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Petitioner: Muhammad Khalid Qureshi VS Respondent: Province of Punjab through its Secretary, Excise & Taxation Department, Lahore, & another
Court Name: Lahore High Court Judge(s): Shahid Jamil Khan, Muhammad Sajid Mehmood Sethi Title:Muhammad Khalid Qureshi vs Province of Punjab through its Secretary,
Excise & Taxation Department, Lahore, & another Case No.: W. P. No.26223 of 2014 Date of Judgment:2016-10-19 Reported As: 2016 LHC 3157 Result: Petitions allowed Judgment MUHAMMAD SAJID MEHMOOD SETHI, J.- This consolidated judgment shall decide instant petition, as well as, connected petitions mentioned in Schedule-A, as all these cases raise common questions of law and facts. 2. Petitioners are aggrieved by levy of "Luxury House Tax" imposed by Government of Punjab through Section 8 of the Punjab Finance Act, 2014 ("PFA, 2014" ). Government of Punjab has re imposed luxury tax on residential houses measuring 02-Kanals or above and 08-Kanals or above, located on the immovable property in the limits of: (a) a notified rating area under the Punjab Urban Immovable Property Tax Act, 1958 (V of 1958) ("the Act of 1958") ; (b) a cantonment under the Cantonment Act, 1924; and (c) any other area within the province as notified by the Government. Petitioners received notices along with Challan Form No.32-A, demanding assessed luxury tax on their houses. Through these petitions, petitioners call in question the legality / constitutional validity of the law as well as charging, levy, assessment and demand of luxury tax on residential houses introduced by Section 8 of the PFA, 2014, along with impugned demand notices / Challans. Prayer of instant petition reads as follows:- "It is, therefore, most respectfully prayed that the impugned luxury tax on residential house re-imposed by and /or under Section 8 of the Punjab Finance Act, 2014 may graciously be struck down and being discriminatory and inconsistent with the fundamental rights entrenched in the Constitution of the Islamic Republic of Pakistan, 1973, It is further prayed that the impugned Notice may very kindly be set-aside. It is also prayed that the operation of the Impugned Notice issued by the respondent No.2 may graciously be suspended and the respondents may kindly be restrained from adopting coercive measures for the recovery of impugned luxury tax till the final decision of instant Writ Petition. An appropriate writ/direction may kindly be granted/ issued against the respondents." 3. Mr. Salman Mansoor , Advocate for petitio ners opens his arguments by challenging the vires of Section 8 of the PFA, 2014, inter alia, contending that charging of "luxury house tax" is in violation of Article 25 of the Constitution of
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the Islamic Republic of Pakistan, 1973 ("the Constitution") . Relying on Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan, through Secretary M/o Finance, Islamabad and 6 others (PLD 1997 S.C. 582 = 1997 PTD 1555), he contends that impugned First Schedule is ultra vires Article 25 of the Constitution, in as much as it adopts a totally irrational and unreasonable criteria of classification, having no rational nexus with the object of the statute. The basic attack is that categories in First Schedule place/treat differently placed properties in a similar and uniform manner by adopting an irrational and unreasonable criteria of area measurement only. He adds that vastly different and dissimilar properties having different value and different nature of luxury or no luxury at all have been clubbed together in only two categories of 2 Kanals and 8 Kanals or above, which violates the basic ingredient of classification that "things of equal value are to be taxed equally". This is ex-facie discrimination. He submits that in Lahore, one Kanal is equivalent to 4500 Sqft wherein one Marla is equal to 225 Sqft. Whereas, in other areas of the Province, one Kanal consists of 5440 Sqft. and one Marla is equal to 272 Sqft. Hence, even the area in Kanals is not similar and equal throughout Punjab, therefore, imposition of "Luxury House Tax" with reference to Kanal is thus arbitrary, whimsical and discriminatory. He refers different paragraphs and lines from the judgment delivered in Messrs Elahi Cotton Mills' Case (supra), wherein Hon'ble Supreme Court of Pakistan cited different judgments from Indian jurisdiction and also quoted different paras, inter alia, including The State of Kerala v. Haji K. Kutty Naha and others (A.I.R. 1969 Supreme Court 378) and Kunnathat Thathunni Moopil Nair etc. v. State of Kerala and another (A.I.R. 1961 Supreme Court 552). Learned counsel also refers to the observations of Indian Supreme Court contained in Navnit Lal C. Javeri v. K.K. Sen, Appellate Assistant Commissioner of Income-tax, Bombay (A.I.R. 1965 Supreme Court 1375) , available in Messrs Elahi Cotton Mills' Case (supra) at page 653 and reads as under:- "....This doctrine does not, however , mean that Parliament can choose to tax as income on item which in no rational sense can be regarded as a citizen's income. The item taxed should rationally be capable of being considered as the income of a citizen ...." He also relies on I.A. Sharwani and others v. Government of Pakistan through Secretary , Finance Division, Islamabad and others (1991 SCMR 1041 ) to contend that classification must be based on an intelligible differentia which distinguishes persons or things that are grouped together from those who have been left out. He continues to argue that dif ferentia must have rational nexus to the object sought to be achieved by such classification. He relies on Bhuvaneswariah and others v. State of Mysore and others (A.I.R. 1965 Mysore 170) and Lokmanya Mills Barsi Ltd. v. Barsi Borough Municipality , Barsi (AIR 1961 Supreme Court 1358) and contends that impugned legislation does not qualify the test of judgments, reproduced above. He adds that taxation has direct nexus with the capacity to pay tax but in this case the said principle has totally been ignored by the legislature. On facts, he submits that anti-dated notices for recovery of impugned tax, without framing any rules, were served upon the petitioners. He maintains that no jurisdiction was vested with responde nt No.2 to issue notices and to charge or collect the impugned tax. He adds that the rules were promulgated through Gazette Notification dated 19.11.2014, wherein a procedure for the purpose of assessment and collectio n was given. He argues that impugned notices could not have been issued without prior assessment of the property . He has placed reliance on Assistant Collector Customs, Dry Port, Peshawar & others v. M/s Khyber Electric Lamps MFG Co. Ltd., Peshawar (PTCL 2002 CL. 1 ). He argues that valuation and assessment of property before taxation is fundamental right of the petitioners but no mechanism/ machinery for assessment of the property to be taxed is provided in PFA, 2014. He has also referred Government of Punjab through Secretary , Excise and Taxation, Lahore and others v. Jamshed Waheed and another (2004 SCMR 1146), whereby decision of this Court reported as Jamshed Waheed v. Government of Punjab through Secretary , Excise and Taxation, Lahore and 5 others (PLD 2001 Lahore 395) was upheld by Hon'ble Supreme Court of Pakistan and the method for evaluation, as provided under Section 5(a) of the Act of 1958, was turned down. He has also placed reliance on Messrs Metropole Cinema (Pvt.) Ltd. v. Government of Punjab and others (2007 SCMR 1937 ) to conclude his ground that fair and transparent method of assessment/evaluation is pre requisite to charge/levy tax on property .
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Arguing on the exceptions to general rule that legislation is made competently and Courts are to save the same to the maximum extent, learned counsel submits that a provision of law can be declared as ultra-vires, if it offends fundamental rights guaranteed under the Constitution and the same is ex-proprietary and confiscatory in nature. He has placed reliance on judgment in Messrs Elahi Cotton Mills' Case (supra). He maintains that any attempt of recovering/ levying the tax in violation of fundamental rights guaranteed under Articles 23 and 24 of the Constitution shall be liable to be struck down or declared ultra-vires. He submits that any provision of law, absurd in nature and not workable despite effort to harmonize it, is liable to be struck down. He relies on Engineer Iqbal Zafar Jhagra and another v. Federation of Pakistan and others (2013 SCMR 1337). He argues that any taxing provision legislated with the purpose to give benefit or to penalize the subject instead of collecting revenue is liable to be struck down. He has placed reliance on judgment in Baz Muhammad Kakar and others v. Federation of Pakistan through Ministry of Law and Justice and others (PLD 2012 SC 923) and contends that an attempt to take away the right of being assessed for tax in question has been made through the impugned legislation, which is liable to be declared ultra-vires. He continues to argue that any legislation intending to disturb the scheme of the Constitution, including any judgment of Hon'ble Supreme Court determining rights of the citizens, can also be held ultra-vires. To substantiate this submission, he placed reliance on Ziaullah v. Najeebullah and others (PLD 2003 SC 656) and Jamat-i-Islami Pakistan through Syed Munawar Hassan, Secretary-General v. Federation of Pakistan through Secretary, Law, Justice and Parliamentary Affairs (PLD 2000 SC 111). Learned counsel for the petitioners argued that the impugned tax does not fall within the purview of legislative competence of the Province. It falls within the first portion of Entry No.50 of the Federal Legislative List available in Fourth Schedule of the Constitution. He reiterates that Entry No.50, read in the context of above, postulates that "Taxes on the Capital Value of the Assets" fall within the ambit of the Federation, and that is why Capital Value Tax/CVT on the immovable property is being levied by the Federal Government imposed through Circular No.18 of 1992 read with the Finance Act, 1992. He submits that it is a universally accepted definition of the Capital Value (as distinguished from the actual Market Value) that "Capital Value is the Probable Price / Hypothetical Price that would have been and could be paid for the asset / property , being a price on which it is likely to be sold ". He adds that it is also a principle of universal application that all taxes on the capital value of an asset are normally one-time taxes. The taxes on one-time basis are assessed on the capital value of the assets, as capacity as well as quantum of tax is determined and based upon capital value of the asset. He has relied on judgmen t in Bhuvaneswariah and others v. State of Mysore and others (AIR 1965 Mysore 170) and Flying Cement Company v. Federation of Pakistan and others (PLD 2016 Lahore 35 ). He further contends that tax which is on immovable property and not on its capital value is normally on the basis of its annual letting value or the income being generated from such and is thus on a regular basis. In present case, the First Schedule calculates the tax on the property assuming a probable value of any 2 Kanals/8 Kanals Plot throughout the Province and then on the basis of that assumed/ probable value of the capital assets determines the burden of tax that is to be borne by the citizens. Law neither assesses the value of land nor assesses the luxury. How does it then calculate the quantum of tax? Answer is, on basis of assuming a probable value. Keeping in view this factor, it is clear that in pith and substance, it is a tax on the capital of the immovable property and such tax is not covered by the general entry of taxes on the immovable property. Property is also an asset and has been targeted as a high capital value asset and all taxes on the capital value of the property fall within domain of the Federation. Learned counsel adds that entire assessment process cannot be completed without due process of law and without notices as ordained in Article 10-A of the Constitution. He adds that unbridled powers of exemption have been given in the impugned legislation. He contends that mere delegation of power to exempt, without any controlling parameters, was deprecated and held insuf ficient to cure the defect in the legislation. He has referred to Shaukat Ali Mian and another v. The Federation of Pakistan (1999 CLC 607), Haji K. Kutty Naha' s case (supra) and Lokmanya Mills Barsi Ltd.'s case (supra).has force of precedent only to the extent of law point decided in it and not otherwise. He adds that in Syed Aizad Hussain and others v. Motor Registration Authority and others (PLD 2010 SC 983) the ground of assessment, as well as, inter se clause of
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discrimination was neither raised nor was in issue at all. Further submits that in the case of tax on luxury vehicles, a tax was levied on a product whereas, in the instant case, tax was being levied on a land for which different parameters were to be looked into by the legislation. He concludes that the word "luxury" has not been explained in the entire legislation as no definition of luxury is spelled out from its provisions. 4. Mr. Taffazul H. Rizvi, Advocate for petitioners, by referring to definitions of "Luxury Tax", submits that "Luxury Tax" means "anything which is over and above the necessaries/necessities of life". He explains that a house (immovable property) measuring 02 Kanals or above is not luxury per se. By referring to judgments from Indian Jurisdiction, he submits that method of levying luxury tax has not been adhered to in the impugned law. He relied on A.B. Abdul Kadir and others v. State of Kerala (AIR 1976 SC 182) and State of Haryana and others v. Shri Ram Chander (1976)2 SCR 690). Learned counsel submits that imposing luxury tax on immovable property is putting a limit of holding immovable property , which is in the exclusive legislative domain of Majlis-e Shura/ Parliament. Learned counsel further submits that by giving definition of "owner" in Rule 2(f) of the Punjab Luxury House Tax Rules, 2014 ("Rules of 2014"), the government has travelled beyond the capacity given under Section 8 (13(a)) of PFA, 2014. He explains that in subsection (3) the word "owner" or "occupant" is used for the purposes of charging tax. He further explains that by defining the word "owner" the liability is extended on the lessee. By referring to Displaced Persons (Compensation and Rehabilitation) Act, 1958, for the purpose of allotting the immovable property , learned counsel submits that the framers have ignored Displaced Perso ns (Land Settlement) Act, 1958. He concludes that the definition to this extent is vague and cannot be enforced. 5. Mr. Zahoor Ali Nasir Tagga, Advocate, appearing on behalf of petitioners, submits that Luxury Tax is not defined in PFA, 2014, therefore, its dictionary meanings are to be considered. As per Black' s Law Dictionary , "Luxury Tax" is "Excise Tax" and under Entry No. 49 of Fourth Sche dule of the Constitution, it is leviable exclusively by the Federal Government. He was confronted with the definition of "Excise Tax", which is leviable on production or sale of goods; whereas the instant tax/ levy, as per Section 8 of PFA, 2014, is on immovable property , whereupon he could not reply satisfactorily . He has referred to Item No.62 of State List in the Indian Constitution to contend that Luxury Tax is placed along with entertainment, betting and gambling, therefore, following the principle of ejusdem generis , it cannot be levied on mere use of immovable property . He submits that if this tax is on value of immovable property , then it falls under Item No.50 of Fourth Schedule of the Constitution, where-under capital value of any immovable property is taxable by Federal Government. He further submits that it is not specified whether the impugned tax is on value of the immovable property or not. He argues that there is difference between Bill and the Act passed by the Provincial Government. He adds that no debate was conducted before passing the Bill, therefore, the impugned legislation is ultra vires in view of Article 70 of the Constitution. He has referred to Warid Telecom (Pvt.) Ltd. and others v. Federa tion of Pakistan and others (2014 PTD 752) to contend that if the levy is on use of immovable property , then it is an unwarranted double taxation. He also referred to Pakistan Steel Mills Corporation v. Muhammad Azam Katper and others (2002 SCMR 1023) to contend that a tax cannot be levied retrospectively. It is also argued that use of a property is income as per judgment in Abdul Hafeez Abbasi and others v. Managing Director, Pakistan International Airlines Corporation, Karachi and others (2002 SCMR 1034), therefore, it is taxable by the Federal Legislature only. 6. Mr. Noshab A. Khan, Advocate along with other learned counsel for connected writ petitions, whose names are appearing in Schedule A, besides challenging the vires of law as well as rules and notices issued by respondents, has also addressed his arguments on the points i.e. (i) confiscatory in nature; (ii) double taxation; and (iii) retrospective effect. They have adopted the arguments advanced by the above mentioned learned counsel for petitioners. 7. Kh. Haris Ahmad, Advocate for the respondents, referring Entry No. 50 of the Fourth Schedule of the Constitution submits that all the residua ry items/subjects not mentioned in the Fourth Schedule fall within the competence of Provincial Legislature. He contends that Entry No. 50 specifica lly excluded tax on immovable property from the competence of Federal Legislature. He further submits that the interpretation of any legislative entry in the Constitution itself has to be construed broadly and liberally .
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He read definition of "taxation" from Article 260 of the Constitution to submit that competence of a Province to tax an immovable property cannot be given restricted meaning. It gives power to legislate all kinds of taxes including tax on luxury relating to immovable property . Answering to Court' s query , regarding argument of Mr. Salman Mansoor , Advoc ate for the petitioners, that by Section 8 of Act of 1997 'one time luxury tax' has already been imposed on houses/immovable property comprising of 4 Kanals and more, therefore, the same tax cannot be levied again through recent/subsequent legislation, which would amount to double taxation, learned counsel submits that the instant levy is on the houses constructed w.e.f. the year 2001. In response to the arguments made by petitioners' side, he submits that this tax is composite and rate of tax mentioned in First Schedule is a formula for the purpose of taxing the houses and land for assessing the tax on the luxury houses, which includes land and structures. When confronted with phrase in subsection (1) of Section 8 "located on the immovable property in the limits of" with the definition of residential houses read with the formula given in the First Schedule, he has reitera ted the submissions noted above and argued that, in case of challenge to vires of a legislation, if two interpretations are possible, only favouring the legislation is to be adopted. He adds that the phrase noted above is meant only for the houses located within the limits of notified areas and has reiterated that it is not only a superstructure which is being charged on an immovable property . Learned counsel for the respondents alternatively submits that if this Court reaches the opinion that it is a tax being charged on the superstructure, even then the legislature is competent to levy such tax, as it is not on capital value of the property. He further submits that what is being taxed through this legislation is relating to luxury. Responding to the argument that taxing the properties which are not luxurious in nature, or the owners of the properties do not have capacity to pay the tax, he submits that Clause (a) of subsection (9) of Section 8 of PFA, 2014 has also delegated powers to the Government (Provincial Government), who may exempt any area or any residential house or a person from the whole or any part of tax charged under this Section. He further contends that under clause (b) of subsection 9, even grievance committee can exempt any residential house which directly addresses the hardship cases. He adds that on the basis of one or two examples of hardship, a law cannot be set at naught or declared ultra vires . He submits that procedure of furnishing return and assessment has been given in Rules of 2014. Under Rule 2(b) of the Rules of 2014, Senior Excise and Taxation Officer or Excise & Taxation Officer, having jurisdiction in the district, is the assessing authority . He adds that in view of Section 8(10) of the PFA, 2014 read with Rules of 2014, tax is to be paid, recovered, administered and regulated, as nearly as possible, according to procedure already given under the Act of 1958. He further contends that the Rules of 2014 are substantially in consonance with the procedure given in the Act of 1958. He relied on Messrs Elahi Cotton Mills' Case (supra) to submit that tax can be imposed upon intelligible recognized class of persons, and that double taxation is not prohibited by the Constitution. Learned counsel argues that capacity of Provincial Legislature to tax on luxury motor cars has already been decided by learned Division Bench of this Court in Syed Muhammad Murtaza Zaidi v. Motor Registration Authority and others (2010 CLC 494). He adds that almost all the grounds raised by petitioners vis--vis retrospective application of a legal provision, vested right of petitioners, double taxation, competence of the Legislature, discrimination and reasonable classification, etc. have already been answered in the said case. He has read relevant portions from judgment in Syed Aizad Hussain' s case (supra) to submit that the decision of learned Division Bench was upheld by the august Supreme Court of Pakistan after attending to all the issues. To fortify his stance, he has emphasized on observation of Hon'ble Court to submit that the judgments from Indian Jurisdiction on the point of discrimination were not considered by Hon'ble Court because of non-availability of such parallel provisions in the Constitution of Pakistan. He has also read Section 6 of the Punjab Finance Act, 2008 ("Act of 2008") , whereby tax was imposed on vehicles, to submit that provisions of Section 8 of PF A, 2014 are pari materia . On Court' s query , that one Kanal of land is differently measured in different districts of Punjab, learned counsel has conceded this fact, however , relying on Government of Balochistan through Additional Chief Secretary v. Azizullah
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Memon and 16 others (PLD 1993 SC 341), submits that Courts should not expect from the Legislature to draw a scientific accuracy for the purpose of taxing a class of persons. He submits that the law has chosen to tax on the basis of Kanal irrespective of its measurement, which cannot said to be discrimination to declare it as ultra vires . On the question of ultra vires , he has referred to a latest judgment by Hon'ble Supreme Court of Pakistan in Lahore Development Authority through D.G. and others v . Ms. Imrana T iwana and others (2015 SCMR 1739 at 1769) . He has laid emphasis on the phrase "as nearly as possible" to submit that the Rules of 2014 made under subsection (13) of Section 8 are not ultra vires of the provisions of subsection (10). He has read provisions of Sections 12, 13, 14 and 16 of the Act of 1958 to substantiate his argument that the procedure given under the Rules is "as nearly as possible" and not in conflict with the Act of 1958. He submits that any factual dispute regarding livability and chargeability of tax can be seen by the grievance committee under subsection (11) of Secti on 8 of PFA, 2014. He has placed reliance on Syed Sagheer Hussain v. Province of Sindh through Chief Secretary and 2 others (2011 PLC (CS) 447), Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others and Commissioner of Income Tax, Karachi v. Abdul Ghani (2007 PTD 967) to submit that applying or wrong mentioning of any provision of law is not fatal if text of the notice conveys to the taxpayer the intent of legislature and reasons for levying tax etc. In support he has referred Messrs Nishat Mills Limited v. Superintendent of Central Excise Circle II and 3 others (PLD 1989 SC 222) and Saghir Ahmed through Legal Heirs v. Province of Punjab through Secretary , Housing and Physical Planning Lahore and others (PLD 2004 SC 261 ). He has also referred to Atta Muhammad Qureshi v. The Settlement Commissioner, Lahore Division, Lahore and 2 others (PLD 1971 SC 61 at pages 70 & 71) to submit that language of the provision itself is important to determine its mandatory or directory character. He further submits that the language of subsection (10) of Section 8 ibid…
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