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Petitioner: Syed NASIR ALI and 33 others VS Respondent: PAKISTAN through Secretary Ministry of JUDGMENT
Court Name: Sindh High Court Judge(s): Gulzar Ahmed, Irfan Saadat Khan Title:Syed NASIR ALI and 33 others vs PAKISTAN through Secretary Ministry of
JUDGMENT
Reported As: 2010 PTD 1924 Result: Order accordingly Judgment JUDGMENT ' IRFAN SAADAT KHAN, J.---These petitions call into question the imposition of Internally Displaced Persons Tax ("IDPT") imposed vide section 5(51)(a)(i)(b) of the Finance Act, 2009 on persons having taxable income of Rs, One Million or more at the rate of 5% on the income tax payable on their income and imposition of IDPT at the rate of 30% on the bonus paid or payable to the corporate employees only. 2. Dr. Muhammad Farogh Nasim, learned lead counsel for the petitioners submitted that vide Finance Act 2009 a number of amendments were made in the Income Tax Ordinance 2001 ("the Ordinance"). He submitted that through section 5(51)(a)(i)(b) of the said Act, third proviso to paragraph (1-A) to Division-1 of Part 1 of the First Schedule of the Ordinance was added which reads as under: "Provided further that Internally Displaced Persons Tax (IDPT), treated as income tax on the tax payable on the taxable income of one million rupees or more shall be levied at the rate of 5% of such tax, for tax year 2009."
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3. As per the learned counsel, this IDPT is to be treated as income tax and is to be levied at the rate of 5% of the tax leviable on salaried employees whose income is Rs,One Million or more. The learned counsel further submitted that this is a one-time levy and applicable to the tax year 2009 only. The learned counsel further submitted that through the said Finance Act, 2009 another proviso was added to section 12(2)(a) of the Ordinance, which reads as under: "Provided that any bonus paid or payable to corporate employees receiving salary income of one million rupees or more (excluding bonus) in the year, shall be chargeable to tax at the rate provided in paragraph (2) of Division 1. Part I of First Schedule." 4. Learned counsel submits that vide the same Finance Act, following paragraph (2) was added to Part 1 of Division, I to the First Schedule of the Ordinance: 2. "The rate of tax payable on bonus as IDPT as income tax shall be @ 30 per cent for the tax year 2010". 5. According to the learned counsel for the petitioners, the accumulated reading of the amendments in the Ordinance, quoted supra, would show that all corporate employees to whom bonus is being paid or payable shall pay tax at the rate of 30% on the bonus as IDPT. 6. While elaborating his arguments the learned counsel submitted that Entry 47 of the Fourth Schedule deals with "tax on income other than agricultural income" meaning thereby that the government has the authority under the law to tax on income, however, the government has no authority to impose a tax on tax and that IDPT is, in fact, a tax on tax and, this power does not vest in the Federal Government to impose such tax on tax. The learned counsel, referring to the famous decision in the case of Ellahi Cotton Mills v. Federation of Pakistan and others (PLD 1997 SC 582), admitted that the apex Court has allowed the legislature to widen the scope of the term "income" through a deeming clause, however, he submitted that it is a settled law that though the entries in the Constitution are to be given a liberal connotation but the same cannot be stretched beyond the pith and substance. The learned counsel submits that his case is not that of imposition of tax on income rather the present petitions challenge the authority of the Federal Government to impose a "tax on tax" which is wholly illegal and unconstitutional. He submitted that it is a trite law that no law is to be stretched beyond its reasonable limits. Hence, as per the learned counsel, Entry 47 cannot be interpreted in a way to include a tax on tax on the income as any interpretation by which a tax on tax on income would fall under Entry 47 would be against the mandate of the said Entry as the same would amount to unnecessary stretching of the said entry beyond its mandate and beyond its limits. The learned counsel further submitted that while imposing a tax incidence rationality is always to be considered as the parameter of the imposition of tax and that the rationality has to be with regard to the incident which could not be something not capable of being considered as income. As per the learned counsel in tax imposition rationality has to be given an important place and nothing which could not be considered as rational could not be termed as income and cannot be taxed. The learned counsel further submitted that the First Schedule to the Ordinance talks about the rates only and is not a charging provision because it deals with rates of tax only and could not be considered to be something through which a tax could be imposed or through which any new levy is to be introduced. As per the learned counsel the various sections contained in the Ordinance deal with charging of tax and the imposition of IDPT by an amendment in the First Schedule at the very outset is ultra vires and ab initio void as the law makers cannot introduce a new levy or impose a tax by making certain amendments in the Schedule to the Ordinance, which deals with rates of taxes only. He further submitted that this method of imposition of a new levy by making amendment to the First Schedule and by not making suitable amendments in the charging sections of the Ordinance is uncalled for and ultra vires and is liable to be struck down. He further submitted that charge always comes from the main section and not from a schedule to a statute. In this regard he invited our attention to sections 11 and 12 of the
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Ordinance. As per the learned counsel the IDPT is not only unconstitutional but is also a discriminatory provision of the law as the bonus paid or payable only to the employees in the corporate sector has been made taxable in the hands of corporate employees only leaving out all other employees working in other sectors. The learned counsel submits that IDPT is triple tax as a person will have to pay three different taxes, namely, (i) the income tax, (ii) IDPT on income tax and (iii) IDPT on bonus. In support of his contentions and submissions the learned counsel has submitted as many as eight paper books wherein he has elaboyately explained the terms "income, income tax, tax, tax on tax, nature of Finance Act, proviso; nature and character, conflict between main provision and schedule, and Article 25 discrimination. The case law relied upon by the learned counsel for the petitioners will be considered at relevant place. 7. Mr. Obaidur Rehman, Advocate for the petitioner in C.P. No, D-2803/09, while adopting the arguments advanced by Dr. Farogh Nasim, also explained how a proviso is to be interpreted and what is the real import of a proviso and relied upon PLD 1992 Kar. 183, 2007 CLC 1687 and PLD 2006 Lah. 240. 8. Mr. Sajid Bashir, learned counsel for the petitioner in C.P. No,D-2104/09 also adopted the arguments of Dr. Farogh Nasim, and submitted that bonus is always to be treated as part of the salary and same rate of tax has to be applied on bonus as that applied to the salaries. He submitted that this tax being discriminatory is liable to be struck-down. The learned counsel submitted that even otherwise the rate of IDPT on bonus is too high. All the other learned counsel have adopted the arguments of Dr. Farogh Nasim, Advocate. 9. Mr. Chaman Lal Oad, learned counsel appearing for respondents Nos. 2, 3 (a) and 3(b) submitted that Parliament has the legislative competence to enact law with reference to certain taxes hence all the above petitions are liable to be dismissed in limine. He submitted that a proviso being a substantive law could be treated as a charging section. The learned counsel further submitted that as per provisions of section 12 of the Ordinance, bonus is included in salary of an employee and hence no double tax has been imposed by the said amendment. He further submitted that through an amendment in the Schedule a charge could be levied on a person. Learned counsel further submitted that while interpreting the taxation laws form and manner has to be kept in view. Learned counsel also submitted that no discrimination is being made as the legislature is empowered to levy tax through reasonable classification and in the present petitions no discrimination has been made. To support his arguments the learned counsel relied upon a number of decisions of the superior Courts and has also filed written synopsis which will be dealt with at appropriate place of this judgment. 10. Mr. Ashiq Raza, learned DAG, while adopting the arguments of Mr. Chaman Lal, advocate, submitted that this is a one-time levy and only those persons have been burdened whose income is one -million rupees or above meaning thereby that this tax has been imposed on that particular section of the persons who are earning a substantial amount and no discrimination has been made in this regard. He further submitted that taxation laws have to be applied in a liberal manner and, as per the learned DAG, the cases under discussion are squarely covered by the decision in the case of Ellahi Cotton Mills (supra). The learned counsel further submitted that no discrimination has been made as this is not a case of pick and choose rather IDPT has been imposed across the board on every salaried individual whose income is one million rupees or more and in case of bonus also the same criteria has been applied by taxing corporate employees as a class. According to the learned DAG this tax has been imposed on the persons who have the capacity to pay the tax and that while interpreting the tax laws the same is to be viewed in a broad spectrum and not in a narrow or pedantic manner.
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11. Mr. Abdul Ghaffar Khan, Advocate, Mr. Izhar Muhammad, Advocate, and Mr. Atif Awan, Advocate appeared for the private respondents and supported the case of the petitioners and stated that they have no objection if the petitions are allowed as prayed. 12. Dr. Muhammad Farogh Nasim, while making his rebuttal, submitted that none of the judgments cited by Mr. Chaman Lal Oad is relevant to the present petitions. He submitted that the case laws relied upon by the learned counsel for the respondents are on different point and in those cases totally different aspects have been examined and discussed. He further submitted that as per section 13(2) of the General Clauses Act all plurals include singular and singular includes plural and hence the word tax used in Entry 47 could be used in singular. The learned counsel thereafter rebutted the decisions relied upon by the learned DAG and Mr. Chaman Lal and submitted that the cited cases may be ignored while considering the merits of these petitions. 13. We have heard all the learned counsel at considerable length and before proceeding any further would like to appreciate the efforts and the labour put in by all the learned counsel in assisting the Court in reaching to final conclusion. 14. Brief facts of the case are that thousands of people were displaced from Swat and Wana areas of the Country on account of action taken against the terrorists. The displacement issue has arisen as a result of war on terror which started in 2007 due to which approximately three million persons were displaced from the areas of Sawat, Wana, Malakand Division and other areas. The Government of Pakistan has to provide these IDPs clothes, feed, health care, shelter etc. IDPs are the persons who are forced to flee their homes who unlike refugees remain within their country's borders. The Government harnessed all its resources to come to the rescue of such displaced persons. One of the steps taken by the Government to alleviate the sufferings of the people of the calamity-hit areas was to impose a tax called internally Displaced Persons Tax on certain persons in order to obtain resources for helping out these persons. The precise words of the Finance Minister who delivered the Budget Speech are as under:--- "81. To held internally displaced persons, it is proposed to levy for a single year: a nominal tax of 5% on the tax payable by every individual deriving income above rupees one million. ' It is further proposed to levy a flat rate of 30% on bonuses earned by individuals in the corporate sector drawing salary exceeding Rupees one million". ' It is the imposition of such IDPT on tax on salary as well as on the bonus paid or payable to such employees which have been challenged in these petitions. 15. In these petitions mainly two questions have cropped up for determination of this Court, firstly, whether IDPT was rightly imposed on tax payable by employees earning one million rupees or more as salary income and, secondly, whether the Legislature was justified in levying 30% tax on the bonus paid or payable by corporate employees only receiving salary income of one million rupees or more. 16. Taking up the first question with regard to imposition of IDPT, the arguments of the learned counsel for the petitioners were; that the Legislature has no authority or power to impose a tax on tax and that the tax paid by the employees on their salary income cannot be treated as income by any stretch of imagination. According to Article-142 of the Constitution the Federal Legislature has the exclusive power to make laws in respect of any matter mentioned in the Federal Legislative List. Entry 47 in the Fourth Schedule to the Constitution deals with "tax on income other than agricultural income" and not with a tax on tax and as IDPT is a tax on tax, therefore, it is unconstitutional. As per the learned counsel the entries in the Constitution can be given liberal connotation but the same cannot be stretched beyond the pith and substance doctrine; and that IDPT is a triple tax as a person paying IDPT will have to pay (i) income tax on his salary (ii) a tax on income tax paid by him on his salary, and (iii) tax on bonus. The learned counsel reiterated that he was mindful of the
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decision of the honourable Apex Court given in the case of Elahi Cotton Mills, argued that even if it is assumed that the law makers have the authority to impose the IDPT, as entries in the Fourth Schedule have to be given widest possible meaning, even then the method of introducing such tax is wholly illegal and uncalled for. 17. Entry 47 deals with "tax on income other than agricultural income". This entry talks about tax only and not about tax on tax, whereas the bare reading of the proviso added to the First Schedule reveals that it is a tax on tax. According to the learned counsel, though the law makers have the authority to impose tax on the income of any person but they have no authority to impose tax on tax as that would be against the mandate given under the Constitution and the whole scheme of the tax would become unconstitutional. As per the learned counsel while interpreting the constitutional provisions pith and substance of the matter has to be considered as that is the essence of bringing something to tax. No doubt, Pakistan being a welfare State has to take care of its citizen but on the other hand it is equally important that no one is to be unnecessarily burdened nor any discrimination is created against any person. Learned counsel thereafter invited our attention to the following decisions: 1. AIR 1981 SC 1922, 2. 1992 SCMR 891 and 3. PLD 1994 Lah. 347. 18. According to the learned counsel income cannot be stretched beyond the settled law and has to be interpreted in a rational manner. Entry 47 which deals only with tax cannot be stretched to mean a tax on tax. As per the learned counsel while interpreting a provision of law the Legislature has to put prime importance as to whether the term "tax" would in a rational sense include tax on tax or not and as per the learned counsel a tax on tax cannot take place of a tax in a rational manner. 19. Learned counsel for the Department/State on the other hand submitted that the issue whether Entry 47 has to be interpreted in narrow manner or has to be given wide interpretation has already been addressed by the honourable Supreme Court in the case of Elahi Cotton Mills (Supra). The learned counsel also relied upon the decision reported as PTCL 1987 CL 233 wherein flood relief surcharge was introduced as an additional duty or burden on the taxpayers and it'was held that the said flood relief surcharge merges with excise duty or duty leviable on production capacity basis. 20. Before proceeding any further it would be convenient if relevant portion of the decision reported as Elahi Cotton Mills (supra) is quoted, which reads as under: "The power to levy taxes is a sine qua non for a State. In fact it is an attribute of sovereignty of a State. It is mandatory requirement of a State as it generates financial resources which are needed for running a State and for achieving the cherished goal, namely, to establish a welfare State. The Legislature enjoys plenary power to impose taxes within the framework of the Constitution. It has prima facie power to tax whom it chooses, power to exempt whom it chooses power to impose such conditions as to liability or as to exemption as it chooses, so long as they do not exceed the mandate of the Constitution. The entries in the Legislative List of the Constitution are not powers of legislation but only fields of legislative heads. The allocation of the subjects to the lists is not by way of scientific or logical definition but by way of mere simple enumeration of broad catalogue. A single tax may derive its sanction from one or more entries and many taxes may emanate from one single entry. An entry in the Legislative List must be given a very wide and liberal interpretation. The word "income" is susceptible as to include not only what is in ordinary parlance it conveys or it is understood, but what is deemed to have arisen or accrued. It is also manifest that income-tax is not only levied in the conventional manner i,e,, by working out the net income after adjusting admissible expenses and other items, but the same may also be levied on the basis of gross
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receipts, expenditure etc. There are new species of income tax namely, presumptive tax and minimum tax." 21. A perusal of the above quoted portion of the decision would reveal that though no doubt no tax shall be levied or collected except by an authority of law but it is a well settled principle of law that all the entries in the Legislative List should be given the widest possible and most liberal construction. A bare perusal of Entry 47 would show that the constitutional sanction to impose income tax is derivable by the Federal legislature from the words contained in the said Entry 47. The said Entry 47 and its comparable Entry No,43 of the 3rd Schedule to the erstwhile Constitution of Pakistan, 1962 has been the subject matter of interpretation by our own Supreme Court. In the case of PIDC v. Pakistan 1992 SCMR 891 a learned full bench of the honourable Supreme Court of Pakistan was pleased to endorse the dicta of the Federal Court so also the Supreme Court of India in the cases of United Provinces v. Mst. Atiqa Begum and others AIR 1941 FC 16, Navinchandra Mafatlal v. CIT (1954) 26 ITR 758 and K.P. Varghese v. ITO AIR 1981 SC 1922, according to which words in constitutional entries must be given the most liberal construction in the their widest amplitude; and also that the words in constitutional entries conferring the power of taxation should not be interpreted in any restricted or pedantic manner and that each general word should be extended to include all ancillary or subsidiary matters which can fairly and reasonably be comprehended. In this context, the Supreme Court in the PIDC case has cited with approval an excerpt from Volume 85 of Corpus Juris Secundum page 731 which reads as follows:--- "Income for any given period of time is the amount of gain so derived during the designated period. That which is not income cannot be made taxable by calling it income." ' The PIDC case decided by the Supreme Court has been cited with approval in Elahi Cotton Mills case. In the case of Commissioner of Sales Tax v. Hunza Central Asia Textile & Woolen Mills Ltd. (1999 SCMR 526) also this view of Elahi Cotton Mills was reiterated by holding that "any entry in legislative list is that the same should be given widest possible meaning". The word "income" used in the said Entry should be construed in a very wide manner and the power to legislate will take in all incidental and ancillary matters. Power to levy tax is a sine qua non for a State. State is run on the financial resources and for achieving its cherished goals taxes are imposed/levied. In the present case the rational, as is evident from the speech of the Finance Minister, appear to be to help the poor and needy persons of Swat and Wana, who have been displaced from their homes, which, in our view, is a noble cause and Pakistan being a welfare State has to accommodate its citizens whenever those persons are found in distress or are found to be in need of help of the Government. We fully agree with the observations made in the above judgment that legislature enjoys plenary powers to impose taxes within the frame work of the Constitution and it has the power to tax whom it chooses and power to exempt whom it chooses, so long they do not exceed the mandate of the Constitution. Entries in the Legislative List of the Constitution are not powers of the Legislation but only fields of legislative heads. Here we would like to reproduce the term "tax" used in the Ordinance: 2(63)."tax" means any tax imposed under Chapter II, and includes any penalty, fee, or other charge or any sum or amount leviable or payable under this Ordinance." 22. A perusal of the above definition of the term "tax" would reveal that this is an exhaustive definition which clearly states that tax includes any penalty, fee or other charges or sum or amount leviable or payable under the Ordinance. In our view, this definition is wide enough to cover a tax on tax also as the legislative entries have to be given widest possible meaning. Hence, in our opinion, imposition of tax on tax is within the legislative competence of the law makers under Entry 47 as the word tax is wide enough to embrace in it any sum or amount leviable or payable under the Ordinance. Moreover, our view is further strengthened in the light of the decisions reported as Sohail Jute Mills Ltd. (PLD 1991 SC 329) wherein the petitioner challenged the levy of surcharge/iqra
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surcharge which was in addition to the customs duty and the honourable Supreme Court of Pakistan upheld the same on the ground that it was nothing but in additional customs duty. In the case of 1987 MLD 106 also on 15-9-1973 vide Finance Supplementary Ordinance 1973 flood relief surcharge was introduced which duty was made payable in addition to the normal excise duty. It was held by the honourable Court that said flood relief surcharge would be considered not as an additional duty but the same merges with the excise duty or the duty leviable on production capacity basis. In the instant petitions also in our opinion the tax on tax has merged into the tax and could not be considered to be something beyond the legislative competence. 23. The learned counsel appearing on behalf of the petitioners have also admitted that the apex court in the above referred case has opined that the term "income" has to be given widest possible meaning and have further admitted that the Entries in the Constitution are to be given al liberal connotation. 24. Hence, in view of what has been stated above, and in view of the explicit findings given by the apex Court in the judgment quoted supra, we are of the view the Legislature is competent to impose and levy 1DPT in its judicial competence as Entry 47 is wide enough not only to include tax but also a tax on tax. Hence so far as this argument of learned counsel for petitioners that Federation has no poor to impose a tax on tax on income is concerned, we do not find any merit in this argument, which is hereby repelled. As we have given the decision on the legislative authority with regard to Entry 47 hence any discussion on definition of income, income tax, tax, tax on tax, nature of Finance Act, and pith and substance would only become academic. 25. The learned counsel for the petitioners thereafter submitted that the IDPT has been introduced by way of adding a proviso in the First Schedule to the Ordinance which deals with rates of taxes and no specific and reciprocal amendment has been made in the main Ordinance itself. He further submitted that schedule aids the law and has no independent value. He added that the decision given in the case of Ellahi Cotton Mills (Supra) is clearly distinguishable as in that case…
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