ELAHI COTTON MILLS LTD. VS FEDERATION OF PAKISTAN
1997 P T D 1555
[Supreme Court of Pakistan]
Present Ajmal Mian, Saiduzzaman Siddiqui,
Muhammad Bashir Khan Jehangiri, Nasir Aslam Zahid
and Khalil-ur-Rehman Khan, JJ
Messrs ELAHI COTTON MILLS LTD. and others
Versus
FEDERATION OF PAKISTAN through
Secretary M/o Finance, Islamabad and 6 others
C. As. Nos. 307(80-D) to 313(80-D), 314(80-CC); 315(80-D) to 324(80-D), 390(80-D) to 399(80-D), 400(80-CC) to 404(80-CC), 405(80-D), 406(80-CC), 407(80-CC), 408(80-D), 409(80-D), 410(80-D/80-CC), 411(80-D), 412(80-CC), 413(80-D), 414(80-D), 415(80-CC), 416(80-D), 417(80-CC), 418(80-D), 419(80-CC), 420(80-D) to 424(80-D), 425(80-CC), to 427(80-CC), 428(80-D), 429(80-CC), 430(80-D), 431(80-CC), 432(80-D), 433(80-CC), 434(80-CC), 435(80-D) to 438(80-D), 439(80-CC), 440(80-CC), 441(80-D) to 445(80-D), 446(80-CC) to 448(80-CC), 449(80-D) to 461(80-D), 462(80-CC), 463(80-D) to 466(80-D), 467(80-CC), 468(80-D), 469(80-CC), 470(80-D) to 477(80-D), 478(80-C), 479(80-D) to 496(80-D), 497(80-CC), 498(80-CC), 499(80-D), 500(80-D), 501(80-CC) to 503(80-CC), 504(80-D), 505(80-D), 506(80-CC) to 508(80-CC), 594(80-D), 595(80-D), 596(80-CC), 597(80-D), 598(80-C),
599(80-S), 600(80-D) to 609(80-D), 610(80-CC), 611(80-D) to 627(80-D), 775(80-D), 776(80-D), 777(80-CC), 778(80-CC), 779(80-D), 780(80-CC), 781(80-CC + 80-D), 782(80-D) to 788(80-D), 835(80-D), 982(80-D), 1010(80-D), ' 1236(80-C), 1314(80-D), 1338(80-C), 1339(80-D), 1340(80-D), 1355(80-C), 1409(80-D), 1419(80-C) to 1422(80-C), 1437(80-D), 1519(80-CC) of 1995; 1(80-CC + 80-D), 81(80-D), 86(80-CC
+ 80-D), 800 (80-D), 832(80-D), 845(80-D), 846(80-D) to 848(80-D), 849(80-CC), 850(80-D), 851(80-CC) to 854(80-CC), 878(80-D), 879(80-D), 892(80-D), 916(80-CC), 918(80-D), 951(80-CC), 952(80-D), 958(80-D), 987(80-CC & 80-D), 988(80-CC & 80-D), 989(80-CC & 80-D), 990(80-D), 991(80-D), 1376(80-D), 1395(80-D) to 1397(80-D), 1425(80-D), 1482(80-CC & 80-D) to 1485(80-CC & 80-D), 1486(80-D), 1487(80-D), 1810(80-D), 1811(80-CC), 1812(80-CC & 80-D), 1813(80-D) to 1815(80-D), 1816(80-CC), 1817(80-CC & 80-D), 1818(80-D), 1819(80 CC & 80-D), 1820(80-D) to 1822(80-D), 1823(80-CC & 80-D), 1824(80-D) to 1826(80-D), 1827(80-C) to 1829(80-C), 1830(80-D), 1831(80-CC), 1118(80-D), 1204(80-CC & 80-D) to 1206(80-CC & 80-D) of 1996; 19(80-C), 118(80-CC & 80-D) to 124(80-CC & 80-D), 393(80-D), 394(80-CC), 395(80-D) to 397(80-D), 398(80-CC), 399(80-CC),, 400(80-D), 401(80-CC), 402(80-D) to 409(80-D), 410(80-CC), 411(80-D) and 424(80-CC & 80-D) of 1997, decided on 04/06/1997.
(On appeal from the judgment passed by the Lahore High Court, Lahore dated 22-1-1995 in Writ Petitions Nos.301/92, 318/93, 232/92, 7236/92,8712/ 92,9119/ 91,3205/ 94,8386 /93,7234/92,8547/91,2621/91, 3842/92, 4202/93, 1142/94, 3841/92, 14337/93, 1017/93, 14336/93, 8707/91, 2745/92, 11147/91, 1200/91, 8743/94, 6443/92, 6445/92, d 8492/91, 6447/92, 10535/91, 6446/92, 2517/93, 6444/92, 2518/93, 2519/93, 9013/93, 333/94, 11147/91, 1640/92, 4285/94, 3139/93, 97/93, 3140/93, 4203/93, 8929/91, 7341/92, 10678/92, 6823/92, 9427/91, 2186/93,5156/94, 7235/92,3828/93, 7468/92, 9123/91,3633/94,7434/93, 2233/93, 2187/93, 5674/93, 8430/91, 11939/92, 317/93 , 2284/92, 11940/92, 9120/91, 8416/91, 539/93, 8009/92, 11938/92,5515/93,8428/91,8417/91,8427/91,8421/91,8431/91,3817/93,3816/93, 514/93, 8429/91, 18418/91, 1115/93, 8122/93, 7960/93, 7962/93, 7959/93, 8120/93, 7851/93, 8121/93, 5063/93, 8125/93, 457/94, 1486/93, 4725/94, 1117/93, 9015/93, 2055/93, 7469/92, 4802/92, 4686/93, 308/92, 7853/93, 5541/92,1290/93,9517/91,7782/93, 9519/91,9118/91,9179/91,2412/93,9128/92,8492/91,4971/95, 4974/95, 4972/95,4973/95, 5387/92, 266/92, 265/92,5907/93,1384/92,8703/91, 247/92,8722/94, 17659/93,10573/91, 17660/93,1289/93,2886/92,538/93,540/93,3206/93,2263/92,2265/92,5200/94,5201/94, 15460/93,15461/93,9780/92,8420/91,7409/92, 8741/92,7128/92, 12146/92,525/93, 4286/ 95,4294/95,9428/94,7852/93, 12236/91, 9479/94, 11225/92, 8661/91, 1303/93, 16244/93, 3815/93, 9579/94, 1813/92, 8131/92, 153/92, 602/94, 7854/93, 9719/93, 10835/91, 9442/91, 2357/92, 12720/94, 12727/94, 9694/94, 1834/94, 10837/91, 5046/96, 8609/92, 7961/93, 811/93, 9169/92, 4557/93, 9432/92,9023/92, 4898/95,973/92, 7453/93,11113/92,6941/95,6942/95,6943/95,6944/95, 10836/91, 8828/94, 1407/93, 1007/92, 7236/95, 8729/91, 711/95, 490/95, 5359/92, 14877/95, 996/92, 1720/93, 11122/92, 11117/92, 8710/91, 8132/92, 5416/95, 6539/93, 7841/95, 12763/95, 13352/95, 8835/94, 8620/91, 8836/94, 9309/91, 1553/93, 8837/94, 98/93, 96/93, 4209/94, 1552/93, 1558/96, 1565/96, 6631/93, 8046/94, 15911/95, 6203/95, 1455/92, 1469/96, 6210/95, 5047/95, 6209/95, 12187/95, 12189/95, 3955/96, 3478/M/93, 3477/93, 4810/96, 3958/96, 814/96, 815/96, 979/96, 980/96, 982/96, 981/96, 6426/96, 7786/96, 7785/96, 9884/96, 9885/96, 9886/96, 8039/94, 11489/96, 12071/91, 12938/96, 12901/96, 12898/96, 13108/96, 12461/96, 16164//96, 20030/96, 19988/96, 5501/96, 6172/96, 8684/96, 7144/95, 986/93, 18689/95, 5181/96, 1582/96, 5841/96, 23794/96, 1444/96, 1896/96, 1897/96, 1898/96, 1899/96, 104/97, 140/97, 8546/91, 717/93, 8551/91, 8245/93, 8244/93, 720/93, 713/93, 715/93, 716/93, 8243/93, 8238/93, 8239/93, 714/93, 8237/93, 8549/91, 719/93, 8548/91, 718/93, 8240/93 and 1434/95).
(a) Constitution of Pakistan (1973)---
----Fourth Sched., Federal Legislative List, Part I, Entry 47 & Art.77-- Taxation---Power of taxation rests on necessity, it is an essential Land inherent attribute of sovereignty belonging as a matter of right to every independent State or Government.
The power of taxation rests on necessity, it is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent State or Government.
Such power is an inherent one, and is not dependent upon any grant by the Constitution, or the consent of the owners of property subject to taxation; Constitutional provisions with respect to taxation constitute a limitation on the legislative power and not a grant of power. The power to tax rests primarily in the State, to be exercised by its legislature and the State may exercise the power directly or may delegate such power as political sub divisions of the State. The exercise of the taxing power is a high Governmental function, in invitum in nature. Generally, the power of taxation is as extensive as the range of subjects over which the power of the Government extends. As to such subjects, and except in so far as it is limited or restrained by Constitutional provisions, a State's power of taxation, if exercised for public purposes, is general, unlimited, and absolute, extending to all persons, property, and business within its jurisdiction.
Since this power is contained in the Constitution, one's approach while interpreting the same should be dynamic, progressive and oriented with the desire to meet the situation, which has arisen, effectively. The interpretation cannot be narrow and pedantic but the Court's efforts should be to construe the same broadly, so that it may be able to meet the requirement of ever changing society. The general words cannot be construed in isolation but the same are to be construed in the context in which they are employed. In other words, their colour and contents are derived from their context.
In a Federal Constitution like in Pakistan, the legislative power is distributed between the Provincial and the Federal Legislatures. With that view legislative lists are prepared. The entries contained therein indicate the subjects on which a particular Legislature is competent but they do not provide any restriction as to the power of the Legislature concerned. It can legislate on the subject mentioned in an entry so long as it does not transgress or encroach upon the power of the other Legislature and also does not violate any fundamental right as the legislative power is subject to constraints contained in the Constitution itself. It is also a well, settled proposition of law that an entry in a legislative list cannot be construed narrowly or in a pedantic manner but it is to be given liberal construction.
Corpus Juris Secundum, Vol. LXXXIV quoted.
(b) Interpretation of Constitution----
----Provisions with regard to taxation in the Constitution---General words used in such provisions cannot be construed in isolation but the same are to be construed in the context in which they are employed so as to derive the colour and contents from the context---Approach, while interpreting such provisions in the Constitution, has to be dynamic, progressive and oriented with the desire to meet the situation which has arisen effectively Interpretation cannot be narrow and pedantic but the Court's efforts should be to construe the same broadly, so that it may be able to meet the requirement of ever changing society.
(c) Constitution of Pakistan (1973)---
----Preamble---Legislative Lists in the Constitution ---Object---Construction-- Such lists cannot be construed narrowly but the same are to be given liberal construction.
Assistant Commissioner of Land Tax, Madras and others v. Buckingham and Carnatic Co. Ltd. (1970) 75 ITR 603 and The Elel Hotels and Investments Ltd. and another v. Union of India AIR 1990 SC 1664 ref.
(d) Constitution of Pakistan (1973)--
---Fourth Sched., Legislative Lists---Taxation---Legislature, in view of wide variety of diverse economic criteria, which are to be considered for the formulation of a fiscal policy, enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc. for taxation---With all such latitude certain irreducible desiderata of equality shall govern classification for differential treatment in taxation laws as well.
(e) Interpretation of statutes---
---- Laws relating to economic activities---Principles of interpretation.
Courts, while interpreting laws relating to economic activities, view the same with greater latitude than the laws relating to civil rights such as freedom of speech, religion etc., keeping in view the complexity of economic problems which do not admit of solution through any doctrinaire or strait jacket formula.
(f) Taxation--
----Judicial self-restraint---Matters respecting utilities, tax and economic regulation---Good reasons available for judicial self-restraint, if not judicial deference to the legislative judgment.
Morey v, Doud (1957) US 457 quoted.
(g) Constitution of Pakistan (1973)---
----Arts.25 & 77, Fourth Sched., Federal Legislative List, Part I, Entry 47-- Equality before law---Taxation---Legislature is competent to classify persons or properties into different categories subject to different rates of tax---If the same class of property similarly situated is subject to an incidence of taxation, which results in inequality amongst holders of the same kind of property, it is liable to be struck down on account of infringement of the fundamental right to equality.
(h) Constitution of Pakistan (1973)--
----Art.77 & Fourth Sched., Federal Legislative List, Part I, Entry 47-- Taxation---State does not have to tax everything in order to tax something and is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably.
Willi's Constitutional Law quoted.
(i) Constitution of Pakistan (1973)--
----Arts.25, 8 & 71, Fourth Sched., Federal Legislative List, Part I, Entry 47---Taxation---Discrimination---Validity---Tests of the vice of discrimination in a taxing law are less rigorous---If there is equality and uniformity within each group founded on intelligible differentia having a rational nexus with the object sought to be achieved by the law, the Constitutional mandate that a law should not be discriminatory is fulfilled.
(j) Constitution of Pakistan (1973)---
----Arts. 8, 71 & 25, Fourth Sched., Federal Legislative List, Part I, Entry 47---Taxation---Fundamental rights---Policy of a tax, in its operation may result in hardships or advantages or disadvantages to individual assessees which are accidental and inevitable but simpliciter such a situation will not constitute violation of any of the fundamental rights.
(k) Interpretation of Constitution---
---- Principles to be kept in view by Court detailed.
While interpreting Constitutional provisions Courts should keep in mind, social setting of the country, growing requirements of the society/nation, burning problems of the day and the complex issues facing the people, which the Legislature in its wisdom through legislation seeks to solve. The Judicial approach should be dynamic rather than static, pragmatic and not pedantic and elastic rather than rigid.
(1) Interpretation of statutes---
---- Constitutionality of a legislation---Determination---Principles.
The law should be saved rather than be destroyed and the Court must' lean in favour of upholding the Constitutionality of a legislation keeping in view that the rule of Constitutional interpretation is that there is a presumption in favour of the Constitutionality of the legislative enactments unless ex facie it is violative of a Constitutional provision.
(m) Constitution of Pakistan (1973)---
----Fourth Sched., Federal Legislative List, Part I, Entry 47---Expression "income" as used in Entry 47, Part I of Federal Legislative List of the Fourth Sched. of the Constitution of Pakistan---Construction.---[Words and phrases].
The word "income" means "a thing that comes in". Its natural meaning embraces any profit or gain which is actually received. However, while construing the above word used in an entry in a Legislative list, the above restricted meaning cannot be applied keeping in view that the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of mere simplex enumeration of broad categories.
The expression "income" includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself. For example, use of a house by its owner.
(n) Constitution of Pakistan (1973)---
----Fourth Sched, Federal Legislative List, Part I, Entry 47---Taxation-- Income Tax Ordinance (XXXI of 1979), Preamble & S.2(24)---"Income"-- Concept---What is not "income" under the Income Tax Ordinance can be made income by a Finance Act---Exemption granted by the Income Tax Ordinance can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge, of course, subject to Constitutional limitations. ---[Words and phrases].
(o) Income-tax---
----Income---Question, whether a particular kind if receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case---Principles.
The process of income determination is often expressed as one of the matching costs and revenues. It involves the process of working out costs used in connection with the earning of the revenue in a particular accounting period.
The question, whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its source are not satisfactorily explained by an assessee, facts which are generally within his peculiar knowledge, the Income Tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source.
The expression "clothes make the man" would be more nearly right if it were "Income makes the man". Knowledge about the income of a person will reveal most about him. It is a barometer to evaluate about his habits and views.
(p) Income-tax---
----Income---Personal income---Distinction.
Income is "the increase or accretion in ones power to satisfy his wants in a given period in so far as that power consists of (a) money itself or (b) anything susceptible of valuation in terms of money, whereas personal income is equated with algebraic sum of consumption and change is net worth".
(q) Income-tax---
----Deeming provision in taxing statute---Object and effect.
Generally the effect of a deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the net of chargeability income not actually accrued but which supposedly to have accrued notionally.
(r) Interpretation of statutes---
---- Statute enacting that something shall be deemed to have been done which in fact and in truth was not done---Effect---Duty of Court illustrated.
When a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to.
Where a person is deemed to be something the only meaning possible is that whereas he is not in reality that something, the Act required him to be treated as he were, with all inevitable corollaries of that state of affairs.
(s) Interpretation of statutes---
---- Legal fiction---Scope---Legal fictions are limited for a definite purpose, they cannot be extended beyond the purpose for which they are created.
(t) Income-tax---
----Concept---Income-tax is a tax on a person in relation to his income---Such tax is imposed on a person (natural or artificial) in relation to his income.
(u) Constitution of Pakistan (1973)---
----Arts. 8, 18, 23, 24, 25, 77 &. Fourth Sched., Legislative List, Part I, Entry 47---Taxation---Extent---Validity---Any legislation whereby either the prices of market able commodities are fixed in such a way as to bring them below the cost of production and thereby make it impossible for a citizen to carry on his business or tax is imposed in such a way so as to result in acquiring property of those on whom the incidence of tax fell, then such legislation would be violative of the fundamental rights to carry on business and to hold property as guaranteed in the Constitution---Taxing power is unlimited as long as it does not amount to confiscation and that the Legislature does not have the power to tax to the point of confiscation.
(v) Constitution of Pakistan (1973)---
----Part II---Fundamental rights and principles of policy---Word "reasonable "---Definition.
The word 'reasonable' is a relative generic term difficult of adequate definition. It, inter alia, connotes agreeable to reason; comfortable to reason; having the faculty of reason; rational; thinking speaking, or acting rationally; or according to the dictates of reason; sensible; just; proper and equitable or to act within the Constitutional bounds.
(w) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I, Entry 47 & Art.77---Taxation-- Direct tax---Indirect tax---Distinction.
A direct tax is one which is demanded from the very person, who it is intended or desired should pay it, whereas indirect taxes are those, which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another, like custom duties, excise taxes and sales taxes, which are borne by the consumers.
(x) Constitution of Pakistan (1973)---
----Art. 77---Levy of building tax on the basis of covered area without reasonable classification---Validity.
Levy of building tax on the basis of the covered area without taking into consideration, the class to which a particular building belongs, the nature of construction, the purpose for which it is used, its situation and its capacity for profitable use and other relevant circumstances bearing on the matters of taxation is not sustainable in law for want of reasonable classification.
(y) Constitution of Pakistan (1973)---
----Fourth Sched, Legislative List, Part I, Entry 47, Arts.77 & 25-- Taxation---Equality of circumstances---"Subject-matter of tax" and standard by which the amount of tax is measured---Distinction.
There is a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured keeping in view the practical difficulties, which are encountered by the Revenue to locate the persons and to collect the tax due m certain trades, if the Legislature in its wisdom thought that it would facilitate the collection of tax due from specified traders on a presumptive basis, the same is not violative of the Fundamental Right relating to equality.
(z) Constitution of Pakistan (1973)---
----Art.25 & Fourth Sched., Legislative List, Part I, Entry 47---Taxation-- Denial of statutory relief to assessee without showing some basis fair and rational and without having nexus to the subject sought to be achieved by the Legislature, would tantamount to denial of equal treatment.
Denial of reliefs provided by income-tax statutory provisions to the particular business or trades covered by a particular provision without showing some basis fair and rational and without having nexus to the object sought to be achieved by the Legislature, held unfair, arbitrary, disproportionate to the prevalent evil and constitutes denial of equal treatment.
(aa) Constitution of Pakistan (1973)--- .
----Fourth Sched., Legislative List, Part I, Entry 47 & Art. 77---Taxation-- Tax has to be levied on the basis of ability to pay.
(bb) Interpretation of statutes---
---- Theory of reading down---Application---Theory of reading down is a rule of interpretation which is resorted to by Courts when they find a provision read literally seems to offend a fundamental right or falls outside the competence of the particular Legislature.
(cc) Constitution of Pakistan (1973)---
----Fourth Sched, Legislative List, Part I, Entry 47, Arts. 77, 8 & 25-- Taxation---Legislature has the prerogative to decide the questions of quantum of tax, the conditions subject to which it is levied, the manner in which it is sought to be recovered---If, however, a taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax or that is confiscatory, the Court may strike down the impugned statute as un-Constitutional.
(dd) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I, Entry 27---Interpretation-- Taxation---Rule of interpretation that while interpreting an entry in a Legislative List it should be given widest possible meaning, does not mean that Parliament can choose to tax as income an item which, in no rational sense, can be regarded as a citizen's income---Item taxed should rationally be capable of being considered as the income of a citizen.
(ee) Income-tax---
----Charge of tax---Before charging tax, an assessee must be shown to have received income or the same has arisen and accrued or deemed to be so under the statute---Any amount which cannot be treated like that is not an income and, therefore, cannot be subject to tax.
(ff) Income-tax---
----"Tax on gross revenue" and "tax on income "---Distinction.
There is a marked distinction between a tax on gross revenue and a tax on income, which for taxation purposes, means gains and profits. There may be considerable gross revenues, but no income taxable by an income-tax in the accepted sense.
(gg) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I, Entry 47---Taxation---Legislature, particularly in economic activities, enjoys a wide latitude in the matter of selection of persons, subject-matters, events etc. for taxation---Presumption is in favour of the validity of the legislation---Burden to prove that the same is invalid is on the person who alleges it.
(hh) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I, Entry 47---Taxation---Power to levy taxes is a sine qua non for a State---Conditions.
The power' of 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 receipts, expenditure etc. There are new species of income-tat, namely, presumptive tax and minimum tax.
(ii) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-C, 80-CC & 80-D-------Constitution of Pakistan (1973), Fourth Sched., Legislative List, Part I, Entries 47 & 52---Provisions of Ss. 80-C & 80-CC of the Income Tax Ordinance, 1979 fall within the category of presumptive tax while S. 80-D of the said Ordinance is founded on the theory of minimum tax---Legislature has the option instead of invoking Entry 47 of the Fourth Sched., Legislative List, Part I of the Constitution Pakistan for imposing taxes on income, it can impose the same under Entry 52 of the said list on the basis of capacity to earn in list of Entry 47 but cannot adopt both the methods in respect of one particular tax---Imposition of presumptive tax under Ss. 80-C & 80-CC of the Income Tax Ordinance, 1979 being in substitution of the normal method of levy and recovery of the income-tax, same is in consonance with Entry 52, Fourth Sched., Legislative List, Part I of the Constitution of Pakistan (1973)-- Expression "in lieu of" ---Connotation.
Sections 80-C and 80-CC of the Ordinance fall within the category of presumptive tax as under the same the persons covered by them pay a pre determined amount of presumptive tax in full and final discharge .of their liability in respect of the transactions on which the above tax is levied. Whereas section 80-D of the Ordinance is founded on the theory of minimum tax. If one is to read Entry 47 of the Fourth Schedule Legislative List, Part I of the Constitution of Pakistan (1973) in isolation without referring to Entry 52, it can be urged that Entry 47 does not admit the imposition of presumptive tax as the expression "taxes on income" employed therein should be understood as to mean the working out of the same on the basis of computation as provided in the various provisions of the Ordinance. Presumptive tax is in fact akin to capacity tax i.e., capacity to earn. In this view of the, matter, one will have to read Entry 47 in conjunction with Entry 52 which provides tax and duties on production capacity of any plant, machinery, undertaking, establishment or installation in lieu of the taxes or duties specified in Entries 44, 47, 48 and 49 or in lieu of any one or more of them. Since under Entry 52, tax on capacity in lieu of taxes mentioned in Entry 47 can be imposed, the presumptive tax levied under sections 80-C and 80-CC of the Ordinance is in consonance with the above two entries if read in conjunction. However, in Entry 52, the key words used are "in lieu of taxes and duties specified in Entries 44, 47, 48 and 49 or in lieu of any one or more of them". In order to understand the real import of the above portion of Entry 52, one will have to refer to the meaning of the words "in lieu of".
Expression "in lieu of" connotes, instead of, in place of, in substitution of, but it does not mean, in addition to. If one was to construe Entry 52 of the Legislative List keeping in view the above meanings of the expression "in lieu of", it becomes evident that the Legislature has the option instead of invoking Entry 47 for imposing taxes on income, it can impose the same under Entry 52 on the basis of capacity to earn in lieu of Entry 47, but it cannot adopt both the methods in respect of one particular tax Since under sections 80-C and 80-CC the imposition of presumptive tax is in substitution of the normal method of levy and recovery of the income tax, the same is in consonance with Entry 52.
Sections 80-C and 80-CC cannot be equated with section 80-D as the same is founded on different basis. Section 80-D is based on the theory of minimum tax. It envisages that every individual should pay a minimum tax towards the cost of the Government. The object of the minimum tax is to ensure that the tax-payers, who receive substantial amounts from exempt sources, pay at least some tax on their economic incomes of the year. This is achieved by reducing or disallowing certain itemised deductions. A large number of assessees though generally earn profits but on account of various tax concessions including tax holidays, depreciation allowance etc., under Schedule 11 and deductions allowed under the various provisions of the Ordinance, show loss instead of any net profit, with the result that they do not contribute any income-tax towards the public exchequer.
Black's Law Dictionary; Sixth Edn., Ballentine's Law Dictionary, Third Edn. and Legal Thesaurus by Steven C. DeCosta ref.
(jj) Words and phrases---
-------- In lien of"---Meaning.
Black's Law Dictionary, Sixth Edn.; Ballentine's Law Dictionary, Third Edn.; and Legal Thesaurus by Steven C. DeCosta ref.
(kk) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-D & 35---Carry forward of business loss ---Assessee can carry forward loss under S. 35 of the Income Tax Ordinance, 1979 from year to year in view of non obstante clause in S. 80-D of the said Ordinance.
Non obstante clause in section 80-D of the Income Tax Ordinance, 1979 is for the purpose of liability to pay minimum tax of half per cent. on the annual turnover. This will exclude any provision of the Ordinance which may be inconsistent with it. But the same does not exclude the application of other provisions of the Ordinance which are not inconsistent with section 80-D. There seems to be no conflict between above section 80-D and section 35 of the Ordinance, and hence the same remains available to assessees. To claim business loss or to carry forward the same under section 35 of the Ordinance from year to year, is not affected by the above levy of half per cent. on the annual turnover under section 80-D.
(ll) Income Tax Ordinance (XXXI of 1979)---
----S.80-D---C.B.R. Circular No.3 of 1996, dated 18-3-1996, paras.3 & 4--- While computing the annual turnover of an assessee, the amounts of sales tax and excise duty charged in terms of paras. 3 & 4 of C.B.R. Circular No. 3 of 1996, dated 18-3-1996 would be excluded.
While computing the annual turnover of an assessee, the amounts of sales tax and excise duty charged in terms of paras. 3 and 4 of C.B.R. Circular No.3 of 1996, dated 18-3-1996 would be excluded.
Assessee who fulfils `the conditions of Circular No. 3 dated 18-3-1996 for excluding the amounts of excise duty and sales tax while computing turnovers for the purpose of section 80-D, shall also be entitled to its benefit in respect of the pending cases.
(mm) Executive Order---
----Notification---Executive Order/notification, which is detrimental or prejudicial to the interest of a person, cannot operate retrospectively-- Beneficial Executive Order /notification, issued by an executive functionary can be given retrospective effect.
Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652 ref.
(nn) Income Tax Ordinance (XXXI of 1979)---
----S. 80-D---Constitution of Pakistan (1973), Fourth Sched., Legislative List, Part _I, Entries 47 & 52---Imposition of minimum tax under S.80-D, Income Tax Ordinance, 1979---Validity---Section 80-D of the Ordinance falls within the legislative competence under Entry 47 read with Entry 52 of Fourth Sched., Legislative List, Part I of the Constitution 0 Pakistan (1973) and there is no infirmity in S. 80-D of the Ordinance.
In the scenario of the corruption obtaining in Government and semi Government Departments and so also to curb the dishonest tendency on the part of the tax-payers to evade the payment of lawful taxes by using unfair means, the Legislature is bound to adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenues which may be used for running of the State and welfare of its people. The imposition of minimum tax under section 80-D of Income Tax Ordinance, 1979 is designed and intended to achieve the above objectives. The rate of half per cent. of minimum tax adopted under section 80-D seems to be on the basis of the minimum rate of tax suggested by the Exports Enhancement Committee. The above provision falls within the legislative competence under Entry 47 read with Entry 52. The approach of the Court while interpreting the Constitution should be dynamic, progressive and oriented with the desire to meet the situation effectively which has arisen, keeping in view the requirement of ever changing society.
The object for which, inter alia, the above section 80-D was enacted seems to have been achieved, to a great extent, as is reflected in the growth rate of income-tax, and growth in income tax receipts etc.
(oo) Constitution of Pakistan (1973)--
----Art. 260 & Fourth Sched., Legislative List, Part 1, Entry 47---Term "tax on income" --Definition of term "tax on income" is not exhaustive and does not provide guideline as to the import and scope of Entry 47 of the Fourth Sched., Legislative List, Part I of the Constitution of Pakistan. ---[Words and phrases].
The definition of the term "tax on income" given in Article 260 of the Constitution, used the words "tax on income" includes a tax in the nature of an excess profits tax or a business profits tax. The factum that the word "includes" has been employed and not the word "means" indicates that the definition given in Article 260 of the above term is not exhaustive. The entries in the Legislative List, are to be construed liberally and not in a pedantic manner. The word "income" is susceptible to a very wide meaning.
(pp) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I, Entries 47 & 52, Arts. 18, 23 & 24---Taxation---Validity---Power to tax cannot be used to embarrass and destroy the business/occupation which are sine qua non for the prosperity of the people and the country---Taxes should not be expropriatory and confiscatory in nature and should not be imposed in such a way so as to result in acquiring properties of those to whom the incidence of taxation fell and if that is so, then such legislation would be violative of fundamental rights to carry on business or to hold properties as guaranteed by the Constitution.
It is true that the power to tax cannot be used to embarrass and destroy the business/occupations which are sine qua non for the prosperity of the people and the country. The object of the levy and recovery of taxes is to run the State and to make efforts for creation of an egalitarian society. If the rates of taxes are so high and disproportionate to the actual earnings or earning capacities that they destroy the tax-payers, the very object of their levy and recovery is defeated. Takes should not be expropriatory and confiscatory in nature and that the same should not be imposed in such a way so as to result in acquiring properties of those on whom the incidence of taxation fell and if that is so, then such legislation would be violative of 'fundamental rights to carry on business or to hold properties as guaranteed by the Constitution.
(qq) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-C, 80-CC &. 80-D---Constitution of Pakistan (1973): Fourth Sched., Legislative List, Part I Entries 47 & 52, Arts. 18, 23 & 24-- Provisions of Ss.80-C, 80-CC & 80-D, Income fax Ordinance, 1979 are not confiscatory and expropriatory in nature and thus not violative of fundamental rights---Question, as to whether a particular tax is confiscatory or expropriatory is to be determined with reference to the actual earning or earning capacity of an average prudent successful entrepreneur in a particular trade or business--Fact that a particular assessee has suffered loss/losses during certain assessment years, is not germane to the -said question.
(rr) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-C, 80-CC & 80-D---Minimum tax on income---When there is no turnover of an assessee during a particular assessment year, he is not liable to pay any tax under S. 80-D, Income Tax Ordinance, 1979---If, however, there is one transaction amounting to Rs.1,00,000 in a year, liability of assessee under S. 80-D would be to pay Rs.500 i.e. half per cent of the turnover in the assessment year involved---Principles.
If the representatives of the business community take up the question of reasonableness of the above rates of tax provided under sections 80-C, 80-CC and 80-D with the Government, the same would be given due consideration, particularly, when no Government of any worth would like to destroy the industries and the business of the country by imposing taxes at the rates which may be confiscatory and expropriatory.
(ss) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part 1, Entry 47 & Art.25---Taxation-- Equality before law---Classification---Reasonableness---Reasonable classification does not imply that every person should be taxed equally-- Reasonable classification is permissible provided same is based on an intelligible differentia which distinets persons or things that are grouped together from those who have been left out and that differentia must have rational nexus to the object sought to be achieved by such classification-- Requirements of classification when fulfilled.
Reasonable classification does not imply that every person should be taxed equally. Reasonable classification is permissible provided it is based on an intelligible differentia which distinets persons or things that are grouped together from those who have been left out and that the differentia must have rational nexus to the object sought to be achieved by such classification. Different laws can be validly enacted for different sexes, persons in different age groups, persons having different financial standings and that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances, may be unreasonable in the other set of circumstances. The requirement of reasonable classification is fulfilled if in a taxing statute the Legislature has classified persons or properties into different categories which are subject to different rates of taxation with reference to income or property and such classification would not be open to attack on the ground of inequality or for the reason that the total burden resulting from such a classification is unequal. The question, as to whether a particular classification is valid or not, cannot be decided on the basis of advantages and disadvantages to individual assessees which are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily may fall on the other side of the line.
(tt) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I; Entries 47 & 52---Taxation--- Validity---Once the Court finds that a fiscal statute does not suffer from any Constitutional infirmity, it is not supposed to entangle itself with the technical questions as to the scope and modality of its working etc.---Such questions pre-eminently deserve to be decided by the Government which possesses expert's services and the relevant information which necessitated imposition of the tax involved unless the same suffers from any legal infirmity which may warrant interference by the Court.
(uu) Constitution of Pakistan (1973)---
----Fourth Sched., Legislative List, Part I, Entries 47 & 52---Taxation-- Validity---Court while examining a fiscal statute should not be carried away with the fact that the same may be disadvantageous to some of the tax payers---If such a fiscal statute is beneficial to the country on the whole, the individual's interest should yield to the national interest.
(vv) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-C, 80-CC & 80-D----Constitution of Pakistan (1973), Art. 25-- Taxation---Minimum tax---Equality before law --- Classification --- Reasonable classification---Provision of Ss. 80-C, 80-CC & 80-D, Income Tax Ordinance, 1979 are based on reasonable classification as they are founded on an intelligible differentia which distinguishes persons covered there under with the other co-tax-payers---Said provisions have also rational nexus to the object sought to be achieved by such classification i.e. broadening the tax base and to recover the minimum tax.
(ww) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-C, 80-CC, 40 & 14----Minimum tax ---Exemption---Validity-- Mere reduction in the rate of tax payable under Ss. 80-C & 80-CC, Income Tax Ordinance, 1979 by the Central Board of Revenue will not, by itself, be sufficient to warrant an inference that the same was not legally done or was prompted by mala fide reason to favour someone.
Under subsection (1) of section 14 of the Income Tax Ordinance, 1979 the Central Board of Revenue has been given the power to grant exemption in respect of the income or class of income or person or classes of persons specified in the Second Schedule including exaltation from tax under the Ordinance subject to the conditions and to the extent specified therein or to exempt from the operation of any provision of the Ordinance subject to the conditions and to the extent specified therein. The Federal Government has also been given power under subsection (2) of section 40 to make amendment in the Second Schedule subject to the proviso that such amendment shall be placed before the National Assembly. The object of the vesting of above power in the Central Board of Revenue seems to be to meet the situation which may arise after the enactment of the Finance Act in a particular year.
For example, in order to compete in the export market for var1otts Items, the Central Board of Revenue, through the mechanism of reducing the rate of tax or exempting born the payment of the same makes the prices of the items for export competitive in the open market of the world. There is no reason to hold that the various S.R.Os were not issued i good faith keeping in view the object of section 14 or to favour any particular person or party. Simplictier reduction in the rate of tax payable under section or under section 80-CC by the Central Board of Revenue will not, by itself, be sufficient to warrant an inference that the same was not legally done or was -prompted by mala fide reason to favour someone.
(xx) Income Tax Ordinance (XXXI of 1979)---
----S. 80-C---Constitution of Pakistan (1973), Art. 25---Tax on income of contractors---Equality before law--Classification--Reasonable classification- Charge of tax at lower rate from foreign contractors---Validity---Foreign contractors constitute a class themselves and, therefore, there cannot be any comparison between a foreign contractor and a local contractor for the purpose of determining the question of reasonableness.
The foreign contractors constitute a clays themselves and, therefore, there cannot be any comparison between a foreign contractor and a local contractor for the purpose of determining the question of reasonableness. A country cannot attract foreign contractors and foreign investors unless they are offered good terms for inducing them to participate in the development of the country.
(yy) Income Tax Ordinance (XXXI of 1979)---
----S.80-D---Economic Reforms Act. (XII of 1992), S. 6 & Sched.-- Imposition of minimum tax ---Assessees who fulfil the conditions of the notifications referred in the Sched. to S. 6, Economic Reforms Act, 1992 are entitled to protection.
Since the provisions of Economic Reforms Act, 1992 are subsequent in time and as they are contained in a special statute, they shall prevail over', the provisions of section 80-D of the Income Tax Ordinance, which wash,' enacted through Finance Act, 1991, which was an earlier statute and which was part of a general statute. In this view of the matter, assessees who fulfil the conditions of the notifications referred ton the Schedule to section 6 of Economic Reforms Act XII of 1992, are entitled to the protection. The question, as to whether a particular assessee fulfils the conditions of the above notifications, is a question of fact, which will have to be determined by the hierarchy provided under the Income Tax Ordinance .
Assessees who are covered by the notifications mentioned in the Schedule to section 6 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992), are entitled to the protection in terms thereof. They may approach the Income Tax Department.
(zz) Income Tax Ordinance (XXXI of 1979)---
----S.80-C---Object, scope and application of S. 80-C, Income Tax Ordinance, 1979.
The object of section 80-C seems to be to eliminate the hassle of filing of returns by an assessee and going through the normal procedure culminating in framing of an assessment order and to eliminate the involvement, to the minimum extent, of the Income Tax Department. To achieve the above object, subsection (4) was enacted. Subsection (5) of section 80-C cannot be used by the Income Tax Department for defeating the above objective of the legislation and, therefore, resort cannot be made to subsection (5) of the section as a matter of course. It is to be invoked sparingly in exceptional circumstances. If an assessee makes profit more than what is subject to tax under subsection (1) of section 80-C, the Revenue has no power to charge tax on the additional income so long as the above additional income is earned by him on account of the transactions, which have been subject to tax under subsection (1) of section 80-C. However, if the assessee claims that he has made unusual profit, for example, he has earned Rs.1,00,000 instead of Rs.5,000, which would have been the normal profit, the protection of above subsection (4) of section 80-C will still be available to him, if he can, on the basis of reliable evidence; prove the above fact to the satisfaction of the forums provided under the Ordinance. But if he fails to discharge above burden of proof, in that event subsection (5) can be invoked. The assessee in disguise of total discharge of his liability under subsection (4) of section 80-C cannot convert black money into white money by showing the black money as a profit earned, though factually it is not so.
(aaa) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-D & 35---Provisions of S. 35, Income Tax Ordinance, 1979 and other provisions of the Ordinance which are not inconsistent with S. 80-D of the said Ordinance continue to apply even to the cases covered by the latter provision.
(bbb) Income Tax Ordinance (XXXI of 1979)---
----S. 80-C(4) & (5)---No conflict exists between subsection (4) and sub-section (5) of S. 80-C, Income Tax Ordinance, 1979 and same are to operate accordingly.
Corpus Juris Secundum, Vol. LXXXIV P.46; Assistant Commissioner of Land Tax, Madras and others v. Buckingham and Carnatic Ca Ltd. (1970) 75 ITR 603; The Elel Hotels and Investments Ltd. And another v. Union of India AIR 1990 SC 1664; National Taxation Reforms Commissioner NTRC of December, 1986; Lord De Walden VIR 25 TC, 134(CA) 1942 10 ITR Suppl. 90, 94; Committee on Increasing Exports, Vol. 1; Advisory Council of Ministry of Commerce; Finance Minister's Budget Speech 1991-92; Indian Budget of 1997, Part II under the caption "Measures to Widen the Tax Base"; Public Finance in Theory and Practice", Fourth Edn., by Richard A. Musgrave and Peggy B. Musgrave; Tax Policy and Tax Reform: 1961-1969, Selected Speeches and Testimony of Stanley S.Surrey, edited by William F. Hellmuth and Oliver Oldman; Federal Income Taxation, Fourth Edn., by Marvin A. Chirelstein; Sprouse's Income Tax Hand Book, 1986; The Revenue Code, compiled by V.T. Associates; P.Kunhammed Kutty Haji v. Union of India (1989 ITR Vol. 176 p.481, 487 & 488); Federation of Hotel & Restaurant v. Union of India and others AIR 1990 SC 1637; . Express Hotel P. Ltd. v. State of Gujarat (1989) 178 ITR 151; M/s. Hoechst Pharmaceuticals Ltd. v. State of Bihar AIR 1983 - SC 1019; A. Sanyasi Rao and another v. Government of Andhra Pradesh and others (1989) 178 ITR 31; T.K. Aboobacker and others v. Union of India and others (1989) 177 ITR 358; Sat Pal & Co. v. Excise and Taxation Commissioner and others (1990) 185 ITR 375; Sri Venkateswara Timber Depot v. Union of India and others (1991) 189 ITR 741; Union of India and another v. A Sanyasi Rao and others (1966) 219 ITR 330; Commissioner of Income-tax/Excise Profits Tax, Bombay City v. Messrs Bhogilal Batlibai & Co., Bombay AIR 1954 SC 155; Kunnathat Thathunni Moopil Nair etc. v. State of Kerala and another AIR 1961 SC 552; Khandige Sham Bliat and another v. Agricultural Income-tax Officer, Kasaragod and another. AIR 1963 SC 591; Travancore Rubber and Tea Co. Ltd., Aleppey and another v: State of Kerala and another AIR 1964 SC 572; Commissioner of Income-tax, Bombay City-I v. Amarchand N. Shroff (1963) 48 ITR 592; Navnit Lal C.Javeri v, K.K. Sen, Appellate Assistant Commissioner of Income-tax, Bombay AIR 1965 SC 1375; Deputy Commercial Tax Officer, Saidapet, Madras and another v. Enfield India Ltd. Cooperative Canteen Ltd. AIR 1968 SC 838; The State of Kerala v. Haji K. Haji K. Kutty Naha and others -etc. AIR 1969 SC 378; Assistant Commissioner of Land Tax, Madras and others v. Buckingham and Carnatic Co. Ltd. (1970) 75 ITR 603; The Madurai District Central Cooperative Bank Ltd., Appellate v. The Third Income Tax Officer, Madural AIR 1975 SC 2016; Pathumma and others v. State of Kerala 'and others AIR 1978 SC 771; Avider Singh and others v. State of Punjab and others (1979) 1 SCC 137; Bhagwan Dass Jain v. Union of India and others (1981) 128 1TR 315; R.K. garg v. Union of India and others (1982) 133 ITR 239; Attorney-General for British Columbia v. Canadian Pacific Railway Company (XLII) The Times Law Reports (PC) p.750; Attorney-General for British Columbia v. Kingdom Navigation Company Limited 150 Law Times (PC) 81; King v. Caledonia Collieries Ltd. AIR 1928 PC 282; Indirect Taxation in Developing Economics The Role and Structure of Customs Duties, Excises and Sales Taxes by John F.Due; Begum B.H. Syed v. Mst. Afzal Jalian Begum and another PLD 1970 SC 29; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income tax, Ralwapindi PLD 1981 SC 85; The Commissioner of Income-tax, Rawalpindi Zone, Ralwapindi v. Messrs Haji Maula Bux Corporation Limited, Sargodha PLD 1990 SC 990; Messrs Noon Sugar Mills Limited v. The Commissioner of Income-tax, Rawalpindi. 1990 PTD 768; I.A.. Sharwani and others v. Government of Pakistan through Secretary, Finance Division, Islamabad and others 1991 SCMR 1041; Inamur Rehman v. Federation of Pakistan and others 1992 SCMR 563; Pakistan Industrial Development Corporation v. Pakistan through Secretary, Ministry of Finance 1992 SCMR 891; Government of Pakistan and others v. Muhammad Ashraf and others PLD 1993 SC 176; Haji Ibrahim Ishaq Johri v. The Commissioner of Income Tax (West), Karachi, 1993 SCMR 287; Altaf Construction Company v. Central Board of Revenue and others 1996 PTD 804; Al-Samrez Enterprise v. Federation of Pakistan 1986 SCMR 1917; Corpus Juris Secundum, Vol. LXXV, pp.46, 634; American Jurisprudence, Second Edn., Vol. 16, para.238; Economics, 8th Education, by Paul A.Samuelson; Fundamentals of Accounting, Fourth Edition, by Perry Mason, Sidney Davidson and James S. Schindler; The Individual Income Tax by Richard Goode, pp. 13 = 14; Kanga and Palkhivala's The Law and Practice of Income Tax, Eighth Edn., Vol. l; Law of Income Tax, Eighth Edition, by A.C. Sampath lyengar, Revised by Justice S. Ranganatan; Garg's Income Tax Act with Guide Chart Edited by Dinesh Chandra Garg, 1996 Publication; Morey v. Doud (1957) U.S. 457 (Willi's Constitutional Law); Black's Law Dictionary, Sixth Edn.; Ballentine's Law Dictionary, Third Edn.; Legal Theasurus by Steven C. DeCosta; Zaibtun Textile Mills Ltd. v. Central Board of Revenue and others PLD 1983 SC 358 and Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652 analysed.
'Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellants (in C. A. 307(80-D) to 309(80-D) of 1995).
Ch. Muhammad Aslam, Advocate-on-Record (in C.A. 310(80-D) of 1995).
Ch. Mehdi Khan Mehtab, Advocate-on-Record (absent) for Appellants (in C.A. 311(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellants (in C. As. 312(80 D) & 313(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 314(80-CC) of 1995).
Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 315(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 316(80-D) to 322(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court, and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 323(80-D) and 324(80-D) of 1995).
Syed Zahid Hussain, Senior Advocate Supreme Court and S. Inayat Hussain, Advocate-on-Record (absent) for Appellant (in C 6 390(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 391 and 392(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court for Appellant (in C.A. 393(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 394(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 395(80-D) and 396(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 397(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 398(80-D) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C. A. 399(80-D) of 1995 ).
Raja Muhammad Akram, Senior. Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 400(80-CC) to 404(80-CC) of 19951.
Raja Muhammad Akram, Senior Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 405(80-D) of -1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 406(80-CC) & 407(80-CC) of 1995).
Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 408(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 409(80-D) of 1995). .
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 410(80-D)/80-CC), 411(80-D), 412(80-CC), 413(80-D) and 414(80-D) of 1995).
Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 415(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 416(80-D), 417(80-CC), 418(80-D), 419(80-CC), 420(80-D) to 424(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 425(80-CC) to 427(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch, Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 428(80-D). 429(80-CC), 430(80-D), 431(80-CC), 432(80-D), 433(80-CC), 434(80-CC) 435(80-D) to 438(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C. As. 439(80-CC), 440(80-CC), 440(80-D) to 445(80-D), 446(80-CC) to 448(80-CC), 449(80-D) to 460(80-D) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 461(80- D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 462(80-CC), 463(80-D) to 466(80-D), 467(80-CC) and 468(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and M. Ahmad, Advocate-on-Record fox Appellant (in C.A. 469(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 470(80 to 473(80-D) of 1995). v: S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 474/95(80-D) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.As. 475(80-D) to 477(80-D) of 1995).
M. Iqbal Nasim Pash, Advocate Supreme Court and Dr, Ilyas Zafar, Advocate Supreme Court for Appellant (in C.A. 478(80-C) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A.479(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam. Advocate-on-Record for Appellant (in C.As. 480(80-D) and 481(80-D) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 482(80-D) to 489(80-D) of 1995).
Ashter Ausaf Ali, Advocate Supreme Court and Sh. Salahuddin, Advocate-on-Record (absent) for Appellant (in C.A. 490(80-D) of 1995).
Ashter Ausaf Ali, Advocate Supreme Court for Appellant (in C.As. 491(80-D) and 492(80-D) of 1995).
Ashter Ausaf. Ali, Advocate Supreme Court and Sh. Salahuddin, Advocate-on-Record (absent) for Appellant (in C. As. 493(80-D) to 496(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 497(80-CC) and 498(80-CC) of 1995).
Ashter Ausaf Ali, Advocate Supreme Court for Appellant (in C.As. 499(80-D) and 500(80-D) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 501(80-CC) to 503(80-CC) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C, As. 504(80-D) and 505(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 506(80-CC) and 507(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court for Appellant (in C.A. 508(80-CC) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 594(80-D), 595(80-D) and 596(80-CC) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 597(80-D) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C. A. 598 (80-C) of 1995).
Mian Ashiq Hussain, Advocate Supreme Court few Appellant (in C.A. 599(80-S) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 600(80-D) and 601(80-D) of 1995).
Sh. Maqbool Ahmad, Advocate Supreme Court for Appellant (in C.As. 602(80-D) to 605(80-D) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.As. 606(80-D) to 607(80-D) of 1995).
Ashtar Ausaf Ali, Advocate Supreme Court for Appellant.(in C.As. 608(80-D) and 609(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court for Appellant (in C.A. 610(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 611(80-D) and 612(80-D) of 1995).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.A. 613(80-D) of 1995). .
Sh. Maqbool Ahmad, Advocate Supreme Court for Appellant (in C.A. 614(80-D) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 615(80-D) of 1995).
Sh. Maqbool Ahmad, Advocate Supreme Court for Appellant (in C.A. 616(80-D) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 617(80-D) of 1995).
Sh. Maqbool Ahmad, Advocate Supreme Court for Appellant (in C.A. 618(80-D) of 1995).
Ashter Ausaf Ali, Advocate Supreme Court for Appellant (in C.A. 619(80-D) of (995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 620(80-D) of 1995).
S. Inayat Hussain. Advocate-on-Record (absent) for Appellant (in C.As. 621(80-D) to 623(80-D) of 1995).
Mian Ashiq Hussain, Advocate Supreme Court for Appellant (in C.A. 624(80-D) of 1995). .
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 625(80-D) to 627(80-D), 775(80-D) and 776(80-D) of 1995).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.As. 777(80-CC) and 778(80-CC) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.As. 779(80-D), 780(80-CC), 781(80-CC + 80-D) and 782(80-D) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.As. 783(80-D) to 788(80-D) of 1995).
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 835(80-D) of 1995).
Sh. Maqbool Ahmad, Advocate Supreme Court for Appellant (in C.As. 982(80-D) and 1010(80-D) of 1995).
Sikandar Hayat Khan, Advocate Supreme Court and Ejaz M. Khan for Appellant (in C.A. 1236(80-C) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 1314(80-D) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.As. 1338(80-C), 1339(80-D) and 1340(80-D) of 1995).
Mian Ashiq Hussain, Advocate Supreme Court for Appellant (in C.A. 1355(80-C) of 1995).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 1409(80-D) of 1995).
M. Ziaullah Kiani, Advocate Supreme Court and Talat Farooq Sh., Advocate-on-Record for Appellant (in C.As. 1419(80-C) to 1422(80-C) of 1995).
Ch. Latif, Advocate-on-Record (absent) for Appellant (in C.A. 1437(80-D) of 1995).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 1519(80-CC) of 1995 and 1(80-CC - 80-D) of 1996).
Sh. Maqbool Ahmad, Advocate Supreme Court and S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 81(80-D) of 199().
Raja Muhammad Akram, Senior Advocate Supreme Court and Ch. Muhammad Aslam, Advocate-on-Record for Appellant (in C.A. 86(80-CC + 80-D)) of 1996).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 800(80-D) and 832(80-D) of 1996).
Mehdi Khan Mehtab, Advocate-on-Record (absent) for Appellant (in C.As. 845(80-D) to 848(80-D), 849(80-CC), 850(80-D) and 851(80-CC) to 854(80-CC) of 1996).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.As. 878(80-D), 879(80-D) and 892(80-D) of 1996).
Sh. Masud Akhtar, Advocate-on-Record (absent) for Appellant (in C.A. 916(80-CC) of 1996).
M.A. Qureshi, Advocate-on-Record for Appellant (in C. A. 918 (80-D) of 1996).
Raja Muhammad Akram, Senior Advocate Supreme Court for Appellant (in C.As. 951(80-CC) and 952(80-D) of 1996).
Rana M. A. Qadri, Advocate-on-Record (absent) for Appellant (in C.A. 958(80-D) of 1996).
Raja Muhammad Akram, Senior Advocate Supreme Court for Appellant (in C.As. 987(80-CC and 80-D) to 989(80-CC and 80-D), 990 (80-D), 991(80-D) and 1376(80-D) of 1996).
Nemo for Appellant (in C.As. 1395(80-D), and 1396(80-D) of 1996).
M. Saeed Akhtar, Advocate Supreme Court for Appellant (in C.A. 1397(80-D) of 1996).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 1425(80-D) of 1996).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.A. 1482(80-CC and 80-D) to 1485(80-CC and 80-D), 1486(80-D) and 1487 (80-D) of 1996).
Raja Muhammad Akram, Advocate Supreme Court for Appellant (in C.A. 1810(80-D) of 1996).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.As. 1811(80-CC), 1812(80-CC and 80-D), 1813((80-D) to 1815(80-D) of 1996).
Malik M. Rashid Awan, Advocate Supreme Court for Appellant (in C.A. 1816(80-CC) of 1996).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.A. 1817(80-CC and 80-D) of 1996).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in CA, 1818(80-D) of 1996).
M. A. Qureshi, Advocate-on-Record for Appellant (in C.A. 4819(80-CC and 80-D) of 1996).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.As. 1820(80-D) and 1821(80-D) of 1996).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 1822(80-D) of 1996).
M. A. Qadri, Advocate-on-Record (absent) for Appellant (in C.A. 1823(80-CC and 80-D) of 1996).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 1824(80-D) of 1996).
Tanveer Ahmad, Advocate-on-Record (absent) for Appellant (in C.A. 1825(80-D) of 1996).
Ashter Ausaf Ali, Advocate Supreme Court and M.A. Qureshi, Advocate-on-Record for Appellant (in C.A. 1826(80-D) of 1996).
Ch. Mushtaq Ahmad Khan, Senior Advocate Supreme Court and S.Abul Asim Jafari, Advocate-on-Record for Appellant (in C.As. 1827(80-C) to 1829(80-C) of 1996).
S. Abul Asim Jafari, Advocate-on-Record for Appellant (in C.A. 1830(80-D) of 1996).
Raja Muhammad Akram, Senior Advocate Supreme Court for Appellant (in C.A. 1831(80-CC) of 1996).
M. Iqbal Nasim Pasha, Advocate Supreme Court and Sh. Maqbool Ahmad, Advocate Supreme Court for Appellant (in C.A. 1118(80-D) of 1996).
M. A. Qureshi, Advocate-on-Record for Appellant (in C. A. 1204(80-CC and 80-D) to 1206(80-CC and 80-D) of 1996).
Ch. Mushtaq Ahmad Khan, Senior Advocate Supreme Court for Appellant (in C.A. 19(80-CC) of 1997).
M.A. Qureshi, Advocate-on-Record for Appellant (in C.As. 118(80-CC and 80-D) to 124(80-CC & 80-D) of 1997).
Raja Muhammad Akram, Advocate Supreme Court and Mehr Khan Malik, Advocate-on-Record for Appellant (in C.As. 393(80-D), 394(80-CC), 395(80-D) to 397(80-D), 398(80-CC), 399(80-CC), 400(80-D), 401(80-CC). 402(80-D) to 409(80-D), 410(80-CC) and 411(80-D) of 1997).
M. A. Zaidi, Advocate-on-Record for Appellant (in C.As. 424(80-CC and 80-D) of 1997).
Shahzad Jahangir, Attorney-General, Mumtaz Mirza, Dy. Attorney- General and Rao Muhammad Yousaf Khan, Advocate-on-Record for Respondent (On Court Notice)
Raja Abdul Ghafoor, Advocate-on-Record for Respondent No.2 (in Ca.Ss. 307 to 315 of 1995).
M. Ilyas Khan, Senior Advocate Supreme Court (Lahore) for Income Tax Department.
S. Hyder, Advocate Supreme Court (Karachi) and Nasarullah Awan, Advocate Supreme Court (Karachi) assistate by M. Bilal, Senior Advocate Supreme Court, Mansoor Ahmad, Advocate Supreme Court (Rawalpindi), Mumtaz Ahmad, Commissioner of Income Tax, Karachi and Mirza Ghazanfar Ali Beg, Commissioner of Income Tax, Lahore.
Ch. Akhtar Ali, Advocate-on-Record for C.D.A. (in C.A. 19 of 1997).
Raja Abdul Ghafoor, Advocate-on-Record for State Bank of Pakistan (in C.A. 425 of 1995).
Dates of hearing: 1st April to 4th April and 7th April to 10th April, 1997.
JUDGMENT
AJMAL MIAN, J.---By this common judgment we intend to dispose of above 294 appeals which have been filed against the judgments of various Division benches/Single Judges of the Lahore High Court passed in Writ Petitions mentioned in the title of the aforesaid appeals, dismissing the same.
2. The brief facts are that the Finance Act, 1991 (Act No. XII of 1991), which was assented to by the President on 20-6-1991 and was gazetted in the Gazette of Pakistan, Extraordinary; Part I on 27-6-1991, incorporated inter alia section 80-C and section 80-D in the Income Tax Ordinance, 1979, hereinafter referred to as the Ordinance. Subsection (1) of the former section imposed tax on income of certain contractors and importers on the basis of the amount referred to in subsection (2) thereof that was received by or accrued or arose or was deemed to accrue or arise to any person being a resident. It also provided that the whole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rates specified in the First Schedule. Whereas subsection (1) of the latter section (i.e., section 80-D) laid down that "Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable by a company resident in Pakistan or the tax payable is less than one half per cent. of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said company and tax thereon shall be charged in the manner specified in subsection (2)". Subsection (2) thereof provided that the company referred to subsection (1) shall pay as income tax---
(a) an amount, where no tax 'is payable, equal to one-half per cent. Of the said turnover; and
(b) an amount, where tax payable is less than one-half per cent. of the said turnover, equal to the difference between the tax payable and the amount calculated in accordance with clause (a).
Explanation.---For -the removal of doubt it is declared that "turnover" means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts.
3. It appears that Finance Act, 1992 (Act VII of 1992), which was assented to by the President on 30-6-1992 and was gazetted in the Gazette of Pakistan, Extraordinary, Part I on 1-7-1992, made amendments in sub section (1) and subsection (2) of section 80-C of the Ordinance inasmuch as the words "being a resident" which appeared in original subsection (1) were omitted. Whereas subsection (2) which defined the amount referred to in subsection (1) was substituted.
4. It may further be observed that section 80-D of the Ordinance was also amended inasmuch as in subsection (1) and subsection (2), the words, "a registered firm" were added after the word "company". The Explanation to subsection (1) of section 80-D was also added. Whereas in subsection (2)(d)(ii) after the word "payable" wherever occurring, the words "or paid" were inserted with retrospective effect.
5. It may be pointed out that besides the above amendments, section 80-CC in the Ordinance was incorporated which imposed tax on income of certain exporters. Subsection (1) of the same provided that "Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (5-A) of section 50 is received by any person, the whole of such amount shall be deemed to be the income of the said person and tax hereon shall be charged at the rates specified in the First Schedule".
6. The above provisions were impugned by the assessees in a number of Writ/Constitution Petitions filed inter alia in the Lahore and Sindh High Courts on a number of Constitutional/legal grounds. The Lahore High Court has disposed of a number of writ petitions including the aforementioned writ petitions. Whereas the Writ/Constitution Petitions filed in the High Court of Sindh are still pending. The above writ petitions in the Lahore High Court were dismissed on various dates, wherein it had been held that the aforesaid provisions were intra vires the Constitution of the Islamic Republic of Pakistan, 1973, hereinafter referred to as the Constitution, and did not suffer from any Constitutional infirmity on the ground of competency of the Legislature or on account of being violative of any of the fundamental rights. It was further concluded that the presumptive tax which was imposed through the above provisions was not a new concept but was already provided in the late Income-tax Act, 1922, hereinafter referred to as the late Act, and the Ordinance.
7. Thereupon, the assessees filed a number of petitions for leave including C.P.L.A. Nos.234, 235, 241, 244, 252, 255, 274, 275 and 279-L of 1995. In the said petitions for leave to appeal, leave was granted on 4-4-1995 to consider, whether the imposition of income-tax on the basis of turnover alone- without giving an opportunity to the assessee to have his liability to tax subsequently adjusted with reference to his actual income was a permissible exercise of legislative power of taxation as enjoyed by the Federal Legislature in pursuance of Entry No.47 of the Federal Legislative List, Part 1 of the Constitution. It was also ordered that as the above question would have bearing upon the validity of sections 80-C; 80-CC and 80-D of the Ordinance and would involve the construction of the Constitution, notice be issued to the learned Attorney-General as required by Rule 1, Order XXVII, C.P.C.
8. Before dealing with the contentions raised by the learned counsel for the appellants, the learned Attorney-General and the learned counsel for the respondents, it will not be out of context to mention that, out of above 294 appeals, 198 relate to section 80-D, 57 pertain to section 80-CC, 14 relate to section 80-C and the balance of the 25 appeals cover sections 80-CC as well as 80-D of the Ordinance.
9. On behalf of the appellants, Messrs Raja Muhammad Akram, Iqbal Nairn Pasha, Dr. Ilyas Zafar, Sikandar Hayat, Sh. Maqbool Ahmed Bhutta, Ashiq Hussain Mian, Zia Ullah Kiani, Ch. Mushtaq Ahmed Khan and Muhammad Saeed Akhtar appeared.
Whereas Mr. Shahzad Jehangir, the then learned Attorney-General for Pakistan, assisted by Mr. Mumtaz Ali Mirza, the then learned Deputy Attorney-General, put in appearance in response to the above Court notice under Rule 1, Order XXVII, C.P.C.
The official respondents were represented by Messrs Ilyas Khan, Shaikh Haider, Nasrullah Awan, Mansoor Ahmed and M. Bilal.
10. (a) Raja Muhammad Akram, learned Sr. ASC who appeared in most of the above appeals, led the arguments on behalf of the appellants. He inter alia contended as under:---
(i)That Entry No.47 of the Fourth Schedule to the Constitution containing Federal Legislative List, Part I, providing "Taxes on income other than agricultural income" does not admit levy of a presumptive income-tax on the basis of declared turnover as income tax cannot be levied unless income, profit or gain are worked out on the basis of computation as provided under the Ordinance i.e., gross receipts minus admissible deductions.
(ii)That all the Tax Laws have to be tested on the touchstone of the fundamental rights enshrined in the Constitution and any law violating any provision of the Constitution would be void.
(iii)That the presumptive tax levied under sections 80-C, 80-CC and 80-D of the Ordinance is violative of inter alia Articles 4, 18 and 25 of the Constitution inasmuch as they are expropriatory and confiscatory besides having no reasonable classification, they purport to treat unequal as equal.
(iv)That under sections 80-C and 80-CC, payment of presumptive tax provided therein by an assessee entails the discharge of his liability to pay any income-tax on the transactions which are subjected to the levy of presumptive tax, whereas under section 80-D, an assessee remains liable to go through the process of filing of income-tax return and getting his income assessed in terms of the provisions of the Ordinance if his earning is to the extent, which renders him liable to tax more than half per cent. on the basis of annual turnover, but in case he has suffered loss or has no earning of the income, profit or gain, or the same is less than the amount which;, can be subjected to half per cent. tax on the basis of annual turnover, he is not entitled to press into service the aforesaid provisions of the Ordinance, namely, filing of return and getting his assessment order framed in terms of the above provisions and thus it is arbitrary and unreasonable.
(v)That the levy of presumptive tax under the aforementioned provisions of the Ordinance cannot be equated with the levy of excise duty on the basis of the capacity to produce under Entry No.52 of the Fourth Schedule to the Constitution, Part I read with section 3 of the Central Excises and Salt Act, 1944, inasmuch as under the latter provision, there is a machinery provided through the Rules for claiming rebate and other benefits.
(vi)That the finding of the High Court in the judgment (which is the subject-matter of inter alia Civil Appeal No.307 of 1995) that the petitioner had not placed any material on record to show that the impugned presumptive tax under the aforestated provisions of the Ordinance was expropriatory or confiscatory or unreasonable, is contrary to the factual position as certain balance-sheets of the appellants/petitioners' companies were placed before the High Court to demonstrate the confiscatory nature of the above levy.
(b) Dr. Ilyas Zafar, who has appeared alongwith Mr. Iqbal Naim Pasha in Civil Appeal No.478 of 1995 (which relates to section 80-C of the Ordinance), besides adopting the arguments of Raja Muhammad Akram, learned Sr. ASC, contended that though the Legislature had power to levy presumptive, tax but there were no justifiable reasons to levy the impugned presumptive tax in the manner in which it had been done. According to him, the appellants declared Rs.6.47,243 as the net profit for the assessment year involved but they were made to pay presumptive tax amounting Rs.66,00,282 on the basis of section 80-C of the Ordinance reiterated the submission which he made before the High Court, namely section 80-C of the Ordinance was violative of the agreement concluded between The Islamic Republic of Pakistan and The People's Republic of China and executed on 27-12-1984 under section 173 of the Ordinance, which envisaged that the Government of Pakistan would tax the appellants on the basis of the principle of profit and loss and not on the basis of turnover.
(c) Mr. Iqbal Naim Pasha, who appeared in the above Civil Appeal No.478 of 1995 alongwith Dr. Ilyas Zafar, and also appeared for the appellants in Civil Appeal No. 118 of 1996 Poineer Cement (which relates to section 80-D of the Ordinance), submitted as follows:---
(i) That the definition of the term "tax on income" given in Article 260of the Constitution provides guideline as to the import and scope of Entry No.47 of the Fourth Scheed to the Constitution Part I, by providing that tax on income includes a tax in the nature of an excess profits tax or a business profits tax. According to him, the framers of the Constitution were aware of the provisions of section 4 of the Excess Profits Tax Act, 1940, and the Business Profits Tax Act, 1947, and thus Entry No.47 permits levy of taxes on income in case of profit or gain and not presumptive tax without any reference to profit or gain.
(ii) That Entry No.47 cannot be construed in a manner, which may render Entry No.49 of the same Schedule, Part I surplusage as the latter entry provides taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed.
(iii) That the classification made in sections 80-C, 80-CC, and 80-D of the Ordinance is arbitrary and is not based on intelligible differentia.
(iv) That the provisions contained in section 80-C of the Ordinance have been applied discriminately inasmuch as under Rule 9 of Part IV of the Second Schedule to the Ordinance, it has been provided that the provisions of section 80-C in so far as they relate to payments on account of supply of goods on which taxes deductible under subsection (4) of section 50 shall not apply in respect of any person, being a manufacturer of such goods unless he opts for the presumptive tax regime, whereas no such option has been provided to other assessees.
(v) That the appellant, Poineer Cement, in Civil Appeal No. 118 of 1996 was entitled to five years tax holiday i.e., from 1-11-1994, being the date of commencement of production up to 31-10-1999i.e., the date of expiry of five years period, which exemption has been protected by virtue of section 6 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992), which was assented to by the President on 23-7-1992 and gazetted in the Gazette of Pakistan, Extraordinary, Part I, dated 28-7-1992, but under the impugned provisions of section 80-D of the Ordinance, the petitioner is made to pay presumptive tax on the annual turnover though the above Act, being a subsequent piece bf legislation and also being a special statute, is to prevail over section 80-D of the Ordinance, which was assented to by the President on 20-6-1991 and was gazetted on 27-6-1991.
(vi) That subsection (4) and subsection (5) of section 80-C of the Ordinance are in conflict with each other inasmuch as the former lays down that "Where the assessee has no income other than the income referred to in subsection (1) in respect of which tax has been deducted or collected,'' the tax deducted or collected under section 50 shall be deemed to be the final discharge of his tax liability under this Ordinance and he shall not be required to file the return of total income under section 55: (subject to the proviso contained therein). Whereas the latter provision lays down that "Where an assessee, while explaining the nature and source of any sum, investment; money, valuable article, excess amount or expenditure, referred to in section Q, takes into account any source of income which is subject to tax in accordance with the provisions of this section, he shall not be entitled to take credit of any sum as is in excess of an amount which if taxed at a rate or rates, other than the rate applicable to income chargeable to tax under this section, would have resulted in tax liability equal to the tax payable in respect of income under the section". According to Mr. Iqbal Naim Pasha, aforesaid subsection (5) has rendered the final discharge of the tax liability of an assessee under subsection (4) nullified as he can be subjected to further: assessment under the above subsection.
(vii) That the provisions of section 80-D of the Ordinance can be equated with deficit financing and that it would have been more appropriate for the Government to have printed currency notes instead of enacting the above provisions.
(d) Mr. Sikandar Hayat, who appeared in Civil Appeal No.1496 of 1995 (which pertains to section 80-C of the Ordinance and in which National Construction Company is the appellant) advanced the following arguments:---
(i)That Entries Nos.43 to 54 of the Fourth Schedule to the Constitution clearly demarcate between direct and indirect taxation and as presumptive tax does not fall under direct taxation, it is not covered by Entry No.47.
(ii)That since presumptive tax in question amounts to regression, it goes out of the ambit of direct taxation and, therefore, the Legislature was not competent to legislate the same.
(iii)That admittedly the appellant company had been suffering heavy losses in the construction works and, therefore, it could not have been subjected to levy of presumptive income-tax.
(iv)That section 80-C of the Ordinance is not independent but it is to be read with section 50(4-A) thereof and, therefore, the normal procedure of framing of an assessment on the basis of loss and profit in terms of the provisions of the Ordinance cannot be dispensed with even when an assessee has suffered loss and has been made to pay half per cent tax on his turnover.
(v)That the appellants suffered loss of Rs.24,88,18,613 in the accounting year 1991-92 and the assessment year 1992-93 but they were made to pay presumptive tax amounting to Rs.1,35,29,726 under section 80-C of the Ordinance at the rate of 3 per cent on the payments on account of execution of the contracts and, therefore, the aforesaid provision was in fact extortionist.
(vi)That there is certain inherent limitation in a deeming provision and if it goes out of the normal parameter, it becomes extortionist.
(vii)That in entry No.52 the words "in lieu of taxes and duties specified in entries 44, 47, 48 and 49 or in lieu of any one or more of them", are the key words which clearly manifest that above Entry No.52 can be pressed into service in substitution of entries 44, 47, 48 and 49 and not in conjunction,
(e) Mr. Sheikh Maqbool Ahmed Bhutta, who appeared in Civil Appeal No.982 of 1995 for the Crescent Educational Trust, contended that though the appellant trust was exempted from the payment of any tax on account of exemption granted under the Second Schedule to the Ordinance, Part I, but it was made to pay tax under section 80-D of the Ordinance. According to him, this could not have been done.
(f)Mr. Ashiq Hussain Mian, who appeared in Civil Appeal No. 1355 of 1995 (pertaining to section 80-C), Civil Appeal No.624/95 (relating to section 80-D) and Civil Appeal No.599/95 (pertaining to section 80-D),Urged as under.
(i)That if a tax has no nexus with measure, character and nature of tax, then it is ultra vires.
(ii)That the character of income-tax is that it is a tax on income; whereas the impugned presumptive tax is recoverable notwithstanding an assessee may have suffered loss and, therefore, it is ultra vires Entry No.47 and the other provisions of the Constitution.
(iii)That the presumptive tax payable under section 80-C of the Ordinance not only suffers from being discriminatory but is also prejudicial as in some cases, it may involve payment of double tax.
(g) Mr. Zia Ullah Kiani, who represented the appellants in Civil Appeals Nos. 1419 to 1422'of 1995 (which relate to section 80-C), urged as under:--- '
(i)That the cases pertaining to section 80-C cannot be heard with the cases under section 80-D of the Ordinance.
(ii) That section 80-C is discriminatory inasmuch as under section 80-D, income-tax returns are filed, the assessee carry forward losses for a period of six years under section 35 of the Ordinance, whereas under section 80-C, no return is filed, no assessment is made and no loss can be claimed or carried forward. According to- him, an assessee under section 80-C should have been given option either to opt for the discharge of his income-tax liability under subsection (4) thereof or to go through the normal process of assessment and since the above option is not given, the aforesaid provision is ultra vires.
(iii)That the Central Board of Revenue had applied the provisions of section 80-C retrospectively with effect from the financial year 1991-92 instead of 1992-93.
(iv)That the Central Board of Revenue has been operating the aforementioned provisions of sections 80-C and 80-CC discriminately inasmuch as it has been issuing S.R.Os. under section 165 of the Ordinance by reducing the rate of payment of presumptive tax in respect of certain items.
(h) Ch. Mushtaq Ahmed Khan, who appeared for the appellants in Civil Appeals Nos. 1827 to 1829 of 1996 and 119 of 1997 (which relate to section 80-C of the Ordinance) candidly submitted that the appellants have not thrown challenge to the vires of section 80-C but their grievance is that the increase of rate from 3 per cent to 5 per cent. by the Finance Act, 1995, was arbitrary and not warranted. He also candidly conceded that the appellants had not challenged the reasonableness of 3 per cent presumptive tax.
However, he contended that under clause (6) of Schedule II, Part II, Daewoo Corporation, Seoul (Korea), has been charged presumptive tax under section 80-C at the rate of 3 per cent, and not at 5 per cent. and, therefore, the appellants have been treated discriminately, nor they have been given option as provided in para. 9 of Schedule II Part IV to the Act to the manufacturers referred to therein.
(i) Mr. Muhammad Saeed Akhtar,, who represented the ' appellants in Civil Appeal No. 1424 of 1996, submitted that the appellants have been declaring losses for the last three years preceding to the imposition of the above presumptive tax under section 80-D of the Ordinance and that though the appellants were exempted from payment of taxes, they have been made to pay half per cent. presumptive tax on the annual turnover. However, he candidly conceded that the appellants are not protected under the Protection of Economic Reforms Act, 1992.
11. (a) Mr. Shahzad Jehangir, the then learned Attorney-General for Pakistan, who appeared in response to the Court notice made the following submissions:------
(i)That on moral plane the impugned provisions contained in sections 80-C, 80-CC and 80-D of the Ordinance are- just and fair keeping in view the conduct of the individuals and firms/companies that they avoid payment of income-tax through manipulations. To reinforce the above submission he pointed out that prior to the enactment of the above provisions in the Ordinance, out of 10,000 registered companies, less than 400 companies paid income-tax and out of 125 textile mills, only 27 paid it income-tax.
(ii)That on legal plane, his submission was that the concept of presumptive tax was not new as it was provided under the late Act as well as under the Ordinance. According to him, Entry No.47 read with Entry No.52 provides the Constitutional basis for enactment of the provisions like in issue.
(iii)That though section 2(24) of the Ordinance defines the term "income" but it does not control Entries Nos.47 and 52 of the Fourth Schedule, Part I to the Constitution. It has very wide connotation which is susceptible to treat turnover as income for levy of tax.
(iv)That the factum that negligible number of assessees have filed appeals against the judgments of the Lahore High Court as compared to the number of assessees covered by the above provisions of sections 80-C, 80-CC and 80-D of the Ordinance indicates that the above provisions are fair, reasonable and just.
(b) Mr. Ilyas Khan led the arguments on behalf of the Income Tax Department. His submissions were as follows:---
(i) That the provisions of sections 80-C, 80-CC and 80-D of the Ordinance are intra vires the Constitution inasmuch as the same are covered by Entry No.47 read with Entry No.52 of the Fourth Schedule, Part I to the Constitution.
(ii)That even prior to the enactment of the aforesaid provisions under section 80 of the Ordinance, non-residents engaged in shipping business have been subjected to levy of income-tax on the aggregate receipts at the rate of 8 per cent. and under section 80-A non residents engaged in airline business are subject to levy of income tax at the rate of 3 per cent on the aggregate receipts; whereas under section 80-AA thereof, aggregate of the technical fee is deemed to be income and is subject to income-tax at the rate of 15 per cent and hence the impugned provisions are not alien to the other provisions of the Ordinance.
(iii) That even in India the taxes are levied on the basis of gross receipts besides the above three items referred to hereinabove inasmuch as even recently section 115-JA has been incorporated in the Indian Income Tax Act, 1961.
(iv) That the above presumptive tax has been introduced through the impugned provisions' of the Ordinance after carrying out extensive exercise with the object to eliminate, the evasion of tax and the corrupt practices obtaining in respect of levy and collection of taxes inasmuch as the Committee which comprised the representatives of the business community and the official representatives in its report on increasing exports had suggested presumptive income-tax at the rate of half per cent of FOB export proceeds for value-added exports, and one per cent., for other exports to be deducted at source and, therefore, it was wrong to urge that the above provisions were arbitrary and expropriatory or confiscatory.
(v)That the comparative, tables produced before this Court demonstrate that the object for which the aforesaid presumptive tax was, introduced is being achieved inasmuch as there is phenomenal increase in the recovery of taxes and the number of tax-payers.
(vi) That the object of the Government is to eliminate the harassment which is faced by the assessees in the Income Tax Department by reducing the role of the above Department to the minimum, which has always been a consistent demand of the business community.
(vii) That it is wrong to urge that the assessees who are made to pay half per cent. income-tax on the annual turnover under section 80-D of the Ordinance cannot claim adjustment of loss or carry over the same for a period of six years in terms of section 35 of the Ordinance. According to him, the only effect of section 80-D is that the companies and the registered firm covered, by the aforementioned provisions have to pay minimum annual tax at the rate of half per cent, on the annual turnover irrespective of the fact whether they have incurred loss or made profit less than the amount which may be subject to the payment of tax at, the rate of half per cent, on the basis of annual turnover.
(viii) That the anxiety on the part of the Government is to aliminate and to obliviate the hardships and anomalies which may occur and this is demonstrated by the fact that the Central Board of Revenue through its Circular No.3 of 1996 dated 18-3-1996 provided retrospectively that for computing the turnover, the amount of excise duty and sales tax paid would be excluded for computing the annual turnover.
(ix) That since the provisions of sections 80-C, 80-CC and 80-D are special and commence with the non, abstante clause, the same shall prevail over the provisions of the Protection of Economic Reforms Act, 1992.
(c) Mr. Shaikh Haider, who supplemented the above arguments of Mr. Ilyas Khan, submitted as under:---
(i) That it is wrong to urge that the Finance Act, 1991, whereby sections 80-C and 80-D were enacted, has been applied by the Central Board of Revenue retrospectively.
(ii) That the term "income" has very wide connotation and it is susceptible to include even turnover.
(iii)That the aforesaid impugned provisions were to be enacted as admittedly there was large-scale evasion of payment of income-tax which is evident from a report appeared in a daily newspaper "Business Recorder".
(d) Mr. Nasarullah Awan, who also appeared for the Income Tax Department, urged that section 80-D of the Ordinance is attracted only when certain companies/registered firms do not pay income-tax at least half per cent., on the basis of turnover. According to him, it is not applicable to the said companies/registered firing who pay income-tax more than the above minimum amount of half per cent.
(e) Mr. Mansoor Ahmad, who also appeared for the Income Tax Department, contended that since in the Schedule to the Protection of Economic Reforms Act, 1992, section 80-D of the Ordinance was not mentioned, no protection could be claimed by the companies/registered firms covered by the latter section under the aforesaid Act.
12. The learned counsel for the parties have advanced exhaustive arguments as is evident from the summary of the same reflected hereinabove in paras 10 and 11. However, we are of the view that the basic questions involved in the instant cases are as under:---
(i) Whether the newly incorporated sections 80-C, 80-CC and 80-D in the Ordinance have been competently enacted?
(ii) Whether above sections or any of them are/is violative of any of the fundamental rights or any other law?
(iii) Whether Entry 52 of the Fourth Schedule, Part I to the Constitution can be pressed into `service in substitution of Entries 44. 47. 48 and 49 thereof and not in conjunction?
(iv) Whether there is any conflict between the provisions of the Protection of Economic Reforms Act, 1992, and the impugned provisions of the Ordinance? If yes, which of them shall prevail.
(v) Whether there is any conflict between subsection (4) and subsection (5) of section 80-C? If so, how it is to be reconciled.
(vi) Whether the Central Board of Revenue is enforcing the aforesaid provisions retrospectively and/or discriminately?
13. We may now take up the above questions Nos.(i) and (iii). In this behalf, it will be instructive to reproduce Entries 44, 47, 48, 49 and 52 of the Fourth Schedule Part I, to the Constitution, which read as follows:---
"44. Duties of excise, including duties on salt, but not including duties on alcoholic liquors, opium and other narcotics.
47. Taxes on income other than agricultural income. 48. Taxes on corporations.
49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed. '
52. Taxes and duties on the production capacity of, any plant, machinery, undertaking, establishment or installation, in lieu of the taxes and duties specified in entries 44, 47, 48 and 49 or in lieu of any one or more of them."
14. According to the learned counsel for the appellants, above Entry 47 does not admit the imposition of a presumptive tax. According to Raja Muhammad Akram learned Sr. ASC, no income-tax can be levied under the aforesaid Entry unless income, profit or gain are worked out on the -basis of the computation as provided under the various provisions of the Ordinance. Whereas the contention of Mr. Iqbal Naim Pasha was that the Constitution itself provides guideline and the import of the term "tax on income" employed in Entry 47 by defining the same in Article 260 of the Constitution as "Tax on income" includes a tax in the nature of an excess profits or a business profits tax". According to him, the framers of the Constitution were conscious of the fact that the phraseologies "excess profits tax" or "business profits tax" had definite connotations and were used and defined in the Excess Profits Tax Act, 1940, and the Business Profits Tax Act. 1947 and thus there cannot be any presumptive income. Mr. Sikandar Hayat's submission was that there is a marked distinction between a direct and indirect tax and entry 47 covers only direct income tax, and it does not cover presumptive tax which is not a direct tax.
On the other hand, Mr. Shahzad Jehangir, the then learned Attorney-General and Mr. Ilyas Khan had vehemently urged that narrow construction could not be placed on any of the entries of the above Schedule and Entry 47 read with Entry 52 conferred requisite power on the Legislature to enact the impugned provisions. According to them, this was resorted to after having carried out thorough exercise with the object to eliminate the corruption which was obtaining in relation to the levy and collection of income-tax.
15. It will not be out of context to observe that the power of taxation rests on necessity, it is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent State or Government. In this regard reference may be made to the following passage from the Corpus Juris Secundum, Vol. LXXXIV as to the power of the State to levy tax, which reads as under:---
"The power of taxation rests on necessity, and is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent State or Government. Such power is an inherent' one, and is not dependent on any grant by the Constitution, or the consent of the owners of property subject to taxation; Constitutional provisions with respect to taxation constitute a limitation on the legislative power and not a grant of power: The- power to tax rests primarily in the State, to be exercised by its Legislature, as discussed infra section 7, and the State may exercise the power directly or may delegate such power as political sub-divisions of' the', State, as considered in infra section 8. The exercise of the taxing power is a high Governmental function in invitum in nature.
Generally, the power of taxation is as extensive, as the range of subjects over which the power of the Government extends. As to such subjects, and except in so far as it is limited or restrained by Constitutional provisions, a State's power of taxation, if exercised' for public purposes, in general, unlimited, and absolute, extending to all persons, property, and business within its jurisdiction. "
Since this power is contained in our Constitution, our approach while interpreting the same should be dynamic, progressive and oriented with the desire to meet the situation, which has arisen, effectively. The interpretation cannot be narrow and pedantic but the Court's efforts should be to construe the same broadly, so that it may be able to meet the requirement of ever changing society. The general words cannot be construed in isolation but the same are to be construed in the context in which they are employed. In other words, their colour and contents are derived from their context.
16. We may point out that in a Federal Constitution like we have in Pakistan, the legislative power is distributed between the Provincial and the Federal Legislatures. With that view legislative lists are prepared. The entries contained therein indicate the subjects on which a particular Legislature is competent but they do not provide any restriction as to the power of the Legislature concerned. It can legislate on the subject mentioned in an entry so long as it does not transgress or encroach upon the power of the other Legislature and also does not violate any fundamental right as the Legislative power is subject `to constraints contained in the Constitution itself. It is also a well-settled proposition of law that an entry, in a legislative list cannot be construed narrowly or in a pedantic manner but it is to be given liberal construction. In this behalf reference may be made to the following cases:---
(i) Assistant Commissioner of Land Tax, Madras, and others v. Buckingham and Carnatic Co. Ltd. (1970) 75 ITR 603;
in which the facts were that the Madras Urban Land Tax Act, 1966, imposed a tax on urban land at a percentage of the market value. The above Act was enacted by the State Legislature pursuant to the power contained in entry 49 of List II of Schedule' VII to the Constitution of India. The same was impugned in the Madras High Court to declare the provisions of the aforesaid Act as ultra vires. The matter was brought before the Indian Supreme Court by the Revenue Authorities. The Supreme Court while setting aside the judgment of the Madras High Court made the following observations as to how the entries in the legislative list are to
interpreted:---
"The legislative entries must be given a large and liberal interpretation, the reason being that the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. We see no reason, therefore, for holding that entries 86 and 87 or List I preclude the State Legislature from taxing capital value of lands and buildings under entry 49 of List II. In our opinion there is no conflict between entry 86 of List I and entry 49 of List II. The basis of taxation under the two entries is quite distinct. As regards entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. The tax under entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only the encumbrance specifically charged against any item of asset, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. In certain exceptional cases, where a person owes no debts and is under no enforceable obligation to discharge and liability out of his assets it may be possible to break up the tax which is leviable on the total assets into components and attribute a component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under entry 49, List II. But in a normal case a tax on capital value of assets bears no definable relation to lands and buildings which may or may not form a component of the total assets of the assessee."
(ii) The Elel Hotels and Investments Ltd. anti another v. Union of India AIR 1990- SC 1664:
In the above case validity of the Hotel Receipts Tax Act (1980), which imposed a special tax on the gross receipts of certain category of hotels, was impugned through a batch of writ petitions under Article 32 of the Indian Constitution directly before the Supreme' Court: of India on the ground of 'lack of legislative competence and violation of Articles 14 and 19(1)(g) of the Indian Constitution. The Supreme Court while dismissing the aforesaid writ petition and upholding the validity of the aforementioned Act made the following observations as td the interpretation of, entry 82 of Legislative List of the Indian Constitution (which corresponds to entry 47 of our Constitution):---
"6. On a consideration of the matter, we are of the opinion that the submissions of the learned Attorney-General as to the source of the legislative power to enact a law of the kind in question require to be accepted. The word "income" is of elastic import. .In interpreting expressions in the legislative lists a very 'wide meaning should be given to the entries. In understanding the scope and amplitude of the expression "income" in Entry 82, List I, any meaning which fails to accord with the plenitude of the concept of income' in all its width and comprehensiveness should be avoided. The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. The widest possible construction, according to the ordinary meaning of the words in the entry, must be put upon them. Reference to legislative practice may be admissible in reconciling two conflicting provisions of rival legislative lists. In construing the words in a Constitutional document conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. "
17. We may now refer to the background, which necessitated the enactment of the impugned sections. In this regard, it may be pertinent to refer to the final report of the -National Taxation Reforms Commission, hereinafter referred to as the NTRC, of December, 1986, which mostly comprised the representatives of business community representing various trade associations. NTRC in the above report commented upon the corruption obtaining in the Government and semi-Government departments as under:---
"So far as corruption is concerned, there is no doubt in the minds of the public that most Government and semi-Government departments are corrupt: many know it from personal experience, while others have just to look at the standard of living of the comparatively low'-paid officials, their cars, their houses, the type of parties they give, the expensive schools their children attend and the clothes and jewellery their wives wear to realise that all this costs a lot of money and that such expenses could not be covered by the emoluments of the officials concerned. Inquiries, suspensions and periodic wholesale removals have been tried but the basic weapon against corruption is confiscation of the ill-gotten gains. This has not been practised so far.
We have allotted a separate chapter to the cancer of smuggling and suggested some remedial measures. In the last resort, only educating the general public in the damage they are doing to the economy and the society by purchasing smuggled goods will be able to contain this problem.
In a manner of speaking, our recommendations have become one sided. This is due primarily to the fact that many instances of harassment, complaints of delay and occasions when the tax-payer suffered indignity and humiliation have been brought to the notice of the Commission. We also took note of the highhanded behaviour of many tax officials' in matters of assessment, refunds and stay of tax demand. We have tried to remove these irritants by simplifying the existing procedures and by reducing the occasions when the tax payer and the tax officials come into contact with each other. "
Whereas NTRC opined about the tax avasion by the tax-payers as under:---
"It should not, however, be assumed that the tax-payers are always right and the departmental officers wrong. For example, our analysis of tax evasion shows that a large proportion of the tax payers does not pay the taxes due from them and that they resort to a number of devices to defraud the Government. In our report we have quantified the probable extent of tax evasion for the year 1984-85. In just one year, the taxable income which escaped tax was Rs.5,076 crore as against Rs.1,930 crore which was actually assessed to tax. No further comment is necessary on the honesty of the majority of the tax-payers. We are not sure that those who are used for decades to defraud Government will change their habits just because a new simple, fair and dignified system has been substituted for the old one. That is why we have proposed a Computerised Information Network and a National Tax Register to deter those who may choose to continue their old unsocial habits".
The menace of tax evasion is not a new discovery but it has been so since the imposition of the same but the degree of tax evasion has alarmingly increased and so also the malpractices in the Income Tax Department entrusted with the levy and collection of tax. Lord Green in the case of Lord De Walden V IR 25 TC, 134 (CA) (1942) 10 ITR Suppl 90, 94, touched upon the question of tax evasion as follows:---
"For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the tax-payer who plays with fire to complain of burnt fingures."
In the concluding part of the report, NTRC opined inter alia that the existing system of tax assessment and. its collection needed redical changes.
18. We may also refer to the report of the Committee on Increasing Exports, Volume-I. The said Committee also consisted of mostly the representatives of the business community representing various trade associations. It while making recommendations for increasing Pakistan's exports performance recommended the introduction of the presumptive tax as under:---
"4.6 Two alternative recommendations regarding exemption of Income Tax have been made by the Committee (though there have been reservations on each of these recommendations by some members). The first recommendation is:
(a) Income-tax be charged at fixed rate of half per cent. (i.e. 0.5 %) of F. O. B. export proceeds for value-added exports and 1 % for other exports, to be deducted at source i.e., through-banks as income -tax/super-tax with no involvement in the process of the Income Tax Department.
(b) The income derived from exports, in the hands of individual entrepreneurs, partners, directors and shareholders should not be subjected to further individual income-tax.
4.7The underlying idea is that exporters are prepared to pay even more income-tax than at present but they do not want to be harassed by the officials of the Income Tax Department. Further, exemption to partners etc., is merited as, an incentive for engaging in export business.
4.8Reservations.--Mian Mumtaz Abdullah, Chairman, CLA expressed his reservations as the recommendations envisage variations of percentages in respect of value-added products and others. He suggests that flat rate of one per cent. of FOB export proceeds be deducted at source for all products.
4.9Second Recommendation (Alternative):
(a)Hundred per cent. exemption on income derived from export of value-added items which currently enjoy 75 % exemption.
19. We may also refer to the following recommendation made by the Federation of Pakistan Chambers of Commerce and Industry in the 42nd Meeting of the Advisory Council of Ministry of Commerce, in respect of exports held on 8-5-1991 at Islamabad:---
"1. Exemption from Income-tax:
Income tax be charged at fixed rate of half per cent. of FOB export proceeds for value-added exports and 1 % for other exports, to be deducted at source i.e., through banks as income-tax/super-tax with no involvement in the process of Income. Tax Department. The income derived from exports, in the hands of Individual entrepreneurs, partners, directors and shareholders should not be subjected to further income-tax."
It may also be pertinent to refer to the relevant portion of the Finance Minister's Budget Speech 1991-92, wherein the object of enacting sections 80-C and 80-Din the Ordinance has been highlighted as under:---
"The second most important element in the taxation strategy is extension of the tax network. Mr. Speaker, as you know the tax system in Pakistan bristles with ordained and contrived leakages. It is our view that maximum number of people should be induced to contribute to the efforts of the State to -establish Pakistan as an Islamic welfare State and help it in the development efforts. Some people are still outside the tax net. They are recipients of unearned income, viz., dividend, interest and profits on bank accounts, certificates, debentures grid securities. It is proposed to recover tax at 10 per cent. on income accruing from bank deposits and other instruments issued by corporate bodies; financial institutions or finance cooperative societies. However; the income accruing on Government saving schemes, FEBCs, foreign currency accounts and dollar accounts will continue to be exempted. The deduction of 10 per cent., would constitute final settlement of tax in this category. In ' order to enlarge the tax base we also propose that all companies which are not paying tax or paying a negligible amount of tax should contribute a minimum tax equal to 0.5 per cent. of their turnover. Unless a large number of people give a helping hand we cannot achieve self-reliance."
We may also quote the relevant portion from the Indian Budget of 1997, Part II under the caption "Measures to Widen the Tax Base" dealing with the imposition of presumptive tax, which reads as under:---
"New estimated income for computing profits and --gains of retail traders.--In order to simplify the procedure of computation of income of retail traders, it is proposed to introduce a new scheme for computing profits and gains of such businesses presumptively at five per cent of the gross receipts. This scheme is to the presumptive schemes of computation of income under section 44-AD and section 44-AE.
The Bill proposes to insert a new section 44-AF in the Income Tax Act to achieve this purpose. Consequently, Chapter XII-C which provided for a flat tax of Rs.1,400 for small businesses is being deleted.
The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. (Clauses 14 and 39). Modification in provisions for estimating profits, of civil construction and plying, hiring or leasing goods carriage business subsection (2) of section 44-AD and subsection (3) of section 44-AE lay down that any deduction allowable under provisions of section 30 to section 38 shall be deemed to have been already given full effect to and no further deduction under those subsections shall be allowed."
20. We may also refer to some treatises and statutes dealing with the question of minimum tax, presumptive tax or the flat rate tax on gross income. In this behalf it may be pertinent to quote from the book "Public Finance In Theory and Practice", Fourth Edition, by Richard A. Musgrave and Peggy B. Musgrave, wherein the following observations are made under the caption "Minimum Tax":---
"Minimum Tax
The embarrassing occurrence of minimal tax liabilities at high levels of income, brought about by compounding, of exclusions and deductions, has led to the introduction of a so-called minimum tax. First enacted in 1969, this provision now calls for a tax of 20 per cent imposed on the "alternative minimum taxable income", To obtain the latter, AGI is increased by certain preference items, including the excluded part of capital gains and certain deductions".
Reference may also be made to the book under the caption "Tax Policy and Tax Reform; 1961-1969", selected speeches and testimony of Stanley S: Surrey;: edited by William F. Hellmuth and Oliver. Oldman, wherein under the caption "Minimum Income-tax" the following observations. appear:---
"The minimum income-tax is premised on the position that whatever may be the merits of major tax preferences that are retained, of overriding importance is the principle that every individual with substantial income should pay a minimum tax toward the cost of Government that in itself bears a relationship to the income involved. Under the Treasury Proposal, the minimum tax base would include four preferences:
-the exclusion of one-half of long-term capital gains, with the alternative of a maximum 25 % rate on the entire gain,
-the exclusion of interest on State and local Government bonds,
-the exclusion resulting from percentage depletion in excess of capital investment in oil and minerals,
-the exclusion of the appreciation on charitable gifts of property.
The minimum tax would apply, at rates graduated from 7 % to 35 %, to a base broadened to include the above items. The proposal is designed to yield to a tax on this broadened base equal to the tax payable at regular rates on half the total income. It would, therefore, have the effect of placing a 50% ceiling on the amount of total income that could be excluded from tax. The minimum tax would take hold when the excluded income exceeded the presently includible income. It would apply to about 40,000 returns, with almost all of the revenues coming from individuals with incomes above $ 100,000 and 60% of the revenue from those above $ 500,000".
We may further refer to the following extract from the book "Federal Income Taxation", Fourth Edition, by Marvin A. Chirelstein on the alternative minimum tax, which reads as follows:----
"Apart from the tax rules that apply specifically to capital gain, Code 55 imposes a so-called alternative minimum tax--the rate is now 20% on various kinds of 'tax preference' income. The aim of the minimum tax is to assure that tax-payers who receive substantial amounts from exempt sources pay at least some tax on their economic incomes for the year. Generally, the tax base for the alternative minimum tax is the individual's adjusted gross income plus the tax-payer's preference items, reduced by certain itemized deductions (medical expenses, mortgage interest and charitable contributions, among others). The resulting figure, called alternative minimum taxable income, is further reduced by a $30,000 exemption ($ 40,000 for married couples) and is subject to tax at the 20% rate. This special tax is compared with the tax-payer's regular tax."
We may also refer to Sprouse's Income Tax Hand Book, 1986, wherein under the caption "Alternative Minimum Tax" inter alia the following comments are made:---
"Alternative minimum tax is Congress's solution to a tax law which allows large amounts of income to escape tax. To redistribute the tax burden somewhat more evenly, Congress has decreed that when certain deductions, called tax preference items, exceed an exempted amount, you must pay a minimum tax. It's the same principle as a night club with a floorshow. Drink two glasses of water or a mangnum of champagne, you pay the same price. You can't watch the show, or deduct tax preference items, for free.
Who is affected by alternative minimum tax? Generally, only taxpayers with income of over $50,000 pay additional tax due to this method of computing tax. This is because taking advantage of the special provisions and tax shelters that are subject to alternative minimum tax usually requires a high income. However, even lower and middle-income taxpayers may be affected if real estate other than their principal residence is sold or if they own or sell rental property. "
It will not be out of context to reproduce section 56(a) enacted in the United States imposing Corporate Minimum Tax, which reads as under:---
"Section 56. Corporate Minimum Tax.
(Section 56(a)
(a) General Rule.---------In addition to the other taxes imposed by this chapter, there is hereby imposed for each taxable year, with respect to the income of every corporation, a tax equal to 15 per cent. of the amount by which the sum of the items of tax preference exceeds the greater of---
(1) $ 10,000, or
(2) the regular tax deduction for the taxable year (as determined under subsection (c)."'
Reference may further be made to the Revenue Code, as amended up to March, 1991, relating to Thailand, compiled by V.T. Associates, wherein under the caption "section 48 ter" minimum tax is provided as under: ---
"Section 48 ter.--Tax-payers treated as small traders under section 86 ter and having no income from other sources may pay income-tax in instalments after having obtained approval from the Director General or his delegate. In such cases, gross receipts for the purpose of business tax shall be treated as assessable income in the computation of tax under section 48.
In paying income-tax under the first paragraph, the tax-payers shall comply mutatis mutandis with the conditions and the procedures prescribed by the ministerial regulation issued under section 86 ter, and the provisions of sections 56 and 56 bis shall not apply."
Whereas under section 67 income-tax is payable on gross receipts on two items covered by sub-paras. (1) and (2). The above section reads as follows:---
"Section 67.--The tax charged under the provisions of this Division shall be paid at the rates setforth in Income Tax Schedule to this Division:
Provided that the juristic companies or partnerships under the second paragraph of section 66 which carry on business of international transport shall pay tax on such business as follows:
(1) In the case of carriage of passengers, tax shall be paid at the rate of 3 per cent. of the fares, fees and any other benefits collectible in Thailand in respect of such carriage before deduction of any expenses.
(2) In the case of carriage of goods, tax shall be paid at the rate of 3 per cent. of the freight, fees and any other benefits collectible whether in Thailand or elsewhere in respect of transport of goods from Thailand before deduction of any expenses. '
We may also quote the relevant portion from the Kerala High Court's judgment in the case of P. Kunhammed Kutty Ha ii v. Union of India k 1989 ITR Vol. 176 pages 487 and 488), wherein reference has been made to Richard Musgrave's Theory of Presumptive Taxation, and to an article on the presumptive taxation published in the "Economic Times" dated 27-4-1988, page 2, which reads as under:---
"It was Richard Musgrave who champtioned this device of presumptive taxation, in this well-known work on public finance. At considerable pains, and at length, he explained the merits of the system. The additional revenue, which accrued were welcome advantages for the State, looking for chunks of money to carry out the very many welfare schemes. The Musgrave doctrine made out a case for a differential approach in less advanced countries. According to him:
'A more realistic approach is needed, using presumptive taxation, applied outside and in lieu of the regular framework of income and sales taxation, as well as estimated tax basis, applied within the context of the regular tax system.'
(The Economic Times dated 27 4-1988, page 2) Presumptive taxation has come to stay as Tehshir in Israel and Forfait in France To Colombia in the sixties, and to Bolivia in the seventies, the Musgrave Mission on Fisca Reform suggested the presumptive approach. ,
The theoreticians of fiscal administration have found in presumptive taxation much more than an effective check against evasion. It has the merit of promoting efficiency for, the able entrepreneur: when there is a fixation of his income by statutory provision, anything he could make in excess of that norm, is a reward for his added activity. A dealer who falls short of the norm suffers the ill-effects. The person who exceeds it, could get the advantage. Fiscal theorists opine that this tax termed as a lump sum tax is the ideal form of taxation from the point of view of efficiency. China's recent economic reform, considered as successful by some, is cited by some, academics as illustrative of a classic example of the success of the concept underlying presumptive taxation. "
21. From the abovereferred material, it is evident that in Pakistan before enacting the impugned sections 80-C, 80-CC and 80-D, the question, as to how to eliminate the malpractices obtaining in taxation system, was attended to not only at the official level but also by the representatives of the business community. It may be pointed out that one of the recommendations made by the Committee on Increasing Exports was the introduction of, presumptive tax on the exports, relevant portion of which has been quoted hereinabove. It is also apparent that the Minister of Finance in his Budget Speech of 1991 highlighted the object of enacting, sections 80-C and 80-D, namely, to eliminate malpractices and to generate more revenues by broadening tax base.
22. It is also manifest that not' only in Pakistan but also in India, presumptive tax has been levied. It is also evident that the concept of presumptive tax and/or minimum tax is projected by the eminent authors. The same has been adopted in some other countries of the world including U.S.A., Israel, France, Colombia, Bolivia and Thailand.
23. We may also observe that the Income Tax Department has also produced two notes indicating the basis of fixation of rates of presumptive tax under the impugned sections. The same read as follows:---
"Basis of Fixation of Rates of Presumptive Income Tax under section 80-C, 80-CC and Minimum Tax under section 80-D
1.Presumptive Tax Rates under section 80-C:
| Contractors | 3% |
| Suppliers | 2.5% |
| Importers | 2% |
These rates of income-tax deduction were already in vogue since before 1991 and the same rates., ere adopted as presumptive in the Finance Act, 1991.
2. Presumptive Tax Rates under section 80-CC:
Exporters 1 % (General (Rate)
0.75 % (Semi-Finished)
0.50% (Finished goods)
These rates of tax withholding were based on the recommendations of the Export Enhancement Committee representing trade bodies/chambers.
3. Minimum Tax under section 80-D:
Tax rate of 0.50 % of turnover is the lowest possible rate applicable to any category/class of tax-payers. For instance, in order to enhance the countries' exports, minimum concessional rate of 0.50% of export proceeds has been fixed for the exporters class under section 80-CC. "
"In the Supreme Court of Pakistan, Islamabad
Civil Appeals impugning sections 80-C. 80-CC and 80-D of the Income Tax Ordinance, 1979.
Humbly it is submitted, that the adoption of minimum tax rate equal to 0.5 % in relation to turnover was, inter alia, based on the following:---
(i) The rate of 0.5 % as minimum tax on turnover was worked out by taking into consideration the fact that minimum profit earned by companies ranges between 1 % to 2 % and the tax rates of companies on the average being around 50%, the minimum tax liability should be at least at this rate of 0.5 % .
(ii) Similarly the exporters, prior to this regime of minimum tax on turnover were given concessional treatment by way of tax rebate between 25 % to 75 % . They cameforth and opted for presumptive tax regime. The standard rate of tax on exports is 1 % as full and final discharge of tax liability. It is further reduced to 0.5 % on total exports proceeds/turnover in the case of exporters of value-added goods. Exporters who have been all along given preferential tax treatment willingly accepted this formula of minimum taxation on turnover basis.
(iii) The method of working of minimum tax at 0.5 % in relation to the declared turnover ensures simplicity and fairness, and avoids cumbersome and complex working leading to protracted litigation.
(Sd,).
(Naseer Ahmad),
Secretary (I.T. Policy)."
24. It may further be stated that in order to demonstrate that the objective for which the above impugned provisions were enacted, to some extent, has been achieved, the department has produced a number of charts indicating the increase in the number of registered firms/companies which have been paying tax. It has also produced charts showing growth rate, of income-tax. It may be advantageous to reproduce the same:---
"Growth Rate of Income Tax
| Year | Collection (Rs. In Million) | Percentage increase decrease |
| 1981-82 | 8,309 | |
| 1982-83 | 8,442 | + 1.6 |
| 1983-84 | 8,573 | +-1.6 |
| 1984-85 | 9,071 | + 5.8 |
| 1985-86 | 9,591 | + 5.7 |
| 1986-87 | 10,354 | + 8.0 |
| 1987-88 | 11,528 | + 11.3 |
| 1988-89 | 13,407 | + 16.3 |
| 1989-90 | 15,000. | + 11.9 |
| 1990-91 | 19,079 | + 27.2 |
| 1991-92 | 27,913 | + 46.3 |
| 1992-93 | 35,018 | + 25.5 |
| 1993-94 | 41,466 | + 18.4 |
| 1994-95 | 59,064 | + 42.4 |
| 1995-96 | 75,036 | + 27.0" |
A copy of CBR Year Book for the years 1993-94 and 1994-95 has also been brought on record by the Department. The same also depicts the improvement in the income-tax receipts from 1990-91 to 1994-95. It may be a matter of interest to reproduce page 34 of the above report, which reads as follows:---
"Collection and growth of Income-tax:
18. Income-tax constituted 96% of receipts from direct taxes. During last five years it increased from Rs.19,079 million in 1990-91 to Rs.59,064 million in 1994-95 or by 209.6%. The annual compound growth during the period was 32.6 % . Table 3.1:
Growth in Income-tax Receipts:
(Rs. in Million)
| Year | Collection | % Growth |
| 1990-91 | 19,079 | 27.2% |
| 1991-92 | 27,913 | 46.3% |
| 1992-93 | 35,018 | 25.5% |
| 1993-94 | 41,467 | 18.4 % |
| 1994-95 | 59,064 | 42.4 % |
19..The excellent performance in the year 1991-92 was due to the extension of the withholding/presumptive tax regime alongwith the administrative measures. The growth in collection over the preceding year, after attaining the highest growth of 46.3 % in 1991-92, declined gradually. However, the collection in 1994-95 increased by 42.4 % as compared to the preceding year.
Achievement of the target:
20. As a very fast growing tax, the targets of income-tax were always pitched at a very high side as compared to the other direct and indirect, taxes."
The Income Tax Department has further produced the statement containing the details of a number of textile mills, flour and sugar mills, indicating that they were not paying any tax on account of various tax concessions including tax holiday, depreciation etc., though their annual turnovers were quite substantial. It is not necessary to reproduce the same. It is an admitted position that under Schedule II read with a number of provisions of the Ordinance which allow deductions/concessions, most of the tax-payers operating mills/factories, instead of showing any net profit, show losses which they carry forward from year to year under the relevant provisions of the Ordinance, with the result that no profit is shown for a considerable period though factually they earn profit but the same is adjusted against the deductions.
25. Having dealt with the above factual aspect, we may now revert to the legal question as to the competency of the Legislature to enact the impugned provisions in the Ordinance. The learned counsel for. the parties have cited a large number of cases of Pakistani as well as of foreign jurisdictions in support of their respective contentions. We may first take up the cases of Indian origin. We can divide the same into three categories, namely:, --
(i)the cases in which Indian Supreme Court upheld the levy of tax on the gross receipts and expenditures;
(ii)the cases relating to sections 44-AC and 206-C inserted by Finance Act, 1988, in the Indian Income Tax Act in exercise of legislative power contained in Schedule VII, List I, entry 82, which entry corresponds to entry 47 of the Fourth Schedule, Part I to our Constitution. The above newly incorporated sections have some similarity with the impugned sections 80-C, 80-CC and 80-D of the Ordinance as to their effect;
(iii)the cases dealing with the various aspects inter alia of the Taxing Laws inter alia with reference to their validity.
26. Reverting to the above first category, we may observe that, it will suffice to refer to the three cases decided by the Indian Supreme Court:
(i)Federation of Hotel & Restaurant v. Union of India and others, AIR 1990 SC 1637;
(ii)The Elel Hotels and Investments Ltd. and another v. Union of India AIR 1990 SC 1664;
(iii)Express Hotels (Pvt.) Ltd. v.; State of Gujarat (1989) 178 ITR 151
In the above first case, the facts were that the Federation of Hotels and Restaurants filed direct, writ petitions under Article 32 of the Indian Constitution challenging the Constitutional validity of the Expenditure Tax Act, 1987 (Act 35 of 1987) The Act envisaged a tax at 10% ad valorem on "chargeable expenditure" incorporated for .the class of hotels wherein room charges for any unit of residential accommodation were Rs.400 per day per individual. Section 5 of the above Act defined the expression "chargeable expenditure" as to include expenditure incurred in or payment made in such class of hotels in connection with the provision of any' accommodation, residential or otherwise, food or drinks, whether at or outside the hotel or for any accommodation in such hotel on hire or lease or any other services envisaged in the said section. However, it exempted any expenditure incurred in or paid for in foreign exchange or by persons who enjoyed certain diplomatic privileges and immunities. The challenge to the vires of the aforementioned Act was founded on grounds of lack of Legislature competence and of violation of the rights under Articles 14 and 19(1)(g) of the Indian Constitution relating to the fundamental rights. The. Supreme Court, while dismissing the above writ petitions and certain appeals arising out of the High Court's judgments, maintained the validity of the impugned provisions. On the question of violation of Article 14, the following observations were made:---
"It is now well-settled that though taxing laws are not outside Article 14; however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The test of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A Legislature does not, as and, old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes.
But, with all this latitude certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class but this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State; in the exercise of its Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience.
21. Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well recognised. A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law."
As regards the contravention of Article 19(1)(g), the following conclusion was recorded:--- '
"24. A taxing statute is not per se a restriction on the freedom under Article 19(1)(g). The policy of a tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common-factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstance that its imposition might tend towards the diminution of the earning or profits of the persons of incidence does not per se, and without more, constitute violation of the rights under Article 19(1)(g). Fazal Ali, J., though in a different context, in Sonia Bhatia v. State of U.P. (1981) 3 SCR 239 at p.258: AIR 1981 SC 1274 at p.1284 observed:
.......The Act seems to implement one of the most important Constitutional directives contained in Part IV of the Constitution of India. If in this process a few individuals suffer severe hardship that cannot be helped, for individual interests must yield to the larger interests of the community or the country as indeed every noble cause claims its martyr.'
Contention (c) is also insubstantial."
The Supreme Court also quoted with approval the following passage from its earlier judgment in the case of M/s. Hoechst Pharmaceuticals Ltd. v. State of Bihar AIR 1983 SC 1019:---
" .On questions of economic regulations and related matters, the Court must defer to the legislative-judgment. When the power to tax exists, the extent of burden is a matter for the discretion of the law-makers. It is not the function of the Court to consider the propriety or justness of the tax or enter upon the reality of legislative policy. If the evident intent and general operations of the tax legislation is to' adjust the burden with a fair reasonable degree of equality; the Constitutional requirement is satisfied.
(The above quotations are from the judgment of Venkatachaliah, J., who spoke for himself and for C.J., Sabyassachi Mukharji and S. Natarajan, JJ.).
In the second case, which has already been referred to hereinabove, a number of writ petitions were filed under Article 32 of the Indian Constitution directly before the Indian Supreme Court, challenging the vires of Hotel Receipts Tax Act, 1980, on the ground of lack of competence and violation of Articles 14 and 19(1)(g) of the Indian Constitution. Section 3 of the- above Act limited the application of the Act to those hotels where the room charges for residential accommodation provided to any person during the previous year were Rs.75 or more per day per individual. Subsection (1) of section 5 of .the impugned Act levied a tax in respect of chargeable receipts of the previous year at the rate of 15 % of such receipts of the hotels falling within the ambit of the Act. Whereas subsection (1) of section 6 laid down that subject to the provisions of the Act, the chargeable receipts of any previous year of an assessee shall be the total amount of all charges by whatever name called, received by.; or accruing or arising to, the assessee in connection with the provision of residential accommodation,, food, drinks and other services or any of them (including such charges from persons not provided with such accommodation) in the course of carrying on the business of a hotel, .to which the Act was applicable. It further provided that the same shall also include every amount collected by the assessee by way of tax under the said Act, sales tax, entertainment tax and tax on luxuries. While dismissing the above writ petitions the Indian Supreme Court, besides the observations reproduced hereinabove as to the scope of the meaning of the word "income", held as under:---
"This Court after referring to the following observations of the judicial committee in Kamakshya Narain Singh v. CIT (1943) 11 ITR 513: AIR 1943 PC 153 "income, it is true, is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the-broadest connotation. "
Proceeded to observe:
"What then is the ordinary, natural and grammatical meaning of the word ".income"? According to the dictionary it means "a thing that comes in". (See Oxford Dictionary, Vol. V, page 162; Stroud, Vol. II, pages t4-16): In the United States of America and in Australia both of which also are English-speaking countries the words "income" is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner v. Macomer, Merciants' Loan &. Trust Co. v. Smietunka, and United States v. Stewart, and Resch v. Federal Commissioner of taxation. In each of these cases very wide meaning was ascribed to the word "income" as its natural meaning. The relevant observations of learned Judges deciding those cases which have-been 'quoted in the judgment of Tendolkar J., quite clearly, indicate that -such wide meaning was nut upon the word "income" not because of any particular legislative practice either in the United States or in the Commonwealth of Austraila but because such was the normal concept and connotation of the Ordinary English word "income" Its natural meaning embraces any profit or gain which is actually- received. This is in consonance with the observations of Lord Wright to which reference has already been made." (Emphasis supplied).
Indeed, Navneet Lal's case AIR 1965 SC 1375 relied upon by Shri Palkiwala would itself conclude the point (at p.1379)--
"in dealing with this point, it is necessary to consider what exactly is the denotation of the word "income" used in the relevant entry. It is hardly necessary to emphasise that the entries in the lists cannot be read in a narrow or restricted sense.
But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act as such. "
In the third case, the controversy was brought before the Supreme Court of India by way of civil appeals and writ petitions challenging the Constitutional validity of legislations of different States viz., the State of Gujarat, the State of Tamil Nadu, the State of Karnataka and the State of West Bengal, imposing a tax on "luxuries" under entry 62 of List II of the Seventh Schedule to the Indian Constitution. All the impugned taxing statutes, except for certain aspects, which were peculiar to them, were analogous and substantially similar. The statement of objects and reasons for enacting the same contained in the Legislative Bill pertaining to one of the above States, namely, Gujarat Legislative Bill may be reproduced, which reads as under:---
"With a view to augmenting the financial resources' of the State, it is proposed to levy a tax on luxury provided in hotels and lodging houses at the rate of certain percentages of lodging charges recovered by the proprietors of such hotels and lodging houses from persons lodging therein. Every accommodation provided in a hotel or lodging house the charges for which are not less than rupees thirty-five per day per person is, for the purposes of the tax, to be treated as a luxury. This bill seeks to achieve that object."
Section 3 of the Gujarat Act purported to impose luxury tax with effect from the date of enforcement at the scale of rates provided in sub-clauses (a), (b) and (c) of subsection (1) of the above section, which read as follows:---
| "(a) Where the charges for lodging are thirty five rupees or more but not more than fifty rupees per day per person. | 10 per cent. of such charges. |
| (b) Where the charges for lodging are morethan fifty rupees but not more than one hundred rupees per day per person. | Rs. 5 plus 20 per cent. of such charges in excess of Rs.50 per person per day. |
| (c) Where the charges for lodging are more than one hundred rupees per day per person. | Rs.15 plus 30 per cent. of such charges in excess of Rs.100 per person per day." |
The Indian Supreme Court, after referring to the case-law inter alia of foreign jurisdiction as to the concept of freedom of trade etc., dismissed all the above civil appeals and writ petitions and observed as follows as to the validity of the impugned statutes:---
"But, in the present case, it has not been pointed out how a tax on "luxuries" enjoyed by a person in a hotel is either discriminatory or has the direct and immediate effect of impeding the freedom of intercourse. In Garnnel v. Marrickville Margarine (P.) Ltd. (1955) 93 CLR 55, a New South Wales statute which prohibited the manufacture of Margarine without a licence which, if granted, would contain a condition limiting the quantity to be manufactured was assailed on the ground of its violation of section 92 of the Australian Constitution. Repelling the challenge, it was held:
'It is, of course, obvious that without goods, there can be no inter State or any other trade in goods. In that sense manufacture or production within, or importation into, the Commonwealth is an essential preliminary condition to trade and commerce between the States in merchandise. But that does not make manufacture, production or importation, trade and commerce among the States. It is no reason for extending the freedom which section 92 confers upon trade and commerce among the States to something which precedes it and is outside the freedom conferred. "
We find no substance in contention (g).
In the result, for the foregoing reasons, the writ petitions and the appeals are dismissed. But, in the circumstances, there will be no order as to costs."
27. We may take up the above second category of cases, which are inter alia as under:---
(i)A. Sanyasi Rao and another v. Government of -Andhra Pradesh and others (1989) 178 ITR 31;
(ii)P. Kunhammed Kutty Haji and others v. Union of India and. others (1989) 176 ITR 481;
(iii)T.K. Aboobacker and others v. Union of India and others (1989) 177 ITR 358;
(iv)Sat Pal & Co. v Excise and Taxation Commissioner and others (1990) 185 ITR 375;
(v)Sri Venkateswara Timber Depot v. Union of India and others (1991)189 ITR 741;
(vi)Union of India and another v. Sanyasi Rao and others (1996) 219 ITR 330.
In all the above cases the vires-of sections 44-A-C and 206-C of the Indian Income Tax Act, 1961, were assailed, which were enacted by the Finance Act, 1988. The latter section (206-C) purported to impose tax on items and at -the percentages mentioned in the Table by providing in subsection (1) thereof that every person, being a -seller referred ,1 to in section 44-A-C, shall at the time of debiting of the amount payable by the buyer ,referred to in that section to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax on income comprised therein. The said Table reads as under:---
| "S. No. (1) | Nature of goods (2) | Percentage (3) |
| (i) | Alcoholic liquor for human consumption (other than Indian made foreign liquor) | Fifteen per cent. |
| (ii) | Timber obtained under a forest lease. | Fifteen per cent. |
| (iii) | Timber obtained by any mode other than under a forest lease. | Ten per cent. |
| (iv) | Any other forest produce not being timber. | Fifteen per cent." |
It may be observed that -subsection (4) thereof provided that "Any amount collected in accordance with the provisions of this section and paid under subsection (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished .under subsection (5) in the assessment made under this Act for the assessment year for which such income is assessable.
It may also be pertinent to state that subsection- (1) of section 44-AC provided as under:---
"44-AC. Special provision for computing profit and gains from the business of trading in certain goods.---(1) Notwithstanding anything to the contrary contained in sections 28 to 43-C, in the case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller),---
(a)any goods, in the nature of alcoholic liquor for human consumption (other than Indian made foreign liquor), a sum equal to forty per cent. of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head 'profits and gains of business of profession';.
(b)the right to receive any goods of the nature specified in column (2) of the Table below, or such goods, as the case may be, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head 'profits and gains of business or profession'.
Table
| S.No. | Nature of goods | Percentage |
| (i) | Timber obtained under forest lease. | Thirty-five per cent |
| (ii) | Timber obtained by any mode other than under a forest lease. | Fifteen per cent |
| (iii) | Any other forest produce not being timber. | Thirty-five per cent |
The vires of the above provisions were impugned before the Andhra Pradesh, Kerala, Punjab & Haryana and Orissa High Courts. Andhra Pradesh High Court come to the conclusion that percentage of tax levied under clauses (a) and (b) of subsection (1) of section 44-AC, namely, 40%, 35% and 15% had no rational basis as proper exercise was not carried out. It was also of the view that the above imposition was likely to be characterised as disproportionate and, therefore, unreasonable restriction upon the fundamental rights guaranteed by Article 19(1)(g) of the Indian Constitution. After having reached the above conclusion, it further observed that it was left with two options; one was to strike down section 44-AC, and the other was to read it down to make it consistent with the guarantees contained in Articles 14 and 19(1)(g) of the Indian Constitution. In support of the latter course of action, the following observations were made as to the theory of reading down:---
"We may mention that the theory of reading down is a rule of interpretation resorted to by Courts where a provision, read literally, seems to offend a fundamental right or falls outside the competence of the particular Legislature. This was resorted to as far back as 1941 in In re: Hindu Women's Rights to Property Act, AIR 1941 FC 72. The expression ".property" was capable of taking in agricultural lands as well, in which case it would trench upon the field reserved for Provincial Legislatures exclusively (List 11). The Court referred to the presumption that a Legislature must be presumed to be aware of its limitations and must also be attributed with an intention not to overstep its limits, and did not in fact apply to agricultural lands. In All Saints' High School v. Government of A.P., AIR 1980 SC 1042, certain provision] of the AP Recognised Private Educational Institutions Control Act, 1975, were challenged as violating Article 30. "-
The case was concluded as under:---
"For the above reasons, we uphold the validity of section 206-C. We also hold that section 44-AC is a valid piece of legislation, read in the manner indicated by us. Section 44-AC is not to be read as an independent provision but- as an adjunct to and as explanatory to section 206-C. It does not dispense with a regular assessment altogether. After .the tax is collected in the manner provided by section 206-C, a regular assessment will be made where the profits and- gains of business in specified goods will be ascertained in accordance with sections 28 to 43-C. "
Whereas in the Kerala High Court; the above controversy .was dealt with by a learned Single Judge in the case of P. Kunhammed Kutty Haji and others (supra) and also by a Division Bench in the case of T.K. Aboobacker and others (supra). In both the above cases, Kerala High Court reached to a contrary conclusion and held that the percentage of purchase price deemed to be profit under the impugned provisions of section 44-AC was not ultra vires the legislative power. We may observe that the judgment of the learned Single Judge in the above case was authored by K. Suku Maran, J. He has referred very useful literature as to the origin of the presumptive taxation. A portion of his judgment we have quoted hereinabove in para. 20.
The Punjab & Haryana and Orissa High Courts adopted the aforesaid approach of the Andhra Pradesh High Court, namely, that they had pressed into service the theory of reading down section 44-AC of .the Indian Income Tax Act in the manner referred to in the aforesaid judgment of the Andhra Pradesh High Court.
Eventually, the matter came up before the Indian Supreme Court in the case of A. Sanyasi Rao and another (supra) decided in February, 1996. The judgment rendered by the Indian Supreme Court in the above case is more in line with the above judgment of Andhra Pradesh High Court. In the discourse of judgment, the following observations have been made:---
"In this context, we should bear in mind that there is a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. Having regard to the past difficulties in making a normal assessment and collection in the case of certain categories of assessees, for convenience sake, the Legislature has chosen to make appropriate provision for collection of tax at an anterior stage by adopting the purchase price as the measure of tax. In our view, this is permissible and the standard by which the amount of tax is measured, being the purchase price, will not in any way alter the nature and basis of levy, viz., that the tax imposed is a tax on income. It cannot be labelled as a tax on purchase of goods.
Considered in the light of the practical difficulties envisaged by the Revenue to locate the persons and to collect the tax due in certain trades, if the Legislature in its wisdom thought that it will facilitate he collection of the tax due from such specified traders on a "presumptive basis", there is nothing in the said legislative measure to offend Article 14 of the Constitution. In the light of the legal principles stated above, we are unable to hold that section 44-AC read with section 206-C is wholly hit by Article 14 of the Constitution of India.
However, the `denial of relief provided by sections 28 to 43-C to the particular business or trades dealt with in section 44-AC calls for a different consideration. Even according to the Revenue, the provisions (section's 44-AC and 206-C) are only "machinery provisions". If so, why should the normal reliefs afforded to all assessees be denied to such traders? Prima facie, all assessees similarly placed under Income Tax Act are entitled to equal treatment. In the matter of granting various reliefs provided under sections 28 to 43-C, the assessees carrying on business are similarly placed and should there be a law, negative such valuable reliefs to a particular trade or business, it should be shown to have some basis fair and rational. It has not been shown as to why the persons carrying on business in the particular goods specified in section 44-AC are denied the reliefs available to others. No plea is put forward by the Revenue that these trades are distinct and different even for the grant of reliefs under sections 28 to 43-C of the Act. The denial of such reliefs to traders specified in section 44-AC, available to other assessees, has no nexus to the object sought to be achieved by the Legislature. To this extent, it appears to us that the non obstante clause in section 44-AC denying such reliefs has no basis and is unfair and arbitrary and equality of treatment is denied to such persons, necessitating grant of appropriate relief (see E.P. Royappa v. State of Tamil Nadu, AIR 1974 SC 555; Maneka Gandhi v. Union of India, AIR 1978 SC 597 and Ajay Hasia v. Khalid Mujib Sehravardi, AIR 1981 SC 487 and other cases). "
After having discussed inter alia as above, the Supreme Court concluded as follows:--- ,
"On this aspect, we may as well refer to the words ' in the assessment made under this Act' in subsection (4) of section 206-C. These words show that an assessment under the Act is still to be made even where tax is collected under section 206-C. This, in our opinion, is a strong indication supporting our construction of section 44-AC .....We uphold the validity of section 206-C. We also hold that section 44-AC is a valid piece of legislation, read in the manner indicated by us. Section 44-AC is not to be read as an independent provision but as an adjunct to and as explanatory to section 206-C. It does not dispense with a regular assessment altogether. After the tax is collected in the manner provided by section 206-C, a regular assessment will be made where the profits and gains of business in specified goods will be ascertained in accordance with sections 28 to 43-C". (Emphasis supplied). (sic).
We perused the aforesaid judgment of -the Andhra Pradesh High Court with care and we hold that in view of the absence of materials, the Court was justified in its view that the remedy specified by section 44-AC is disproportionate' to the evil that prevailed and so to the extent the non obstante clause in section 44-AC excluded the provisions of sections 28 to 43-C (applicable to all assessees), the provisions are unreasonable. We concur with the aforesaid conclusion of the Andhra Pradesh High Court on this aspect and hold, that section 44-AC is a valid piece of legislation and is an adjunct to and explanatory to section 206-C. It ' does not dispense with the regular assessment, as provided in accordance with sections 28 to 43-C of the Act. A direction will issue to that effect and to this limited extent the writ petitions, civil appeals and the special leave petitions filed by the - assessees -shall stand partly allowed. In all other respects, the batch of cases shall stand dismissed. In the circumstances of the case, there shall be no order as to costs."
28. We may now refer to the case-law falling under the above third category, viz.:
(i) Commissioner of Income-tax/Excise Profits Tax, Bombay City v Messrs Bhogilal Batlibai & Co., Bombay AIR 1954 SC 155.
(ii) Kunnatha Thathunni Moopil Nair etc. v. State of Kerala and another AIR 1961 SC'552;
(iii) Khandige Sham Bhat and another v, Agricultural Income-tax Officer, Kasaragod and another: AIR 1963 SC 591;
(iv) Travancore Rubber and 'lea Co. Ltd., Alleppey and another v State of Kerala and another AIR 1964 SC 572;
(v) Commissioner of Income-tax. Bombay City I v Amarchand N Shro.ff (1963) 48 ITR 592;
(vi) Navnit Lai C. Javeri v. K.K. Sen, Appellate Assistant Commissioner of Income-tax, Bombay. AIR 1965 SC 1375;
(vii) Deputy Commercial Tax Officer, Saidapet, Madras and another v Enfield India Ltd, Cooperative Canteen Ltd. AIR 1968 SC 838;
(viii) The State of Kerala v. Haji K. Kutty Naha and others etc. AIR 1969 SC 378;
(ix) Assistant Commissioner of Land Tax, Madras and others v. Buckingham and Carnatic Co. Ltd. (1970) 75 ITR 603;
(x) The Madurai District -Central Cooperative Bank Ltd. v. The Third Income Tax Officer, Madural AIR 1975 SC 2016;
(xi) Pathumma and others v. State of Kerala and others. AIR 1978 SC 771;
(xii) Avinder Singh and others v. State of Punjab and others (1979) 1 ' Supreme Court Cases 137;
(xiii) Bhagwan Dass Jain v. Union of India and others (1981) 128 ITR 315;
(xiv) R.K. Garg v. Union of India and others (1982) 133 ITR 239.
In the first case the Indian Supreme Court, while construing sections 4 and 42(1) of the late Income Tax Act, 1922, held that the term "deemed" employed in section 4 brings within the net of chargeability income not actually accrued but which is supposed notionally to have accrued. Similarly, the deeming provision in section 42 of the above Act brings one class of income to a resident within the taxable territories.
In the second case the facts were that a batch of 22 petitions under Article 32 of the Indian Constitution was directly filed before the Indian Supreme Court challenging the constitutionality of Travancore-Cochin Land Tax Act (15 of 1955, as Amended by Act 10 of 1957). Section 4 thereof provided that subject to the provisions of this Act, there shall be charged and levied in respect of all lands in the State of whatever, description and held under whatever tenure of uniform rate of tax to be called the basic tax. The amended section raised the rates to Rs.2 per acre (2 pies per cent. of land per annum) and the basic tax charged and levied at that rate shall be the tax payable to the Government in lieu of any existing tax in respect of land. Section 6 thereof provided that any stipulation in any contract or agreement or lease or other transaction to pay land revenue assessment of any land shall be construed as stipulation for the payment of the amount of basic tax as charged and levied under the Act. Section 7 of the same laid down that the Act was not applicable to lands held or leased by the Government or any land or class of land which the Government may by notification in the gazette, either wholly or partially, exempt from the provisions of the Act. Sections 8 and 9 provided that the continuance of the liability to pay certain dues in respect of existing tenure in addition to the basic tax. B.P. Sinha, C.J., who spoke for the majority, made the following observations on the question of classification and infringement of Article 14 of the Indian Constitution:---
"It cannot be disputed that if the Act infringes the provisions of Article 14 of the Constitution, it must be struck down as un Constitutional. For the purpose of these cases, we shall assume that the State Legislature had the necessary competence to enact the law, though the petitioners have seriously challenged such a competence. The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with 'reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14, though the Courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution".
As regards the confiscatory nature, the following observations were made:--
"(8) It is common ground that the tax, assuming that the Act is really a taxing statute and not a confiscatory measure, as contended on behalf of the petitioners, has no reference to income, either actual or potential, from the property sought to be taxed. Hence, it may be rightly remarked that the Act obliges every person who holds land to pay the tax at the flat rate prescribed whether or not he makes any income out of the property, or whether or not the property is capable of yielding any income. The Act, in terms; claims to be "a general revenue settlement of the State" section 3. Ordinarily a, tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed. In other words, the tax has reference to the income actually made, or which could have been made, with due diligence, and, therefore, is levied with due regard to the incidence of the taxation. Under the Act in question we shall take a hypothetical case of a number of persons owning and possessing the same area of land. One makes nothing out of the land, because it is arid desert. The one does not make any income, but could raise some crop after a disproportionately large investment of a labour and capital. A third one, in due course of husbandry, is making the land yield just enough to pay for the incidental expenses and labour charges besides land tax or revenue. The fourth is making large profits, because the land is very fertile and capable of yielding good crops. Under the Act, it is manifest that the fourth category, in our illustration, would easily be able to bear the burden of the tax. The third one may be able to bear the tax. The first and the second one will have to pay from their own pockets, if they could afford the tax. If they cannot afford the tax, the property is liable to be sold, in due process of law, for realisation of the public demand. It is clear, therefore, that inequality is writ large on the Act and is inherent in the very provisions of the taxing section. It is also clear that there is no attempt at classification in the provisions of the Act. Hence, no more need be said as to what could have been the basis for a valid classification. It is one of those cases where the lack of classification creates inequality. It is, therefore, clearly hit by the prohibition to deny equality before the law contained in Article 14 of the Constitution. Furthermore, section 7 of the Act, quoted above, particularly the latter part, which vests the 'Government with the power wholly or partially to exempt any land from the provisions of the Act, is clearly discriminatory in its effect and, therefore, infringes Article 14 of the Constitution. The Act does not lay down any principle or policy for the guidance of the exercise of the discretion by the Government in respect of the selection contemplated by section 7."
After having concluded as above, the writs were allowed and the provisions were declared as ultra vires.
In the third case, section 2-A of the Kerala Agricultural Income Tax., 1950, as amended by Kerala Agricultural Income Tax (Amendment) Act I of 1959, was challenged through two direct petitions filed under Article 32 of the Indian Constitution before the Supreme Court. The Indian Supreme Court while dismissing the aforesaid petitions made the following observations:
"But these advantages or disadvantages to individual assessees are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily fall on the other side of the line.
(11) It shows that in Cannanore, which includes Kasaragod Taluk, only arecanut, pepper, tea, coffee and rubber are harvested after 1November but in the case of paddy, tapioca, coconut and lemongrass the harvesting season is before November; cardamom is gathered partly before November and partly after November. The same is the position in regard to the entire State except in respect of arecanut even in respect of arecanut it is harvested in the Madras area other than Cannanore before November: The net result of this analysis is that in regard to a large extent of land cultivated in Kerala the harvesting season is the same in respect of all the crops except arecanut and even in the case of arecanut out of 1,23,833 acres cultivated with that crop the harvesting season in regard to 20,771 acres along commences after November. In such a situation it cannot be said that the Legislature has arbitrarily, with an evil eye, selected the most advantageous period for the purpose of fixing the rate of taxation. The said discussion leads to the only conclusion that the Legislature in its sincere attempt of meet a difficult situation made a law adopting one of the diverse methods open to it and even the method adopted cannot be said to be either unreasonable or arbitrary as the overall picture indicates that it works fairly well on all similarly situated, though some hardship may be caused to some in the implementation of the law which is almost invitable in every taxation law. We cannot, therefore, say that in the present case the one method adopted instead of another is either arbitrary or capricious."
In the fourth case, direct petitions were tiled under Article 32 of the Indian Constitution before the Supreme Court assailing the vires of Explanation 2 to section 5 of the Kerala Agricultural Income Tax Act, 1950, by the Amending Act (9 of 1961). The above added Explanation made it clear that the Legislature was of the view that no deduction should be allowed for the expenses incurred in the upkeep and maintenance of immature plants (rubber plants). The aforesaid Explanation was enacted after the handing down of the judgment by the Indian Supreme Court reported in the case of Travancore Rubber Co. Limited v. The Commissioner of Agricultural Income Tax, Kerala (AIR 1961 SC 604). It was further held that the State Legislature was competent to enact the above Explanation and thereby to provide for the non-deduction of the expenses incurred in the upkeep or maintenance of immature plants from which no income has been derived in the accounting year. As regards the meaning of the word "income", the following observations were made:---
"(6) The State Legislature has full powers to tax such income as come within the expression 'agricultural income' as defined in the Agricultural Income Tax Act, the definition being ' in conformity with the definition- of 'agricultural income' in the Income Tax Act. It is for the State Legislature to provide such deductions from such income as it -considers fit. Section 5 of the Agricultural Income Tax Act makes provisions for the deductions considered necessary by the Legislature. Explanation 2 added to section 5 by the Amendment Act makes it clear that the Legislature was of the opinion that no deduction should- be allowed for the expenses incurred in the upkeep and maintenance of immature plants. Such an intention of the Legislature is manifest as Explanation 2 was enacted after the decision of this Court in the Travancore Rubber and Tea Co. Ltd.'s case, (1963) 3 SCR 279: AIR 1961 SC 604 to the effect that such expenses are to be deducted in view of the provisions of cl. (j) of section 5 of the Agricultural Income Tax Act."
In the fifth case, the facts were that three persons were partners in a firm of solicitors including one Amarchand N. Shroff. The latter died on July 7, 1949. Thereafter the partnership was carried on by the remaining two partners up to November 30, 1949. On December 1, 1949, Ramesh son of Amarchand, who had by then qualified as a solicitor, joined the firm as the third partner. It may be stated that after the death of Amarchand, the arrangement between the remaining partners with regard to the realization of the old outstanding fee was that in respect of the work done up to the death of Amarchand, realizations were to be divided among the three partners including Amarchand, but after December 1, 1949, the same were to be divided among the remaining two partners and the new inductee Ramesh. The question arose, as to whether the amount received by the legal representatives of Amarchand in respect of the fee recovered after his death could be subject to tax under section 24-B. The matter was brought by the Commissioner of Income Tax. Bombay City, before-the Supreme Court of India against the decision inter alia of the Income Tax Appellate Tribunal which held that the same was not subject to tax. The Supreme Court, while affirming the same, observed as under:---
"The individual assessee has ordinarily to be a living person and there can be no assessment on a dead person and the assessment is a charge in respect of the income of the previous year and not a charge in respect of the year of assessment as measured by the income of the previous year; Wallace Brothers & Co, Ltd. v. Commissioner of Income-tax (1948) 16 ITR 240,'244 (P.C.). By section 24-B the legal representatives have, by fiction of law, become assessees as provided in that section but that fiction cannot be extended beyond the object for which it was enacted. As was observed by this Court in Bengal Immunity Co. Ltd. v. State of Bihar (1955) 2 SCR 603, 604 legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that legitimate field. In the present case the fiction is limited to the cases provided in the three subsections of section 24-B and cannot be extended further than the liability for the income received in the previous year.
In the present case the amounts which are sought to be taxed and which have been held not to be liable to tax are those which were " not received in the previous year and are therefore not liable to tax in the several years of assessment. It cannot be said that they were ` income which may be deemed by fiction to have been received by the dead person and therefore they are not liable to be taxed as income of the deceased, Amarchand, and are not liable to be taxed in the hands of the heirs and legal representatives who cannot be deemed to be assessees for the purpose of assessment in regard to those years. "
In the sixth case the vires of sections 2(6A)(e) and 12(19), which were introduced by Finance Act, 15 of 1955, were impugned. The same were subject to five conditions referred to in the above report. The aforesaid provisions were impugned before the Supreme Court. The majority view of the Indian Supreme Court, while upholding the aforementioned provisions, was that the same did not contravene Article 19(1)(f) and (g) of the Indian Constitution as the same were saved by clauses (5) and (6) thereof. As regards the legislative competence, the following observations were made:---
"(8) In dealing with this point, it is necessary to consider what exactly is the denotation of the word "income" used in the relevant Entry. It is hardly necessary to emphasise that the entries in the Lists cannot be read in a narrow or restricted sense, and as observed by Gwyer, C.J., in the United Provinces v. Atiqa Begum, 1940 FCR 110: AIR 1941 FC 16, "each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it". What the entries in the Lists purport to do is to confer legislative powers on the respective Legislature in respect of areas or fields covered by the said entries; and it is an elementary rule of construction that the widest possible construction must be put upon their words. This doctrine does not, however, mean that Parliament can choose to tax as income an 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. But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act as such."
The combined effect of the aforestated two provisions was that three kinds of payments made to the shareholders of a company to which the said provisions applied were treated as taxable dividends to, the extent of the accumulated profit held by the company. The above three kinds of, payments were:
(i) payment made to the shareholder by way of advance or loan;
(ii) payment made on his behalf;
(iii) payment made for his individual, benefit.
In the seventh case, the facts were that a company was registered as a Cooperative Society under the Madras Cooperative Societies Act 6 of 1932. The object of the society was to provide a canteen for the employees of the aforesaid society. The society was assessed by the Deputy Commercial Tax Officer to pay sales tax for the years 1959-60 and 1960-61 on its turnover from refereshment supplied to its members. The respondent society then moved in the High Court of Judicature at Madras three petitions under Article 226 of the Indian Constitution for orders quashing the proceedings for the Deputy Commercial Tax Officer, Saidapet, assessing the society to sales tax in respect of its transactions on the ground that there was no sale. Before the High Court the society succeeded. 'Thereupon, the Deputy Commercial Tax Officer filed an appeal before the Supreme Court, which was allowed. The Supreme Court reiterated its earlier view that a State Legislature may, under Entry 54, List II, legislate in respect of series of acts beginning with agreement of sale between the parties competent to contract and resulting in transfer of property from one of the parties to the agreement to the other for a price and the matters incidental thereto, but cannot make a transaction which is not a sale within the Sale of Goods Act. It was further held that if the element of transfer of property from one person to another is lacking in any transaction, there is no sale and the Legislature cannot by treating it as a sale by a deeming clause bring it within the ambit of the taxing statutes. However, it rejected the contention of the society that there was no sale between it and the members of the society in respect of the refereshments supplied by observing as under:---
"12. We are not dealing in this case with liability criminal or quasi- criminal. The question is one of liability under a taxing statute and the Court in determining the liability of the Society to pay tax cannot ignore the form and look. at what is called the "substance of the transaction". Ex facie, the transaction is one in which the legal owner of property transfers it to another pursuant to a contract for a price, and that transaction must be regarded as a sale. Whether by appropriate provisions in the Article by Association or. Rules, a scheme may be devised under which the goods supplied may be treated as belonging to the members of the Society and the Society merely acts as an agent in supplying the food to its members need not be considered in the present case. It will suffice to state that it cannot be urged as a proposition of law that when a Cooperative Society supplies to its members refreshments for a price under a scheme for distribution or supply of refreshments, the transaction can in no event be regarded as a sale of the refreshments supplied for a price. "
In the eighth case the facts were that a number of appeals, arising out of one order passed by the High Court of Kerala holding that Kerala Building Tax Act 19 of 1961 was ultra vires the Legislature, and that infringed the equality clause of the Constitution, were brought before the Supreme Court with its leave. The question before the Supreme Court was, as to whether section 4 of the above Act which provided that there shall be a charge to tax in respect of every building, the construction of which was completed oil or after 2-3-1961 and which held a floor area of 1,000 sq. for more, shall be subject to building tax payable by the owner of the building. The Schedule to the Act set out the rates of building tax. In the Schedule, the scales of rates of building tax were provided on the basis of the commercial area without taking into consideration the location and the commercial value of the building. The Supreme Court maintained the judgment of the High Court by holding that in enacting the Kerala Building Tax Act, no attempt at any rational classification was made by the Legislature and that the Legislature had not taken into consideration in imposing the tax the class to which the building belonged, the nature of construction, the purpose for which it was used, its situation, its capacity for profitable use and other relevant circumstances which had bearing on matters of taxation. It was further held that the Legislature adopted merely the floor, area of the building as the basis of tax irrespective' of all other considerations.
In theninth case, a number of appeals were brought before the Supreme Court to consider the question, as to whether the Madras Urban Land Tax Act, 1966 (12 of 1966) was constitutionally valid. Prior to the above Act, Madras Urban Tax Act was enacted in 1963. On the basis of the recommendations of the Taxation Enquiry Commission and the Planning Commission, whereby a tax was levied on urban land on the basis of average market value of the land in a sub-zone as determined under subsection (2) of section 6 at the rate of 0.4 per cent. on such market value payable by the owner.
The above provision was declared as ultra vires by a Division Bench of the Madras High Court. After that, a new Act, namely, Act 12 of 1966 was enacted, wherein section 5 provided that there shall be levied and collected from every year commencing from the date of-the commencement of the Act, a tax on each urban land frond the owner of such urban land at the rate of 0.4 per cent. of the market value of such urban land. The provisions of the above Act were again assailed successfully before the Madras High Court. After that, the above appeals were brought before the Supreme Court by the Revenue Authorities, which were allowed by the aforesaid judgment, a portion of which has already been quoted hereinabove with reference to the rule of interpretation of entries in the Legislative Lists in a Constitution. In the discourse of the above report, the following observations were also made, which have some bearing on the controversy in issue:--
"It was observed by this Court in Rai Ramakrishna v. State of Bihar (1963) 50 ITR 171, 179: '
"It is, of course, true that the power of 'taxing the people and their property is an essential attribute of the Government and Government may legitimately exercise the said power by reference to the objects to which it is applicable to the utmost extent to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be, within the legislative competence of the Legislature can be taxed the Legislature according to-the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax, levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the Legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes Article 19, Courts would naturally be circumspect and, cautious. Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the Legislature for achieving its confiscatory purposes. This is illustrated by the decision of this Court in the case of Kunna that Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552 where a taxing statute was struck down because it suffered from several fatal infirmities. On the other hand, we may refer to the case, of Raja Jagannath Baksh Singh v. State of Uttar Pradesh (1962) 46 ITR 169 (SC) where a challenge to the taxing statute on the ground that its provisions were unreasonable was rejected and it was observed- that unless the infirmities in the impugned statute were of such a serious nature as to justify its description as a colourable exercise of legislative power, the Court would uphold a taxing statute.
As a general rule it may be said that so long as a tax retains its character as a tax and is not confiscatory or extortionate, the reasonableness of the tax cannot be questioned."
In the tenth case the appellant filed a writ petition in the High Court of Madras under Article 226 of the Indian Constitution to assail an assessment order dated 22-8-1963 framed by the respondent levying surcharge on its residual income. The High Court dismissed the above writ petition but granted a certificate to the appellant for filing of an appeal to the Supreme Court. The main grievance of the appellant before the High Court was that where its taxable income was only Rs.51,763, a tax of Rs.76,674107 was imposed on it. It was contended that the relevant provisions of the Finance Act were invalid as they could not be subject to additional surcharge and income, which was exempt from the tax under the provisions of the Income Tax Act. It was also urged that additional surcharge had no independent existence and if the income-tax was not payable, the same could not be levied. The above contention was repelled by the Supreme Court as follows:---
" 13. Much more so can the Parliament introduce a charging provision in a Finance Act. True, as said in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax (Central),Calcutta, .(1966) 2 SCR 688 at p. 704 = AIR 1966 SC 1370 at p.1376 that the Income Tax Act is a permanent Act while the Finance Acts are passed every year and their primary purpose is to prescribe the rates at which the income-tax will be charged under the Income Tax Act. But that does not mean that a new and distinct charge cannot be introduced under the Finance Act. Exigencies of the financial year determine the scope and nature of its provisions. If the parliament has the legislative competence to introduce a new charge of tax, it may exercise that power either by incorporating that charge in the Income Tax Act or by introducing it in the Finance Act or for the matter of that in any other statute. The alternative in this regard is generally determined by the consideration whether the new charge is intended to, be more or less of, a permanent nature or whether its introduction is dictated by the financial exigencies of the particular year. Therefore, what is not "income" under the Income Tax Act can be made 'income' by a Finance Act, an exemption granted by the Income Tax Act, can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge. Subject to Constitutional limitations, additional tax-revenue may be collected either by enhancing the rate or by the levy of a fresh charge. The Parliament, through the medium of a Finance Act, may as much do the one as the other. In McGregor and Balfour Ltd., Calcutta v. CIT West Bengal. (1955) 27 ITR 389 (Cal.) which was affirmed by this Court in 36 ITR 65 = AIR 1959 SC 771 Chakravartti, C.J. delivering the judgment of a Division Bench observed that the Finance Acts though annual Acts are not necessarily temporarily Acts for they may and often do contain provisions of a, general character which are of a, permanent operation. "
In the eleventh case, the Indian Supreme Court inter alia enunciated the principle of interpretation of Constitutional provisions. It has been held that the Courts should interpret the Constitutional provisions against the social setting of the country so as to show a complete consciousness and deep awareness of the growing requirements of the society, the increasing needs of the nation, the burning problems of the day and the complex issues facing the people which the Legislature in its wisdom, through beneficial legislation, seeks to solve. It has been further held that the judicial approach should be dynamic rather than static, pragmatic and not pedantic and elastic, rather than rigid.
In the twelfth case, the Indian Supreme Court, while dismissing an appeal filed by a licensee engaged in the business of liquor, held that the levy of Re. l per bottle on the sale of foreign liquor at a flat rate was not discriminatory and not violative of Article 14 of the Indian Constitution inter alia for the following reasons:---
"5. Likewise, the plea that a flat rate of Re. l per bottle, be it brandy or other stronger beverage or be it Rs.50 or 500 per bottle, cannot be seriously pressed. In the field of taxation many complex factors enter the fixation and flexibility is necessary for the taxing authority to make a reasonably good job of it. Moopil Nair's case does not discredit as unconstitutional anathema all flat rates of taxation. May be, in marginal cases where the virtual impact of irrationally uniform impost on the same of irrationally uniform impost on the same subject is glaringly discriminatory, expropriator' and-beyond legislative competence, different considerations may arise; but to condemn into invalidity a tax because it is levied at a conveniently flat rate having regard to the commodity or service which has a high range or prices and the minimal effect on the overall price, its easy means of collection and a variety of other pragmatic variables, is an absurdity, especially because in fiscal matters large liberality must be extended to the Government having regard to the plurality of criteria which have to go into the fiscal success of the measure. Of course, despite this forensic generosity, - if there is patent discrimination in the sense of treating dissimilar things similarity or vice versa, the Court may treat the tax as suspect and scrutinise its vires more closely. In the present case, intoxicating liquids falling in the well-known category of foreign liquors from one class and a flat minimal rate of Rs. l per bottle has no Constitutional stigma of inequality. It is so easy to conceive of innumerable taxes imposed in this manner in the daily governance of the country that illustrations are unnecessary. As excisable articles go, foreign liquor is a distinct category and absence of micro-classification within the broad genus does not attract the argument of inequality. Likewise, picking and choosing within limits is inevitable in taxation. The correct law is found in East India Tobacco Co. v. State of A. P.
It is not in dispute that taxation laws must also pass the test of Article 14. That has .been laid down recently by this Court in Moopil Mir v. The State of Kerala (supra). But in deciding whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14. The following statement of the law in Willis on "Constitutional Law" page 587, would correctly represent the position with reference to taxing statutes under our Constitution:
A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably .... The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation."
In the thirteenth case, the question before the Supreme Court brought by an assessees was, whether it was open to the ITO while computing the liability of an assessee to tax under the Income Tax Act, 1961, to include in the income of the assessee any amount calculated in accordance with section 23(2) of the said Act in respect of a house in the occupation of the assessee for the purpose of his own residence., The above question was answered by the Supreme Court in the affirmative and leave to appeal was refused for the following reasons:---
"Even in its ordinary economic sense, the expression 'income' includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself. That which can be covered into income can be reasonably regarded as giving rise to income. The tax levied under the Act is on the income (though computed in an artificial way) from house property in the above sense and not on house property. Entry 49 of List II ofthe Seventh Schedule to the Constitution is not, therefore, attracted. The levy in question squarely falls under entry 82 of List I of the Seventh Schedule to the Constitution."
In the last case 'the facts were that a number of writ petitions were filed directly before the Supreme Court raising a common question of law relating to the Constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981. The principle ground on which the validity of the Ordinance and the Act was challenged, was that they were violative of -the equality clause of Article 48 of the Indian Constitution. It was canvassed at the Bar that the Act had put a premium on dishonesty by providing income-tax concession to the tax evaders and the honest tax-payers were made to pay higher rates of tax. The above contention was repelled and inter alia it was emphasised that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It may be pertinent to reproduce the following observations from the above report:---
"Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait jacket formula and this is particularly true in the case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to .be allowed to the Legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation `than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (1957) 354 US 457, where Frank-furter J., said in his inimitable style:
'In the utilities, tax and economic regulation cases, 'there are good reasons for. judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all' has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty., the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events-self-limitation can be seen to be the path of judicial wisdom and institutional prestige and stability'.'.'
28. Having dealt with the cases of the Indian jurisdiction, we may now refer to the three cases of the Privy Council referred to by the learned counsel for the appellants:
(i) Attorney-General for British Columbia v. Canadian Pacific Railway Company. (XLII) the Times Law Reports (Privy Council) page 750;
In the above case, the facts were that The Fuel-Oil Tax Act, 1925 (British Columbia statute) which provided that every person purchasing within the province fuel-oil sold for the first time after its manufacture in or importation into the province should pay a tax, to be collected and paid to the Government by the vendor, was assailed on the ground of the competency of the State Legislature. It was held by the Privy Council; while affirming the decision of the Supreme Court of Canada, that the same was invalid since the tax was not a direct tax within section 92 of the British North America Act, 1867. The following observations were also made on the question of direct and indirect taxes:---
"The definition given by John Stuart Mill was, accordingly, taken as a fair basis for testing the character of the tax in question, not as a legal definition but as embodying with sufficient accuracy an understanding of the most obvious indicia of direct and indirect taxation such as might be presumed to have been in the minds of those who passed the Act of 1867. Validity in accordance with such tendencies, and not according to results in isolated or merely particular instances, must be the test. The question of validity could not be made to impose on the Courts the duty of separating out individual instances in which the tax might operate directly from those to which the general purview of the taxation applied. An exhaustive partition would be an impracticable task."
(ii) Attorney-General for British Columbia v. Kingdom Navigation Company Limited. 150 Law Times (Privy Council) 81; in which the question before the Privy Council was, whether tax on consumer of fuel oil Excise duty imposed by the Fuel Oil Tax Act, 1930, was a direct taxation within the legislative sphere of Dominion Parliament. The above question was answered in the affirmative. It was held that the aforesaid tax was a direct taxation within the terms of section 92, head 2, of the British North America Act, 1867. On the question of direct and indirect taxation, the following observations were made:---
"Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those, which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another; such are the excise or customs. The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price. "
(iii) King v. Caledonia Collieries Ltd. AIR 1928 P.C. 282;
In the above report the question raised before the Privy Council in appeal was, whether the Mine-owners Tax Act,. 1923, of the Province of Alberta, which imposed upon mineowners as defined therein a percentage tax upon the gross revenues of their coal mines was ultra vires the Province as an attempt to impose indirect taxation. The appeal was brought before the Privy Council against the order of the Supreme Court of Canada, whereby it unanimously allowed an appeal against the order of the Appellate Division of the Supreme Court of Alberta in favour of the appellate on the ground that in their opinion the tax in question was not a direct tax and, therefore, one which it was not within the competence of the Province to impose. The Privy Council maintained the order of the Supreme Court of Canada and observed as follows:---
"Some attempt was made in argument to support the tax on the ground that it is analogous to an income-tax, which has always been regarded as the typical example of a direct tax; but there are marked distinctions between a tax on gross revenue and a tax on income which for taxation purposes means gains and profits. There may be considerable gross revenues, but no income taxable by an income -tax in the accepted sense.
For these reasons their Lordships are of opinion that the appeal should be dismissed with costs, and they will humbly advise His Majesty accordingly. "
While we are engaged on the question of direct and indirect taxation, reference may be made to the following passage from the book under the title "Indirect Taxation in Developing Economics---The Role and Structure of Customs Duties, Excises and Sales Taxes" by John F. Due, which reads as under:---
"The term indirect tax will be used to refer to three categories of taxes: customs duties, excise taxes, and sales taxes. The term is not ideal, since it is used in so many different ways, but it is employed in preference to coining a new one. The term commodity tax is sometime applied to the three categories, but such taxes may apply to services as well as tangible commodities, and this term emphasizes the objects rather than the transactions and the persons involved in them.
The assumption will be made that the taxes are primarily "borne by consumers" in the sense that the reduction in private sector real income that results from the use of resources by Government is related to consumption expenditures on the taxed goods."
29. We may now advert to some of the case-law of Pakistani jurisdiction, namely:---
(i)Begum B.H. Syed v. Mst. Afzal Jahan Begum and another PLD 1970 SC 29;
(ii)Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-Tax, Rawalpindi PLD 1981 SC 85;
(iii)The Commissioner of Income-tax, Rawalpindi Zone, Rawalpindi v. Messrs Haji Maula Bux Corporation Limited, Sargodha PLD 1990 SC 990;
(iv)Messrs Noon Sugar Mills Limited v. The Commissioner of Income tax, Rawalpindi. 1990 PTD 768;
(v)I.A. Sharwani and others v. Government of Pakistan through Secretary, Finance Division, Islamabad and others 1991 SCMR 1041:
(vi)Inamur Rehman v. Federation of Pakistan and others 1992 SCMR 563;
(vii) Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry of Finance 1992 SCMR 891;
(viii)Government of Pakistan and others v. Muhammad Ashraf and others PLD 1993 176;
(ix)Haji Ibrahim Ishaq Johri v. The Commissioner of Income Tax (West), Karachi 1993 SCMR 287; and
(x)Altaf Construction Company v. Central Board of Revenue and others 1996 PTD 804;
In the first case the question before this Court was, whether the words "shall be deemed to be in possession thereof for the purpose of Displaced Persons (Compensation and Rehabilitation) Act" used by the Central Government in a notification issued under section 2(6) of the said Act, would include a wife of the allottee who was unable to obtain physical possession of the house or shop allotted to him through no fault or negligence of his own. The answer of the above question was recorded in the affirmative. However, as to the import of a deeming provision, the following observations were made:---
"Mr. Dilawar Mahmood, the learned counsel for respondent No. l has referred us to a number of English and Indian decisions to canvass for his contention that the scope of a deeming clause is very wide. He contended that where a person is deemed to be something the only meaning possible is that whereas he is not in reality that something the Act required him to be treated as he were. There is no quarrel with the contention of the learned counsel for respondent No. l that where the statute says that you must imagine the state of affairs; it does not say that having done so you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. This is the classic observation of Lord Asquith in East End Dwelling Company Ltd. v. Finsbury Borough Council (1952 AC 109). But at the same time it cannot be denied that the Court has to determine the limits within which and the purposes for which the Legislature has created the fiction. This principle was enunciated by James, L.J. In re: Levy Ex parte Walton (17 Ch. D 756). In this connection the learned Judge observed as under:---
"When a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to".
In the second case the question before this Court was, what was the import of the word "income" used in section 4(3)(vii) of the late Act (i.e. Income-tax Act, 1922)? The appellant, Mrs. Samina Shaukat Ayub Khan, contended before this Court that the money received by her by way of Salamis or gifts could not be treated as income, whereas the case of the Revenue Authorities was that the same could be included as income as it was
unexplained amount. This Court, while dismissing the appeal of the assessee, made the following observations as to the meaning of the word "income"
"It will be seen that the term 'income', as used in the Income Tax Act, is, indeed, a .term of wide significance, and generally and ordinarily it connotes a periodical monetary return, coming in With some sort of regularity, or expected regularity, from a 'definite source, but, as observed by the Privy Council, the multiplicity of forms which income may assume is beyond enumeration; and income need not necessarily be the recurrent return from a definite source, though it is generally of that character. It may consist of series of separate receipts, as for instance happens in the case of professional earnings. In the last analysis, the question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its source are not satisfactorily explained by the assessee, facts which are generally within his peculiar knowledge, the Income-tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source. "
In the third case the facts were that for the assessment year 1967-68, relevant to the accounting year 1st September, 1965 to 31st August, 1966, the assessee filed its return of income-tax but the declared version for its pressing, ginning and oil business was not accepted by the Income-tax Officer, who made suitable add backs not disputed before the High Court in reference. The Income-tax Appellate Tribunal maintained the aforesaid add-backs and dismissed the appeal of the assessee. Thereupon, the assessee filed a reference in the High Court on four questions reproduced in para. 4 of the above report. The Commissioner of Income-tax was aggrieved by the reference answered by the High Court. He filed a petition for leave to appeal before this Court, which was granted. This Court reiterated the term "income" as defined in the case of Mrs. Samina Shaukat Ayub Khan (supra) and quoted with approval the relevant passage thereof. It was also held that the above observations would also apply in the light of the observations of section 4(2)(b) of the Act in respect of investments which were not recorded in the books of account or any statement furnished by him under section 22(4)(a), the nature or source of which could not be explained to the satisfaction of the Income-tax Officer.
In the fourth case this Court, while considering the question, whether the interpretation placed by the High Court on the expression "unless he is himself liable to pay any income-tax and super-tax as an agent employed in section 18(3-B) of the late Act was in accordance with law", observed that the liability to pay tax is created by section 3 of the late Act but the payability and the quantification of tax depend on the passing an application of Annual Finance Act.
In the fifth case the question in case before this Court was, as to whether the pensioners who had retired prior to certain date/dates could be treated differently than the other pensioners who had retired subsequently to the target date/dates? One of us (Ajmal Mian, J.), after referring to the case law, deduced the following principles of law:---
"(i)that equal to protection of law does not envisage that every citizen is to be treated alike in all circumstances, but it contemplates that persons similarly situated or similarly placed are to be treated alike;
(ii)that reasonable classification is permissible but it must be founded on reasonable distinction or reasonable basis;
(iii)that different laws can validly be enacted for different sexes, persons in different age groups, persons having different financial standings, and persons accused of heinous crimes;
(iv)that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances, may be unreasonable in the other set of circumstances;
(v)that a law applying to one person or one class of persons may be constitutionally valid if there is sufficient basis or reason for it, but a classification which is arbitrary and is not founded on any rational basis is no classification as to warrant its exclusion from the mischief of Article 25;
(vi)that equal protection of law means that all persons equally placed be treated alike both in privileges conferred and liabilities imposed;
(vii) that in order to make a classification reasonable; it should be based---
(a)on an intelligible differentia which distinguishes persons or things that are grouped together from those who have been left out;
(b)that the differentia must have rational nexus to the object sought to be achieved by such classification."
In the sixth case, this Court allowed an appeal of the appellant with the leave against the judgment of a Division Bench of the High Court of Sindh at Karachi, dismissing Constitution Petition No.780 of 1973, filed by the appellant, in which direction of the State Bank of Pakistan resulting intotwo banks' depositing the amount in question with the State Bank on behalf of the appellant, was assailed. In the body of the judgment the import of Article 25 of the Constitution was discussed and it was held that the provisions of Foreign Exchange (Prevention of Payments) Act, 1972, were not only per se arbitrary or discriminatory but had been put into operation in a discriminatory manner so as to violate the guarantees contained in Article 25 of the Constitution. However, at the same time, it was held that the law should be saved rather than be destroyed and the Court must lean in favour of upholding the constitutionality of a legislation. It was further held that the rule of Constitutional interpretation was that there was a presumption in favour of the constitutionality of the legislative enactments, but where there was on face of a statute no classification at all and no visible differentia with reference to the object of the enactment as regards the person or persons subject to its provisions, then the presumption was displaced.
In the seventh case the appellant P.I.D.C.,which was a statutory corporation, had challenged the amendments made in section 2(6C) of the late Act, which read as follows:---
"Income-tax Act, 1922 section 2(6C), income includes anything included in 'dividend' ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... and, in the case of a company, .the amount by which its free reserves exceed the paid-up ordinary share capital of the company as on the last day of the previous year."
The appellant was not successful before the High Court and, therefore, an appeal with the leave of this Court was filed. This Court, while dismissing the above appeal held that the controversy, whether amount of free reserves could be treated as income, was not involved as the levy challenged by the appellant was not income-tax but was super-tax charged under section 55 of the late Act. There is very illuminating discussion as to the import of the word "income" as under:---
"9. It is only if the income is received arises or accrues or is deemed to receive, arise or accrue when an assessee is subjected to tax. The deeming provision presupposes accrual of income to the assessee but by fiction of law shifts the 'locale of accrual of the income'. A deeming clause makes a thing to be as provided by Statute though in reality it is not so. According to Privy Council in C.I.T. v. Bombay Trust Corporation 4 ITC 312, the term "deemed to receive or accrue" conveys the meaning that in reality it is not so but the Statute treats it as if it were". According to Kanga and Palkhiwala on Income Tax, Volume I, VII th Edition:---
"Thus, the phrase 'deemed to accrue or arise to him in India during such year' and the corresponding phrase with reference to receipt in this section, involve our possible concepts; (a) artificial accrual or receipt, (b) artificial place of accrual or receipt, (c) artificial chargeability of a person other than the actual owner of the income, and (d) artificial year of taxability."
Thus, the deeming provision in section 4 of the Act relates to the aforestated possibilities in relation to receipt or accrual of income. By this provision anything which is not income cannot be treated as income. It, therefore, follows that receipt is not the sole test of chargeability. Any income may not have been actually received but if it is deemed to arise, accrue or receive then it is chargeable to 'tax'. See Kesharu Mills Limited v. CIT 23 ITR 230 and CIT v. Thiagaraje 'Chetty 24 ITR 525. The material words 'receive, accrue or arise' play important role in fixing the chargeability to tax. The words 'accrue and arise' convey the same meaning but as pointed out by Fry, J. in Colquloun v. Brooks (1882) 21 Q.B.D. 52, 59 that both the words are used in contradistinction to the word 'receive' and indicate the right to receive.' Reference can be made to CIT v. Ahmed bhai Umerbhai, 18 ITR 472 (SC). Therefore, unless during the previous year income has been received, accrued or arisen or deemed to be so income-tax cannot be charged. Before charging tax an assessee must be shown to have received income or it has arisen and accrued or deemed to be so under the Statute. Any amount which is not an income cannot be subjected to tax. In Corpus Juris Secundum, Volume 89, at page 731, it has been observed:
"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."
In the eighth case the facts were that the Government of Pakistan and others filed a number of appeals before this Court arising out of a common judgment of a Division Bench of the High Court of Sindhi dated 16-11-1987, by which a number of Constitutional petitions including those filed by the respondents were allowed, in which imposition of duty on Soyabean Oil was assailed. Leave to appeal was granted to consider the effect of section 31-A of the Customs Act, 1969, on the ratio of Al-Smarez Enterprise v. Federation of Pakistan 1986 SCMR 1917. It was urged by the learned counsel for the respondents (importers) that the purchase price of Soyabean Oil in the market per maund was Rs.284 and the' average sale price per maund was Rs.339.15, with the result that the respondents could earn a profit of Rs.45.35 per maund. however, the duty was imposed and the respondents were forced to pay Rs.87.79 per maund. Consequently, they were to sell Soyabean Oil at a loss of Rs.42.60 per maund. In the above factual background, the following observations were made as to the confiscatory nature of a fiscal statute:---
"From the aforesaid, the contention of Mr. Fakhruddin G. Ebrahim is fully supported by the case-law cited by him, so far as the Indian jurisdiction is concerned that any legislation whereby either the prices of marketable commodities are fixed in such a way as to bring them below the cost of production and thereby make it impossible for a citizen to carry on his business; or tax is imposed in such a way so as to result in acquiring property of those on whom the incidence of taxation fell, then such legislation would be violative of the fundamental right to carry on business or to hold property as guaranteed in the. Indian Constitution and thereby be rendered unconstitutional. We were not referred to any case-law contrary to what has been relied upon, by the learned Deputy Attorney-General. There is no reason for taking a different view so far our Constitution is concerned and therefore on the same principle the imposition of duty would be open to challenge qua its constitutionality or validity. "
In the ninth case, leave to appeal was granted by this Court against the judgment of a Division Bench of the High Court of Sindh on the following two questions:---
"(1)Whether the petitioner is liable to charge under the Income-tax Act, 1922, in respect of his income from business in Swat State for the reason that he is an ordinary resident of Pakistan even though the Income Tax Act, 1922 was not applied to Swat State under Article 223 of the Constitution of 1962?
(2)Whether the inference drawn by the High Court that the petitioner maintained a dwelling place in Pakistan for 182 days in a year merely because his wife has a house in Karachi wherein a telephone in his name is installed are the correct inferences of law?"
This Court, while dismissing the appeal and affirming the judgment of the High Court, quoted with approval certain observations of Beaumont, C.J. as to the nature of income-tax, the relevant portion of which reads as under:---
"We may refer here with advantage to the weighty observations of Beaumont, C.J. in re: Patiala State Bank's case AIR 1941 Bombay 94 to the effect that:
"I think that, properly considered, income-tax is a tax on a person in relation to his income. The tax is not imposed on income generally; it is imposed on the income of a person, natural or artificial, as defined in section 3. The assessment has to be made against a person, and the tax has to be collected from the assessee. The tax is not made a charge on the income upon which it is levied, and I think, broadly speaking, it is accurate to say that income-tax is a tax imposed upon a person in relation to his income."
In the last case, a learned Single Judge of the Lahore High Court upheld the recovery of tax under section 80-C of the Ordinance at the increased rate of five per cent. and made the following observations:---
"4. The collection of the tax is the right of the Government who has to run the affairs of the State. It has nothing to do with the party who is in power. Even during the Colonial days the Government was run by the taxes collected by the State. With the passage of time this aspect of the matter has to be adopted and followed even though the same may be a source of grumble for the concerned quarters. Keeping in view this aspect of the matter that the tax at the enhanced rate of 5%a is being collected with effect from 1-7-1995 on the amount being recovered by the petitioner from that date and afterwards no Constitutional right of the petitioner stands infringed. In short the recovery of such an amount and deduction of tax at the latest (present) rate have to go and, adopted simultaneously. I, therefore, hold that due to the non-infringement of any Constitutional right and due to the fact that the averments contained in the writ petition have no merit, this writ petition has to fail. "
30. Having referred to the case-law, we may now revert to certain treatises which have been referred to by the learned counsel for the parties.
(i) Corpus Juris Secundum, Volume LXXXIV, page 46;----
------Wherein the aspect of confiscatory nature of a tax has been dilated upon as follows:---
"Taxing power as extending to confiscation. It has been broadly stated that the power to tax has no limits and carries with it inherently the power to embarrass and destroy a business, such fact alone would not invalidate the tax. It has also been held, however, that the taxing power is virtually unlimited only as long as it does not amount to confiscation, and that the Legislature does not have the power to tax to the point of confiscation. It has further been held that the power to tax cannot be employed to embarrass and destroy useful and harmless occupations which are essential to the prosperity of the people, and thus defeat the very purpose for which the power is conferred. "
(ii) Corpus Juris Secundum, Volume LXXV, page 634;
wherein the word "reasonable" has been defined as under:---
"The word 'reasonable' is a relative generic term difficult of adequate definition. While it has been said that it is an ordinary word in common use and familiar to the average person, in fact the dictionaries give a number of meanings for the word, and it has various shades of meaning, and the particular shade is to be determined according to the context and circumstances of each particular case.
"Reasonable" is defined as meaning agreeable to reason; conformable to reason; governed by reason; having the faculty of reason; rational; thinking, speaking, or acting rationally or according to the dictates of reason; sensible.
It is also defined as meaning just; proper; fair; equitable; and, in addition, the term has been construed as meaning honest. "Reasonable" is further defined as meaning ordinary or usual; not immoderate or excessive: not capricious, arbitrary, or confiscatory."
(iii) American Jurisprudence, Second Edition, Volume 16, para. 238;
wherein the question of "reasonableness" has been dilated upon as follows:---
"238. Reasonableness.
The general rule is that the question of the reasonableness of an act otherwise within Constitutional bounds is for the Legislature exclusively, and that in ordinary cases the Courts have no reviser power concerning it nor any power to substitute their opinion for the judgment of the Legislature. Mere unreasonableness does not necessarily render a statute unconstitutional. If the Legislature abuses its power to make laws and to judge of their reasonableness, the remedy lies with the people, through the ballot box. But this rule does not mean that Constitutional guarantees may be violated by unreasonableness. Thus, the Courts may inquire whether an act of Congress is arbitrary or capricious, that is, whether it has reasonable relation to a legitimate end. Reasonableness is the ultimate test of Constitutionality in many situations, such as exercise of the police power and conformity with the requirements of equal protection of the laws and due process of law."
(iv) Economics, 8th Edition, by Paul A, Samuelson wherein the author has pointed out the importance of "income". The relevant portion of the same reads as under:---
"Everyone realizes the importance of income. The expression 'Clothes make the man' would be more nearly right if it were "Income makes the man". That is to say, if you can know but one fact about a man, knowledge of his income will probably reveal most about him. Then you can roughly guess his political opinions, his tastes, and education, his age, and even his life expectancy. Furthermore, unless a family has a steady stream of money coming in every week, month, and year--even though it has saintly durance--that family is sick. Not only its materialistic activities but its no materialistic activities, the things that convert existence into living, must suffer; education, travel, recreation, and charity, to say nothing of food, warmth, and shelter. "
(v) Fundamentals of Accounting, Fourth Edition, by Perry Mason, Sidney Davidson and James S. Schindler;
in which the authors have dilated upon on the question, as to how to determine net income and its distribution as follows:---
"A Central Problem in accounting is the determination of periodic net income. The goal of a realistic determination of income guides a very large proportion of the decisions made in accounting analysis and acts as a focal point for most accounting problems. The process of income determination is often expressed as one of matching costs and revenues. By this we mean that we attempt to associate with a given revenue source, or with the revenue of a given accounting period, the applicable amount of costs used up in connection with the earning of that revenue . ... ... ... ... .... ... ... ... ... ... ... ....
When the amount of net income of the business entity for the period has been determined, the total must then be allocated among the various equities or claimants to income. This involves interest charges on indebtedness, income-taxes, dividend declaration or proprietary withdrawals, and the residual change in the stockholders or proprietary equity".
(vi) The Individual Income tax by Richard Goode, pages 13 and 14;
Wherein the author has dilated upon the status of an "expenditure tax" and also on the definition of the word 'income" as under:---
"The United States Constitution may bar the Federal Government from imposing a wealth tax. Taxes on property have been held to be direct taxes which cannot be levied by Congress unless apportioned among the States according to population. The status of an expenditure tax is also uncertain. Perhaps it would be upheld as an income with a deduction for saving, or possibly the Courts would decide that it is not a direct tax within the meaning of the Constitution. Doubts about constitutionality, however, should not preclude the discussion of innovations. When the country was convinced that the income-tax should be adopted, the Constitution was amended ......
Many American students have accepted as an ideal starting point for tax purposes as income definition usually associated in the United States with the names of Haig and Simons but which was anticipated by Schanz in Germany and apparently also by Davidson in Sweden. In Haig's language, income is 'the increase or accretion in one's power to satisfy his wants in a given period in so far as that power consists of (a) money itself, or, (b) anything susceptible of valuation in terms of money'. Simons equates personal income with the algebraic sum of consumption and change in net worth."
(vii) Kanga and Palkhivala's The Law and Practice of Income Tax, Eighth Edition, Volume I.
Wherein the following comments have been made on subsection (1) of section 115J of the Indian Income Tax Act, which was first time inserted by Finance Act, 1987, with effect from the assessment year 1988-89:---
"Section 115J. Tax on amount beyond the total income computed under the Act.---This section which was inserted by the Finance Act, 1987, with effect from the assessment year 1988-89 and replaces section 80-VVA applies to all companies except to electricity companies. Even apart from the express statutory exclusion with effect from 1st April, 1989, the section during the first year of its existence (assessment year 1988-89) could not possibly apply to an electricity company, since the accounts of an electricity company are to be prepared in accordance with the special requirements of section 11 of the Indian. Electricity Act, 1910 and section 57 of the Electricity (Supply) Act 1948: in view of the proviso to section 211(2) and section 616 of the Companies Act, 1956. Parts II and III of Schedule VI to that Act do not apply to an electricity company.
The section provides that where the total income of a company as computed under this Act in respect of any accounting year is less than thirty per cent. of its book profit (as defined in the Explanation), the total income of the company chargeable to tax shall be deemed to be an amount equal to thirty per cent. of such book profit. The section does not deprive a company of its option to have its corporate accounting year end on a date other than 31st March: only for the limited purposes of this section, subsection (IA) obliges every company to prepare its profit and loss account for the financial year (the previous year) in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. For the assessment year 1988-89 when such an obligation did not exist, this section could not be applied to a company whose corporate accounting year was other than the financial year and who chose not to have such a profit and loss account specially prepared for the financial year.
The whole purpose of this section it is to tax a company which has no taxable income merely because it shows a book profit. For instance, a company which has adopted the method of straight-line depreciation (as it is entitled to do under the Companies Act, 1956), or a company which has not debited to its profit and loss account the capital expenditure on scientific research and development which is fully deductible under section 35 would become assessable to tax. "
(viii) The Law of Income Tax, Eighth Edition, by A.C. Sampath Iyengar, Revised by Justice S. Ranganattan;
The above author has commented upon on subsection (1) of section 115-J of the Indian Income tax Act inter alia as under:---
"New provisions to levy minimum tax on "book profit" of certain Companies. -36.1 It is an accepted canon of taxation to levy tax on the basis of ability to pay. However, as a result of various tax concessions and incentives certain companies making huge profits and also declaring substantial dividends, have been managing their affairs in such a way as to avoid payment of income-tax."
(ix) Garg's Income Tax Act with Guide Chart, Edited by Dinesh Chandra Garg, 1996 Publication;
The above treatise has reproduced section 115-JA, which has been enacted in India with effect from 1-4-1997, and which is in line with aforesaid section 115-J referred to hereinabove. The above newly-added section 115-JA reads as follows:---
"115-JA.--(1) Notwithstanding anything contained in any other provisions of this Act, wherein the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (hereinafter in this section referred to as the relevant previous year) is less than thirty per cent. of its books profits, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit.
(2) Every assessee, being a company, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provision of Parts II and III of Schedule VI to the Companies Act, 1956:
Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956:
Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year.
Explanation. ---For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2), as increased by---
(a) the amount of income-tax paid or payable, and the provision therefore; or
(b) the amounts carried to any reserves by whatever name called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies;
if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,---
(i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account:
Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or
(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or
(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of accounts; or Explanation.--- For the purposes of this clause, the loan shall not include depreciation;
(iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or
(v) the amount of profit derived by an industrial undertaking located in an industrially backward State or district as referred to in sub clause (b) or sub-clause (c) of clause (iv) of subsection (2) of section 80-1A, for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent. of the profits and gains under subsection (5) of section 80-1A; or , .
(vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility as defined under subsection (12) of section 80-1A, and subject to fulfilling the conditions laid down in subsection (4-A) of section 80-1A, or
(vii) the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under subsection (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act. 1985 and ending with the assessment year during which the entire network of such, company becomes equal to or exceeds the accumulated losses.
Explanation.---For the purposes of this clause, "net worth" shall have the meaning assigned to in clause (ga) of subsection (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985.
(3) Nothing contained in subsection (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of subsection (2) of section 32 or subsection (3) of section 32A or clause (ii) of subsection (1) of section 72 or section 73 or section 74 or subsection (3) of section 74-A.
(4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. "
31. From the above case-law and the treatises, inter alia the following principles of law are deducible:---
(i) That in view of wide variety of diverse economic criteria, which are to be considered for the formulation of a fiscal policy, Legislate enjoys a wide latitude in the matter of selection of persons, subject- matter, events, etc. for taxation. But with all this latitude certain irreducible desiderata of equality shall govern classification for differential treatment in taxation law as well.
(ii) That Courts while interpreting laws relating to economic activities view the same with greater latitude than the laws relating to civil rights such as freedom of speech, religion etc., keeping in view the complexity of economic problems which do not admit of solution through any doctrinaire or strait jacket formula as pointed out by Holmes, J. in one of his judgments.
(iii) That Frankfurter J., in Morey v. Doud (1957) U.S. 457 has remarked that "in the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to the legislative judgment";
(iv) That the Legislature is competent to classify persons or properties into different categories subject to different rates of tax. But if the same class of property similarly situated is subject to an incidence of taxation, which results in inequality amongst holders of the same kind of property, it is liable to be struck down on account of infringement of the fundamental right relating to equality.
(v) That "a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably". (Willi's Constitutional Law)
(vi) That the tests of the vice of discrimination in a taxing law are less rigorous. If there is equality and uniformity within each group founded on intelligible differentia having a rational nexus with the object sought to be achieved by the law, the Constitutional mandate that a law should not be discriminatory is fulfilled.
(vii) That the policy of a tax, in its operation, may result in hardships or advantages or disadvantages to individual assessees which are accidental and inevitable. Simpliciter this fact will not constitute violation of any of the fundamental rights.
(viii) That while interpreting Constitutional provisions Court should keep in mind, social setting of the country, growing requirements of the society/nation, burning problems of the day and the complex issues facing the people, which the Legislature in its wisdom through legislation seeks to solve. The judicial approach should be dynamic rather than static, pragmatic acid not pedantic and elastic rather than rigid.
(ix) That the law should be saved rather than be destroyed and the Court must lean in favour of upholding the constitutionality of a legislation keeping in view that the rule of Constitutional interpretation is that there is a presumption in favour of the constitutionality of the legislative enactments unless ex facie it is violative of a Constitutional provision.
(x) That as per dictionary the word 'income' means "a thing that comes in". Its natural meaning embraces any profit or gain which is actually received. However, while construing the above word used in an entry in a legislative list, the above restricted meaning cannot be applied keeping in view that the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of mere simplex enumeration of broad categories.
(xi) That the expression "income" includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself. For example, use of a house by its owner.
(xii) That what is not "income" under the Income Tax Act can be made "income" by a Finance Act. An exemption granted by the Income Tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge, of course, subject to Constitutional limitations.
(xiii) That the question, whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its source are not satisfactorily explained by an assessee, facts which are generally within his peculiar knowledge, the Income Tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source.
(xiv) That the expression "clothes make the man" would be more nearly right if it were "Income makes the man". Knowledge about the income of a person will reveal most about him. It is a barometer to evaluate about his habits and views.
(xv) In Haig's language income is "the increase or accretion in one's power to satisfy his wants in a given period in so far as that power consists of (a) money itself or (b) anything susceptible of valuation in terms of money, whereas Simons equates personal income with algebraic sum of consumption and change is net worth":
(xvi) That the process of income determination is often expressed as one of the matching costs and revenues. It involves the process of working out costs used in connection with the earning of the revenue in a particular accounting period.
(xvii) That generally the effect of a deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the net of chargeability income not actually accrued but which supposedly to have accrued notionally.
(xviii) That when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to.
(xix) That where a person is deemed to be something the only meaning possible is that whereas he is not in reality that something, the Act required him to be treated as he were with all inevitable corollaries of that state of affairs.
(xx) That the legal fictions are limited for a definite purpose, they cannot be extended beyond the purpose for which they are created.
(xxi) That income-tax is a tax on a person in relation to his income. It is a tax imposed upon a person (natural or artificial) in relation to his income.
(xxii) That any legislation whereby either the prices of marketable commodities are fixed in such a way as to bring them below the cost of production and thereby make it impossible for a citizen to carry on his business or tax is imposed to such a way so as to result in acquiring property of those on whom the incidence of taxation fell, then such legislation would be violative of the fundamental rights to carry on business and to hold property as guaranteed in the Constitution.
(xxiii) That the taxing power is unlimited as long as it does not amount to confiscation and that the Legislature does not have the power to tax to the point of confiscation.
(xxiv) That the word 'reasonable' is a relative generic term difficult of adequate definition. It inter alia connotes agreeable to reason; conformable to reason; having the faculty of reason; rational; thinking, speaking, or acting rationally; or according to the dictates of reason; sensible; just; proper and equitable or to act within the Constitutional bounds.
(xxv) That a direct tax is one which is demanded from the very person, who it is intended or desired should pay it, whereas indirect taxes are those, which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another, like custom duties, excise taxes and sales tax, which are borne by the consumers.
(xxvi) That levy of building tax on the basis of the covered area without taking into consideration, the class to which a particular building belongs, the nature of construction, the purpose for which it is used, its situation and its capacity for profitable use and other relevant circumstances bearing on the matters of taxation is not sustainable in law for want of reasonable classification.
(xxvii) That there is a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured keeping in view the practical difficulties, which are encountered by the Revenue to locate the persons and to collect the tax due in certain trades, if the Legislature in its wisdom thought that it would facilitate the collection of tax due from specified traders on a presumptive basis, the same is not violative of the Fundamental Right relating to equality.
(xxviii) That denial of reliefs provided by sections 28 to 43-C of the Indian Income Tax Act to the particular business or trades covered by section 44-AC thereof without showing some basis fair and rational and without having nexus to the object sought to be achieved by the Legislature, held unfair, arbitrary, disproportionate to the prevalent evil and constitutes denial of equal treatment. Consequently, the Indian Supreme Court did not press into service non obstante clause of section 44-AC by applying theory of reading down as a rule of interpretation.
(xxix) That it is an accepted canon of taxation to levy tax on the basis of ability to pay. The section 115-J and 115-JA incorporated in Indian Income Tax Act, 1961, were intended and designed to bring within the tax net the companies, which though making huge profits and also declaring substantial dividends, but have been managing their affairs in such a way by availing of tax concessions etc., as to avoid payment of income-tax.
(xxx) That the theory of reading down is a rule of interpretation which is resorted to by the Courts when they find a provision read literally seems to offend a fundamental right or falls outside the competence of the particular Legislature.
(xxxi) That though the Legislature has the prerogative to decide the questions of quantum of tax, the conditions subject to which it is levied, the manner in which it is sought to be recovered, but if a taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax or that is confiscatory, the Court may strike down the impugned statute as unconstitutional,
(xxxii) That the rule of interpretation that while interpreting an entry in a Legislative List it should be given widest possible meaning does not mean that Parliament can choose to tax as income as 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.
(xxxiii) That before charging tax, an assessee must be shown to have received income or the same has arisen and accrued or deemed to be so under the statute. Any amount which cannot be treated as above is not an income and, therefore, cannot be subject to tax.
(xxxiv) That there is a marked distinction between a tax on gross revenue and a tax on income, which for taxation purposes, means gains and profits. There may be considerable gross revenues, but no income taxable by an income-tax in the accepted sense.
32. We have summarised hereinabove in para. 31 the ratio decidendi of the above discussed cases and certain pertinent observations made therein. A perusal of above sub-paras. (i) to (xxx) of para. 31 indicates that the same do not advance the case of the appellants. On the contrary, they reinforce the principle of law that the Legislature, particularly in economic activities, enjoys a wide latitude in the matter of selection of persons, subject-matters, events etc., for taxation the presumption is in favour of the validity of the legislation. The burden to prove that the same is invalid is on, the person who alleges it.
However, one can urge that the general observations contained in sub-paras. (xxxi) to (xxxiv) of para. 31 lend support to some extent to the appellants' case. However, it should not be overlooked that in none of the cases from the judgments of which the above observations have been lifted the question, as to whether there can be presumptive tax or the minimum tax, in view of entries 47 and 52 of the Legislative List, was in issue. In this view of the matter, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act and/or any other statute.
The Indian Supreme Court in the three cases falling in the first category mentioned in para. 25(i) hereinabove upheld the levy of tax on expenditure, hotel receipts and luxuries for the reasons already discussed hereinabove in para. 26. In the cases falling in the second category referred to hereinabove in para. 25(ii) which consists of six cases, the vires of newly added sections 44-AC and 206-C of the Indian Income Tax Act were in issue. The matter eventually was taken up by the Indian Supreme Court in the case of Sanyasi Rao (supra), which has been dealt with in detail with reference to the contentions of the learned counsel for the appellants herein-below in para. 44. The cases falling under the above category do not advance the case of the appellants.
As regards the cases covered by the, third category and which comprise 14 cases mentioned hereinabove in para. 25(iii), it may be stated that the learned counsel for the appellants have heavily relied upon the two cases, namely, the case of Kunnathat Thuni Moopil Nair etc. (supra) and the case of State of Kerala v. Haji K. Kutty Nalia and others (supra) mentioned in para. 28(ii) and (viii) respectively, which have again been dealt with herein-below in para 46 with reference to the submissions made by the learned counsel for the appellants. The remaining cases of the above category do not support the case of the appellants.
It may further be stated that the three cases of the Privy Council referred to hereinabove in para. 28 and also herein-below in para. 42 need no further discussion. However, in one of the above three cases, namely, in the case of King v. Canedonis Collieries (supra), observations contained in above sub-para. (xxxiv) of para. 31 were made,, namely, that "there is a marked distinction between a tax on gross revenue and a tax on income, which for taxation purposes means gains and profits and that there may be considerable gross revenues but no income taxable by an income-tax in the accepted sense". The above observations are to be viewed with reference to the above context in which they were made, namely, the legislative power inter se between the Dominion and the Provinces. The question, whether there can be presumptive tax and/or minimum tax was not in issue which are comparatively modern concepts. The Indian Supreme Court in the Elel Hotel & Investment Ltd. (supra) held that the tax on chargeable receipts under the Hotel Receipts Tax Act, 1980, was valid. ,
As regards cases of Pakistani origin referred to hereinabove in para.29, it may be observed that the learned counsel for the appellants heavily relied upon the case of Government of Pakistan and others v. Muhammad Ashraf and others (supra) mentioned in sub-para. (viii) of para.29 hereinabove, the same has been again dealt with herein-below in para.44. Reliance was also placed by the learned counsel for the appellants on certain observations in the case of Pakistan Industrial Development Corporation v. Pakistan (supra) mentioned at para. 29(vii) hereinabove, particularly on the general observation that "thus the deeming provision in section 4 of the Act By this provision anything which is not income cannot be treated as income Before charging tax an assessee must be shown to have received income or it has arisen and accrued or deemed to be so", (which has been referred to hereinabove in sub-para. (xxxiii) of para. 31).
The above observations no doubt seemingly support the learned counsel for the appellants, but the same are to be viewed with reference to the context in which they were made, namely, whether the definition of income as extended by newly-added section 2(6-C) of the late Act, whereby even free reserves exceeding paid-up ordinary share capital of the company as on the last day of the previous year, was included in the income. The above provisions were not declared ultra vires by this Court in the above report. Furthermore, the above general observation founded on traditional approach cannot be pressed into service to examine the Constitutional validity of the above three impugned sections.
33. We may point out that in most of the above-cited cases the Court had upheld the validity of the impugned legislation levying taxes. In the first category which consists of three cases of the Indian Jurisdiction mentioned in para. 25(i) hereinabove, the Indian Supreme Court upheld the levy of tax on expenditure, hotel receipts, and luxuries for the reasons already discussed in para. 26 hereinabove.
It may further be observed that the cases falling tinder the second category referred to in para. 25(ii) have already been dealt with hereinabove in para. 27. The case of Sanyasi Rao (supra) decided by the Indian Supreme Court, which has some relevance to the controversy in issue, has again been dealt with herein-below in para. 44 and, therefore, need no further discussion.
It may be stated that the third category of cases of India Jurisdiction referred to in para. 25(iii) hereinabove comprises 14 cases, the detail of which is given in para. 28 hereinabove. It is not necessary to deal with each of them as they have already been dealt with hereinabove in the above para. However, we may again refer to some of the above cases heavily relied upon by the learned counsel for the appellants.
34 Keeping in view the above case-law and the treatises and the aforesaid legal inferences drawn therefrom, we may now revert to the question of vires of impugned sections. It may again be observed that 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. In this view of the matter, 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. It is also apparent that 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. It is needless to reiterate that it is a well-settled proposition of law that 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 receipts, expenditure etc. There are new species of income-tax, namely, presumptive tax and minimum tax.
In our view, sections 80-C and 80-CC of the Ordinance fall within the category of presumptive tax as under the same the persons covered by them pay a pre-determined amount of presumptive tax in full and final discharge of their liability in respect of the transactions on which the above tax is levied. Whereas section 80-D of the Ordinance is founded on the theory of minimum tax which has been elaborately dealt with in the treatises, the relevant portions of which have been quoted in extenso hereinabove. If we were to read Entry 47 in isolation without referring to Entry 52, one can urge that Entry 47 does not admit the imposition of presumptive tax as the expression "taxes on income" employed therein should be understood as to mean the working out of the same on the basis of computation as provided in the various provisions of the Ordinance. We are inclined to hold that presumptive tax is in fact akin to capacity tax i.e., capacity to earn. In this view of the matter, we will have to read Entry 47 in conjunction with Entry 52 which provides taxes and duties on production capacity of any plant, machinery, undertaking; establishment or installation in lieu of the taxes or duties specified in Entries 44, 47, 48 and 49 or in lieu of any one or more of them. Since under Entry 52, tax on capacity in lieu of taxes mentioned in Entry 47 can be imposed, the presumptive tax levied under sections 80-C and 80-CC of the Ordinance is in consonance with the above two entries if read in conjunction. However, we may point out that in Entry 52, the key words used are "in lieu of taxes and duties specified in entries 44, 47, 48 and 49 or in lieu of any one or more of them". In order to understand, the real import of the above portion of Entry 52, we will have to refer to the meaning of the words "in lieu of" In this regard, reference may be made to Black's Law Dictionary, Sixth Edition, Ballentine's Law Dictionary, Third Edition; and the Legal Thesaurus by Steven C. De Costa, which read as follows:---
Black's Law Dictionary, page 787:
"In lieu of" Instead of; in place of; in substitution of. It does not mean "in addition to".
Ballentine's Law Dictionary, page 628:
"in lieu of": In substitution for or in place of. Ordinarily implying the existence of something to be replaced.
Legal Thesaurus, page 266:
"In lieu of": Proposition as a substitute for, as an alternative, by proxy, or, in place of, instead of, on behalf of, rather than, representing.
35. A perusal of the above-quoted meanings of the above expression "in lieu of" indicates that the same connote, instead of, in place of, in substitution of, but it does not mean, in addition to.
If we were to construe Entry 52 of the Legislative List keeping in' view the above meanings of the expression "in lieu of", it becomes evident that the Legislature has the option instead of invoking Entry 47 for imposing taxes on income, it can impose the same under Entry 52 on the basis of capacity to earn in lieu of Entry 47, but it cannot adopt both the methods in respect of one particular tax. Since under sections 80-C and 80-CC the imposition of presumptive tax is in substitution of the normal method of levy and recovery of the income-tax, the same is in consonance with Entry 52.
36. However, it was vehemently urged by Messrs Raja Muhammad Akram and Iqbal Naim Pasha that Entry 52 has nothing to do with the imposition of taxes on income. Mr. Raja Muhammad Akram has also-pointed out that as far as levy of capacity tax of factories under section 3(4) of the Central Excises and Salt Act, 1944, is concerned, the same cannot be equated with the presumptive tax as under the former, an assessee had the right to claim refund of certain amount of excise duty if the assessed production capacity is not achieved by a factory/mill for reasons beyond its control. In this regard, it may be pertinent to refer to the case of Zaibtun Textile Mills Ltd. v. Central Board of Revenue and others PLD 1983 SC 358, in which before this Court vires of the rules framed by the Central Board of Revenue for assessing the capacity of various factories/mills for the purpose of levy of capacity tax, were assailed on the ground of excessive delegation of authority to subordinates. This Court, while repelling the above contention, inter alia observed as follows:---
"21. From the aforesaid analysis of the judgments it would appear that it is too late in the day to maintain that the Legislature cannot delegate authority to subordinate or outside authorities for carrying the laws enacted by it into effect and operation, in view of the long history of legislative practice committing the rule-making powers having the force of law, to such subordinate functionaries or agencies. As held in Hodge v. Regina by the Privy Council as early as 1883, such power of delegation is inherent and ancillary to legislation. It is also futile to seek and apply the Constitutional theories underlying the doctrine of impermissible delegation of legislative power as applied under the American system as these theories were irrelevant in our system (as obtaining under the 1962 Constitution). It is now well established as observed by Hamoodur Rehman, J. (as he then was) in Province of East Pakistan v. Sirajul Haq Patwari that the powers of the Legislatures in the Indo-Pak Sub-continent have always been as plenary as those of the British Parliament. Mr. A.K. Brohi in his argument also did not put his contention as high as to canvass a total absence of power to delegate any part of the legislative function in connection with a particular statute to outside authorities by the Legislature. But his submission was, as mentioned hereinbefore, that the impugned provisions were invalid inasmuch as the Legislature had effected itself and abdicated its essential legislative function in favour of a subordinate authority i.e., Central Board of Revenue who has been given power to levy and collect the duty in question in all its dimensions, leaving it unfettered discretion to formulate its own policy and standards according to which the tax was to be levied. "
37. The case in hand is on much stronger footing than the above report. In the latter case, the work of carrying out the assessment of the production capacity of various factories/mills was entrusted to a Committee, whereas in the instant case, the Legislature itself has fixed the presumptive tax on the rational basis reproduced hereinabove in para. 23, namely, that the rates adopted under section 80-C for the contractors, suppliers and importers were the rates of income-tax, on which deductions were already in vogue since before 1991. Whereas presumptive-tax rates under section 80-CC for exporters were the rates adopted inter alia on the basis of recommendations of the Exports Enhancement Committee, the relevant portion of which has been reproduced hereinabove in para. 18:
38. It will not be out of context to mention that the impugned sections contain deeming provisions. This is not a new concept or alien to the Ordinance. Prior to the incorporation of the impugned provisions in the Ordinance, there were already a number of such provisions. In this regard, reference may be made to the following provisions:---
| S. No. | Relevant Section | Subject |
| 1. | 2(20) | Deemed dividend |
| 2. | 2(24) | Bonus shares--not to be considered as income-in certain cases. |
| 3. | 12(8) | A discontinued business shall be deemed to have continued for the purpose of Income Tax Ordinance. |
| 4. | 12(12) | Assets other than stocks and shares purchased from a Co. at less than market value--difference deemed to be income of the purchased. |
| 5. | 12(13) | Un-adjustable advance rent deemed to be income-to be taxed in ten years (1/10th each year). |
| 6. | 12(18) | Bonus exceeding Rs.100,000 received otherwise than through cross cheque deemed to be income of the recipient of loan. |
| 7. | 12(19) | Payment received by "lesser" against leased assets to be income of certain persons. |
| 8. | 13(1)(a) | Unexplained credits in books to be income of the assessee. |
| 9. | 13(l)(aa) | Unexplained investment etc., to be income. |
| 10. | 13(1)(b) | Unexplained/unrecorded investment etc., to be income. |
| 11. | 13(1)(c) | Money or valuable article, the sources of which remains unexplained--is deemed income. |
| 12. | 13(1)(e) | Unexplained expenditure deemed income |
| 13. | 19 | The charge is on ALV rather than the actual rent received. |
| 14. | 25(c) | Trading liability remaining unpaid for more than three years deemed to be income. |
| 15. | 29 | Clandestine transactions deemed to be transaction of the beneficiary. |
| 16. | 50(3) | Any sum (chargeable to tax) when paid out to a non-resident such sum is deemed to be income and tax is to be withheld at normal rates. |
| 17. | 78 | Every agent who is declared to be or is treated as an agent is deemed to be an assessee. |
| 18. | 79 | When business transaction as arranged between a resident and a non-resident where no profit or loss arises to a resident reasonable profits be determined by ITO to be income of resident. |
| 19. | 80 | Shipping business of non-residents. Aggregated receipts to be deemed to be income and tax at 8% is collected. |
| 20. | 80(A) | Air-line business of a non-resident Aggregate receipts are to be deemed to be income and tax at 3 % is collected. |
| 21. | 80(AA) | Aggregate of technical fees received is deemed to be income and tax is collected at 20 % of such income. |
| 22. | 88 | All income arising to any person by virtue of a receivable transfer of assets is deemed to be income of the transferor. |
| 23. | 99(5) | Where department takes no action upon the refund application of the assessee till 30th June, the amount of refund is deemed to be due to the assessee. |
| 24. | 132 | Where appeal is not decided within three months, the relief claimed shall be deemed to have been given. |
| 25. | 156 | If the mistake pointed out by the assessee is not rectified by the department within a given period, the mistake is deemed to have been rectified." |
39. It may be noticed that out of the above-quoted provisions of the Ordinance, sections 80, 80-A and 80-AA have nexus with the impugned provisions. It may be pointed out that under section 80, aggregated receipts of shipping business of a non-resident are deemed to be income and are subject to tax at 8%. Under section 80(A), aggregated receipts of air-line business of a non-resident are deemed to be income and are subject to tax at 3%, and under section 80(AA), aggregate of technical fees received is deemed to be income and is subject to tax at 20%.
The above provisions have been in operation for nearly two decades. No one has ever assailed the same. It may be mentioned that even in Indian Income Tax Act, 1961, there are parallel provisions to aforesaid three sections and also other sections referred to hereinabove.
40. Adverting to the impugned newly-added section 80-D, it may be stated that we have already pointed out hereinabove that sections 80-C and 80-CC cannot be equated with section 80-D as the same is founded on different basis. It may again be observed that section 80-D is based on the theory of minimum tax. It envisages that every individual should pay a minimum tax towards the cost of the Government. The object of the minimum tax is to ensure that the tax-payers, who receive substantial amounts from exempt sources, pay at least some tax on their economic incomes of the year. This is achieved by reducing or disallowing certain itemised deductions. We may again observe that a large number of assessees though generally earn profits but on account of various tax concessions including tax holidays, depreciation allowance etc., under Schedule II and deductions allowed under the various provisions of the Ordinance, show loss instead of any net profit, with the result that they do not contribute any income-tax towards the public exchequer. The levy of minimum tax has been adopted in some other countries of the world including U.S.A., Israel, France, Columbia and Thailand besides India. In United States, under section 56(a) a tax equal to 15 % of the amount, by which sum of the items of tax preference exceeds the greater of (i) $ 100,000 (b) . (c) . etc., is levied.
In India above-quoted section 115-JA has been incorporated in the Indian Income Tax Act containing a detailed mechanism for computing the total income of a company for the purpose of levy of minimum tax. In Thailand, above-quoted section 48 has been enacted in the relevant statute to levy minimum tax.
41. We may observe that during the course of arguments, the question arose, as to whether in view of non obstante clause in section 80-D, an assessee can carry forward loss under section 35 of the Ordinance from year to year. Mr. Ilyas Khan, the learned counsel for the Income Tax Department, has orally as well as in his written submission answered the above query in the affirmative. It appears to be correct legal position. It may be stated that non obstante clause in section 80-D is for the purpose of liability to pay minimum tax of half per cent on the annual turnover. This will exclude any provision of the Ordinance which may be inconsistent with it. But the same does not exclude the application of other provisions of the Ordinance which are not inconsistent with section 80-D. There seems to be no conflict between above section 80-D and section 35 of the Ordinance, and hence the same remains available to assessees. To claim business loss or. to carry forward the same under section 35 of the Ordinance from year to year, is not affected by the above levy of half per cent on the annual turnover under section 80-D as was submitted by the learned counsel for the Income Tax Department, Mr. Ilyas Khan, orally as well as in his written submissions.
Furthermore, the Central Board of Revenue in a written undertaking dated 9-4-1997 filed before this Court confirmed that subject to the conditions laid down in paras. 3 and 4 of Circular No.3 of 1996 dated 18-3-1996, it has retrospective effect and will be applicable to all pending assessments. The relevant portion of the aforesaid circular has already been quoted hereinabove, the effect of which is that while computing the annual turnover of an assessee, the amounts of sales tax and excise duty charged in terms of paras. 3 and 4 of the aforementioned circular would be excluded. The above undertaking of the Central Board of Revenue is incorporated as a part of this judgment. We may point out that an executive order/notification, which is detrimental or prejudicial to the interest of a person, cannot operate retrospectively. However, a beneficial executive order/notification issued by an executive functionary can be given retrospective effect. In this regard it will suffice to refer to the judgment of this Court in the case of Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652. The above written undertaking of the Central Board of Revenue to make this circular applicable retrospectively is in consonance with the aforesaid judgment of this Court.
42. We may again point out that the, NTRC, which mostly comprised the representatives of business community representing various trade associations, in its report of December, 1986, quoted hereinabove in para.17, highlighted the corruption obtaining in Government and semi Government departments and so also to dishonest tendency on the part of the tax-payers to evade the payment of lawful taxes by using unfair means. In such a scenario, the Legislature is bound to adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenue which may be used for running of the State and welfare of its people. The imposition of minimum tax under section 80-D is designed and intended to achieve the above objectives. The rate of half per cent of minimum tax adopted under section 80-D seems to be on the basis of the minimum rate of tax suggested by the Exports Enhancement Committee. In our view, the above provision falls within the legislative competence under Entry 47 read with Entry 52. The approach of this Court while interpreting the Constitution should be dynamic, progressive and oriented with the desire to meet the situation effectively which has arisen keeping in view the requirement of ever changing society. Applying the above rule of interpretation, we do not find any infirmity in the impugned section 80-D of the Ordinance.
It may be mentioned that the object for which inter alia the above section 80-D was enacted seems to have been achieved, to a great extent, as is reflected in the charts produced by the Income tax Department relating to the growth rate of income tax, and growth in income-tax receipts etc., reproduced hereinabove in para. 24.
We may state that at this juncture, it will not be out of context to take up Mr. Iqbal Naim Pasha's submission that the definition of the term "tax on income" given in Article 260 of the Constitution provides guideline as to the import and scope of Entry 47 of the Fourth Schedule to the Constitution, Part I, by providing that "tax on income" includes a tax in the nature of excess profits tax or a business profits tax which, according to him, have the same connotations which were understood in respect of Excess Profits Tax Act, 1940, and the Business Profits Tax Act, 1947.
The above contention is devoid of any force, firstly, for the reason that the definition of the term "tax on income." given in Article 260 of the Constitution, used the words "tax on income" includes a tax in the nature of an excess profits tax or a business profits tax. The factum that .the word "includes" has been employed and not the word "means" indicates that the definition given in Article 260 of the above term is not exhaustive. Secondly, the entries in the Legislative List, as pointed out hereinabove are to be construed liberally and not in a pedantic manner. The word "income" as highlighted hereinabove in various reports and treatises is susceptible to a very wide meaning. We may point out that the question, as to whether the impugned taxes are direct or indirect taxes highlighted by Mr. Sikand4r Hayat with the aid of above three Privy Council cases, is not relevant. In the above cases the controversy in issue was, whether the Dominion concerned's Legislature had the power to levy the impugned tax or the Province concerned. There is no such controversy involved in the instant case. Even otherwise, the impugned taxes are direct taxes.
43. We have covered points mentioned in sub-paras. (i) and (iii) of para.12 hereinabove. We may, now refer' to' the question, as to whether the impugned sections or any of them is/are violative of any of the fundamental rights or any other law. Messrs Raja Muhammad Akram, Iqbal Naim Pasha and Sikandar Hayat have assailed the impugned provisions as being violative of Articles 4, 18 and 25 of the Constitution for the following reasons:---
(a) they are expropriatory and confiscatory;
(b) they are not based on reasonable classification as they purport to treat unequal as equal; and
(c) the same are discriminatory.
44. Adverting to the above first reason, it may be observed that it is true that the power to tax cannot be used to embarrass and destroy the business/occupations which are sine qua non for the propriety of the people and the country. The object of the levy and recovery of taxes as pointed out hereinabove is to run the State and to make efforts for creation of an agalitarian society. If the rates of taxes are so high and disproportionate to the actual earnings or earning capacities that they destroy the tax-payers, the very object of their levy and recovery is defeated. It has, therefore, been held by the superior Courts of the foreign jurisdiction as well as of Pakistani jurisdiction including this Court that the taxes should not be expropriatory and confiscatory in nature and that the same should not be imposed in such a way so as to result in acquiring properties of those to whom the incidence of taxation fell and if that is so, then such legislation would be violative of fundamental rights to carry on business or to hold properties as guaranteed by the Constitution. The learned counsel for the appellants have heavily relied upon the judgment of this Court in the case of Government of Pakistan v. Muhammad Ashraf (supra), in which this Court accepted the above legal proposition that a tax, which is confiscatory in its nature, would be violative of the fundamental rights relating to carrying on business and holding properties, but remanded the case to the High Court to examine the question, as to whether the rate of regulatory duty on Soyabean Oil imposed was of confiscatory nature. We are inclined to reiterate the principle of law enunciated in the above report. However, we are unable to agree with the learned counsel for the appellants that the rates of taxes imposed under the impugned sections 80-C, 80-CC and 80-D of the Ordinance are confiscatory and expropriatory in nature. Since there is a presumption in favour of legislative competence as held in a number of judgments referred to hereinabove, the burden to show that the impugned taxes are confiscatory or expropriatory, was on the appellants. In our view, they have failed to bring on record any reliable material on the basis of which it can be concluded that the same are confiscatory or expropriatory. Messrs Dr. Ilyas Zafar and Iqbal Naim Pasha, while arguing Civil Appeal No.478 of 1995, submitted that the appellants in the above appeal declared Rs.6147,243 as the net profit for the assessment year involved but they were made to pay presumptive tax amounting to Rs.66,00,282. Whereas Mr. Sikandar Hayat, who argued for the appellant (National Construction Company) in Civil Appeal No.1496 of 1995, contended that the appellant suffered loss of Rs.24,88,18,613 in the assessment year 1992-93 but they were made to pay presumptive tax under section 80-C Rs.1,35,29,726. The above two instances cannot be treated as sufficient for rebutting the presumption in favour of the competency of the Legislature. The question, as to whether a particular tax is confiscatory or expropriatory, is to be determined with reference to the actual earning or earning capacity of an average prudent successful entrepreneur in a particular trade or business. The fact that a particular assessee has suffered loss/losses during certain assessment years, is not germane to the above question. In this regard reference may again be made to the case of the Madurai District Cooperative Bank Ltd. v. Third Income Tax Officer, Madurai (supra), referred to hereinabove in para. 28(x), wherein taxable income of the assessee declared was Rs.51,763; whereas the tax imposed was Rs.76,674.07 including surcharge. Indian Supreme Court sustained the above levy and inter alia held that what is not income under the Income Tax Act can be made income under the Finance Act or exemption granted by the Income Tax Act can be withdrawn by the Finance Act or its efficacy can be reduced.
Furthermore, in the case of Union of India and another v. A. Sanyasi Rao and another (supra), the Indian Supreme Court upheld the finding of the Andhra Pradesh High Court that the impugned tax was confiscatory in nature. In the above case, under clause (a) of subsection (1) of newly-added impugned section 44-AC of the Indian Income Tax Act, 1961, it was provided that 40 % purchase price of any goods in the nature of alcoholic liquor for human consumption (other than Indian made foreign (liquor), shall be deemed to be the profits and gains of the buyer from business or trading in such goods chargeable to tax under the head "profit and gains of business or profession"; whereas under newly-added impugned section 206-C, a seller of the items referred to in subsection (1) of section 44-AC, was required to deduct a tax from the purchasers on the purchase prices on the items at the rates mentioned in Table to subsection (3) thereof, which included alcoholic liquor at the rate of 15 % . In spite of the fact that the above levy was very exorbitant and that, it was found that the same was confiscatory in nature, Andhra Pradesh High Court as well as the Indian Supreme Court did not declare the above provision as invalid. On the contrary, as is evident from the aforequoted extract from the aforesaid judgment in para. 27 hereinabove, the Indian Supreme Court concluded that "we uphold the validity of section 206-C. We also hold that 'section 44-AC is a valid piece of legislation read in the manner indicated by us". Section 44-AC is not to be read an independent provision but as an adjunct to and an explanatory to section 206-C. "They pressed into service one of the principles of interpretation i.e., reading down section 44-AC as an adjunct to an explanatory to section 206-C instead of reading above section 44-AC as an independent provision though subsection (1) of the same contained non obstante clause by providing that notwithstanding anything to any contrary contained in sections 28 to 43-C. It was further held that the assessee would be entitled to go through the process of assessment is provided in the above provisions of sections 28 to 43-C though this was not so in view of non obstante clause in section 44-AC.
45. The learned counsel for the appellants have vehemently contended that the Indian Supreme Court in spite of the non obstante clause in subsection (1) of section 44-AC of the Indian Income Tax Act, 1961, held that the other provisions relating to filing of income-tax returns, claiming depreciations and losses etc., were applicable even to the assessees covered under section 44-AC (1). According to them, the assessees under section 80-D have stronger case than the above Indian case inasmuch as under section 80-D, an assessee whose earning is more than which can be subject to half per cent. tax on annual turnover, remains subject to assessment order. Whereas the assessees whose earnings are less, not subject to any assessment. According, to them, they should also be given the option to get their assessment orders framed on the basis of the various provisions of the Ordinance. We have given our serious thoughts to the above contention but, in our view, the above Indian case is distinguishable from the instant case. If there is no turnover of an assessee during a particular assessment year, he is not liable to pay any tax under section 80-D. However, if there is one transaction amounting to Rs.1,00,000, in a year his liability under the above provision would be to pay Rs.500 i.e., half per cent. of the turnover in the assessment year involved. The minimum tax is payable at the rate of 1/2% by those assessees who do not declare their income equivalent to the amount which can be subject to tax at the rate of half per cent on the basis of turnover. Payment at the rate of half per cent by them under section 80-D is in the total discharge of their minimum tax liability. However, the assessees who earn more than the above amount remain liable to file income-tax returns or to get their assessment orders framed in terms of the provisions of the Ordinance.
We have no doubt that if the representatives of the business community take up the question of reasonableness of the above rates of tax provided under sections 80-C, 80-CC and 80-D with the Government, the same would be given due consideration, particularly keeping in view that there is good equation between the business community and the Government in power. No Government of any worth would like to destroy the industries and the business of the country by imposing taxes at the rates which maybe confiscatory and expropriatory.
However, we may point out that the Indian Finance Minister in his budget speech (referred to hereinabove in para. 19) suggested presumptive tax at 5 % on gross receipts, whereas the rates under the impugned sections are on the low side i.e., under section 80-C (i) in case of resident, 2 % to 3 % (which have been substituted by 1-1/2% to 5% by Finance Act XII of 1994, under section 80-CC 1 /2 % to 1 % and under section 80-D, 1/2 %.
46. Adverting to the second reason, namely, that they are not based on reasonable classification as they purport to treat unequal as equal, it may be observed that reasonable classification does not imply that every person should be taxed equally. It may be pointed out that reasonable classification is permissible provided it is based on an intelligible differentia which distinct persons or things that are grouped together from those who have been left out and that the differentia must have rational nexus to the object to be achieved by such classification. It may further be pointed out that different laws can be validly enacted for different sexes, persons in different age -groups, persons having different financial standings and that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances, may be unreasonable in the other set of circumstances. The requirement of reasonable classification is fulfilled if in a taxing statute the Legislature has classified persons or properties into different categories which are subject to different rates of taxation with reference to income or property and such classification would not be open to attack on the ground of inequality or fox the reason that the total burden resulting from such a classification is unequal. The question, as to whether a particular classification is valid or not, cannot be decided on the basis of advantages and disadvantages to individual assessees which are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily may fall on the other side of the line.
Raja Muhammad Akram, learned Sr. ASC appearing for most of the appellants, has relied upon the case of Kunnathat Thuni Moopal Nair etc. (supra) referred to hereinabove in para 28, wherein the Indian Supreme Court declared certain provisions of the Travancochin Land Tax Act (15 of 1955), as amended by Act 10 of 1957 as invalid, whereby a tax at a uniform rate was levied on all lands in the State of whatever description and held under whatever tenure irrespective of their locations. The Supreme Court concluded that even if it was to be assumed that the impugned taxing statute was not confiscatory, the impugned levy had no reference to income either actually or potentially from the property sought to be taxed. It also found that some of the provisions were discriminatory.
The second case relied upon by Mr. Raja Muhammad Akram is the State of Kerala Appellants v. Haji K. Kutty Nalia and others (supra); mentioned at para. 28(viii) hereinabove, in which the High Court of Kerala held that Kerala Building Tax Act 19 of 1961 was ultra vires the Legislature as it infringed equality clause of the Constitution. The above Act purported to levy a tax on every building the construction of which was completed on or after 2-3-1961 and which had a floor area of 1000 sq. ft. or more. The Indian Supreme Court while affirming the above High Court judgment pointed out that the Legislature had not taken into consideration in imposing the tax the class to which a building belonged, the nature of construction, the purpose for which it was used, its situation and its capacity for profitable use etc., and, therefore, the Act was clearly discriminatory in its effect, and, thus infringed Article 14 of the Indian Constitution relating to equality.
The above two cases have no application to the case in hand.
It may be pertinent to refer again to the case of R.K. Garge v. Union of India and others (supra), referred to hereinafter in para. 28(xiv), in which the provisions of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, were challenged on the ground that the same were violative of the equality clause of Article 48 of the Indian Constitution. It was urged that the Ordinance had put a premium on dishonesty by providing income-tax concession to the tax-evaders and that the honest tax payers were made to pay tax at a higher rate. The Indian Supreme Court repelled the above contention and held that the laws relating to economic activities should be viewed with greater latitude than the laws touching civil rights such a freedom of speech, religion etc.
The second case to which attention may again be invited is the case of Avinder Singh and others v. State of Punjab and others (supra), referred to hereinabove in para. 28(xii), in which a licensee engaged in the business of liquor filed an appeal in the Indian Supreme Court against the judgment of the High Court, in which he challenged levy of Re. l per bottle on the sale of foreign liquor at a flat rate on the ground that the same is discriminatory and not founded on reasonable classification as Re.1 per bottle of liquor is payable be it brandy or be it other stronger beverage or be it may cost Rs.50 or Rs.500 per bottle. The Indian Supreme Court while dismissing the above appeal inter alia held that in fiscal matters large liberality must be extended to the Government having regard to the plurality of criteria which have to go into the fiscal success of the measure. It was further held that the above levy was neither discriminatory nor violative of equality clause of the Constitution.
We may observe that once the Court finds that a. fiscal statute does not suffer from any Constitutional infirmity, it is not supposed to entangle itself with the technical questions as to the scope and modality of its working etc. The above questions pre-eminently deserve to be decided by the Government, which possesses of experts services and the relevant information which necessitated imposition of the tax involved unless the same suffers from any legal infirmity which may warrant interference by the Court.
Additionally, while examining a fiscal statute the Court should not be carried away with the fact that the same may be disadvantageous to some of the tax-payers. If such a fiscal statute is beneficial to the country on the whole, the individuals' interest should yield to the nationals' interest.
The impugned provisions of the provisions of the Ordinance are based on reasonable classification as they are founded on an intelligible' differentia which distinguishes persons covered thereunder with the other tax-payers. It has also rational nexus to the object sought to be achieved by such classification i.e., to broadening the tax base and to recover the minimum tax.
47. Reverting to the third reason, namely, that the same are discriminatory, it may be observed that the learned counsel for the appellants have referred to Rule 9 of the Second Schedule (Part IV) to the Ordinance, which provides that the provisions of section 80-C in so far as they relate to payments on account of supply of goods on which tax is deductible under subsection (4) of section 50, shall not apply in respect of any person being a manufacturer of such goods unless he opts for, on the presumptive tax. According to them, such an option should have been also extended to other assessees and, therefore, there has been violation of Article 25 of the Constitution, which enjoins that all citizens are equal before law and are entitled to equal protection and that there shall be no discrimination on the basis of sex alone etc.
48. In our view, there has not been any discrimination in the case in hand. The impugned three sections are very clear as to the class of persons covered under them. Rule 9 gives option to a manufacturer who is subject to tax and deduction under subsection (4) of section 50 to opt for the presumptive tax under section 80-C for final discharge of his tax liability. He is not otherwise covered by the impugned section 80-C. The appellants are covered by the impugned provisions and, therefore, they cannot equate themselves with a person who is not covered by the above provision.
49. The second line of attack on the question of discrimination was urged by Mr. Ziaullah Kiani. His precise submission was that the Central Board of Revenue by issuing S.R.Os. under section 14 of the Ordinance has been reducing rates of tax covered by section 80-CC. To reinforce the above submission, he has invited our attention to some of the SR.Os, which inter alia include reduction of tax rate on the item of rice.
50. It will not be out of context to point out that under subsection (1) of section 14, the Central Board of Revenue has been given the power to grant exemption in respect of the income or class of income or person or classes of persons specified in the Second Schedule including exemption from tax under the Ordinance subject to the conditions and to the extent specified therein or to exempt from the operation of any provision of the Ordinance subject to the conditions and to the extent specified therein. The Federal Government has also been given power under subsection (2) of section 40 to make amendment in the Second Schedule subject to the proviso that such amendment shall be placed before the National Assembly. The object of the vesting of above power in the Central Board of Revenue seems to be to meet the situation which may arise after the enactment of the Finance Act in a particular year. For example, in order to compete in the export market for various items, the Central Board of Revenue, through the mechanism of reducing the rate of tax or exempting from the payment of the same makes the prices of the items for export competition in the open market of the world. We have no reason to hold that the various S.R.Os. to which our attention was invited by Mr. Kiani were not issued in good faith keeping in view the object of section 14 or to favour any particular person or party In our view simpliciter reduction in the rate of tax payable under section 80-C or under section 80-CC by the Central Board of Revenue will not by itself be sufficient to warrant an inference that the same was not legally done or was prompted for mala fide reason to favour someone.
51. It was also urged (while supporting the above reason) by Ch. Mushtaq Ahmad Khan, learned ASC for the appellants in the appeals mentioned in the title of the judgment, that Daewoo South Korean firm has been charged tax under section 80-C at a lower rate than the Pakistani contractors.
It will suffice to observe that the foreign contractors constitute a class themselves and, therefore, there cannot be any comparison between a foreign contractor and a local contractor for the purpose of determining the question of reasonableness. It may be pointed out that a country cannot attract foreign contractors and foreign investors unless they are offered good terms for inducing them to participate in the development of the country.
52. We may now take up the fourth point noticed hereinabove in para. 12, namely, whether there is any conflict between the provisions of the Protection of Economic Reforms Act, 1992, hereinafter referred to Act XII of 1992, and the impugned provisions of the Ordinance, if yes, which of them shall prevail.
In this regard it may be partinent to observe that Mr. Iqbal Naim Pasha, who appeared for the appellant, namely, Poineer Cement (in Civil Appeal No.118/96) contended that the appellant was covered by the provisions of Act XII of 1992 and was entitled to five years tax holiday from 1- 11-1994, being the date of commencing of production up to 31-10-1999. To reinforce the above submission, he pointed out that section 80-D was assented to "by the President on 23-7-1992 and was gazetted in the Gazette of Pakistan, Extraordinary, Part I, on 28-7-1992, whereas the Finance Act, containing the impugned provisions including section 80-D was assented to by President on 22-6-1991 and was gazetted on 27-6-1991. According to him, since Act XII of 1992 was subsequent in time and as it was a special statute, the same shall prevail over the impugned provision of' section 80-D being enacted earlier in time and being part of a general statute.
On the other hand, Messrs Ilyas Khan and Mansoor Ahmad, learned counsel for the Income Tax Department, contended that the impugned section contained non obstante clause and, therefore, it shall prevail.
Mr. Mansoor Ahmad further submitted that since the Schedule to Act XII of 1992 does not mention section 80-D for the application of the provisions of the same, no exemption can be claimed from the payment of tax under section 80-D.
It may be pertinent to state that Preamble to Act XII of 1992 provides as under:---
"Whereas it is necessary to create a liberal environment for savings and investments; and other matters relating thereto;
And whereas number of economic reforms have been introduced and are in the process of being introduced to achieve the aforesaid objectives;
And whereas it is necessary to provide legal protection to these reforms in order to create confidence in the establishment and continuity of the liberal economic environment created thereby."
53. It may further be observed that section 6 thereof lays down that fiscal incentives for investment provided by the Government to the statutory orders listed in the Schedule or otherwise notified shall continue in force for the terms specified therein and shall not be altered to the disadvantage of the investor. The above Schedule referred to in section 6 reads as follows:---
"THE SCHEDULE
(See section 6)
1. Notification No. SRO 1283(1)/90, dated the 13th December, 1990, issued under subsection (2) of section 14 of the Income Tax Ordinance, 1979 (XXXI of 1979).
2. Notification No. SRO 1284(1)/90, dated 13th December, 1990, issued under section 19 of the Customs Act, 1969 (IV of 1969).
54. In our view, since the provisions of Act XII of 1992 are subsequent in time and as they are contained in a special statute, they shall prevail over the provisions of section 80-D of the Ordinance, which was enacted through Finance Act, 1991, which was an earlier statute and which was part of a general statute. In this view of the matter, assessees how fulfil the conditions of the notifications referred to in the Schedule to section 6 of Act XII of 1992, are entitled to the protection. The question, as to whether a particular assessee fulfils the conditions of the above notifications, is a question of fact, which will have to be determined by the hierarchy provided under the Ordinance and not by this Court. However, in order to eliminate multiplicity of litigation and to avert element of harassment to assessees, we have dealt with the legal aspect of the above contention though apparently it was not urged before the High Court as we do not find any mention in any of the judgments under appeal.
55. We may now take up the last point which has not been dilated upon, namely, whether there is any conflict between subsection (4) and sub section (5) of section 80-C, if yes, how it is to be reconciled.
The thrust of the arguments of Mr. Iqbal Naim Pasha in this regard was that subsection (4) of section 80-C envisages that where an assessee has no income other than the income referred to in subsection (I) thereof, in respect of which tax has been deducted or collected, the tax deducted or collected under section 50 shall be deemed to be final discharge of his tax liability under the Ordinance and shall not be required to file the return of total income under section 55. Whereas subsection (5) empowers the assessing authority to re-open the question of finality where, an assessee while explaining the nature and source of any sum, investment, money, valuable articles, excess amount or expenditure exceed the income which is subject to tax under subsection (1) of section 80-C.
We may observe that the object of section 80-C seems to be the eliminate the hassel of filing of returns by an assessee and going through the normal procedure culminating in framing of an assessment order and to eliminate the involvement, to the minimum extent, of the Income Tax Department. To achieve the above object, above subsection (4) was enacted. In our view, subsection (5) of section 80-C cannot be used by the Income Tax Department for defeating the above objective of the legislation and, therefore, resort cannot be made to subsection (5) of the above section as a matter of course. It is to be invoked sparingly in exceptional circumstances. If an assessee makes profit more than what is subject to tax under subsection (1) of section 80-C, the Revenue has no power to charge tax on the additional income so long as the above additional income is earned by him on account of the transactions, which have been subject to tax under subsection (1) of section 80-C. However, if the assessee claims that he has made unusual profit, for example, he has earned Rs. 1,00,000 instead of Rs.5,000, which would have been the normal profit the protection of above subsection (4) of section 80-C will still be available to him if he can on the basis of reliable evidence prove the above fact to the satisfaction of the forums provided under the Ordinance. But if he fails to discharge above burden of proof, in that event subsection (5) can be invoked. The assessee in disguise of total discharge of his liability under sub section (4) of section 80-C cannot convert black money into white money by showing the black money as a profit earned, though factually it is not so. With the above clarification, the above submission is answered.
56. Before concluding the above discussion, we may observe that the appellants' contention that the Central Board of Revenue has been enforcing the impugned provisions of the Ordinance retrospectively is not well founded. It may be pointed out that an assessment is a charge in respect of the income of the previous year. In this behalf, it will be pertinent to reproduce the definition of the term "assessment year" given in clause (8) of section 2 of the Ordinance, which reads as under:---
"(8) "assessment year" means the period of twelve months beginning on the first day of July next following the income year and includes any provision of this Ordinance, to be the assessment year in respect of any income or any income year;"
None of the counsel demonstrated that the Central Board of Revenue is acting contrary to the above provision read with the relevant Finance Act.
57. The upshot of the above discussion is that no exception can be taken to the impugned sections 80-C, 80-CC and 80-D of the Ordinance as they do not suffer from any Constitutional infirmity and, therefore, the above appeals have no merits and are liable to be dismissed- However, we may clarify the following points which were urged before us:---
(i) That assessees who are covered by the notification mentioned in the Schedule to section 6 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992), are entitled to the protection in terms thereof as per paras. 52 to 54 hereinabove. They may approach the Income Tax Department.
(ii) That assessees who fulfil the conditions of Circular No.3 dated 18-3-1996 for excluding the amounts of excise duty and sales tax while computing turnovers for the purpose of section 80-D, shall also be entitled to its benefit in respect of the pending cases as per written undertaking dated 9-4-1997 filed by the Central Board of Revenue before this Court referred to hereinabove in para. 41.
(iii) That the provisions of section 35 and other provisions of the Ordinance which are not inconsistent with section 80-D continue to apply even to the cases covered by the latter provision as discussed hereinabove in para. 41.
(iv) That there is no conflict between subsection (4) and subsection (5) of section 80-C as the same are to operate in terms of para. 55 hereinabove.
58. With the above clarifications, the appeals are dismissed. However, there will be no order as to costs. Stay orders granted by this Court stand vacated.
In the end, we would like to record our thanks to Mr. Shehzad Jehangir, the then learned Attorney-General, and to all the learned counsel for the parties particularly to Messrs Raja Muhammad Akram, Iqbal Naim Pasha and Sikander Hayat for the appellants and Mr. Ilyas Khan for the respondent-Department, for valuable assistance rendered by them.
Messrs Mumtaz and Mirza Ghazanfar Baig, Commissioner of Income Tax, who attended the hearings of the above appeals, deserve to the mentioned for providing requisite information to the Court whenever it was required.
M.B.A./E-1/S Appeals dismissed.