Constitutional limits and fundamental rights govern taxation, FCCP rules in detailed judgment

ISLAMABAD, Jun 16 (APP): The Federal Constitutional Court of Pakistan has issued its detailed judgment declaring Section 7E of the Income Tax Ordinance void, holding that the imposition of taxes is subject to constitutional limits and fundamental rights.

The 92-page judgment was authored by Chief Justice of the Federal Constitutional Court, Justice Amin-ud-Din Khan.

The court observed that taxes may be imposed for any public purpose and that the burden of taxation is collectively borne by the public. It held that the validity of a tax does not depend on whether it directly benefits the public; rather, the court’s role is to examine its constitutional legitimacy, not its policy objectives.

The judgment stated that any law may be struck down if it violates fundamental rights or exceeds the limits of legislative authority. According to the court, Section 7E effectively imposed a tax not on income derived from immovable property but on the ownership of such property itself.

The court noted that Section 7E subjected five percent of the value of immovable property to tax regardless of whether the property generated any income. It ruled that taxing notional or deemed income alone is inconsistent with constitutional guarantees and that taxation should be based on actual income.

The judgment further held that Parliament’s legislative authority is confined to matters falling within the federal domain under the Constitution, whereas taxation of immovable property falls within provincial jurisdiction.

The court emphasized that the Constitution guarantees every citizen the right to acquire, hold and own property, and that imposing a tax on the ownership of immovable property without any corresponding income is incompatible with fundamental rights.

It also ruled that fiscal laws cannot be applied retrospectively.

According to the detailed judgment, Section 7E was intended not only to increase revenue but also to discourage the holding of immovable property. However, the court found that introducing such a measure through a Finance Bill was constitutionally impermissible.

The court further observed that the imposition of direct or indirect taxes on immovable property does not fall within the federal government’s legislative competence, whereas taxation based on the value of movable assets is within the federal domain.

The judgment also noted that exemptions granted to certain classes of persons were not supported by clear and rational justification, making them inconsistent with constitutional principles.

Addressing procedural issues, the court clarified that the constitution of benches is a matter within the discretion of the Chief Justice and that, in the absence of any legal impediment, a two-member bench is competent to hear and decide cases.

The Federal Constitutional Court had originally declared Section 7E of the Income Tax Ordinance void on May 7. The detailed reasons for that ruling have now been released.