Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: D.G Khan Cement Co. Ltd VS Respondent: Federal Board Revenue etc
Court Name: Lahore High Court Judge(s): Shahid Karim Title: D.G Khan Cement Co. Ltd vs Federal Board Revenue etc Case No.: W.P No. 38612/2015 Date of Judgment:2017-12-29 Reported As: 2018 P.C.T.L.R. 32, 2018 PTD 287, PTCL 2018 CL. 521 Result: Petition dismissed
Judgment JUDGEMENT: MR. JUSTICE SHAHID KARIM.--(1). This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 ("the Constitution"), seeks the following reliefs:-- "In view of the facts and circumstances narrated above, it is, therefore, most graciously prayed that this honourable Court be pleased to declare that: A. The insertion of section 4B in the Income Tax Ordinance, 2001, by the respondent Federation, is illegal, unlawful, ab-initio void and ultra vires the Constitution of Islamic Republic of Pakistan, 1973; the same be struck down accordingly. B. Section 9(2) of the Finance Act, 2015 whereby section 4B has been inserted in the Income Tax Ordinance, 2001 is without jurisdiction, illegal, void ab-initio and of no legal effect. It is further prayed that during the pendency of the titled petition restrain the respondents, their officers, agents from refusing to accept the tax return of the petitioner for the tax year 2015, without the payment of super tax u/s 4B of the Ordinance (either electronically or manually, at the option of the petition), for the tax year 2015, while further restraining the said respondents from taking any actions towards recovery of the impugned levy in any manner whatsoever." 2. This judgment shall also decide similar petitions at Appendix-I with this judgment and which in their broad sweep raise the same question of law. In essence, the challenge in these petitions is to the constitutionality of Section 4B of the Income Tax Ordinance, 2001 ("the Ordinance, 2001"). Section 4B was inserted by the Finance Act, 2015 and seeks to impose a super tax for rehabilitation of temporarily displaced persons. It reads as under:-- 4B. Super tax for rehabilitation of temporarily displaced persons.-- (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax years
---
## Page 2
2015 3 [to 2017j, at the rates specified in Division HA 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 4[(other than brought forward depreciation and brought forward business losses)] 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 sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (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 specking 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 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 official Gazette, make rules for carrying out the purposes of this section. 3. Thus, a super tax has been imposed for the rehabilitation of temporarily displaced persons for the tax year 2015 (initially) which was by way of Finance Act, 2017 extended to 2017 at the rates specified in Division II-A of Part-I of the First Schedule on income of every person specified in the said Division. Therefore, the first element of the tax in issue to be flagged is that it has been imposed on a certain category of persons and has not been imposed across the board on all persons liable to pay income tax. This shall be elaborated upon in the proceeding part of this judgment. 4. The primary challenge hinges upon two separate but connected arguments raised by the learned counsel for the petitioners. It shall not be necessary to refer to their arguments separately as the counsels appearing for the petitioners supplemented the arguments of each other and in material particulars adopted them. Those arguments will be dealt with during the course of this opinion in their various nuances. 5. It has been contended that super tax is not a tax and therefore could not have been levied through a money bill by the Parliament and consequently its imposition through the Finance Act, 2015 was ultra vices and unconstitutional. The learned counsel for the petitioners invite this Court to hold that since firstly a specific purpose has been mentioned in the provision of Section 4B, that by itself takes it out of the ambit of the concept of tax and, therefore, could not have been levied through a money bill. Secondly and as an alternate argument, it was argued that even if it is deemed that super tax could have been imposed through the Finance Act, 2015, the said levy is in the nature of double taxation and ought to be struck down on that account as outwith the powers of the legislature. These two arguments have their provenance in two judgments of the Supreme Court of Pakistan on which the entire reliance was placed by the learned counsel for the petitioners. Prior to that however, a reference may be made to a judgment rendered by this Court and reported as Sufi Muhammad Farrukh Amin v. Federation of Pakistan and others (PTCL 2017 CL. 266). In that judgment, the challenge was to the constitutionality of the income support levy at the rate of 0.5% on the value of net immovable assets/wealth. Amongst others, the challenge was
---
## Page 3
premised on the ground that since a purpose had been spelt out in the law itself that fact would render the levy as fee and not a tax and, therefore, the imposition through a money bill was incompetent. During the course of the opinion, certain fundamental principles of interpretation were underscored and one of them was an observation by Justice Cardozo of the U.S Supreme Court in Panama Refining Co. v Ryan, 293 U.S. 388, 439 (1935) and the following remarks:-- "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." 6. With regard to the question whether the specific purpose which is mentioned in the provisions of the Act itself, was a ground for holding a particular levy to be unconstitutional, the following observations are pertinent and are reproduced below:-- "23. The learned counsels for the petitioners were swayed by the purpose and the factors behind the imposition of the levy as stated above in the preamble of the Act, 2013. The preamble brought forth that the state was obliged to promote social and economic well being of the people and to provide basic necessities of life and whereas it was extended to provide for the financial resources for the economical distressed persons; hence a levy was being exacted by the name of income support levy. It has long been settled that the preamble of a statute does not determine the true nature and merit of a statute and is merely a window into the substantive provisions of the statute under consideration. Therefore, anything expressed in the preamble will not impact upon the construction to be put on the substantive part of the statute. It was stated in National Federation of Independent Business v. Sebelius, Secretary of Health and Human Services 132 S.Ct. 2566 (2012) (Health Care Case) by the US Supreme Court that "we thus ask whether the shared responsibility payment falls within Congress's taxing power disregarding the designation of the exaction and viewing its substance and application". Unites States v. Constantine 296 US 287 (1935); QUILL Corp. v. North Dakota, 504 US 298 (1992); "magic words or labels should not disable an otherwise constitutional levy". Nelson v. Sears Roebuck & Co. 312 U.S. 359 (1941); "It passing on the constitutionality of a tax law, we are concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it". United States v. Sotelo 436 U.S. 268 (1978). 7. As a prefatory, it may be stated that although in the case of income support levy the purpose was given in the preamble of the Act, 2013, it does not matter whether the purpose has been given in the preamble or in the main statute for the principles governing such matters would remain the same and there is no substantial difference between the mentioning of the purpose in the preamble or in the main enactment. The ratio of the judgments in the paragraph reproduced above would aptly apply in the case of a purpose as spelt out in the preamble as well as in the main provision itself, for, at the heart of any discussion regarding such matters would be whether the levy falls within the Parliament's taxing power or not and if it is so held, the designation of the exaction will be disregarded and the court will view its substance and application (as held by the US Supreme Court in the Healthcare case, referred to above). Also as held in 'Nelson' magic words or labels should not disable an otherwise constitutional levy. Further, in United States v. Sotelo, the principle was firmly established that the courts are only concerned with the practical operation of a tax law while passing on the constitutionality and not its definition or the precise from of descriptive words which may be applied to it. It was said by Ginsburg, J. in Health Care Case: "our precedent has recognized Congress' large authority to set the Nation's course in the economic and social welfare realm". Also Justice Scalia underscored the reluctance to intervene in economic policy: "I have long been an advocate of the proposition that it is not for judges to write their own policy preferences into the Constitution.... Economic liberty is not an exception to this rule. In a democracy, if the basic law so permits, the legislature may decide to replace the free market with
---
## Page 4
control planning, however unwise it may be." (quoted in "Uncertain Justice", by Laurence Tribe and Joshua Matz). These principles will guide this Court in determining the constitutionality of super tax as well as the entire challenge of the petitioners revolves around the descriptive words and the form employed by the legislature while imposing super tax. While considering the distinction between a tax and fee, reference was made in that judgment to the holding of the Supreme Court of Pakistan in Federation of Pakistan through Secretary M/o Petroleum and Natural Resources and another v. Durrani Ceramics and others (2014 SCM R 1630) and the following observations in particular contained in paragraph 19 of that judgment:-- "19. Upon examining the case-law from our own and other jurisdictions it emerges that the 'Cess' is levied for a particular purpose. It can either be 'tax' or fee' depending upon the nature of the levy. Both are compulsory exaction of money by public authorities. Whereas 'tax' is a common burden for raising revenue and upon collection becomes part of public revenue of the State, fee' is exacted for a specific purpose and for rendering services or providing privilege to particular individuals or a class or a community or a specific area. However, the benefit so accrued may not be measurable in exactitude. So long as they levy is to the advantage of the payers, consequential benefit to the community at large would not render the levy a 'tax'. In the light of this statement of law it is to be examined whether the GIDC is a 'tax' or a fee'." 8. The distinction between a tax and a fee is well entrenched and need not be referred to in detail for the purpose of this opinion. Suffice to say that the power of tax is an attribute of sovereignty of the State and held to be an essential and inherent aspect of sovereignty and "a tax is an enforced contribution to provide for the support of Government". (Justice Scalia in Healthcare case). The subtle but important observation with regard to the tax given in Durrani Ceramics was that a tax is a common burden for raising revenue and upon collection becomes part of public revenue of the State. This is one of the more important elements which will be seen while analyzing the nature of a particular tax. A fee, on the other hand, is exacted for a specific purpose and for rendering services or providing privilege to particular individuals or a class or a community or a specific area. Therefore, in a particular case the element of a levy having a specific purpose may overlap in the case of a tax and a fee but what distinguishes a fee is its additional elements such as rendering services or providing privileges to particular individuals or a class on which that levy has been imposed. Therefore, fee has an element of quid pro quo in it which distinguishes it from the concept of tax. After analyzing the precedents in this regard, it was held that:-- "36. Applying the standard and test laid down by the Supreme Court of Pakistan to the levy imposed under the Act, 2013 it is evident that there is no substantive provision in the Act, 2013 itself which spells out the purpose of the levy to be with regard to a certain specific project or for rendering services or providing privilege to a community or a class of community. As adumbrated, this Court will presume the constitutionality of a statute and shall also presume that a particular levy is a tax if that is the stance of the Federal Government and other respondents. Unless rebutted in material particulars, there is no reason to assume that a particular levy is fee and not a tax. I do not find upon a holistical reading of the provisions of the Act, 2013 that there is an element of quid pro quo to exist in the provisions of the Act, 2013 between the levy and the petitioners who have laid a challenge to this levy. It is not the case of the petitioners that the levy is in lieu of certain services being rendered to the petitioners and so the petitioners stand to derive benefit from the levy. The petitioners, on the other hand, contend that the levy by the preamble of the act, 2013 is being exacted for the purpose of expending on economically distressed persons and on this basis the levy is sought to be termed as a fee. This argument of the learned counsel for the petitioners is nuanced and has no legal legs to stand upon. For a levy to be a fee, the relation between the purpose and the persons on whom the levy is being exacted has to be established. There is none in this case. According to the settled precedents, same benefit to
---
## Page 5
accrue will have to be asserted in case the levy is to be established as a fee and not a tax. From the entire reading of the provisions of Act, 2013, it seems that the levy is a common burden and a compulsory exaction of money for raising revenue and expending it for the purpose of public revenue of the State. The mere fact that the preamble of the Act, 2013 refers to the application of the levy in its practical operation, does not detract from the fact that the levy is a tax and not a fee. 9. In the above case, it was found that the levy was not a fee as it did not have the necessary ingredients which would comprise a fee and, therefore, it was held to be a tax. It was also found that merely mentioning of a specific purpose will not render a levy as beyond the concept of a tax and therefore on this ground too the challenge was repelled. 10. During the course of the arguments, the learned counsel for the petitioners did not challenge the proposition that there was absolutely no element of a fee in super tax which has been called in question in these petitions. Therefore, they were all on common ground as to the fact that the primary basis of the challenge was not that super tax was a fee and not a tax. Clearly, there is no element of quid pro quo and the levy has not been imposed for a specific purpose and in lieu of services rendered for a class of-persons on which the imposition has been made. Therefore, it is not necessary to go into the question of drawing a distinction between a tax and a fee and for holding in this particular case whether super tax is a tax or a fee. The precise submission of the learned counsel for the petitioners is that since a specific purpose has been spelt out in the provision itself, that would itself take it out of the broad term of tax and, therefore, it is not necessary for the petitioners to establish that it was a fee and not a tax. This brings us to a recent judgment rendered by the Supreme Court of Pakistan and reported as Workers Welfare funds, M/o Human Resources Development, Islamabad through Secretary and others v. East Pakistan Chrome Tannery (Pvt.) Ltd. Through G.M. (Finance), Lahore and others (PLD 2017 SC 28) ("WWF"). The observations of the Supreme Court of Pakistan in WWF were extensively referred to by the learned counsel for the petitioners in support of the argument which has been explicated above. To reiterate in the estimation of the learned counsel for the petitioners if a specific purpose has been given in the law itself, that mere fact renders the levy to be outside the jurisdiction of the Parliament to be imposed through a money bill. It will not be necessary to refer to in greater detail the concept underlying the nature of a money bill and Article 73(3) of the Constitution relating to the origin and nature of money bill as well as the construction put by the superior courts over the years on its true meaning. It is well established and need not be referred to at this stage. Moreover, that will only be relevant if the discussion is whether the levy is a tax or a fee. As adumbrated, the learned counsel for the petitioners do not dispute the fact that the levy is not a fee and therefore the only question is whether it is a tax or not so as to caught by the mischief of Article 73(3) of the Constitution. The judgment of the Supreme Court of Pakistan in WWF was at the heart of the arguments raised by the learned counsel for the petitioners and, therefore, I shall proceed to deal with the said judgment so as to conclude whether the ratio of that judgment is applicable to the facts and circumstances of the present case or not. 11. The issue involved related to the contributions to be paid under different statutes by the employers and industrial establishments and generally related to the welfare of the workers and employees working in those industrial establishments. There was a common thread running through all of the statutes which were the subject matter of the judgment before the Supreme Court of Pakistan as regards the nature of the contributions and levies and the obligation on the employers to contribute a specific amount to a fund which was set up under each law. The question clearly before the Supreme Court of Pakistan was whether the levy/contribution was a tax or a fee on which there were divergent views of various High Courts and which were sought to be reconciled by the Supreme Court of Pakistan in WWF. The Supreme Court of Pakistan referred to the
---
## Page 6
precedents which distinguished the concept of tax or fee which is not necessary to be referred to for our purposes, for that question does not detain us any further in these petitions. However, the Supreme Court of Pakistan in conclusion thought it unnecessary to hold whether the levy was a fee and not a tax in view of its holding that the only question which ought to be determined by the courts in any challenge on the basis of a particular act being a money bill or not was the question whether a particular levy was a tax or not and once the court came to the conclusion one way or the other, it was otiose to enter the question of whether it was a fee or not. In a nub, the courts are required to merely see as to whether a levy is within the concept of the term 'tax' as understood in common parlance or not. The observations of the Supreme Court of Pakistan which are sought to be used by the learned counsel for the petitioners to their advantage are as follows:-- "There are no two opinions about the fact that a tax is basically a compulsory exaction of monies by public authorities, to be utilized for public purposes. However its distinguishing feature is that it imposes a common burden for raising revenue for a general as opposed to a specific purpose, #; the latter being one of the key characteristics of a fee. Now let us examine each of the subject levies/contributions in light of the above touchstone." 12. The above observations merely reiterated a principle which has been settled over the years as to the true nature of a tax and that it is a compulsory exaction of moneys by public authorities to be used for public purposes and that it imposes a common burden for raising revenue for a general as opposed to a specific purpose. The learned counsel for the petitioners laid great stress on the term 'specific purpose' as used in the paragraph above which has been used in the judgment to distinguish it from the term 'tax' and has been affirmed as an element of fee. And, therefore, according to the learned counsels wherever there is a specific purpose mentioned in a statute that statute has to be taken as levying fee and not tax. This contention of the learned counsel for the petitioners has been raised in isolation and does not take into account the holistic reading of the judgment in WWF. It may be pertinent to mention that the Supreme Court of Pakistan in WWF referred to and endorsed the view in an earlier judgment of Durrani Ceramics where the true nature of a fee in juxtaposition to a tax was dilated upon in the following words:-- "19. Upon examining the case-law from our own and other jurisdictions it emerges that the 'Cess' is levied for a particular purpose. It can either be 'tax' or fee' depending upon the nature of the levy. Both are compulsory exaction of money by public authorities. Whereas 'tax' is a common burden for raising revenue and upon collection becomes part of public revenue of the State, fee' is exacted for a specific purpose and for rendering services or providing privilege to particular individuals or a class or a community or a specific area. However, the benefit so accrued may not be measurable in exactitude. So long as the levy is to the advantage of the payers, consequential benefit to the community at large would not render the levy a 'tax'. In the light of this statement of law it is to be examined whether the GIDC is a 'tar' or a fee'." 13. Therefore, Durrani Ceramics has clearly and unequivocally expounded the true nature of the term 'fee' which, according to the Supreme Court of Pakistan, is an exaction for specific purpose and for rendering services or providing privileges to particular individuals or a class or a community etc. The term 'specific purpose' cannot be read in isolation while discussing the concept of a fee and has to be read in conjunction with the other elements especially of quid pro quo. In the latter part of the judgment in WWF, this was endorsed by the Supreme Court of Pakistan too and the learned counsel for the petitioners have sought to use that portion as well and which is to the following effect:-- "23. There is another aspect of the matter which requires due attention. No doubt the feature of having a specific purpose is a characteristic of a fee, which the subject contributions/payments possess as discussed in the preceding portion of this opinion. However, there are certain other characteristics of a fee, such as quid pro quo, which must be present for a contribution or
---
## Page 7
payment to qualify as a fee. This was the main argument of the learned counsel who categorized the subject contributions in the nature of a tax, that they (the contributions) lacked the element of quid pro quo or in other words the benefit of the contribution did not go to the payers. The industrial establishments or employers etc. were liable to pay the contribution but they were not the beneficiaries of the purpose for which such contributions were being made; the beneficiaries were their employees or workers etc. Mr. Rashid Anwar attempted to argue that the benefit need not be direct and can be indirect, therefore although the employees were directly benefited by contributions made to the…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.