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Petitioner: Zaka ud Din Malik VS Respondent: Federation of Pakistan and others
Court Name: Lahore High Court Judge(s): Asim Hafeez Title: Zaka ud Din Malik vs Federation of Pakistan and others Case No.: Writ Petition No.50314 of 2022 Date of Judgment:2022-01-23 Reported As: 2023 PTD 268 Result: Petitions dismissed
JUDGMENT
JUDGMENT ASIM HAFEEZ, J. Hereunder follows the reasoning of order of dismissal of subject matter petitions, announced in open court on 22.12.2022, after hearing the submissions [hearings spread over various dates]. This and connected constitutional petitions (listed in the attached schedule A) throw challenge to the constitutionality of Section 8(2)(b) of the Finance Act, 2022 ("Act of 2022") on the premise of being non-conforming to the constitutional. requirements; substantially on two-counts, firstly, that the law legislated, whereby it had allegedly taxed the foreign assets of the petitioners, is not within the territorial grasp of the Parliament; and secondly, the absence of legislative competence, because matter of taxing immovable property exclusively falls within the legislative domain of the provincial legislature(s). Basis of constitutional limitations: Want of territorial competence of the Parliament is inter alia questioned in the context of clause (2) of Article 1 of the Constitution of the Islamic Republic of Pakistan, 1973 ("the Constitution"); and its ability to legislate to tax the immovable property is quizzed in wake of restrictions imposed inter alia in terms of Article 142(c) of the Constitution, pleading that authority to tax immovable property is beyond the reach of entry 50 of the Federal Legislative List of the Fourth Schedule of the Constitution (entry 50). Submissions in support of the petitions. 2. Learned counsel argues that Parliament lacks authority to tax assets located outside the territorial limits of Pakistan, which limits are defined under Articles 1(2) and 141 of the Constitution. Adds that even otherwise Parliament is divested of any authority to tax immovable property, which
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was excluded in terms of entry 50. Referred to the case of Muhammad Khalid Qureshi v. Province of Punjab through Secretary, Excise and Taxation Department, Lahore and another (2017 CLC 523). 3. Learned counsel for the petitioner of W.P. No.55307/2022 submits that authority to tax foreign assets is neither covered under entry 50 nor any support could be drawn from residual entry 58. And provincial legislature(s) enjoys exclusive powers to tax immovable property under Article 142(c) of the Constitution. Submits that expression 'tax' and 'taxation' must be construed in the light of Article 260 of the Constitution. Further submits that taxing of foreign assets otherwise violates arrangements / treaties regulating double taxation regime, concept internationally recognized and acknowledged locally under section 103 of the Income Tax Ordinance, 2001. Refers to the cases of Pakistan Mobile Communication Ltd. and 2 others v. Pakistan/Federation of Pakistan and others (2022 PTD 266) and Pakistan International Freight Forwarders ASSN and others v. Province of Sindh and others (2017 PTD 1). 4. Learned counsel representing petitioners in petitions bearing W.Ps. Nos. 58940, 59033 and 62659 of 2022, banked on the expression 'not including' in entry 50 to emphasize that Parliament had no powers to tax the immovable property and exclusion provided required protection to give effect to the autonomy envisaged through Eighteenth Constitutional Amendment ('Eighteenth Amendment'). Adds that expression "assets" referred in first half of the entry be read subject to the exclusion provided to guard the exclusivity extended to provincial legislature(s) qua immovable property. Refers to judgments from ours and neighbouring jurisdiction, reported as "Haji Muhammad. Shafi and 3 others v. Wealth Tax Officer, Circle IV, Karachi and 3 others" (PLD 1989 Karachi 15). "Messrs I.C.C. Textile Ltd., and others v. Federation of Pakistan and others" (2001 SCMR 1208), "B. P. Biscuit Factory Ltd., Karachi v. Wealth Tax Officer and another" (1996 SCMR 1470), "Ibrahim Brothers Ltd. v. Wealth Tax Officer, Circile III, Karachi and another" (PLD 1985 Karachi 407), "Sanaullah Woollen Mills Limited and another v. Monopoly Control Authority Limited and others" (PLD 1987 SC 202), "Haji Ismail Dossa v. Monopoly Control Authority" (PLD 1984 Karachi 315), "Mehmood-ul-Hassan Babar Khan v. Liaqat Ali Karim and 9 others" (2002 YLR 2227), "Hafiz Ziauddin v. Muhammad Ismail and another" (PLD 1959 (W. P.) Karachi 52), "Muhammad Sohail Siddiqui and 2 others v. Mst. Parveen alias Munni" (2010 MLD 1433), "P.I.C.I.C. v. Fa al Corporation (Pvt.) Ltd., and another" (PLD 1993 Karachi 671), "Ahmad G.H. Arif and others v. The Commissioner of Wealth Tax Calcutta" (AIR 1971 SC 1691), "Maharashtra State Co- operative Bank Ltd. v. The Employees Provident Fund Organization and others" (AIR 2010 SC 868), Messrs Julian Hoshang Dinshaw Trust and others v. Income-Tax Officer, Circle XVIII South Zone, Karachi and others (1992 PTD 1). Learned counsel also highlighted the principles to be considered and appreciated while interpreting Constitutional provisions and declaration qua voidability of colourable legislation. Referred to the cases of Messrs Sui Southern Gas Company Ltd. and others v. Federation of Pakistan and others (2018 SCMR 802), Pakistan International Freight of Forwarders Association through General Secretary v. Province of Sindh through Secretary and ahother" (2017 PTD 1), Baz Muhammad Kakar and others v. Federation of Pakistan through Ministry of Law and Justice and others (PLD 2012 Supreme Court 923) and "Federation of Pakistan and others v. Shaukat Ali Mian and others" (PLD 1999 SC 1026). 5. Learned counsel for the petitioners of petitions bearing W.Ps. Nos.59443, 59438 and 59463 and 59488 of 2022 opens account with an assertion that no taxes could be imposed on foreign assets in respect whereof declarations were made under the amnesty schemes offered by the Federal Government. Emphasized that entry 50 consists of two integrated parts, connected by the phrase 'not including', and authority to legislate qua taxes on capital value of assets is extended to the Federation but power to tax immovable property stood specifically excluded. Adds that exclusionary clause in fact qualifies and restricts the generality of capital value taxes on assets.
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Submits that through Eighteenth Amendment only the incidence of 'capital gains' was omitted from the latter half of entry 50, though the basic structure of entry 50 remained unchanged. Submissions are articulated while exercising right of rebuttal. 6. Learned counsel representing petitioners in W.Ps.Nos.67450, 67451, 67587, 67608, 71372, 71369, 71371, 71378, 71380 and 72393 of 2022, highlighted the scope and scheme of the impugned section, i.e., Section 8(2)(b) of Act of 2022. Adds that taxing the foreign assets of resident individuals - those who are not domiciled here but .only residing here for 183 days only - is unlawful, irrational and contrary to the double taxation regime. In brief, learned counsel questioned the vires of Section 8(2)(b) of Act of 2022 on following grounds, (i) lack of legislative competence, (ii) imposition of tax on the gross value of assets without allowing adjustment of debts / liabilities against immovable properties, (iii), nature of the tax is alike a wealth tax on the gross value of the assets / immovable properties, which is impermissible in the context of entry 50. Adds that Federal Government cannot tax assets outside the territorial limits defined through Article 1(2) of the Constitution. Adds that in terms of Article 97 the Executive authority of the Federation extends to the matters with respect to which Parliament has power to make laws and not otherwise. Also referred to Articles 141, 142 (c), 143, 144, 260, 264 of the Constitution to support contentions. Adds that the expression "extra territorial operations" in Article 141 of the Constitution must be read 'subject to the Constitution' and especially in the context of entries 3 and 32 of the Federal Legislative List, which specifically empowers Parliament to legislate vis-a-vis said matters covered thereunder. Submits that by virtue of Article 270AA(7) of the Constitution, appropriate legislature (s) legislated with respect to the matter of Sales Tax on Services, which become provincial subject by virtue of amendment is entry 49. Submits that question of extraterritoriality of any legislation need to be contextualized in the context of international treaties, conventions and agreements, hence, imposition of tax on foreign assets otherwise violates the mandate thereof. Reference is made to the cases of 'Government of Punjab and others v. Aamir Zahoor-ul-Haq and others" (PLD 2016 SC 421) and "Societe Generale De Surveilanace S.A. v. Pakistan through Secretary Ministry of Finance, Revenue Division, Islamabad" (2002 SCMR 1694). Learned counsel distinguished Article 141 of the Constitution from Article the 245(2) of the Constitution of India and submits that sub-Article (2) of Article 245 extends protection to extra territorial legislation, which manifests no commonness with Article 141, ibid. Submissions by respondents to support tax in question. 7. Learned counsel representing FBR submit that entry 50 in fact envisaged separate and mutual exclusive class of taxes, first half thereof provides for tax on capital value of assets and second half provided for tax on immovable property, latter coming within the legislative competence of the Provincial legislature(s). Emphasized that two kinds of taxes belong to separate and distinct species in the light of ratio of the decision in the case of Muhammad Khalid Qureshi v. Province of Punjab through Secretary, Excise and Taxation Department, Lahore and another (2017 PTD 805) ("luxury-house tax case") and read paragraphs 19 and 20 thereof [at pages 827, 828 and 829]. Learned counsels submit that Parliament is otherwise competent to legislate with respect to any matter falling beyond the territories of the provinces, and Parliament is empowered to legislate. Learned counsel referred to decision in the case of Messrs Sui Northern Gas Company Ltd. and others v. Federation of Pakistan and others (2018 SCMR 802) - particularly paragraphs 15 and 17 of the judgment. Adds that levy under reference is otherwise covered in terms of Article 141 of the Constitution, if at all construed of having extra territorial operations. Referred to the case of GVK Inds. Ltd. and another v. The Income Tax Officer and another [2011 4 (SCC) 36], to highlight the scope of Article 245 of the Constitution of India in the context of laws having extra territorial operations and legitimacy thereof. Argues that presumption of constitutionality is attracted and unless rebutted, laws are deemed to be intra vires. Referred to the case of "Lahore Development
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Authority through D.G. and others v. Ms. Imrana Tiwana and others" (2015 SCMR 1739) at page 1769 to highlight the principles of interpretation of statutes. Learned counsel drew dissimilarities in the tax of capital value of assets and tax on immovable property by referring to and reading entries 86 of the Union List and 49 of the State List of Seventh Schedule of the Constitution of India, and referred decision in, the case of Sudhir Chandra Nawn v. Wealth-Tax Officer, Calcutta and others (1969 AIR Supreme Court 59). Submits that 8(2)(b) of the Act of 2022 had not imposed any tax on the immovable property, therefore question of encroaching upon occupied legislative field does not arise. To support submissions referred decisions in cases of "Federation of Pakistan through Chairman FBR and others v. Saleem Raza" (PLD 2020 SC 320) and "Electronics Corporation of India v. Commissioner of Income Tax and another" (1989 SCR (2) 994). 8. Learned Assistant Attorney General questioned the maintainability of the petition in the light of ratio of "Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others" (PLD 1997 SC 582); averring that levy of tax is the part of the economic policy / matters, which is not amenable to judicial review jurisdiction. Adds that distinctiveness of the tax on capital values of assets was acknowledged in the case of "Haji Muhammad Shafi and others v. Wealth Tax Officer and others" (1992 PTD 726). Submits that instances of laws having extra-territorial operation(s) are found in various jurisdictions across the world and such laws cannot be declared invalid on the ground of being ultra vires, but the courts of the legislating country are bound to enforce such laws. Adds that Federal Government has legislated various laws having extra-territorial operations, referred to the National Accountability Ordinance, 1999, Anti-Money Laundering Act, 2010, etc. Referred to the cases of "Controller of Excise Duty v. John De'Sooza" (Indian Law Review) 1974 Karnataka page 299) and "A.H. Wadia v. Commissioner of Income-Tax" (Indian Law Review) 1974 Karnataka page 299 and Bombay Law Review (1949) 51 page 287. Emphasized that tax on capital value of assets and taxes on immovable properties are separate levies and no occasion of alleged legislative collision arises between the Parliament and Provincial legislature(s) - referred to Entry 86 of the Union List and Entry 49 of the State List of the Constitution of India to highlight distinct characteristics of the levies. Submissions in rebuttal: 9. In rebuttal, learned counsel for the petitioners in W.Ps. Nos.59443, 59438 and 59463 and 59488 of 2022 submits that essence of the submissions in support of the tax is that exclusionary phrase [`not including'] excludes, what cannot otherwise be included within the scope of taxes on capital value of assets, and in case such submissions are appreciated, it would render the exclusionary clause redundant, which is an inconceivable phenomenon while construing provisions of the Constitution. Adds that Government of India Act, 1935 recognized distinct character of the taxes on land and building and taxes on capital value of the assets - Referred to Entry 55 of the Federal Legislative List and Entry 42 of Provincial Legislative list of Act of 1935 to highlight distinctiveness between the levies [tax on capital value of assets and tax on the lands and buildings] - but adds that exclusion provided in Entry 50 manifest a purpose. Explained that three kinds of taxes are recognized with respect to immovable property, a) Taxes on capital value of immovable property. b) Taxes on the rental value of immovable property c) Taxes on the size or other physical attributes of immovable. property. Submits that essence of the submissions of the respondents are that category (b) and (c) of taxes were excluded from legislative domain of the Parliament, which could competently tax on the capital value of assets. And category (b) and (c) were already excluded from the scope of taxes on capital value of assets, and it cannot be implied or inferred that exclusionary clause was simply drafted to reaffirm exclusion of categories (b) or (c), already excluded. Submits that instead of attributing redundancy to the exclusionary clause, its real objective need to be explored, which,
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evidently, is the exclusion of immovable property from the scope of tax on capital value of assets. Adds that when words occur in relationship to each other, necessarily, the tools of statutory interpretation need to be invoked. Refers to the rule of Ejusdem Generis and Noscitur a socii. States that words take colour from their context and general words that follow, otherwise relatable to the focused expressions, must be read in the context of the focused expressions, with qualifications that make them relatable to the focused words. Submits that post-eighteenth amendment the scope of the exclusionary clause stood widened. Adds that while applying rule of Ejusdem generis the expression "taxes" in the exclusionary clause would imply placing of restriction to tax the immovable property. Refers to decisions in the cases of AAM LOG Ittehad and another v. The Election Commission of Pakistan and others (PLD 2022 Supreme Court 39), Justice Shaukat Aziz Siddiqui and others v. Federation of Pakistan through Secretary Law and Justice, Islamabad and others (PLD 2018 Supreme Court 538), Sami Ullah Baloch and others v. Abdul Karim Nousherwani and others (PLD 2018 Supreme Court 405), Syed Jalal Mehmood Shah and another v. Federation of Pakistan and another (PLD 1999 Supreme Court 395) and Shahid Nabi Malik and another v. Chief Election Commissioner, Islamabad and 7 others (PLD 1997'Supreme Court 32). 10. Further submits that purpose and effect of an exclusionary clause is to exclude, what would otherwise be included. Adds that exclusionary clause implied exclusion of authority to tax immovable property, uninfluenced by the expression assets in entry 50. Refers to cases from neighbouring jurisdiction, reported as Sunrise Associates v. Government of NCT of Delhi and others [(2006) 5 SCC 603], Daman Singh and others v. State of Punjab and others (AIR 1985 SC 973) and Union of India (UOI) v. Harbhajan Singh Dhillon (AIR 1972 SC 1061). Adds that historical evolution of constitutional process must be appreciated while interpreting the provisions thereof. Adds that Constitution is not a document which is written on 'tabula rasa' but required to be interpreted in the context of historical perspective and evolution, referred the case of "M.P.V v. Sundararamier & Co. v. The State of Andhra Pradesh and others" (AIR 1958 SC 468). Learned counsel referred to following cases, to elaborate the rule of Ejusdem Generis and Noscitur a socii, Shakeel Shah v. The State and others (2022 SCMR 1), Silk Bank Limited through Team Leader Legal v. Sui Northern Gas Pipelines Limited through Authorized Attorney and 9 others (PLD 2021 Lahore 5), Commissioner Inland Revenue (Zone-I) LTU, Karachi v. Messrs Linde Pak Ltd., Karachi (2020 SCMR 333), Messrs Asfaq Trading Company through Proprietor v. Collector of Customs, Model Customs Collectorate, Lahore through Deputy Collector of Customs (Group-1), Lahore (2016 PTD 2111), Barkhurdar v. Appellate Tribunal/Additional District and Sessions Judge and 3 others (PLD 2010 Lahore 101), Punjab Cooperative Board of Liquidation through Chairman v. Muhammad Ilyas (PLD 2014 Supreme Court 471) and Ghulam Rasool v. Muhammad Hayat (PLD 1984 Supreme Court 385). Determination of the questions. 11. Uniqueness of styles, approaches and perspectives of each of the learned counsel may vary but vulnerability of Section 8(2)(b) of the Finance Act, 2002 is repetitively hammered on the premise of want of authority / legislative competence of the Parliament to make law to tax capital value of foreign assets; inclusive of immovable properties, in the wake of lack of territorial proximity qua foreign based assets and absence of legislative competence to tax immovable property, otherwise coming within the exclusive legislative competence of the provincial legislature(s). Essentially, following issues surfaced and need to be addressed. Firstly. Is the tax in question - tax on the capital value of assets -- covered under entry 50 of the Fourth Schedule of the Federal Legislative list, unaffected by the exclusion provided therein? Secondly, what is the scope and effect of the phrase "not including tax on immovable property" (Exclusionary clause) in entry 50 and extent thereof; in the context of first part of said entry?
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And thirdly, whether the Parliament could legislate instant law to tax foreign based assets of the petitioners [domiciled in the foreign territories I jurisdiction(s)] in violation of rule of 'presumption against extraterritoriality'. Other ancillary submissions are also addressed correspondingly. 12. Unquestionably, scope and effect of entry 50 is the epicenter of subject matter controversy. Before addressing contesting issues or disagreements, it is expedient to highlight least contested question, which is regarding the distinct character of the taxes referred in entry 50, one being the tax on capital value of assets and other tax on immovable property. This legislative intent is found in entry 50 and rationalized through reasoning hereunder follows. There is no cavil that objections qua the measure / machinery of tax, mechanism of computation or some semblance of similarity in the process of evaluation / calculation of liability will not affect the essential character of the levy. Evidently, the individuality or distinctiveness of the imposts - tax on capital value of assets and tax on land and building was acknowledged throughout the constitutional journey, so far undertaken, conventionally reckoned from the promulgation of Government of India Act, 1935, including customized amendments. For convenience, the journey is divided in two segments. Pre-partition: Government of India Act, 1935 - Entry 55 of List-1 of the Federal Legislative List of the Seventh Schedule of Act, 1935, which reads 'Taxes on capital value of the assets, exclusive of agricultural land, of individual and companies; taxes on the capital of the companies'] and entry 42 of the List-II Provincial Legislative List of Seventh Schedule, which states 'Taxes on land and buildings, hearths and windows.' Post-partition; Constitution of Pakistan 1956 - Entry 26 of the Federal List of Fifth Schedule thereof reads 'Duties of customs (including export duties);duties of excise (including duties on salt, but excluding alcoholic liquor, opium and other narcotics), corporation taxes and taxes on income other than agricultural income; estate and succession duties in respect of property other than agricultural land; taxes on capital value of assets exclusive of agricultural lands; taxes on sales and purchases; terminal taxes on goods or passengers carried by sea or air; taxes on their fares and freights; taxes on mineral oil and natural gas'; and entry 75 of the Provincial list of Fifth Schedule reads as 'Taxes on land and buildings'. The year 1962 Witnessed arrival of new constitutional document, i.e., Constitution of 1962 - Sub- entry (e) of entry 43 of the Third Schedule reads 'taxes on the capital value of assets, not including taxes on capital gains on immovable property': [There was a single legislative list and Central Legislature was empowered to legislate to tax capital value of assets to the exclusion of taxes on the capital gains on immovable property]. It is pertinent to mention that in terms of Article 132 of the Constitution of 1962, Provincial Legislature was competent to legislate with respect to the matters, other than the matters enumerated in Third Schedule. A new constitutional document was framed in the year 1973, and entry 50 thereof deals with tax on the capital value of assets, other than the capital gains on the immovable property. It is notable that before introducing the Eighteenth Amendment, entry 43(e) of 1962 Constitution was replica of the entry 50 of the Constitution of 1973. And after Eighteenth Amendment the expression 'on capital gains' was omitted from entry 50. It is expedient to reproduce entry 50, before and after Eighteenth Amendment, which read as, "Taxes on the capital value of the assets, not including taxes on capital gain on immovable property". "Taxes on the capital value of the assets, not including taxes *** on immovable property". [*** words emphasized were omitted through eighteenth amendment] 13. Mutually exclusiveness / distinct character of taxes is well acknowledged in our neighbouring jurisdiction as well. Under Constitution of India, entry 86 of the List-1(Union List) provided for tax on capital value of assets and entry 49 of List-II (State List) provided for taxes on land and building. Questions regarding exclusivity or otherwise of aforesaid entries variously came up for
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adjudication before the constitutional courts, wherein distinction between two levies, individually envisaged in terms of entries 86 and 49 was maintained, while harmonizing the province of legislative competence between the Union and the States. Reference is made to the case of D.C. Gouse and Co. and others v. State of Kerala and others [1980 SCC (2) 410), relevant portion is reproduced hereunder, The word "tax" in its widest sense includes all money raised by taxation. It therefore includes taxes levied by the Central and the State Legislatures, and also these known as "rates", or other charges levied by local authorities under statutory powers. "Taxation" has therefore been defined in clause (28) of Article 366 of the Constitution to include "the imposition of any tax or impost, whether general or local or special," and it has been directed that "tax" shall be 'construed accordingly." Chapter 1 of Pan XI of the Constitution deals with the distribution of legislative…
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