Section 3(8) of the Sales Tax Act, 1990, was stuck down, enactment of a similar provision i.e. the new Section 3(8) amounted to nullifying the judgment of the Supreme Court. This Honourable Court was pleased to observ e to the effect that the newly inserted section 3(8) did not impose an additional tax, over and above the tax fixed under section 3(1) i.e. 17%, rather the effect of section 3(8) was only to charge sales tax -from CNG stations at one stage (instead of two). In other words, after the judgment of Iqbal Zafar Jhagra, an additional/extra tax is no longer permissible in law . - Historically , in name and also in substan ce 'Super Tax' is an additional income tax (see section 55 of the Income Tax Act, 1922). In this regard attention is invited to the following judgments: - Pakistan Industrial Development Corporation v . Pakistan (1992 SCMR 891 (pp. 909, 910) (Annex: D) - Anup Prabha Bai v . CIT (1962) 44 ITR 237 (pp. 240-241) (Annex. E). In Sohail Jute Mills Ltd. and others v. Federation of Pakistan (PLD 1991 SC 329) (Annex'F), the levy of iqra surcharge by the Federal Government on imported goods was challenged. The august Supreme Court found that since Iqra surcharge was an additional customs duty imposed on the existing customs duty, it fell within the purview of entry 43 of the 4th Schedule of the Constitution; hence found to be legal. The principle held in the Sohail Jute Mills further confirms that the super tax is an additional income tax. The Sohail Jute Mills case does not deal with the proposition that there can or cannot be an extra charging section . The said judgment is only an authority for the proposition that Iqra surcharge was an additional custody duty . The Federal Legislative List, contained in the 4th Schedule to the Constitutio n consists of entries 43 to 53 pertaining to 'taxes', whereas entry 54 is in relation to 'fee'. Super tax is nothing but an additional income tax, which can only fall within entry 47 of the Federal Legislative List . It is respectfully submitted that it is clear from the language of section 4B that the impugned super tax is legislated for a specific purpose i.e. rehabilitation of temporarily displaced persons. In other words, the impugned levy is not meant for the purposes of general revenue. Attention is invited to a recent judgment of the Apex Court in the case of Workers Welfare Funds v. East Pakistan Chrome (PLD 2017 SC 28 (a) & (i), at pp 45A and 51(P) (Annex. G), wherein it was held that a 'tax' is basically a compulsory exaction of monies by public authorities, to be utilized for public purposes, whereas 'fee' is for a specific purpose and possess element of quid pro quo. However , the distinguishing feature of 'tax' is that it imposes a common burden for raising revenue for a general as opposed to a specific purpose. Most pertinently , in para 22 at page 51, it was further held that if a levy is not a tax, the same cannot be introduced through a money bill. Since the said para 22 is most important, for convenience the relevant excerpt is underscored as follows: "We would like to point out at this juncture that the 'word 'finance' used in Finance Act undoubtedly is a term having a wide connotation, encompassing tax. However not everything that pertains to finance would necessarily be related to tax. Therefore, merely inserting amendments, albeit relating to finance but which have no nexus to tax, in a Finance Act does not mean that such Act is a Money Bill as defined in Article 73(2) of the Constitution. The tendency to tag all matters pertaining to finance with tax matters (in the true sense of the word) in Finance Acts must be discouraged, for it allows the legislature to pass laws as Money Bills by bypassing the regular legislative procedure under Article 70 of the Constitution by resorting to Article 73 'thereof which must only be done in exceptional circumstances as and when permitted by the Constitution. The special legislative procedure is an
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exception and should be construed strict ly and its operation restricted. Therefore, we are of the candid view that since the amendments relating to the subject contributions/ payments do not fall within the parameters of Article 73(2) of the Constitution, the impugned amendments in the respective Finance Acts are declared to be unlawful and ultra vires the Constitution." On the point that Tax is imposed as a common burden for raising revenue for general purposes, as opposed to specific purposes, whereas Fee is for a specific purpose and possesses eleme nt of quid pro quo, attention is invited to the following judgments:- Federation of Pakistan v . Durrani Ceramics (2014 SCMR 1630 (a) and (b), at pp. 1634 to 1645) (Annex. H). Collector of Customs v . Sheikh Spinning Mills (1999 SCMR 1402 (a), pp. 1414, 1417 and 1418) (Annex. "I") Sheikh Muhammad Ismail v . Chief Cotton Inspector (PLD 1966 SC 388 , at p. 440) (Annex. .1) Pakcom Limited v . Federation of Pakistan (PLD 201 1 SC 44 (i) Annex: K) Flying Cement Co. v . Federation of Pakistan (PLD 2016 Lah. 35 (d), p. 601 and para 40 at p. 61 (Annex: L) Shell Pakistan Limited v . Capital Development Authority (PLD 2015 Isl. 36 (g) (Annexure "M") Builders Association of India v . Union of India (129 (2007) DL T 578 (Annex: N) Fatima Enterprises v . Federation of Pakistan (1999 MLD 2889 (C) Annexure "0") Coca cola Beverages Pakistan v . City District Government (2014 CLC 1 135(a)(b) (Annexure "P"). Furthermore, on the point that provisions in Finance Act, which are not tax, are void, as they cannot be made part of money bill, attention is invited to the following: Federation of Pakistan v . Durrani Ceramics (2014 SCMR 1630 (a) and (b), at pp. 1634 to 1645) (Annex. H). Sindh High Court Bar Association and another v. Federation of Pakistan (PLD 2009 SC 879 (pp. 896, 897, 112, 1 13) (Annex: Q) Mir Muhammad Idris v . Federation of Pakistan (PLD 201 1 SC 213 (a)(Annex: R) Federation of Pakistan v . Durrani Ceramics (PLD 2015 SC 354 Annexure "S") The impugned levy is not a fee as it lacks the prerequisite of quid pro quo. It is an admitted fact that no services are being rendered to the plaintif fs/payer of super tax. Without prejudice to the above, even if the impugned levy is construed as fee, again it is not a tax, therefore, the same cannot be introduced through money bill. On the point that fee cannot be introduced through a money bill, attention is invited to the following: Federation of Pakistan v . Durrani Ceramics (2014 SCM 1630141 at P .1657[N]&[0], Annexure "H") Federation of Pakistan v . Durrani Ceramics (PLD 2015 SC 354 [A](Annexure "S") Flying Cement Co. v . Federation of Pakistan (PLD 2016 Lah. 35 (d), p. 601 and para 40 at p. 61 (Annex: L) Fatima Enterprises v . Federation of Pakistan (1999 MLD 2889 (C) Annexure "O") In the cases of Durrani Ceramics (supra) , GIDC Act, 2011 was challenged as unconstitutional on the ground that it did not fall within the definition of money bill. The Supreme Court concluded that the imposition was not a tax but a fee. Accordingly , it could not have been imposed through a money bill, and on this ground the GIDC Act, 2011 was struck down. In Sheikh Spinning Mills (1999 SCMR 1402 ), the Honourable Supreme Court struck down the imposition of pre- shipment inspection service charge under the Customs Act, 1969 as unconstitutional, on the ground that it was neither tax nor fee, therefore, was beyond the Federal Legislative Powers. It was also observed that the impugned service charge was not a fee, as it was meant for the benefit of only two companies, and not for the advantage of the payers/importers on which it was imposed. After the 18th Amendment, all the residuary legislative powers vest with the Provincial Legislature. Without prejudice to the arguments mentioned in paras above, the impugned levy being a 'cess' can only be legislated by the Provincial Legislature. In the case of Shahtaj Sugar Mills v. Province of Punjab (1998 CLC 1912 ) which was affirmed by the Supreme Court in Shahtaj Sugar Mills v. Province of Punjab (1998 SCMR 2492 ) Annexure T, it was held at Page 2501 that the Sugarcane Development Cess being levied for a specific purpose was not covered under the Federal or Concurrent Legislative Lists, hence the same (i.e. the cess) was within legislative power of the Provincial Legislature.
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A bare reading of section 4B read with Division IIA of Part I to the First Schedule would reveal 'that the said super tax is only imposable on two types of taxpayers i.e. firstly banking companies and secondly , persons, other than banking companies, who have an income equal to or over Rs.500 million (i.e. Rs.50 Crores). It is respectfully submitted that the said super tax is meant for the rehabilitation of temporarily displaced persons. The obligation, if any, to contribute towards the rehabilitation of temporarily displaced persons in on every Pakistani. Any person who would earn Rs.1 or Rs.49.99 crores would equally be under any obligation to provide for and contribute his/her/its share, as a Pakistani, to the rehabilitation of temporarily displaced persons, as any person or entity which is a banking company or earns more than Rs.50 crores. Why only extend the impugned tax to Companies mentioned in the impugned law, is nothing but hostile discrimination and arbitrary . In fact for Banking Companies there is no threshold. Therefore, the impugned super tax militates against Article 25 of the Constitution, as there is no rational basis to exclude persons other than the ones which are mentioned in the said Division IIA of Part-I to the First Schedule of the 2001 Ordinance from the ambit of super tax. In this regard reliance is placed upon the following judgments: Syed Nasir Ali v. Pakistan (2010 PTD 1924 , at pp. 1958, 1959 and 1960 (Annexure "U") Salim Raza v . Federation of Pakistan (2012 PTD 302 , at pp. 305(B) and 308[E] Annexure "V" Inam-ur-Rehman v . Federation of Pakistan (1992 SCMR 563 [B] Annexure "W") The judgment in Syed Nasir Ali (supra) is only an authority for the purposes of striking down law on the touchstone of hostile discrimination. The said judgment does not deal with the validity of the levy on the ground of being earmarked for a specific purpose and whether the same could be legislated through a money bill. Leave to appeal has been granted in the case of Syed Nasir Ali (supra), however , it is a settled principle of law that a leave granting order is not a binding precedent: Haji Farmanullah v . Latif-ur-Rehman (2015 SCMR 1708 [C] Annexure X) Muhammad Amin v . Muhammad Yasin (2002 CLC 231 [D] Annexure Y). Most importantly , the feudals, who derive agricultural income are exempt from income tax under section 41 of the 2001 Ordinance read with entry 47 of Part I to the Fourth Schedule of the Constitution. The said powers, who derive agricultural income are also under an obligation to contribute towards rehabilitation of temporarily displaced persons of Pakistan. Admittedly , super tax is not payable by persons deriving agricultural income. Therefore, the said super tax is discriminatory in terms of Article 25 of the Constitution and is liable to be struck down. Even the learned Finance Minister in his speech reported in The News dated 13.01.2015 has confirmed that the impugned burden of tax shall be borne by only 200 companies out of many taxpayers. The discrimination thus is hostile and without any objective criteria. Copies of the newspapers are already attached to the plaints. The arguments of the respondents that the impugned levy in any event goes to the General Revenue / Federal Consolidated Fund, is of no consequence. In fact a similar argument was raised in the Durrani Ceramics case (2016 SCMR 1630, in para 11 at P.1642) (Annexure H) that despite GIDC have not been statutorily expressed to be for a specific purpose, found its way to the General Revenue / Federal Consolidated Fund, hence the same was a tax and could be imposed through a Money Bill. This argument was rejected by the Supreme Court in para 18 at pp 1644 and 1645 of the Durrani case. For this Supreme Court in the case of The Secretary , Government of Madras v. Zenith Lamp and Electrical Ltd. AIR 1973 SC 724 Annexure Z, wherein in para 33, at P. 730, it was held as follows. ...........the fact that one item of revenue is credited to the Consolidated Fund is not conclusive to show that the item is a Tax." Furthermore, if the impugned levy is actually used for a general purpose i.e. other than the specific purpose for which this levy has been imposed, it is firstly a fraud on the people and the Constitution, and secondly it does not change the nature and character of the levy for the purpose of its validity . Therefore, it is now a settled proposition of law that whatever is statutorily expressed is relevant for the purpose of determining the nature of the levy and just because by way of tactics the proceeds of the levy would find their way into General Revenue or the Federal Consolidated Fund, will not be…
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