1998 P T D 1804

[Karachi High Court]

Before Wajihuddin Ahmed, Mamoon Kazi and Hussain Adil Khatri, JJ

PAKISTAN BURMAH SHELL LIMITED and another

versus

FEDERATION OF PAKISTAN through the Secretary, Ministry of Finance, Government of Pakistan, Islamabad and 3 others

Constitutional Petitions Nos.557 of 1992, 999, 1004, 1111, 1133, 1134, 1157, 1158, 1163, 1171 to 1176, 1201, 1206, 1207, 1208, 1210, 1215, 1216, 1217, 1219, 1221 to 1224, 1243, 1244, 1245, 1253 to 1256, 1260, 1270, 1271, 1272, 1276, 1278 to 1281. 1283, 1287, 1290, 1291, 1292, 1295, 1299, 1300 to 1304, 1316 to 1320, 1326, 1328to 1331, 1334 to 1339, 1342, 1348, 1351, 1355 to 1358 1366, 1380 to 1383, 1385 to 1391, 1393, 1395 to 1399, 1407, 1410, 1411 to 1414, 1418, 1420 to 1423, 1431, 1432, 1433, 1443, 1448, 1449, 1450, 1467 to 1475, 1483, 1484, 1487, 1490, 1492 to 1494, 1501, 1507, 1508, 1511, 1523, 1535, 1544, 1547, 1556. 1568, 1581, 1601, 1657, 1670, 1671, 1679, 1685, 1740, 1741, 1757, 1758. 1762, 1767, 1774, 1775, 1776, 1778, 1784 to 1789, 1795 of 1991; 3 to 5, 16, 25, 64, 65, 69, 70, 75 to 78, 93, 97, 113, 115, 120, 124, 125, 126, 133 to 140, 149 to 163, 169 to 173, 176, 177, 178, 186, 197, 198, 202, 203, 205, 210 to 213, 215, 218 to 220, 224, 227, 228, 233, 234, 235, 237 to 241, 247 to 251, 254, 259, 268, 269, 277, 278, 279, 281, 284, 287, 291, 292, 302, 303, 310, 311, 319 to 321, 338, 340, 341, 349, 353, 357, 367, 368, 381 to 388, 392, 393, 400, 401, 402, 421, 422, 423, 434, 436, 437, 440, 441, 446, 447, 448, 458, 459, 467, 474, 479, 493, 504, 516, 522 to 526, 535, 539 to 551, 553, 571, 579, 580, 586, 610, 611, 636, 648, 650, 657 to 660, 666, 667, 680, 706, 710, 714, 732, 744, 760, 761, 772, 786, 787, 788, 796, 799, 800, 805, 806, 823, 824, 834, 837, 847, 848, 851, 852, 853, 863, 869, 881, 882, 883, 899, 901, 90'1, 903, 908, 923, 936, 947, 999, 1009, 1022, 1030, 1032, 1033, 1037, 103$;1040, 1045, 1079, 1088, 1100 to 1103, 1106, 1169, 1170, 1171, 1172, 1181, 1185, 1204, 1205, 1206, 1216 to 1219, 1233, 1248, 1250., 1270, 1271, 1296, 1297, 1326, 1327, 1329, 1338, 1339, 1340, 1345, 1346,1384, 1427, 1428, 1459, 1465, 1505, 1510, 1512, 1537, 1557, 1593, 1596, 1597 to 1601, 1607, 1608, 1613, 1614, 1642 to 1646, 1669, 1686, 1687, 1703 to 1706, 1728, 1738 to 1740, 1760 to 1764, 1775, 1776, 1796, ,1798, 1827, 1834, 1835, 1836, 1840, 1841, 1854, 1862, 1863, 1879, 1880, 1882, 1883, 1888 to 1892, 1895, 1899, 1909, 1911, 1912, 1945 to 1961, 1971 to 1989, 1994. 2004 to 2007, 2015, 2020 to 2022, 2028, 2031 to 2034, 2039, 2040, 2041. 2049, 2050, 2074, 2099, 2100, 2103 to 2108, 2115, 2116, 2122, 2123, 2127, 2128, 2152 to 2156, 2164, 2181 to 2187, 2214, 2228 to 2230, 2253, 2255, 2256, 2264, 2265, 2306, 2307, 2312, 2313, 2314, 2325 to 2328, 2332, 2341, 2342, 2343, 2349 to 2367, 2375, 2380, 2382, 2386, 2388, 2401, 2404, 2405, 2419, 2423, 2424, 2425, 2448, 2450, 2451, 2459, 2480, 2497, 2508, 2516, 2517, 2533, 2535 to 2539, 2563, 2568, 2582, 2583, 2584, 2593, 2618, 2619, 2622, 2626 to 2638, 2651, 2652, 2654, 2655, 2668, 2686, 2689 to 2696, 2712, 2734, 2736, 2749, 2751, 2771 to 2776, 2791, 2792, 2815 to 2818, 2835, 2840, 2841, 2848, 2874, 2893, 2898, 2901, 2904, 2925, 2973, 2980, 2981, 2982, 2987, 3074, 3105, 3106, 3112, 3128, 3129, 3142, 3143, 3205, 3232 of 1992; 4, 7, 24, 57, 58, 59, 62, 116, 126, 161, 162, 166, 179, 185, 194, 195, 264, 265, 279, 281, 282, 285, 286, 287, 297, 318 to 328, 375, 397, 398, 400, 420, 434, 435, 440, 477, 478, 501, 524, 525, 526, 533, 607, 675, 676, 703, 708, 717, 718, 752, 793, 794, 807, 826; 827, 863, 864, 869, 880, 949, 950, 964, 987, 1050, 1051, 1052, 1083, 1086, 1672 to 1682, 1688 to 1692 and 1693 of 1993 decided on 13/06/1997.

Per Wajihuddin Ahmed J.; agreeing with Mamoon Kazi, J.---

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 2(24), 80-C, 80-CC & 80-D---"Income"---Concept---Principles-- "Income" is inclusive in nature and does include what may be termed as "deemed income".

The concept of income does include what may be termed as deemed income.

As to what is income, according to the ordinary or literal meanings of that term, it has been variously defined to involve return of money from one's business, labour or invested capital. More restrictively, it has been confined to gain derived from capital, from labour or effort, or both combined. The true increase in the amount of wealth, which comes to a person during a stated period of time, is another way in which income is defined. In its usual significance, it is net rather than gross income. Income has been likened to the fruit of a tree or the crop of a field. It has also been said that income refers to a monetary return "coming in" and is conceptually contradictory to loss.

While the term "income" defies any conclusive or crystallised definition, it is, speaking broadly, a return, whether in money or kind, from capital or from labour or effort or both combined. It may be periodic or recurrent or none of either. It may be accumulated in certain hands, revealed from periodic or recurrent releases by the holder. It is possibly this last characteristic of income, which is targeted by the legislation of sections 80-C, 80-CC and 80-D of the Income Tax Ordinance, 1979.

The concept of income is neither static nor inelastic.

Income need not, necessarily, be the recurrent return from a definite source though it is generally of that character. 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. Thus, if the nature of the receipt and its sources are not satisfactorily explained by the assessee, facts which are generally within his peculiar knowledge, an Income-tax Officer might legitimately presume that the amount in question is income of the assessee from an undisclosed source.

Aisha Spinning Mills Ltd. v. Federation of Pakistan 1995 PTD 493; Law of the Constitution by Dicey; Darvesh M. Arbey v. Federation of Pakistan PLD 1980 Lah. 206 and Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457 fol.

(b) Constitution of Pakistan (1973)--

----Art.70---Legislation---Limitations---Legislation to be made within the Constitutional framework.

In countries, where written Constitutions are in force, while amending or modifying the Constitutional provisions remains a subject for a separate and even qualified treatment, the law-makers, not unlike the other limbs of the State, are confined to legislate only within the Constitutional framework and in cases of ' transgression, not infrequently, many a consequential amendments are exposed to be struck down, if found wanting on the touchstone of Constitutional mandates. These Constitutional constraints can be further aggravated through interpretative or other devices.

Law of the Constitution by Dicey ref.

(c) Practice and procedure---

---- Difference of opinion between Members of a Division Bench of High Court---Reference to third Judge---Scope---Scope of reference to third Judge is confined to the points in difference between the Division Bench-- Arguments not raised before the Division Bench cannot be raised before the third Judge.

(d) Income Tax Ordinance (XXXI of 1979)-

--Ss. 80-C, 80-CC & 80-D---Constitution of Pakistan (1973), Arts. 25 & 2A---Equality of citizens---Legislation of Ss.80-C, 80-CC & 80-D, Income Tax Ordinance, 1979 is neither discriminatory nor confiscatory in nature nor does same violate any of the tenets of Islam---Principles.

The legislation of sections 80-C, 80-CC and 80-D is neither discriminatory nor confiscatory in nature nor does it violate any of the tenets of Islam because, while Islam prescribes some forms of taxation, notably Zakat and Usher, it seems, consciously, to have left open a broad vista for legislation in an Islamic State through normal channels. This is in line with the fundamental dogma of a religion that was revealed not for a particular time or clime but was to enure for the benefit of mankind through the ages, which followed its advent. In keeping, fundamentals were provided, express mandates were administered and clear prohibitions were enforced, leaving a wide field of permitted activity for the coming generations to fashion their lives with every change in time and space, as it took place. There is predictably nothing, accordingly, in Islam which prohibits, either taxes on income or even deemed income provided always that the taxation measure does not impinge upon the fundamentals.

In matters, falling within the fiscal domain, the Legislative Authority enjoys a broader latitude than ordinarily is the case. Equal protection of law, signifies only that no person or group of persons shall be denied the same or similar treatment under law, enjoyed by another or others falling in a class and situated in similar circumstances in matters of life, liberty, property etc. Classification among persons again is nothing new. Its justification can readily be found in discerning and recognising similarity in the circumstances in which a group of persons is situated. Law can then proceed on the resultant classification. Relevant to the element of discrimination, such has to be tested not so much upon the language of the taxation measure, as upon the effect it creates. Thus, where a class is selected for impact of a tax, it is enough that there is equality and uniformity within those, who are covered by such a class. The classification itself may be rational and reasonable, if it is based on a substantial difference or distinction and any common denominators' are located in the constituents of the group clubbed together. On this yardstick, the persons targeted by sections 80-C, 80-CC and 80-D would seem to qualify.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 80-CC, 80-D & 2(24)---Constitution of Pakistan (1973), Fourth Sched., Part I, Federal Legislative List, Entry 47 & Art.260---Taxes on income---"Income" as defined in S.2(24), Income Tax .Ordinance, 1979 and as mentioned in Fourth Sched., Part I, Federal Legislative Lilt, Entry 47, Constitution of Pakistan--- Connotation ---Principles ---Provisions of Ss.80-C, 80-CC & 80-D, Income Tax Ordinance, 1979 were properly and validly incorporated in the Ordinance.

In the present case it was contended that, because the purported deemed income did not qualify as income, according to the popular and juristic meanings assigned to that word, the Federal Legislature exceeded its powers in enacting sections 80-C, 80-CC and 80-D in the Income Tax Ordinance, pursuant to the successive Finance Acts of 1991 and 1992. In the first place, it must immediately be made clear that a Legislative List, such as in Part 1 of the Fourth Schedule to the Constitution, where the entry in question occurs, does not confer legislative powers. Those powers are derived from the main body of the Constitution itself. Such a list only delineates the area or the sphere within which the Parliament, as distinguished from the Provincial Assemblies, to whom the residue, including the concurrent subjects (in the Concurrent List), is assigned, would stand limited by the Constitution to competently legislate. Whatever is beyond the list, either exclusively or concurrently, falls within the domain of the Provinces again to legislate upon. The Federal Legislative List and its complement, the Concurrent Legislative List, in the Constitution contain numerous specified items. Each such item nay each word in each entry, is to be broadly construed, and a narrow or a restricted meaning, correspondingly eschewed. Contextually, the general words shall extend to the ancillary or subsidiary matters, which may fairly or reasonably be within their impact or scope. While these implications in general words are more or less of universal application, such have a special significance in the interpretation of a Constitutional provision. A Constitution is an organic whole. It is a living instrument and is to be interpreted in the widest possible manner to generate continuity and to establish balance between the various subjects, catered by it. Therefore, the word "income", occurring in Entry 47 of the Federal Legislative List or its counterpart in the phrase "tax on income', finding mention in the definitions incorporated in Article 260 of the Constitution, carries the broadest of connotations. Co-extensively, the legislative competence of the Parliament extends to legislate on every facet of income or anything akin to income. Besides, in the definition clause of the Constitution, much as in the definition of income in section 2(24) of the Income Tax Ordinance, the concept of income is inclusive in nature. These definitions are neither exclusive nor absolute and would not restrict the authority of Parliament to legislate, except beyond reasonable limits.

As to reasonable limits, a pertinent question well may be whether Parliament can deem something to be income, which does not have the remotest semblance with income, and thus extend its legislative authority to such a thing? A Constitutional restriction being involve, the answer would, obviously, be in the negative. In the process of judicial review patent Constitutional deviations of the character can be subjected to a corrective mechanism. It is not for-the Courts to, routinely, question the legislative wisdom. -The Constitution has ascribed distinct spheres of activity to the Legislature, the Executive and the Judiciary. Fraught with dangers is the route, whereby one or the other of these organs of the State, casually, impinges upon the jurisdiction of another. The moment the dividing lines, prescribed by the Constitution, get blurred and room for encroachment created, predictable pitfalls would be encountered, gaping. Specific to legislation those entrusted with the function to legislate are better conditioned to comprehend, assess and cater to the economic, social and cultural requirements of the State. But then heavy responsibility lies on the shoulders of those who exercise legislative powers whether it be absolute or qualified as under a Constitutional document.

There has been an ever going tussle between Legislatures and those who are disposed to invent devices for, wholly or partially, extricating themselves from the tax net, the artifices, not uncommonly, degenerating into tax evasion. Legislative ingenuity to combat this menace has led to insertion of deeming clauses in legislations wherever and whenever found expedient on the one hand and severest of penalties, on the other. Even so generalised measures, sweepingly targeting a class or group of persons are bound to throw up hardship cases.

The non obstante clauses, with which the three sections in the Ordinance begin and the deeming nature of the levy are matters to be reckoned within the backdrop of the' aforementioned long drawn struggle between Legislatures the world-over and the tax evaders, universally and single-mindedly, pursuing their unhealthy objectives of evasion.

There is a presumption of constitutionality, attaching to every legislative enactment. To pierce through this protective shield, burden lies on the person who throws the challenge.

Sections 80-C, 80-CC and 80-D in the Income Tax Ordinance were validly incorporated.

(f) Interpretation of Constitution---

---- Federal Legislative List and Concurrent Legislative List to be broadly construed---Principles.

The Federal Legislative List and its complement, the Concurrent Legislative List, in the Constitution contain numerous specified items. Each such item nay each word in each entry, is to be broadly construed, and a narrow or a restricted meaning, correspondingly, eschewed. Contextually, the general words shall extend to the ancillary or subsidiary matters, which may fairly or reasonably be within their impact or scope. While these implications in general words are more or less of universal application, such have a special significance in the interpretation of a Constitutional provision A Constitution is an organic whole. It is a' living instrument and is to be interpreted in the widest possible manner to generate continuity and to establish balance between the various subjects, catered by it.

(g) Constitution of Pakistan (1973)---

----Art.199---Judicial review---Patent Constitutional deviations of the character can be subjected to a corrective mechanism---Constitution having ascribed distinct spheres of activity to the Legislature, the Executive and the Judiciary, Courts could not routinely, question the legislative wisdom-- Principles.

In the process of judicial review patent Constitutional deviations of the character can be subjected to a corrective mechanism. It is not for the Courts to, routinely, question the legislative wisdom. The Constitution has ascribed distinct spheres of activity to the Legislature, the Executive and the Judiciary. Fraught with dangers is the route, whereby one or the other of these organs of the State, casually, impinges upon the jurisdiction of another, The moment the dividing lines, prescribed by the Constitution, get blurred and room for encroachment created, predictable pitfalls would be encountered, gaping. Specific to legislation those entrusted with the function to legislate are better conditioned to comprehend, assess and cater to the economic, social and cultural requirements of the State. But then heavy responsibility lies on the shoulders of those who exercise legislative powers whether it be absolute or qualified as under a Constitutional document.

(h) Constitution of Pakistan (1973)---

----Art.199---Vires of legislation---Judicial review---Legislation could be down only when there was a palpable erosion of Constitutional requirements---Court has to be watchful that the evil which Court had set out to eradicate was not lesser than the mischief, which may emerge as a consequence of the remedy Court determines to administer---Remedy has to be proportionate to the evil addressed.

(i) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C; 80-CC. & 80-D---Constitution of Pakistan (1973), Fourth Sched., Part I, Federal Legislative List, Entries 47 & 52---Taxes levied under Ss.80-C, 80-CC & 80-D, Income Tax Ordinance, 1979 having nexus with "Taxes and duties on the production capacity of any plant, machinery undertaking, establishment or installation" no need was discoverable for applying the theory of "reading down"---Conditionalities in Entry 52. Federal Legislative List, Part I of the Fourth Sched. of the Constitution of Pakistan provide that tax burden thus cast would be in "lieu" of other taxes and once resort is made to Ss.80-C, 80-CC & 80-D of the Income Tax Ordinance, 1979, no further or fresh charge could be made.

Per Mamoon Kazi J.; Wajihuddin Ahmed, J. agreeing--

(j) Income Tax Ordinance (XXXI of 1979)--

----Ss.50, 80-C, 80-CC & 80-D---Constitution of Pakistan (1973), Fourth Sched., Part I, Federal Legislative List, Entry 47---Interpretation and application of Ss.50, 80-C, 80-CC & 80-D of the Income Tax Ordinance, 1979---Rates of tax prescribed under the provisions of Ss.80-C, 80-CC & 80-D of the Ordinance are neither expropriatory nor confiscatory ---Unless the imposition is disproportionate to income, provisions cannot be said to be confiscatory.

Subsection (4) of section 50 of the Income Tax Ordinance enjoins upon every such person responsible for making any payment to certain categories of persons on account of supply of goods or services rendered. or execution of a contract, to deduct advance tax at the rates specified in the First Schedule to the Ordinance and by virtue of subsection (5) of section 50 the 'Collector of Customs', in case of every importer of goods, is required to collect advance tax on the basis of value of such imported goods. Subsection (5A) of section 50 likewise requires every person being an authorised dealer in foreign exchange to deduct such tax at the time of realisation of foreign exchange proceeds on account of export of goods made by any person. Sections 80-C and 80-CC now provide that the whole of such amount which has been received or which accrues or arises or is deemed to accrue or arise to any such person (other than persons expressly excluded) shall be deemed to be his income. Reference to section 80-D- also indicates that in case of a company or a registered firm, the aggregate of the declared turnover from all sources shall be deemed to be the income of the company or a registered firm. Reference to the First Schedule to the Ordinance further indicates that the rate of tax payable under section 80-C of the Ordinance in case of contractors, suppliers and importers shall be three, one and one-half per cent., two and one-half per cent. and two per cent. respectively and in case of exporters under section 80-CC, the same shall be three-fourth of one per cent., one-half per cent. and one per cent. of such income, depending upon the circumstances of each case. Under section 80-D a tax equivalent to one-half per cent. would be payable in relation to the assessee's declared turnover as his minimum liability.

Under section 80-C of the Income Tax Ordinance the whole of the amount received by a person on account of supply of goods or on execution of a contract or the amount spent by an importer of goods (which shall also include customs duty and sales tax) is to be deemed to be the income of such person. Likewise, under section 80-CC of the Ordinance the whole of export proceeds of a person are to be deemed to be his income. Under section 80-D of the Ordinance, a tax at the rate of one-half per cent. is to be imposed as minimum tax in relation to the turnover of business or trade of a person. The liability for payment of income-tax varies in case of sections 80-C, 80-CC from one-half per cent. to one per cent. of the income in case of exports and from two per cent. in case of imports to two and one-half per cent. in case of supplies. These rates neither appear to be expropriatory nor confiscatory. Unless the imposition is disproportionate to income, it cannot be said to be confiscatory.

(k) Income Tax Ordinance (XXXI of 1979)---

----S.2(24)---"Income"---Concept---Definition of word "income" is not exhaustive but is merely inclusive leaving safe for anything to be included therein so far as it can be called "income" ---Any sum which may be deemed to be income or income accruing or arising or received in Pakistan may be construed as income---Term "income" is not to be construed in a narrow and pendantic sense but in a more liberal sense---Meaning of the word "income" cannot be restricted to a particular definition which the law-giver might have chosen for the purpose of a particular legislation---Court only has to ascertain that what has been deemed to be the income of the assessee can reasonably be deemed to be his income---Connotation of word "income" exhaustively discussed with reference to case-law and authoritative dictionaries.

Corpus Juris Secundum; Black's Law Dictionary; Ballentine's Law Dictionary; Stroud's Judicial Dictionary; Commissioner, Income-tax, Bengal v. Shaw Wallace AIR 1932 PC 138; Commissioner of Income-tax v. Jaora Oil Mills (1981) 129 ITR 423; K. P. Varghese v. Income-tax Officer (1981) 131 ITR 597; A. Sanyasi Rao and another v. Government of Andhra Pradesh (1989) 178 ITR 31; Srivenkateswara Timber Depot v. Union of India and another (1991) 189 ITR 741; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income Tax, Rawalpindi PLD 1981 SC 85; Pakistan Industrial Development Corporation v. Pakistan 1992 PTD 282; King v. Caledonia Collieries Ltd. AIR 1928 PC 282; Navinchandra Mafatlal, Bombay v. Commissioner of Income-tax, Bombay City (1954) 26 ITR 758 = 1955 SC 58; Kamaskshya Narain Singh v. Commissioner of Income -tax AIR 1943 PC 153; Pakistan Industrial Development Corporation v. Pakistan PLD 1984 Kar. 1; Elel Hotels and Investments Ltd. v. Union of India AIR 1990 SC 1664; P. Kunhammed Kutty Haji and others v. Union of India and others (1989) 176 ITR 481; T. K. Aboobacker v. Union of India (1987) 177 ITR 358; K. M. Joseph Binoy v. Union of India and others (1992) 194 ITR 449 and Bhagwan Das Jain v. Union of India (1981) 1.28 ITR 315 ref.

(1) Constitution of Pakistan (1973)---

----Art.25---Equality of citizens---Concept---Phrase "Equal protection of law"--- Connotation--- Reasonable classification---Permissibility.

Equal protection of the laws does not mean that every citizen, no matter what his condition, must be treated in the same manner. The phrase equal protection of the law' means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other class of persons in like circumstances in respect of their life, liberty, property or pursuits of happiness. This only means that persons, similarly situated or in similar circumstances, will be treated in the same manner. Besides this, all law implies classification, for, when it applies to a set of circumstances, it creates thereby a class and equal protection means that this classification should be reasonable. To justify the validity of a classification, it must be shown that it is based on reasonable distinctions or that it is on reasonable basis and rests on a real or substantial difference of distinction. Thus different laws can validly be made for different sexes, for persons in different age groups, e.g. minors or very old people; different taxes may be levied from different classes of persons on the basis of their ability to pay. Similarly, compensation for properties acquired may be paid at different rates to different categories of owners. Such differentiation may also be made on the basis of occupations or privileges or the special needs of a particular locality or a particular community. Indeed, the bulk of the special laws made to meet special situations come within this category.

Brig. (Retd.) F. B. Ali and another v. The State PLD 1975 SC 506; I. A. Sharwani and others v. Government of Pakistan 1991 SCMR 1041; Federation of Hotel and Restaurant v. Union of India and others AIR 1990 SC 1637 and AIR 1963 Mad. 183 ref.

(m) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 80-CC & 80-D---Constitution of Pakistan (1973), Arts.25, 18 & 23---Equality of citizens---Reasonable classification---Freedom of trade, business or profession of having property---Mere fact that the assessee's liability under Ss.80-C, 80-CC & 80-D, Income Tax Ordinance, 1979 had increased, could not support the contention that provision of Ss.80-C, 80-CC & 80-D of the Ordinance were violative of the Fundamental Rights guaranteed by Arts. 25, 18 & 23 of the Constitution of Pakistan (1973).

(n) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 80-CC & 80-D---Constitution of Pakistan (1973), Art.25-- Equality of citizens---Provisions of Ss.80-C, 80-CC & 80-D of the Income Tax Ordinance, 1979 have been designed to be simple avoiding tedious procedure of assessment for the convenience and benefit of the assessee-- Mere fact that margin of profit would be different cannot render provisions of Ss.80-C. 80-CC & 80-D of the Income Tax Ordinance, 1979 discriminatory or arbitrary or violative of Art.25, Constitution of Pakistan-- Tax purported to be levied under the provisions of the Ordinance is neither unreasonable or discriminatory nor it appears to be confiscatory ---Merely because a fiscal statute is unreasonable or oppressive, its Constitutional validity cannot be called in question.

Mere fact that margin of profit would be different cannot render the said provisions discriminatory or arbitrary or violative of Article 25 of the Constitution. Profitability in any trade or a business or profession is also commensurate with the relative efficiency of its management although there can be various other factors responsible for the same. However, no two companies or firms having similar trade or business can earn similar margin of profit. The impugned provisions of the Ordinance are apparently based on a presumption that a certain percentage of the assessee's gross receipts would be his minimum profit. The assessee has been taxed accordingly by the said provisions. Since the provisions are applicable to an assessee engaged in a trade or business, it can be normally presumed that the assessee will keep a sufficient margin of profit on his total turnover or his gross receipts. The income-tax payable does not appear to be so unreasonable as to be regarded as arbitrary or confiscatory. It is noteworthy that in case of sections. 80-C and 80-CC of the Ordinance the assessee is not required to file returns. The provisions have, therefore, been designed to be simple avoiding tedious procedure of assessment for the convenience and benefit of the assessee. In case of section 80-D of the Ordinance, a return has to be filed and in case the tax payable by an a5sessee is more than one-half per cent. the same will be assessed and paid accordingly. In case, no tax is payable or the tax payable is less than one-half per cent. such tax has to be paid. The provisions of section 80-D on the face thereof do not appear to be discriminatory as they are applicable to the assessees as a class.

Section 80-D also by virtue of the non obstante clause inserted therein purports to include such companies or registered firms in the tax net in whose case no tax is payable or has been paid for any reason enumerated in section 80-D of the. Ordinance. The application of the provisions of section 80-C or 80-CC of the Ordinance to certain contractors, importers or exporters, etc. as a distinct class is also not difficult to comprehend because tax was already being deducted from them at source under section 50 of the Ordinance. Therefore, the Legislature in its own wisdom made the above provisions applicable to them. Apparently. the tax purported to be levied is neither unreasonable or discriminatory nor it appears to be confiscatory. However, merely because a fiscal statute is unreasonable or oppressive, its Constitutional validity cannot be called in question.

In construing a taxing measure for determining its Constitutional validity, the question of reasonableness cannot enter a judicial mind. The only consideration which is germane is whether the legislation challenged is permitted by the Constitution. The reasonableness or otherwise of such a statute is a matter of legislative policy and it is not for .the Courts to adjudicate upon.

In a Taxing Act one has to look merely at what is clearly said. There is no room for intendment. There is no equity about tax.

A taxing statute is not per se a restriction on the freedom of trade. 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 earnings or profits of the persons of incidence does not per se and without more, constitute violation of the fundamental rights.

If in the 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.

The Legislature has a very wide latitude available to formulate fiscal policies.

The judicial approach has to be to allow the Legislature flexibility at the joints, particularly when a taxing statutes is under attack.

In the present legislation viz. sections 80-C, 80-CC and 80-D, Income Tax Ordinance, 1979, companies and registered firths have been classified by the legislation as a separate class and so have been certain contractors, suppliers, importers and exporters. The object sought to be achieved has been shown to be to generate more funds for the public revenue or to prevent evasion of income-tax. It can hardly be denied that in Pakistan one of the methods that can be effectively employed to plug loss of revenue, is by resort to presumptive taxation. Therefore, there is a reasonable nexus between the legislation and the object it seeks to achieve. As was pointed out earlier, the Legislature has sufficient latitude to classify persons or things in different categories to achieve the object of the legislation. The mere fact that the legislation tends to diminish the assessee's profits is not sufficient to make it confiscatory either.

The income-tax levied on the gross receipts or as the cases may be, the turnover does not appear to be unreasonable and the legislation appears to be based on a presumption that the assessee's minimum profit from the trade or business would exceed the income-tax imposed under the said provisions of the Ordinance. Apparently, there appears to be no ground for assuming that such a measure is discriminatory or confiscatory, barring of course a few exceptions, when a larger benefit, for the community is to be achieved, individual interest must yield to the larger interest.

The power to tax is the one great power upon which the whole national fabric is based. It is not only the power to destroy, but it is also the power to keep alive.

No legislation can be struck down on any of the grounds viz. being opposed to the principles of economics and accounting; hitting the doctrine of promissory estoppel and having no nexus with section 9, Income Tax Ordinance. 1979 unless it is shown to be in conflict with the paramount law.

Interpretation of Statutes by N.S. Bindra, 7th Edn., p.771; The Commissioner of Agricultural Income Tax, East Bengal v. V.W.M. Abdur Rahman 1973 SCMR 445; Cap Brandy Syndicate v. Inland Revenue Commissioner (1921) 1 KB 64 and Federation of Hotel and Restaurant v. Union of India AIR 1990 SC 1637 ref.

[Case-law distinguished]

(o) Interpretation of statutes---

---- Fiscal statute---Constitutional validity---Principles.

In construing a taxing measure for determining its Constitutional validity, the question of reasonableness cannot enter a judicial mind. The only consideration which is germane is whether the legislation challenged is permitted by the Constitution. The reasonableness or otherwise of such a statute is a matter of legislative policy and it is not for the Courts Jo adjudicate upon.

In a Taxing Act one has to look merely at what is clearly said. There is no room for intendment. There is no equity about tax.

A taxing statute is not per se a restriction on the freedom of trade. 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 earnings or profits of the persons of incidence does not per se, and without more, constitute violation of the fundamental rights.

If in the 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.

The Legislature has a very wide latitude available to formulate fiscal policies.

The judicial approach has to be to allow the Legislature flexibility at the joints, particularly when a taxing statute is under attack.

Interpretation of Statutes 6y N.S. Bindra, 7th Edn. p.771; The Commissioner of Agricultural Income Tax, East Bengal v. V.W.M. Abdur Rahman 1973 SCMR 445; Cap Brandy Syndicate v. Inland Revenue Commissioner (1921) 1 KB 64 and Federation of Hotel and Restaurant v. Union of India AIR 1990 SC 1637 ref.

(p) Constitution of Pakistan (1973)---

----Art. 73---"Money Bill"---Definition---Procedure with respect to Money Bill---Fact that the Money Bill was not transmitted to Senate, in no case places same at a lower pedestal. when compared to any other Act passed by the Parliament.

The expression "Money Bill" has been defined by clause (2) of Article 73 of the Constitution and paragraph (a) thereof indicates that a Bill dealing with "the imposition, abolition, remission; alteration or regulation of any tax" would fall within the purview of the said definition. Paragraph (g) in the said clause further indicates that any matter incidental to above or any other paragraph of the said clause (not reproduced herein for the sake of brevity) would fall within the purview of the said definition. Article 73(1) of the Constitution which relates to the procedure with respect to Money Bills indicates that a Money Bill shall originate in the National Assembly and after it has been passed by the Assembly, it is to be presented to the President for his assent without the same being transmitted to the Senate. Although Article 73 of the Constitution provides for a different procedure in 'respect of Money Bills but when the Bill has been passed by the National Assembly and it receives assent by the President, it will have effect like an Act of Parliament. The fact that the Money Bill was not transmitted to Senate, in no case places it at a lower pedestal when compared to any other Act passed by the Parliament.

Per Hussain Adil Khatri. J.--

(q) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 80-CC, 80-D & 50(4)---Interpretation, scope and application of Ss.80-C, a0-CC, 80-D & 50(4) of the Income Taxes Ordinance, 1979.

(r) Constitution of Pakistan (1973)--

----Fourth Sched., Part I, Federal Legislative List, Entry 47---Income Tax Ordinance (XXXI of 1979), S.2(24)---Word "income" occurring in Entry 47, Federal Legislative List, Part I of Fourth Sched. of the Constitution cannot be interpreted in a narrow and pendantic sense, but is to be read and understood in its ordinary, natural and grammatical meaning, with normal concept and connotation conveyed by the word and as it is understood in common parlance---Word "income" as used in Entry 47 cannot be restricted to the connotations acquired by it under S.2(24) of the Income Tax Ordinance, 1979.

The Entries in the Legislative Lists cannot be read in restricted sense and therefor the word 'income' occurring in Entry No.47 in Part I of the Fourth Schedule to the Constitution cannot be interpreted in a narrow and pendantic sense, but is to be read and understood in its ordinary, natural and grammatical meaning, with normal concept and connotation conveyed by it and as it is understood in common parlance.

The word 'income' as used in the aforesaid Entry, cannot be restricted to the connotations acquired by it under the definition of the said term as given in the Income Tax Ordinance, 1979. However, the question arises whether the Legislature, by a deeming clause can term as income something which, in fact is not income. An amount which can by no stretch of imagination be called income can be treated as income by the Parliament. The concept of profit or gain is inherent in the concept of income. Therefore, any amount to be called income, must have some characteristic of income as the term is ordinarily understood with its above connotations. For tax purposes the gain derived from capital, labour or from both combined including profit or gains through or conversion of capital assets are income. Income is that which 'comes in' not being capital. Even in its broadest connotation income refers to monetary return coming in and is conceptually contradictory to loss and the Parliament cannot choose to take an item as income which in no rational sense can be regarded as income.

None of the items in the List is to be read in a narrow or restricted sense and each general word should be held to extend to ancillary or subsidiary matters which can fairly or reasonably be said to be comprehended in it.

The Central Legislature has exclusive powers to make laws in respect of "corporation taxes and taxes on income other than agriculture income". Any money which is not an income cannot be classified as income and subjected to tax on income.

No amount, which is not an income, can be converted into income by deeming it to be income.

Corpus Juris Secondum: Black's and Ballentine's Law Dictionaries; Stroud's Judicial Dictionary; Samina Shaukat Ayub v. Commissioner of Income Tax, Rawalpindi PLD 1981 SC 85; Pakistan Industrial Development Corporation v. Pakistan 1992 PTD 576 and Untied Provinces v. Mst. Atiqua Begum and others AIR 1941 FC 16 ref. '

(s) Interpretation of Constitution--

----Entries in the Legislative Lists in the Constitution cannot be read in restricted sense.

Per Hussain Adil Khatri, J. Contra---

---- As to vires of Ss.80-C, 80-CC & 80-D of the income Tax Ordinance, 1979 on the ground that Federal Legislature exceeded its power in legislating these provisions.

A. Sanyasi Rao and others (1989) 178 ITR 31; Sri Venkateswara Timber Depots v. Union of India and others (1991) 189 ITR 741; Sat Pal & Company v. Excise and Taxation Commissioner and others (1990) 185 ITR 375; ITK Aboobacker and others v. Union of India and others (1989) 177 ITR 358; Baldev Singh v. C.I.T. (1960) 40 ITR 605; Balaji v. I.T.O. (1961) 43 ITR 393; Navni; Lal C. Javeri v. K.K.Sen, AAC of IT (1965) 56 ITR 198; K.P. Varghese v. I.T.O. (1981) 131 ITR 597; Elel Hotels and Investments Ltd. and another v. Union of India AIR 1990 SC 1664; Federation of Hotel and Restaurant v. Union of India and others AIR 1990 SC 1637; Krishna Dalmia v. Justice S.R. Tendolkar (1959) SCR 279 (AIR 1958 SC 538) and State of Kerala v. Haji K. Kutty Naha and others (1969) 1 SCR 645 distinguished.

Sirajul Haque Menion, Khalid Anwar, Iqbal Naeem Pasha, Muhammad Naseem Khan, M. Farogh Nasim, Mansoor Ahmed Khan, Liaquat Merchant, Fazle Ghani Khan, Mansoorul Arfin, Mohsin Tayyeb Ali, Muhammad Ali Sayeed, Tariq Jawaid, Umer A. Bandial, Rehan Hassan Naqvi, Mrs. Majida Razvi, Iqbal Kazi, Khalilur Rehman, M. Athar Saeed, Muqtada Karim, Shaikh Abdul Aziz, Nasim Ahmed Khan, Hyder Raza Naqvi, Shamsuddin Khalid, M. Azam Khan, Muhammad Mazharul Hassan, Akbar Saad, Saleemuddin, Irfan Saadiq Khan, Muhammad Farid, Naimtoolah Khan, Sultan M. Tanoli, Salimuddin Ahmed, M. Muzaffarul Haq, Akhtar Ali Mehmood, Abdul Karim Mangrani, Mazhar Jafari, M. Ashraf Malik, Iqbal Salman Pasha, M. Mazharul Hassan, Fasihuddin Ahmed, Shahanshah Hussain, S. Nasir H. Zaidi, Sabihuddin Ahmed, Saiduddin Ahmed, A. Aziz, Munirur Rehman, Ali Akbar, Jawaid Ahmed Siddiqui, S. Rehamtoola Qadri, S. Musawat Ali, Ismail Padhiar, M. Aziz Malik, Riaz Hussain Baloch, Ali Murtaza Hussain, M. Akmal Wasim, H:A. Jafri, Irfan Saadat Khan, Bashir A. Shaikh, M.A. Essani, Sadiq Khan and S. Ishtiaq Ali for Petitioners.

Naimur Rehman, Standing Counsel, Ikram Ahmed Ansari, Dy. Attorney-General, Shaik Haider, M.G. Hassan, Nasrullah Awan and Abrar Hasan for Respondents.

Date of hearing: 19th May, 1997.

JUDGMENT

HUSSAIN ADIL KHATRI, J.---In the above Constitutional Petitions the vires of the amendments made in the Income Tax Ordinance (XXXI of 1979) (hereinafter referred to as "the Ordinance") by the Finance Acts of 1991 and 1992, whereby sections 80-C, 80-CC and 80-D have been incorporated and amended also corresponding amendments have been made in section 50 and Part I of the First Schedule to the said Ordinance, has been challenged.

2. The relevant statutory provisions - been reproduced in the detailed judgment of my learned brother. The important features of the said provisions are recapitulated below to highlight their impact on the tax incidence.

Section 80-C read in association with section 50(4) provides that any amount which is received by or accrues or arises or is deemed to accrue or arise to any person being resident, on account of supply of goods or the execution of a contract with the Government or a local authority or a company or a registered firm or any foreign contractor or consultant or consortium, the whole of such amount shall be deemed to be income of the said person and tax shall be charged thereon and collected at the source of payment in advance, at the rates prescribed in paragraph CCC of Part I of the First Schedule to the Ordinance, and similarly when read in association with section 50(5) the income tax is to be collected in advance by the Collector of Customs at the same time and in the same manner as customs duty, from every importer of goods, on the basis of value of imported goods as increased by the customs duty and sales tax at the prescribed rate of two per cent. of such value.

Raw material imported by any industrial undertaking for its own consumption is not liable to be charged with the tax.

The above provisions are applicable to residents of Pakistan. So far as non-residents are concerned, the advance tax is deductible on the amount representing payments on account of a contract for construction, assembly or like projects in Pakistan under section 50(4).

In section 80-CC read in conjunction with section 50 (5-A) all the foreign exchange proceeds realised on account of export of goods by a person being an exporter, the whole of such amount is deemed to be the income of the said person and the tax thereon is to be charged at the rates specified in paragraph CCCC of Part I of the First Schedule respectively.

Subsection (3) of section 80-C and subsection (2) of section 80-C respectively provide that nothing contained in the Ordinance shall be so construed as to authorise any allowance or deduction against the income as determined under the respective subsection (1) of the said two sections or, any refunds of tax deducted or collected under the corresponding provisions of section 50 or set off of any loss under any provision of the Ordinance.

Under section 80-D, where no tax is payable or paid by a company or registered firm, resident in Pakistan or the tax payable or paid is less than one-half per cent. of the amount representing its total turnover from all sources, the aggregate of the declared turn over shall be deemed to be the income of the said company or registered firm and tax thereon shall be charged in the manner that where no tax is payable or paid is equal to one- half per cent. of the said turnover or if the tax payable or paid is less than the above percentage of the turnover, equal to the difference between the tax payable or paid and the said percentage. The turnover is explained to mean the gross receipts, exclusive of trade discounts shown on invoices or bills, derived from sales of goods or from rendering, giving or supplying services or benefits or from execution of contracts.

The explanation declares for the removal of doubt that the expressions. "where no tax is payable or paid" and "the tax payable or paid" apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciations) admissible under any provision of the Ordinance or any other law for the time being in force.

All the three sections begin with non-absente clauses, which read, "Notwithstanding anything contained in this Ordinance or any other law for the time being in force ..".

3. The petitioners have challenged the aforesaid provisions brought in the Income Tax Ordinance, 1979 through Finance Acts of 1991 and 1992 as ultra vires the Constitution of the Islamic Republic of Pakistan, 1973 as the said provisions militate against the powers of the Federal legislature to frame laws relating to Entry No.47 of Part I of the First Schedule. The said Entry reads as under:--

"The taxes on income other than agriculture income. "

The said provisions are also assailed as violative of the fundamental rights guaranteed by the Constitution vide Article 8 read with Articles 18, 23 and 25 of the Constitution, being confiscatory, expropriatory and discriminatory.

4. In the above background the submission of the learned Advocates appearing on behalf of the petitioners is that the aforesaid Entry of the Constitution, provides for framing of laws for imposing tax on income and, therefore, the Legislature can levy taxes on income alone. According to them the gross receipts or turnover or the total 'value of imports and exports or contracts do not fall within the meaning of the term 'income' and, therefore, no tax can be levied thereon. It is further submitted that the Legislature by incorporating a deeming clause cannot term the gross receipts or total turn over or the foreign exchange proceeds received on export of goods or the value of the imported goods as increased by custom duties and sales tax, as income.

The resolution of the point urged, therefore, depends on the meaning of the word 'income' .

It is settled law that the entries in the legislative lists cannot be read in restricted sense and, therefore, the word 'income' occurring in Entry No.47 in Part I of the Fourth Schedule to the Constitution cannot be interpreted in a narrow and pedantic sense, but is to be read and understood in its ordinary, natural and grammatical meaning, with normal concept and connotation conveyed by it and as it is understood in common parlance.

The word 'income' as used in the aforesaid Entry, cannot be restricted to the connotations acquired by it under the definition of the said term as given in the Income Tax Ordinance, 1979. However, the question arises whether the Legislature by a deeming clause can term as income something which, in fact is not income. From the definitions of the term 'income' as detailed in Corpus Juris Secundum, Black's and Ballentine's Law Dictionaries and Strout's Judicial Dictionary and so also the case-law .on the subject, it can be concluded, without fear of contradiction that an amount which can by no stretch of imagination be called income can be treated as income by the Parliament. The concept of profit or gain is inherent in the concept of income. Therefore, any amount to be called income, must have some characteristic of income as the term is ordinarily understood with its above connotations. For tax purposes the gain derived from capital, labour or from both combined including profit or gains through or conversion of capital assets are income. Income is that which 'comes in' not being capital. Even in its broadest connotation income refers to monetary return coming in and is conceptually contradictory to loss and the Parliament cannot choose to take an item as income which in no rational sense can be regarded as income.

The exposition of the term 'income: in the case of Samina Shaukat Ayub v. Commissioner of Income Tax, Rawalpindi PLD 1981 SC 85, reproduced in the judgment of my learned brother has been re-affirmed recently by the Supreme Court in the case of Pakistan Industrial Development Corporation v. Pakistan 1992 PTD 576. Their Lordships in the said case have also quoted the following observations from the United Provinces v. Mst. Atiqua Begum and others AIR 1941 FC 16: -

"None of the items in the list is to be read in a narrow or restricted sense and that each general word should be held to extend to ancillary or subsidiary matters which can fairly or reasonably be said to be comprehended in it. "

In the aforesaid case of Pakistan Industrial Development Corporation, vires of the amendment made in section 2(6)(c) of the Income-tax Act, 1922 by Finance Act 1967, and the Explanation 5 added to section 4 of the Income Tax Act by the Finance Act, 1968 were challenged on the proposition that Free Reserve of the company exceeding the paid-up ordinary share capital of the company cannot be treated as income.

Their Lordships while dealing with the term income made the following observations:--

"7. In this background we have to consider Entry No.43(c) which authorised the Central Legislature to levy tax on income and Corporations. The definition of the word 'income' in the Act is inclusive in nature and is not exhaustive. In this state of Statutory affairs the word 'income' has not to be given its literal and dictionary meaning but it is to be expanded to all possibilities and amplitude which may be covered by it in a wider and liberal sense particularly to save the purpose for which the statute has been enacted. According to the judgments referred above income is a receipt in the hands of assessee not necessarily a recurrent return from a definite source but generally in the light of the Act it is a periodical monetary return from known or unexplained source. But the determination of receipt as income depends upon the facts and circumstances of the case.

8. Section 4 makes the Act applicable to the total income of the assessee received or deemed to be received in Pakistan during the previous year by or on behalf of the assessee or accrues or arises or deemed to accrue or arise in Pakistan during the previous year if he is a resident or accrues or arises to such person outside Pakistan. The fact remains that Free Reserve is a part of total income which has been assessed to Income-tax Free Reserve is that part of total income which represents profit earned by the appellant but not distributed among the shareholders. Such income had been made subject to a further tax mainly for the reason to discourage the practice to accumulate profit without distributing it among the shareholders.

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 I.T.C. 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 in Income Tax. Volume I. VIIth 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 four 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 any thing 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 Keshav Mills Limited v. CIT 23 ITR 230 and CIT v. Thiagaraje C. 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 C.I.T. v. Ahmedbhai Umerbhai, 18 I.T.R. 472 (SC). Therefore, unless during the previous year income has been received, accrued or arisen or deemed to be so income tax cannot be char. 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." Underlined for emphasis).

The conclusion drawn by their Lordships with regard to the meaning of the word income appearing in the relevant legislative entry reads as under (para. 12 at page 591 of the report):

"Under Item No.43(c) of the Third Schedule of the late Constitution of 1962, the Central Legislature has exclusive powers to make laws in respect of 'corporation taxes and taxes on income other than agriculture income'. Any money which is not an income cannot be classified as income and subjected to tax on income."

Thus in view of the above pronouncement of the Supreme Court no amount, which is not an income, can be converted into income by deeming it to be income.

The impugned provisions are to be tested in juxtaposition of the law laid down as above.

Section 80-C provides impost on the total value of the supplies and contracts and in case of the imports, on the basis of the value of goods as increased by the custom duties and sales tax, being deductible in the first case by the person responsible for making payment, at the time the payment is made on account of supplies and contracts and in the latter by the customs authorities in the same manner and at the same time as the custom duty respectively. In case of supplies and contracts, tax is to be deducted even on the amount paid as advance. There is no provision for making any reference to the prices for which supply is made and the price for which goods are purchased by the supplier and the incidental or overhead expenses or freight. In case of imports it has been presumed, before the goods are sold, that the income is made at the specified rate of the above value of the goods which has been deemed to be the income of the importer. It does not take into account the eventualities that the goods may be destroyed or lost or damaged and, therefore, or otherwise, the importer for unforeseen reason may not make any profit. Similarly the impost on export of the goods completely over-looking the cost of the goods exported and the price realised on export and so also the management expenses, commission to indenters, etc. the total foreign exchange proceeds have been deemed to be income.

Section 80-D goes a step further by providing that where no tax is payable or paid by a company or a registered firm being resident in Pakistan, the aggregate of the declared turnover shall be deemed to be income.

The gross receipts or turnover or value of the imported or exported goods, in the latter case as increased by customs duty and sales tax have been deemed to be income and the income-tax is charged and collected.

By adopting the above methodology the cost paid by the supplier of exporter and importer for the subject goods, or the amount invested in contract, all taxes and custom duties paid by them, though are in the nature of capital investment, have been deemed as income the above components of turnover or gross receipts of foreign exchange proceeds or imported goods, in no sense of the term can be deemed or construed as income, without transgressing or offending the meaning of the term, appearing in Entry No-47. Resident companies and registered firms have been subjected to tat even if they have suffered losses and have earned no income. Loss negation of income and not income.

It is, therefore, inevitable to hold that the gross receipts on account of supplies of goods or execution of contract, i.e. total turnover or gross receipts, value of the imported goods, foreign exchange proceeds of exported goods, duty and tax added value of the imported goods and the losses, cannot be treated as 'income' as understood in its literal meaning or in any rational sense thereof or even with its widest connotations and denotations and more particularly in view of the dictum of our apex Court.

The Federal Legislature, therefore, exceeded its power in legislating the impugned provisions.

5. The learned Advocates appearing for the respondents contended that the Parliament can competently levy income-tax by enlarging the meaning of the word 'income' by deeming provisions. It was further contended that such presumptive tax or levy of tax on the basis of gross receipts has been held to be permissible by Indian Courts and such practice has been in vogue in Pakistan also. The reference was made to Indian cases with reference to sections 44-AC and also 44-B, 44-BB and 44-BBA of the Income Tax Act, 1961. They also referred to sections 80, 80-A, 80-AA and 80-B of the Income Tax Ordinance, 1979.

In so far as sections 80, 80-A and 80-AA are concerned, no doubt the income-tax has been levied on the gross income of the shipping and air transport business and technical services. They apply to non-residents. Their world income is not assessed under the Ordinance, therefore, their earnings in Pakistan are subjected to tax at particular flat percentage, without following the normal procedure. Same is the nature of sections 44-B, 44-BB and 44-BBA of the Indian Income Tax Act. As far as section 80-B is concerned, .it prescribes levy of income-tax on dividend payable to a shareholder by the company, or on interest or profits paid by banking company or any finance society, or on interest or profits earned on bonds, certificates, debentures, securities or instruments of any kind issued by any banking company and other companies and on prices and winnings of Rs.25,000 or more or value thereof, prize on prize bonds or on account of winnings from a raffle, lottery or crossword puzzle. The said amounts, that have been subjected to tax under the aforesaid provisions are, therefore, obviously income of a person, as some money or value is being received by them which is not capital of the person charged with tax. It is not income-tax on capital of the assessee, but on the income, something received as gain or profit.

6. In so far as Indian cases relating to section 44-AC are concerned, the Andhra Pradesh and Orissa High Courts had found that the tax levied under the aforesaid provisions, in fact, was not a tax on income. However, the said provisions were not struck down by having recourse to theory of reading down. It, however, may be pointed out that the aforesaid provisions of the Indian Income Tax Act, 1961 were incorporated as anti-tax evasion measure. In the case of A. Sanyasi Rao and others (1989) 178 ITR 31, the learned Judge has referred to the Memorandum explaining the provisions proposed in the Finance Bill, 1988, which sets out the reason and objects to achieve which, the above provisions were s6ught to be inserted in the said Indian Act. The learned Judges have also noted that the persons, who normally used to acquire the contracts subjected to presumptive tax, were fly by night operators or moon lighters, who after obtaining the contract, used to become scarce. Observations made in this regard in the above case are reproduced below:

"We find it difficult to say that the submissions of learned counsel for the petitioners based upon Articles 14 and 19(1)(g) are without substance. Literally read, section 44-AC brings about a legislative assessment of the profits and gains of persons trading in specified goods. The normally applicable provisions, sections 28 to 43-C, are dispensed with altogether. It s declared that the profits and gains of every person from the said business, irrespective of his circumstances, volume of business, finance, expenditure or other attendant matters, shall be deemed to be the specified percentage of the purchase price. All that remains to be done thereafter is to find out whether any of the deductions provided by Chapter VI-A are to be allowed and then make an assessment. We may agree with the respondents that the persons trading in the specified goods form a class, inasmuch as they are difficult to trace once the contract period is over. We accept their submission that very often these contracts are taken in the names of dummies, in fictitious names, or in the names of faceless persons, or persons of little means. We will also accept the respondents' submission that because of the above factors, the State was losing a good amount of revenue and that there was large scale evasion by these persons. We agree fully that this situation had to be remedied. Loss of revenue had to be plugged. But the remedy should be proportionate to the evil. It should be reasonable. It should not assume the character of a confiscatory measure. It would have been enough if section 206-C had been enacted and it was provided that such collections shall be subject to a regular assessment. It was not necessary to dispense with sections 28 to 43-C in the matter of assessment of profits and gains of business as has been done by section 44-AC. "

And at page 64 of the report it is observed:

"In such a situation we are left with the two options. One is to strike down section 44-AC and the other is to read it down to make it consistent with the guarantees in Articles 14 and 19(1)(g), We have considered the pros and cons of both courses and have come to the conclusion, keeping in view the overall object underlying the provisions and the language in subsection (4) of section 206-C, that it would serve the public interest more and further the intendment of Parliament, if we read down the provisions of section 44-AC, instead of striking it down."

On reading down the provisions collection of tax on presumptive basis was treated as "only tentative collection" and it was directed regular assessment would be made like in the case of any other assessee" under sections 38 to 43-C of the Indian Act.

The above case was followed by the Division Bench of the Orissa High Court in Sri Venkateswara Timber Depot's v. Union of India and others (1991) 189 ITR 741.

The Punjab and Haryana High Courts in the case of Sat Pal & Company v. Excise & Taxation Commissioner and others (1990) 185 ITR 375, where also the petitions were filed assailing section 44-AC, the learned Judges preferred to follow the view taken in the A. Sanyasi Rao's case to the ratio of ITK Aboobacker's case (1989) 177 ITR 358 (Kerala) as observed at page 387 of the report which reads as under:

"With respect, we prefer to follow the view taken in A. Sanyasi Rao's case (1989) 178 ITR 31 (AP) to the ratio of T.K Aboobacker's case (1989) 177 ITR 358."

In Baldev Singh' v. C.I.T. (1960) 40 ITR 605, the validity of section 23-A of the Indian Income-tax Act, 1922 was questioned. The above section provided taxing the shareholders on dividends which were not distributed by a company and were not received by the shareholders. The Court reached the conclusion that the shareholders had not deliberately distributed the accumulated profits as dividend among themselves to evade the tax. The argument advanced to the effect that the dividend not received by the shareholders could not be subjected to Income Tax Act was repelled by the Supreme Court on the ground that the obvious intention of section 23-A was to prevent evasion of tax. The said provision was specifically found to deal with such situation by deeming that the accumulated profit had been distributed to the shareholders and, therefore, tax would be leviable against them on that basis. It was ruled that Entry No.54 in List No.1 of the Seventh Schedule of 1935 Act should be read, not only as authorising imposition of tax, but also has authorised such enactment which prevents the evasion of tax imposed. Andhra Pradesh High Court while justifying incorporation of section 44-AAC had followed the aforesaid rule propounded by the Supreme Court m Baldev Singh's case while interpreting the aforesaid Entry No.54.

The Division Bench of Kerala High Court in the case of T.K. Aboobacker and others v. Union of India and others (1989) 177 ITR 358 in Writ appeal had justified the levy of presumptive income-tax under section 44-AC and found it well within the purview of Entry No.82 of List 1 of the Seventh Schedule of the Indian Constitution following the above rule laid down by the Supreme Court, as it was found a measure for plugging evasion of tax liability. The Indian Supreme Court in the case of Balaji v. I.T.O., (1961) 43 ITR 393, considered the validity of subsection (3) of section 16 of the Indian Income-tax Act, 1922. Sub-clauses (i) and (ii) of clause (a) of section 16(3) provided for taxing an individual on the income of his wife and minor children if he carried on business in partnership with his wife, or if -he admitted his minor children to the benefit of partnership, even though the assessee himself was not a partner in the firm. It was noted that the admittance of wife and minor children to benefits of partnership was normally being used as a device to lighten the incidence of tax. The validity of the above provisions was questioned on the ground that the Legislature was not competent to provide income of "A" to be taxed in the hands of "B" under Entry No.54 of 1935 Act as it does not empower the Legislature to do so. This argument was rejected following the rule laid down in Baldev Singh's case:

"So, Entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances."

In Navnit Lal C. Javeri v. K.K. Sen, AAC of Income-tax (1965) 56 ITR 198, where the validity of section 12(IB) read with section 2(6-A) (e) of the Income-tax Act, 1922, which provided that subject to certain conditions three kinds of payments, one of them being. "payments made to the shareholder by way of advance or loan by a company, shall be deemed as taxable dividend to the extent of accumulated profits held by the company", irrespective of the extent of his shareholding, was challenged as ultra vires on the ground that what was not income was being taxed as an income and, therefore, it was beyond the legislative competence of Parliament. The argument was rejected referring to the rule laid down by the Federal Court in the case of United Provinces v. Atiqa Begum and following the rule laid down in the case of Balajr, which reaffirmed the rule concluded in Baldev Singh's case. The aforesaid law was found within the competence of Parliament as the loan advanced to tine shareholders was considered a contrivance to avoid payment of income-tax on the dividend payable to the shareholders.

7. By and large all laws by which presumptive tax has been levied, artificially assuming something to be income, though in real sense it is not income, have been, in fact found by the Courts to be beyond the legislative competence on construction of the meaning of the word 'income' in the legislative list and hive also declared such laws violative of the fundamental rights of the citizens viz. equality before law and also discriminatory and expropriatory, nonetheless upheld the said laws as they were found to have been enacted as an effective check against evasion of taxes. The legislative competence for enacting such law was read, by logical syllogism that the entry in the legislative list, which authorises levy of tax by Legislature, also authorises such enactment which prevents the evasion of tax imposed by it.

But as far as the provisions assailed in these petitions are concerned, they were not adopted as an anti-tax evasion measure. On the contrary the then Federal Finance Minister in his Budget Speech in the National Assembly had appreciated the fact that most of the companies had come up to the expectations of the nation in the hard times. It may be pointed out that the petitioners before this Court had been filing their income-tax returns regularly and were being assessed under the Ordinance and the returns filed by them for the preceding year were pending assessment when the aforesaid amendments were made in the Income Tax Ordinance, 1979. Therefore, the ratio of the aforesaid Indian case-law does not advance the case of the revenue for upholding the legislative competence of the impugned amendments made in the Income Tax Ordinance, 1979.

In cases relating to section 44-AC, which deemed certain percentage of purchase price, as profit of the purchaser and levied income-tax thereon, the said provisions were read down, the collection was termed tentative and it was ordered that the income will be assessed on regular basis as provided under sections 28 to 43-C of the Indian Income Tax Act in the same manner as 15 done in case of any other assessee.

8. The Indian Supreme Court in the case of K.P. Varghese v. I.T.O., (1981) 131 ITR 597, wherein section 52(1) and (2) of the Income Tax Act, 1961, came up for interpretation, has brought into focus that it is the actual income, that subjected to income-tax and in case there is understatement of the price, it is to be determined or where the real price is concealed for avoidance of the tax and it is not possible to determine it, recourse may be had to the statutory provisions to take the fair market value of the property as sale consideration, for determining profit earned, for charging tax.

The question before the Court was whether income-tax can be imposed for a presumed gain which is, in fact, not received by the assessee. The facts are that in 1958, the assessee purchased a house for the price of Rs.16,500. In 1965, he sold it for the same price to his daughter-in-law and five of his children for the same price. Assessment of the relevant accounting year was completed in the normal course, wherein no amount was included by way of capital gains in respect of the above transfer, since 'the house was sold by the assessee at the same price for which it was purchased and no capital gains accrued or arose to him as a result of the transfer. Subsequently notice for reopening the case was issued, requiring the assessee to submit a return of income which had escaped assessment. The I.T.O. intimated the assessee that he proposed to fix the fair market value of the house at Rs.65,000 and assess the difference of Rs.48,500 as capital gains in the hands of the assessee and assessment order was passed accordingly. The assessee filed writ petition which came up before the Single Judge who came to the conclusion that the understatement of consideration in respect of the transfer was a necessary condition for attracting the applicability of section 52(2) and since there was admittedly no understatement of consideration and it was a perfectly bona fide transaction the said section had no application and, therefore, the sum of Rs.48,500 could not be brought to tax as capital gains under that provision. The revenue appealed against the above decision which was heard by the Full Bench. One of the Judges agreed with the learned Single Judge, while the learned two Judges took different view and held that "in order to bring a case within section 52, subsection (2), it was not at all necessary that there should be understatement of consideration in respect of the transfer and once it is found that the fair market value of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 % of the value so declared, section 52, subsection (2), was straightaway attracted and the fair market value of the property as on the date of the transfer was liable to be taken as the full value of the consideration for the transfer. The writ petition was, accordingly, dismissed and the order of reassessment was sustained by the majority decision reached by the Full Bench".

The matter was then brought to the Supreme Court. At page 605 of the report, it is observed:

"Could it be contended in such a case that when B transfers the property to 'A' for the same price at which he originally purchased it, he should be liable to pay tax on the basis as if he has received the market value of the property as on the date of re-sale, if, in the meanwhile, the market price has no shot up and exceeds the agreed price by more than 15 %. Many other similar situations can be contemplated where it would be absurd and unreasonable to apply section 52, subsection (2), according to its strict literal construction. We must, therefore, eschew literalness in the interpretation of section 52, subsection (2), and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation."

And at pages 617 and 618, they concluded as under:--

"Moreover, if subsection (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view-point can be rationally considered as capital gains or any other type of income. It is a well-settled rule of interpretation that the Court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under Entry 82 in List 1 of the Seventh Schedule to the Constitution, which deals with 'Taxes on Income other than agricultural income: and under which the Income Tax Act, 1961 had been enacted, Parliament cannot' choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt Subsection (2) would therefore on the construction of the revenue go outside the legislative power of Parliament and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Subsection (2) would also be violative of the fundamental right of the assessee under Article 190)(f) --- which fundamental right was in existence at the time when subsection (2) came to be enacted---since on the construction canvassed on behalf of the revenue, the effect of subsection (2) would be to penalise the assessee for transferring his capital asset for a consideration lesser by 15 % or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice The Court must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that which makes it void.

The Indian cases referred to above in no way lay down the definition of income as to treat the purchase price or part thereof as presumptive income or to treat an amount as income, which in no rational sense can be called income. The meaning of income as propounded by Indian Court is not different from the construction put on the term income by our Supreme Court in the cases of Samina Shaukat Ayub and Pakistan Industrial Development Corporation.

In so far as Elel Hotels & Investments Ltd. and another v. Union of India (AIR 1990 SC 1664) is concerned, it relates to the provisions of Hotel Receipts, Tax Act, 1980, which as observed by the learned Judges, imposed a 'special tax' on the gross "Chargeable Receipts" of certain category of hotels. Similarly the case of Federation of Hotel and Restaurant v. Union of India and others (AIR 1990 SC 1637) has no similitude with the case in hand, as the provisions of the said Act levied tax on the Chargeable Expenditure, which tended towards diminution of earning and profits.

The laws impugned in these petitions are not of a nature that it could be said that they only tend towards diminution of the earning and profits, but they go further, the impost as demonstrated above takes away not only the profits earned but also the capital of the assessee. It goes even further, in that, the assessees who have suffered losses also have been taxed. Therefore, the said Indian cases are not applicable to the facts and circumstances of the petitions in hand. If the above or any other case from the Indian jurisdiction can be construed to include in the term income, what in fact is not income, the meaning of the term as propounded by Pakistan Supreme Court is to be followed, as it has binding effect under Article 189 of the Constitution.

9. It was further urged by the learned counsel for the petitioners that the aforesaid provisions are confiscatory, expropriatory and discriminatory in nature.

The above laws, which provide levy of income-tax on total turnover or gross receipts, foreign exchange proceeds duty and tax added value of the imported goods and levy of income-tax when no profits are earned or losses are suffered, in short charging income tax on capital investment, which in no rational sense can be called income, are ex facie confiscatory and expropriatory.

However, reference may be made to material facts alleged in the petitions.

Leaving aside the cases where income-tax has been charged and recovered where the assessees/petitioners have suffered losses, it has been demonstrated that the tax levied in most of the cases is exorbitantly more than the income itself. Following are a few examples: --

S.No	C.P.No.	Income	Tax charged
1.	1163/91	Rs.527,298	Rs.2,637,295
2.	1244/91	Rs.149,452	Rs.3,121,870
3.	1556/91	Rs.131,076	Rs.1,492,355
4.	1774/91	Rs. 3,200	Rs. 3,15,637
5.	544/92	Rs.193,468	Rs. 2,316,859
6.	834/92	Rs.70,000	Rs.1,263,691
7.	1335/91	Rs. 82,107	Rs. 3,66,015
8.	1336/91	Rs.517,090	Rs.4,579,765
9.	1339/91	Rs.90,259	Rs.2,600,000
10.	1758/91	Rs.500,000	Rs.1,187,124
11.	1593/92	Rs.198,775	Rs. 768,031
12.	2380/92	Rs. 30,221	Rs. 163,159
13.	1338/91	Rs.83,019	Rs. 139,128
14.	1348/91	Rs. 8,233	Rs. 195,374
15.	155/92	Rs.85,500	Rs.157,662
16.	902/92	Rs. 546	Rs.82,030
17.	452/92	Rs.184,353	Rs.987,779

In some petitions it is stated that the petitioners had suffered losses during the year when the income-tax was deducted under the new regime and so also during the previous years. It was in regular assessment proceedings under the Ordinance that the losses suffered by the petitioners were accepted and they are entitled to claim set off of the aforesaid losses for computation of income. No counter-affidavit has been filed on behalf of the respondents. Therefore, the above facts, as stated in the petitions, are to be accepted and are to be deemed as admitted. If the tax levied is more than the income or the assessees have suffered losses, they would be paying tax from their capital, and if such process continues then the petitioners will be out of business, as the above tax liability will wipe out their total capital.

With regard to the discrimination, it was urged that in so far as section 80-D is concerned, it is applicable only to the companies and registered firms and not to other categories similarly placed in the business, like unregistered firms and individuals, etc.

Section 80-C had been made applicable only to residents but does not apply to non-residents except that they have been subjected to the said provisions in respect of the amount representing payments on account of execution of a contract for construction, assembly or like projects in Pakistan. In this context the provisions of the said section are also discriminatory in nature.

The fact that the impugned impositions are of such nature, has been conceded to by the respondents themselves. It was disclosed by Mr. M.G. Hassan, one of the learned counsel appearing for the respondents that under section 14 of the Income Tax Ordinance, 1979, discretion to grant relief in hardship cases vests m the Federal Government and the Federal Government had, in fact, already granted relief to all companies whose rates of income are lower than the rates visualised by the aforesaid impugned provisions of the Income Tax Ordinance. Such companies include cotton ginners, rice millers, oil distributors and tobacco companies. The above fact by itself demonstrates in clear terms that the Federal Government is aware of the confiscatory nature of the said provisions. The particulars given in the petition disclose that the tax charged under the impugned provisions, as stated above, is much higher than the income earned and that taxes have been levied and recovered even in cases where losses are and were suffered in the preceding years and were determined in normal course ai the time of assessment of income by the Income Tax Department, but no benefit has been bestowed on them by exercise of the discretion conferred on the Commissioner of Income-tax or Board of Revenue.

Under section 50(4)(b), Commissioner has been given wide powers to make order for not deducting any tax from any payment or payments to be made to parties and/or recipients in any financial year and where such order is made, the person responsible for making any payment shall thereafter and until such order is cancelled, make such payment without deduction of tax under clause (a) of subsection (4) of section 50. Under provisos to subsections (5) and (5-A) of section 50, the Central Board of Revenue has the power to exempt any goods or class of goods or persons or class of persons importing such goods or class of goods as may be specified in this behalf and specify the exporters of class of exporters to whom the provisions of subsection (5-A) shall not apply.

The above provisions do not prescribe any condition, standard or principle or policy for selection of goods or persons that may be exempted or any guideline for exercise thereof. All has been left to absolute discretion of the Commissioner or the Central Board of Revenue.

The impugned sections do not provide any classification or basis for grouping together (a) all the suppliers or contractors, (b) all imported goods and commodities or (c) foreign exchange receipts or exporters.

All suppliers, contractors and exporters have been taken into the net, irrespective of the nature of supplies or contracts or the goods supplied or goods exported. There is no valid basis for dealing with all the suppliers or contractors or importers or exporters in the same manner and subjecting all of them to the respective flat rates of income-tax. No common factor is

It is unimaginable that all the supplies or all the contracts or all the exports or all the imports will earn the like profits. It is against all canons of reasonableness.

As observed in K.T. Moopil Nair's case it is one of those cases where the lack of classification creates inequality.

The unchanalized and unguided discretion vested in the executive is equally discriminatory in its effect, as the charging provisions, therefore, offend against Article 25 of the' Constitution which provides that all citizens are equal before law and are entitled to equal protection of law.

The following observations made in the case of Krishna Dalmia v Justice S. R. Tendolkar (1959) SCR 279 (AIR 1958 SC 538), which has been reproduced in Moopil Nair's case, are fully attracted to the impugned provisions: ---

"A statute may not make any classification of the persons or things for the purpose of applying its provisions but may leave it to the discretion of the Government to select and classify persons or things to whom its provisions are to apply: In determining the question of the validity or otherwise of such a statute the Court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of the selection or classification. After such scrutiny the Court will strike down the statute if it does not lay down any principle or policy for guiding the exercise of discretion by the Government in the matter of selection or classification, on the ground that the statute provides for the delegation of arbitrary and uncontrolled power to the Government so as to enable it to discriminate between persons or things similarly situate and that, therefore, the discrimination is inherent in the statute itself."

The observations reproduced below from Moopil Nair's case, in this regard, are equally weighty and apply with full force in the above context:

"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 discretion by the Government in respect of the selection."

Reference may also be made to State of Kerala v. Haji K. Kulty Naha and others (1969) 1 SCR 645, wherein Kerala Buildings Tax Act, 1961 was held to be ultra vires the Legislature in that it infringed the equality clause of the Constitution. In the said Act the area of floor of building was prescribed as sole test for determining the quantum of tax, irrespective of the fact whether the building was situated in a large industrial town or in an insignificant village and irrespective of the use thereof or the nature of the structure, the cost of the building and other related circumstances.

Shah, J. speaking for the Court has observed:

"Under the Seventh Schedule, List II, Entry 49, the State Legislature has the power to legislate for levying taxes on lands and buildings. But that power cannot be used arbitrarily and in a manner inconsistent with the fundamental rights guaranteed to the people under the Constitution. No tax may be levied or collected under out Constitutional set-up except by authority of law; and the law muse not only be within the legislative competence of the State, but it must also not be inconsistent with any provision of the Constitution. It has been frequently said by this Court that the validity of a taxing statute is open to question on the ground that it infringes fundamental rights.

.

The principles which have been expounded by this Court in determining whether there has been denial of equal protection of the laws are also well-settled: see Shri Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar and others (1959) SCR 279. It is true that in the application of the principles, the Courts, in view of the inherent complexity of fiscal legislation admit a large discretion to the Legislature in the matter of classification, so long as it adheres to the fundamental principles underlying the doctrine of equality. The power of the Legislature to classify is, it is said, of 'wide range and flexibility' so that it can adjust its system of taxation in all proper and reasonable ways Khandige Sham Bhat v. Agricultural Income-tax Officer (1963) 3 SCR 809.

But in enacting the Kerala Building Tax Act, no attempt at any rational classification is made by the Legislature. As already observed, the Legislature has not taken into consideration in imposing tax the class to which a building belongs, the nature of construction, the purpose for which it is used, its situation, its capacity for profitable user and other relevant circumstances which have a bearing on matters of taxation. They have adopted merely the floor area of the building as the basis of tax irrespective of all other considerations. Where objects, persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discrimination may result for, in our view, refusal to make a rational classification may itself in some cases operate as denial of equality. "

The above observations apply with their full force to the impugned provisions.

10. The inequality is writ large in the provisions, as they do not take into consideration the capital investment made by the respective petitioners by way of purchase price in the goods exported and price received by them respectively in the shape of foreign exchange proceeds or the value of the contract acquired and the expenses expected to be incurred in the execution thereof. The income-tax is levied even before the income is earned on the contracts and import of goods or even where losses are suffered, as the minimum income-tax levied and recovered, is deemed to be the final discharge of the tax liability of the assessee, and the assessment shall be deemed to have been made under section 59-A of the Ordinance.

Section 80-CC provides the similar provision with regard to deeming discharge of the tax liability and further that the assessee shall not be required to file return of the total income under section 55 of the Ordinance.

Section 80-D pronounces charging and deduction of income-tax' even if there are losses. Seen from another point of view, section 80-D appears to levy and deduct one-half per cent. of the total turnover of the resident companies and registered firms by way of punishment, if they have suffered losses or have failed to earn any income or the tax payable by them under the normal law is less than one-half per cent. of the total turnover, by deeming the aggregate turnover to be their income.

The supplies irrespective of the value of supplies when they exceed rupees fifty thousand, which may range from trash to modern technology have been classified together, so is the case of contracts, imports and exports, irrespective of their value and regardless of the nature of contract and goods.

The end result is that those persons, who make higher profit and those who make less or no profit or suffer losses have been clubbed together.

11. It is clause (1) of the Article 8 of the Constitution which declares any law inconsistent with the rights conferred by Chapter I of the Part II, to the extent of such inconsistency, to be void.

Clause (2) thereof prohibits the State from making any such law which takes away or abridges the rights so conferred and any law made in contravention of that clause shall, to the extent of such contravention, be void.

Clause (3) states the laws to which the said Article shall not apply ''but the Income Tax Ordinance does not fall in those exceptions.

It cannot be contended that the guarantee of equal protection of the law cannot be extended to taxation laws.

12. In so far as the contention of learned counsel for the respondents to the effect that the constitutionality of the statutes is to be presumed, is concerned, I have no hesitation in concluding that it stands rebutted, the tax having been levied on something which is not income and the demonstration of the fact that the income-tax consequently levied on the petitioners is in excess of their actual income and is charged even in cases where heavy losses have been suffered, the impugned provisions are ex facie beyond the legislative competence and encroachment upon the guaranteed fundamental rights to hold property and be treated equally.

Sections 80-C, 80-CC and 80-D and corresponding amendments in section 50 of the Ordinance are alien to the entire scheme of the Income Tax Ordinance as they represent legislative assessment and all the provisions of the Income Tax Ordinance, 1979 and so also other laws applicable have been dispensed with by the non obstente clauses.

The upshot of the above discussion is that the receipts on account of supplies of goods or the execution of contract or turnover or gross receipts, value of the imported goods, foreign exchange proceeds on exports cannot be deemed to be income of the respective petitioners and consequently it is held that the provisions incorporated in the Income Tax Ordinance in the form of sections 80-C, 80-CC and 80-D and the corresponding provisions made in section 50 and Part I of the Schedule to the Income Tax Ordinance,. XXXI or 1979, are beyond Entry No.47 of Part I of the Fourth Schedule to the Constitution of the Islamic Republic of Pakistan, 1973 and are declared ultra vires the Constitution and it is further held that the above provisions are confiscatory, expropriatory and discriminatory in nature and offend and abridge the rights conferred on the petitioners under Articles 18, 23 and 25 of the Constitution and the said laws are in contravention of Sub-Article (2) of Article 8 of the Constitution.

The above petitions are, therefore, allowed

The amount collected by the respondents as income-tax from the petitioners shall be retained by them and on making regular assessment of the income of the petitioners for the relevant years, the income-tax found due shall be adjusted from the amount deducted and retained by the respondents and if there be any balance after such adjustment of the income-tax determined, it shall be immediately refunded and in case the amount deducted and retained is short of the income-lax levied, the balance shall be recovered as provided in the law.

(Sd.)

Hussain Adil Khatri

Judge.

MAMOON KAZI, J. ---The petitioners in these petitions have challenged the Constitutional validity of sections 80-C, 80-CC and 80-D of the Income Tax Ordinance, 1979 (hereinafter referred to as "the Ordinance"). Sections 80-C and 80-D were inserted in the Ordinance by Finance Act, 1991 whereas section 80-CC came into effect through Finance Act, 1992. The said sections read as follows: --

"80-C, Tax on income of certain contractors and importers.--- (1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to any person being a resident, the whole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the First Schedule.

(2)The amount referred to in subsection (1) shall be the following namely:--

(a)Where the person is a resident---

(i)the amount representing payments on which tax is deductible under subsection (4) of section. 50, other than payments on account of services rendered;

(ii) the amount as computed for purpose of collection of tax under subsection (5) of section 50 in respect of goods imported, not being goods imported by an industrial undertaking as raw material for its own consumption; and

(b)where the person is a non-resident, the amount representing payments on account of execution of a contract for construction, assembly or like project in Pakistan on which tax is deductible under subsection (4) of section 50.

(3)Nothing contained in this Ordinance shall be so construed as to authorise any allowance or deduction against the income as determined under subsection (1) or any refund of tax deducted or collected under section'50 or set off of any loss under any provision of this Ordinance.

(4)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:

Provided that, in respect of the assessment year commencing on the first day of July, 1991, where the tax deducted or collected in the preceding financial year under subsection (4) or subsection (5) of section 50 is less than the tax payable under this section, the tax so deducted or collected shall not constitute full and final discharge of the tax liability of the assessee and he shall be required to pay the amount representing the difference between the tax payable under this section and the tax so deducted or collected and all the provisions of this Ordinance shall apply accordingly.

(5)Where an assessee, while explaining the nature and source of any sum, investment, money, valuable article, access amount or expenditures referred to in section 13, 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 this section.

(6)For the purpose of determining the share of a partner of a firm out of such income of the firm as is determined under section 80-B or this section, the said income of the firm shall be taken to be an amount which if taxed at the rate or rates, other than the rate applicable to income chargeable to *tax under section 80-B or this section, would have resulted in tax liability equal to the tax payable in respect of income under section 80-B or this section.

(7)In a case to which subsection (4) applies, an order under section 59-A shall be deemed to have been made in respect of income referred to in subsection (1).

80-CC Tax on income of certain exporters. ---(1) 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 thereon shall be charged at the rates specified in the First Schedule.

(2)Nothing contained in this Ordinance shall be so construed as to authorise any allowance or deduction against the income as determined under subsection (1) or any refund of tax deducted under subsection (5-A) of section 50 or set off of any loss under any provision of this Ordinance.

(3)Where the assessee has no income other than the income referred to in subsection (1) in respect of which tax has been deducted under subsection (5-A) of section 50, the tax so deducted shall be deemed to be the final discharge of his tax liability under this Ordinance and he shall be required to file the return of total income under section 55.

80-D. Minimum tax on income of certain companies and registered firm.---(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable or paid by a company or a registered firm resident in Pakistan or the tax payable or paid 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 or a registered firm and tax thereon shall be charged in the manner specified in subsection (2).

Explanation.---For the removal of doubt, it is declared that the expressions 'where no tax is payable or paid 'and' or the tax payable or paid' apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss-of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or ~u any other law for the time being in force.

(2)The company or a registered firm referred to in subsection (1) shall pay as income-tax--

(a)an amount, where no tax is payable or paid, equal to one-half per cent. of the said turnover; and

(b)an amount, where tax payable or paid 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. "

2. As reference has been made by sections 80-C and 80-CC of the Ordinance to subsections (4), (5) and 5-A) of section 50 of the Ordinance the said subsections are also reproduced as follows:--

"50. Deduction of tax at source:-- (1).....................................

(2) ...................................................................................

(2-A) ..................................................................................

(3) ............. ..

(4)Notwithstanding anything contained in this Ordinance---

(a)any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, being resident (hereinafter referred to ' respectively as 'payer' and 'recipient'), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or a company, or a registered firm, or any foreign contractor or consultant or consortium shall, where the total value, in any financial year, of goods supplied or contracts executed exceeds fifty thousand rupees, or of services rendered exceeds ten thousand rupees, deduct advance tax, at the time of making such payment, at the rate specified in the first schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the 'said date', as referred to therein, falls, whichever is the later:

Provided that the provisions of this clause shall, mutatis mutandis, apply to any payment made on or after the first day of July, 1992, to any non-resident person as they apply to any payment made to a resident recipient on account of execution of a contract for construction, assembly or like project in Pakistan;

(b)the Commissioner may, on an application made by any such recipient and after making such enquiry as he thinks fit, allow, by an order in writing, any person responsible for making such payment not to deduct any tax from any payment or payments made to such recipient in any financial year; and where such order is made, the person responsible for making any payment shall thereafter, and until such order is cancelled, make such payment without deduction of tax under clause (a);

(c)the Central Board of Revenue may, by notification in the official Gazette, specify special rates (such rates being less than the rates specified in the First Schedule) for purposes of deduction of advance tax under this section in respect of specified payments:

Provided that nothing contained in clause (a), clause (b). or clause (c) shall apply to--

(i)any payment made on account of the refund of any security deposit;or

(ii)any payer or recipient or class of payers or recipients as may be specified in this behalf by the Central Board of Revenue by notification in the official Gazette.

Explanation.-- (Omitted by the Finance Ordinance, XXIV of 1981).

(4-A) ...................................................

(5)Notwithstanding anything contained in any law for the time being in force--

(a) the Collector of Customs shall in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sales tax, if any, leviable thereon, at the rates specified in the First Schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, in which the 'said date', as referred to therein, falls, whichever is the later;

(b) the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (IV of 1969) shall, so far as may be, apply accordingly:

Provided that nothing contained in clause (a) or clause (b) shall apply to any goods or class of goods or persons or class of persons importing such goods or class of goods as may be specified in this behalf by the Central Board of Revenue by notification in the official Gazette.

Explanation.--- As used in this subsection,--

(i)'value', in relating to any goods, means the value as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty; and

(ii)'Collector of Customs' means a person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969) and includes a Deputy Collector of Customs, and Assistant Collector of Customs or an officer of Customs appointed as such under the aforesaid section.

(5-A) Any person, being an authorised dealer in foreign exchange, shall at the time of realisation of foreign exchange proceeds on account of export of goods by person, being an exporter, deduct tax at the rates specified in the First Schedule:

Provided that the Central Board of Revenue may, by notification in the official Gazette, specify any exporter or class of exporters to whom the provisions of this subsection shall not apply."

(The rest of the section omitted as not applicable).

3. As is indicated by the above provisions, subsection (4) of section 50 of the Ordnance enjoins upon every such person responsible for making any payment to certain categories of persons on account of supply of goods or services rendered or execution of a contract, to deduct advance tax at the rates specified in the First Schedule to the Ordinance end by virtue of subsection (5) of section 50 the 'Collector of Customs', in case of every importer of goods, is required to collect advance tax on the basis of value of such imported goods. Subsection (5-A) of section 50 likewise requires every person being en authorised dealer in foreign exchange to deduct such tax at the time of realisation of foreign exchange proceeds on account of export of goods made by any person. Sections 80-C and 80-CC now provide that the whole of such amount which has been received or which accrues or arises or is deemed to accrue or arise to any such person (other than persons expressly excluded) shall be deemed to be his income. Reference to section 80-D also indicates that in case of a company or a registered firm, the aggregate of the declared turnover from all sources shall be deemed to be the income of the company or a registered firm. Reference to the First Schedule to the Ordinance further indicates that the rate of tax payable under section 80-C of the Ordinance in case of contractors, suppliers and importers shall be three, one and one-half per cent., two and one-half per cent. and two per cent. respectively and in case of exporters under section 80-CC, the same shall be three-fourth of one per cent., one half per cent. and one per cent. of such income, depending upon the circumstances of each case. Under section 80-D, a tax equivalent to one-half per cent. would be payable in relation to the assessee's declared turnover as his minimum liability.

4. Challenge has been thrown by the petitioners to the above provisions firstly on the ground that, Entry No.47 in Part I of the Fourth Schedule to the Constitution empowers the Federal Legislature to make laws relating to 'taxes on income other than agricultural income'. However, the legislation in question authorises collection of income-tax on gross receipts which cannot be construed as tax on income. Mr. Khalid Anwar, who led the arguments on behalf of the learned counsel for the petitioners, has argued that while introducing a deeming clause in the legislation, Parliament cannot overstep its Constitutional boundaries and legislate outside the sphere allotted to it by the Constitution. Although conceding that Entries in the Legislative Lists in the Constitution are not to be interpreted in a narrow and pedantic sense, nevertheless according to the learned counsel, Parliament is not authorised to simply choose as income an item which in no rational sense can be regarded as a citizen's income. While referring to the provisions of section 80-D of the Ordinance, the learned counsel has argued that although such legislation may be permissible in respect of certain kinds of trade or business to prevent evasion of income-tax, but there was no intelligible ground for applying such harsh provisions to companies or registered firms. According to the learned counsel, the provisions lack rational classification because companies or firms earning profit and those going into loss have been clubbed together. Consequently, the said provisions violate Articles 25, 18 and 23 of the Constitution. The provisions are confiscatory in nature because even if a company or a registered firm has made loss, the law presumes that it has made profit and taxes it accordingly. There is, therefore, no rational ground for enacting such law. Similar are the grounds of attack in respect of sections 80-C and 80-CC of the Ordinance. Mr. Khalid Anwar has been fully supported by Mr. Khalid Ishaque, Mr. Mansoorul Arfeen, Mr. Mansoor Ahmed Khan, Mr. Sirajul Haque Memon, Mr. Muhammad Naseem. Mr. Iqbal Naeem Pasha, Mr. Sultan Muhammad' Tanauli, Mr. Farrogh Naseem, Mr. Mazharul Hassan, Mr. Bashir Ahmed Shaikh and Mr. Shahenshah Hussain.

5. Mr. Naimur Rehman, the learned Standing Counsel, on the other hand, has supported the legislation as, according to him, the word "income" as used in Entry No.47 cannot be restricted to the connotation acquired by it under the Income-tax Law. According to him, gross receipts clearly fall within the ambit of Entry 47. The learned Standing Counsel has further argued that Parliament is fully competent to give a new definition of "income" under sections 80-C, 80-CC and 80-D of the Ordinance by a deeming provision as such method of legislation is permissible by all canons of interpretation. The said provisions, according to the learned Standing Counsel, are neither discriminatory, arbitrary, confiscatory or unreasonable nor they offend against any fundamental right. The learned Standing Counsel has further pointed out that the practice of taxing an assessee on the basis of gross receipts is not alien to Pakistan or even India and reference in this regard has been made to sections 80, 80-A, 80-AA and 80-B of the Income -tax Ordinance earlier incorporated in the ordinance or sections 44-AC, 44-B and 44-BBA of the Indian Income Tax Act, 1961. The learned Standing Counsel has further argued that the Legislature is fully empowered to levy tax by deeming an item as "income" which in reality it is not, as "undistributed profits of a company", "notional value of a self-occupied house" or "notional interest on loan etc." have been construed as income by the Courts. The learned Standing Counsel was further supported by Mr. Shaik Haider, Mr. Waheed Farooqi and Mr. M.G. Hassan.

6. Entry 47 in Part I of the Federal Legislative List as embodied in the Fourth Schedule to the Constitution, as was pointed out earlier, refers to "taxes on income other than agricultural income". Although the term "income" has not been defined in the Constitution but the expression "tax on income" has been defined in Article 260 of the Constitution as including "a tax in the nature of an excess profits tax or a business profits tax". However, "income" has been defined in the Income-tax Ordinance in section 2(24) as under: --

"(24) 'Income' includes---

(a)any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 15;

(b) any loss of such income, profits or gains; and

(c)any sum deemed to be income, or income accruing or arising orreceived in Pakistan under any provision of this Ordinance,

but does not include, in the case of a shareholder of a domestic company. the amount representing the face value of any bonus shares or the amount of any bonus declared, issued or paid by the company to its shareholders with a view of increasing its paid-up share capital;"

As is evident from the above definition, the same is not exhaustive but is merely inclusive leaving scope for anything to be included therein so far as it can be called income. The definition further shows that any sum which may be deemed to be income or income accruing or arising or received in Pakistan may be construed as income. However, according to its dictionary meaning, "income" means "periodical receipts from one's business, lands, work, investments, etc." According to its natural meaning, the term embraces any profit or gain which is actually received. In Corpus Juris Secundum, the terms "income", has been referred to as having nexus with actual gain or actual increase of wealth. However, it does not include a mere unrealized increase in value. The definition further shows that 'that which is not income cannot be made taxable by calling -it income". Black's Law Dictionary has defined the said term thus:--

"'Income'. ---The return in money from one's business, labour, or capital invested; gains, profits, or private revenue.

The gain derived from capital, from labour or effort, or both combined, including profit or gain through sale or conversion of capital; income is not a gain accruing to capital or a growth in the value of the investment, but is a gain, a profit something of exchangeable value, proceeding from the property, secured from the capital, however, invested or employed; and coming in, being derived, that is, received or drawn by the recipient for his separate use, benefit, and disposal. The true increase in the amount of wealth which comes to a person during a stated period of time. Commissioner of Corporations and Taxation v. Filoon, 910 Mass. 374 NE 2nd 693, 700."

In Ballentine's Law Dictionary, the learned author has referred to the following meanings which the said term has received, depending upon the connection in which it was used and the result which was intended to be accomplished: --

"For tax purposes the gain derived from capital, from labour or from both combined (Eisner v. Macomber, 252 US 189, 64 L Ed. 521, 40 S Ct. 189, 9 ALR 1570) including profit gained through a sale or conversion of capital assets, Doyle Case, 247 US 183, 62 L Ed. 1054, 38 S Ct. 467.

In reference to a life tenant, something produced by capital and severed from capital, leaving the property or principal intact. Rhode Island Hospital Trust Co. v. Tucker 87 RI 507, 155-A. 661, 83 ALR 1253.

In usual signification, net, rather than gross, income, 33 AM J 1st Life Est. (284)."

According to Stroud's Judicial Dictionary, "income" signifies that "what comes in". In relation to business, the term has been defined in the said dictionary as meaning:

"Substantially the balance of profits and gains which result from carrying on that business (Union Trustee Co. of Australia v. Bartlam (1948) A.C. 495. 'It is that which comes in not being capital'." 'The popular sense is nett income'. (Re De Little (1945) V.L.R. 198)."

In Commissioner, Income-tax, Bengal v. Shaw Wallace, AIR 1932 PC 138, "income" was likened to the fruit of a tree or the crop of a field. It was held by their Lordships of the Privy Council to denote:

"a periodical monetary return 'coming in' with some sort of regularity from definite sources."

An attempt was once again made to find out the true meaning of the term "income" in Commissioner of Income-tax v. Jaora Oil Mills (1981) 129 ITR 423 and although the Court was conscious of the fact that the definition of the word in the Indian Income-tax Act was an inclusive definition which could embrace even items which were not income in the natural sense of the word but it was nevertheless observed:--

"Even in its broadest connotation, 'income' refers to monetary return 'coming in' and is conceptually contradictory to loss."

In K.P. Varghese v. Income-tax Officer (1981) 131 ITR 597, Bhagwati, J. while referring to Entry 82 in the Indian Constitution observed:--

"Parliament cannot choose to tax an item as income which in no rational sense can be regarded as income. "

Learned counsel for the petitioners have also placed reliance upon the observations made by the Andhra Pradesh High Court in A. Sanyasi Rao and another v. Government of Andhra Pradesh (1989) 178 ITR 31. In this case, it was held that although the definition of "income" in section 2(24) of the Indian Income-tax Act was not exhaustive of the meaning of the expression "income" occurring in Entry 82 in the Indian Constitution (which corresponds with Entry No.47 in our Constitution) nevertheless it was held that an amount which can by no stretch of imagination be called income cannot be treated as income and taxed as such by the Parliament. It must have some characteristic of income as broadly understood. Somewhat similar observations were made by Orissa High Court in Srivenkateswara Timber Depot v. Union of India and another (1991) 189 ITR 741. Our own Supreme Court in the case of Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85 while expounding the meaning of the word "income" as appearing in the Income-tax Act of 1922, observed as under: ----

"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 a 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."

This case was relied upon by the Supreme Court in Pakistan Industrial Development Corporation v. Pakistan (1992 PTD 282). In King v. Caledonia Collieries Ltd. (AIR 1928 PC 282), the question that arose before the Privy Council was whether the Mineowners Tax Act, 1923 of the Province of Alberta, which had imposed upon mineowners (as defined in the said Act) a percentage tax upon the gross revenues of their coal mines, was ultra vires the powers of the Legislature. An attempt was made to support the tax on the ground that it was analogous to income-tax. The contention was however, repelled as it was observed that "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 any income-tax in the accepted sense".

7.However, in certain cases, a complete departure was made from the traditional view, as it was held that the term "income" appearing in entries in the Constitution was capable of a much wider connotation. In Navinchandra Mafatlal, Bombay v. Commissioner of Income-tax, Bombay City (1954) 26 ITR 758 = 1955 SC 58, the question which arose before the Supreme Court of India was whether the provisions of section 12(b) of the Indian Income- tax Act, 1922 imposing a tax on capital gains was ultra vires the powers of the Federal Legislature under the Government of India Act, 1935. The contention raised on behalf of the petitioners was that the expression "taxes on income" under Entry 54, List I of the Government of India Act, 1935 did not include within its ambit a tax on capital gains. While repelling the contention, The Supreme Court relied upon the following observations earlier made by it in the case, of Amaskshya Narain Singh v. Commissioner of Income Tax (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 broadest connection. "

It was further observed:

"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 14-16). In the United States of America and in Australia both of which also are English-speaking countries the words. 'income is understood in a vide sense so as to include a capital gain. Reference may be made to Eisner v. Macomer, Merchants' Loan & Trust Co. v. Smictunka 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 put upon the word 'income' not because of any particular legislative practice either in the United States of in the Commonwealth of Australia 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."

The Court repelled the contention that the meaning earlier assigned to the word "income" by the Courts was exhaustive. It was, consequently observed:

"If we hold, as we are asked to do, that the meaning of the word income has become rigidly crystallized by reason of the judicial interpretation of that word appearing in the Income Tax Act then logically no enlargement of the scope of the Income Tax Act by amendment or otherwise will be permissible in future. A conclusion so extravagant and astounding can scarcely be contemplated or countenanced." '

The judgment of the Supreme Court of India in Navinchandra Mafatlal, Bombay was relied upon by our own Supreme Court in Pakistan Industrial Development Corporation v. Pakistan PLD 1984 Kar. 1. In this case, it was held that the amount lying in "free reserves" of the petitioner were un-appropriated, profits which could legitimately be taxed by the Legislature as "income" in exercise of its powers under Entry 43(c) of the Third Schedule to the Constitution of 1962. In Bhagwan Das Jain v. Union of India (1981) 128 ITR 315 once again the meaning of the term "income" in Entry 82 in the Indian Constitution was the focus of attention by the Supreme Court of India. It was held that the word "income" includes not merely what is received or what comes in by exploiting the use of property but what one saves by using it oneself and what can be converted into income, can also be regarded as giving rise to income. In this case also, emphasis was laid upon the interpretation by which widest possible meaning could be assigned to the said term occurring in the said entry and it was held that it should be read as including within its ambit all ancillary and subsidiary matters which can fairly and reasonably be comprehended in it. The question as to the possible connotation of the term "income" was also examined by the Supreme Court of India in the case of Elel Hotels and Investments Ltd. v. Union of India (AIR 1990 SC 1664). The question that engaged the attention of the Supreme Court was whether "taxable receipts" as defined in the relevant enactment fell within the wider connotation of "income" as the term was understood within the meaning of Entry 82. The Supreme Court after referring to a large ' number of cases finally concluded that the expression "income" in the said entry cannot be subjected, by implication, -to any restriction by the way in which the term might have been deployed in a fiscal statute but the expression must embrace within it every kind of receipt or gain either of capital nature or of a revenue nature. Consequently, "taxable receipts:" were held to be included within the wider connotation of the said word. Germane to the issue would also be the observations made by the High Court of Kerala in P. Kunhammed Kutty Haji and others v. Union of India and others (1989) 176 ITR 481. The Court in this case also was dealing with the constitutionality of sections 44-AC and 206-C of the Indian Income Tax Act, 1961 whereby tax had been lived on an artificial assumption. It may be recalled that the contention on behalf of the petitioners in the said cases was that the tax which was levied on artificial assumption had no nexus with the concept of tax on real income. The learned Single Judge of the Kerala High Court after reference to various decisions given in India made the following observations:

"Viewed from the background of legal practice and judicial decisions, it will then be open to Parliament to deem a portion of a price of the commodity dealt with as income in the hands of the man dealing with them. The principles laid down by the authoritative decisions holding the field do not in any way rule out such an impost. On the contrary, the practice has been well set and well recognized and even well accepted by assessees and authorities alike. "

The above judgment was challenged in appeal before a Division Bench of the Kerala High Court, but the judgment of the learned Single Judge was upheld. In this case, reported as T.K. Aboobacker v. Union of India (1987) 177 ITR 358, it was held by the Division Bench as follows:

"The entry under which the amendment is justified is 'Taxes on income'. It would embrace any profits or gains not only actually received but also income which is 'supposed by the Legislature to have notionally accrued (See Bhagwan Dass Jain v. Union of India (1981) 128 ITR 315 (SC) ---paragaraph 14 and Commissioner of Income-tax/Excess Profits Tax v. Bhogilal Leherchand (1954) 25 ITR 50 (SC). What can be converted into income also will come within meaning of the word 'income' in the entry. The entry is wide enough to confer power to prevent evasion of income-tax also. Resort to fiction is of course permissible where it is necessary to deal with a device avoiding legitimate tax. The purchasers in all cases are traders carrying on business in a particular trade and what the assessees pay by way of purchase price is the amount invested in the business, namely, stock-in-trade. Since the tax is only on the traders, it is presumed by the Legislature that a certain percentage of that purchase price will be treated as income. What he purchases is of course for re-sale in business and on re-sale it will normally be presumed that a larger sum than the purchase price paid by the assessee will be realised, and therefore, deeming a portion of the purchase price as income will not snap the nexus with the income mentioned in the entry. The Supreme Court held that for taxing law, whether it is taken as a measure of evading tax liability on income or taxing shareholders on the basis of the accumulated profits of the company, the distribution of its profits is deliberately withheld to avoid taxation as dividends will be within the competence of Entry 82 of List I of the Seventh Schedule (See Balaji v. ITO (1962) 43 ITR 393). In considering the question as to whether a particular item in the possession of a citizen can be regarded as his income or not, it would be inappropriate to apply the test traditionally prescribed by the Income-tax Act as such. Having regard to the fact that the Legislature was aware of the nature of the trade and difficulty in assessing and collecting the tax, it will be competent to the Legislature to devise a fiction for treating a percentage of the purchase price paid by the assessee as income coming under the head 'Profits and gains'. Therefore, it cannot be stated that the Legislature has travelled beyond the legislative field assigned to it by Entry 82 in List I (see Navnit Lal C. Javeri v. K.K. Sen, AAC (1965) 56 ITR 198 (SC)."

The above provisions were once again reviewed by a Division Bench of the Kerala High Court in K.M. Joseph Binoy v. Union of India and others (1992) 194 ITR 449. In this case, P.K. Kutty Haji's case (1989) 176 ITR 481 just referred to above and the judgment of the learned Division Bench of the Kerala High Court in Aboobacker's case (1989) 177 ITR 358 which upheld the decision in the said case came under discussion. Reference was also made in this case to the judgment of the Andhra Pradesh High Court in A. Sanyasi Rao's case (1989) 178 ITR 31. However, the view earlier held in the two judgments of the Kerala High Court was upheld and it was further observed that presumptive taxation being an effective cheek against tax evasion, Parliament was competent to enact section 44-AC of the Indian Income-tax Act and the same was well within the ambit of Entry No.82 in the Indian Constitution.

8. Referring to the extent to which a deeming provision can be stretched, the learned counsel for the petitioners have contended that the real test lies in determining the true character and nature of the enactment and its pith and substance, it is not the form alone which a stature may assume that will determine whether Parliament was competent to legislate. According to the learned counsel, all such maters which fall outside the ambit of the "Federal Legislative List" and "Concurrent Legislative List" would fall within the legislative competence of the provinces alone and consequently, a duty is cast upon the Court to ascertain whether the Federal Legislature has overstepped its powers to enact a law.

9. Although there can be no cavil with the contention raised by the learned counsel for the petitioners, however, the consensus, appears to be that the term "income" is not to be construed in a narrow and pedantic sense but in a more liberal sense. Entries in the Constitution being heads of legislation, must be given widest possible connotation to make them flexible and to leave scope for enlargement of the meaning of the words occurring therein to meet the exigencies of the future. The Courts must, therefore, avoid a conservative approach and opt for a liberal approach. The meaning of the word "income" also cannot be restricted to a particular definition which the law-giver might have chosen for the purpose of particular legislation. As was observed in the case of Bhagwan Das Jain v. Union of India (1981) 128 ITR 315, anything that can be converted into income can reasonably be regarded as giving rise to income. Therefore, the tax levied on income computed in an artificial way from house property which, in fact, had not been received by the assessee as "income", was construed as income by the Supreme Court of India. It was again for such reasons that "taxable receipts" were held to be income in Elel Hotels' case And legislation aimed at calculating income at a certain percentage of gross receipts was upheld as permissible in T.K. Aboobacker's case. The expression "tax on income" would not only include within its ambit profits or gains actually received by an assessee, but even something that may be presumed by the Legislature to have been received. The Legislature in order to achieve certain object would, therefore, be acting within its power while resorting to this method of legislation. As was again observed in Elel Hotel's case, "taxation is now not a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives". Although, in the present case, ostensibly gross receipts of the assessee or the turnover of his business have been deemed to be his income, but in reality only a certain percentage thereof, higher than the imposition is presumed to be his income. Inherent in the concept of income no doubt, is also the concept of profitability and any amount to be called income must have some characteristics of income as the term is ordinarily understood by its various connotations, but the Court only has to ascertain that what has been deemed to be the income of the assessee can reasonably be deemed to be his income. Viewing the issue in the above background, it cannot be said in the present case that the Legislature has transgressed the limits provided by the Constitution.

10. The next contention raised on behalf of the petitioners is that the said provisions of the Ordinance are arbitrary, discriminatory and suffer from a complete lack of intelligible classification. It has been contended that only certain categories of contractors or importers or exporters or companies or registered firms have been made the target of this legislation. The said provisions also presuppose that the assessees margin of profit would lie uniform, notwithstanding the nature of their business. Although, classification of persons under the same set of circumstances is permissible, but according to the learned counsel, there must be nexus between the legislation and the object sought to be achieved thereby. The provisions according to them are also, confiscatory and they impose unreasonable restrictions on trade and business. The imposition also has no nexus with profitability.

11. The learned counsel in support of the above contentions have very strongly relied upon certain cases decided by the Indian Courts reference to some of which has already been made in this judgment. In the said cases, the newly-added provision of sections 44-AC and 206-C of the Indian Income -tax Act were questioned on the ground that they purported to fix the profits and gains made by the assessee on an artificial assumption which was not linked with real income and consequently it was not only beyond the competence of the Parliament to enact such provisions but the same were also violative of Article 14 of the Indian Constitution, which corresponds with Article 25 of our Constitution. The provisions also offended against Articles 19(1) (g) and 19(1)(f) of the Indian Constitution as the provisions imposed unreasonable restrictions on trade and were also confiscatory in nature. Section 44-AC provided that profits and gains in case of a purchaser of "goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor)" shall be deemed to be a sum equal to 40% of the amount paid or payable by the assessee. Similarly, in the case of a purchaser of timber obtained on a forest lease, etc. the profits and gains were deemed to be 35 % of the purchase price. The power of the Legislature to enact the said law was questioned on the ground that it had selected the purchasers of specified goods and subjected them to grave discrimination creating a fiction to the effect that all such persons affected by the said legislation were to be deemed to have earned a certain profit made upon certain percentage of the purchase price. This, according to the petitioners, was plainly and manifestly violative of the fundamental rights guaranteed by the Indian Constitution. In the case of A. Sanyesi Rao and another v. Government of Andhra Pradesh and others (1989) 178 ITR 31, although the High-Court of Andhra Pradesh repelled the argument qua lack of legislative competence of the Indian Legislature holding that the provisions were meant for plugging loss of public revenue, however, in respect, of the other contentions, the following conclusions were drawn by the learned Judges of the High Court:--

"We find it difficult to say that the submissions of learned counsel for the petitioners based upon Articles 14 and 19(1)(g) are without substance. Literally read, section 44-AC brings about a legislative assessment of the profits and gains of persons trading in specified goods. The normally applicable provisions, sections 28 to 43-C, are dispensed with altogether. It is declared that the profits and gains of every person from the said business, irrespective of his circumstances, volume of business, finance, expenditure or other attendant matters, shall be deemed to be the specified percentage of the purchase price. All that remains to be done thereafter is to find out whether any of the deductions provided by Chapter VI-A are to be allowed and then make an assessment. We may agree with the respondents' that the persons trading in the specified goods form a class, inasmuch as they are difficult to trace once the contract period is over. We accept their submission that very often these contracts are taken in the names of dummies, in fictitious names, or in the names of faceless pers6ns, or persons of little means. We will also accept the respondents' submission that because of the above factors, the State was losing a good amount of revenue and that there was large scale evasion by these persons. We agree fully that this situation had to be remedied. Loss of revenue had to be plugged. But the remedy should be proportionate to the evil. it should be reasonable. It should not assume the character of a confiscatory measure. "

It was further observed:

"There is no reason behind saying that even where a person actually earns less profit than the specified one, or incurs loss, even then his profits and gains should be arbitrarily fixed at 40 % of the purchase price, or that he should not be allowed to establish his real income from the said business or trade. "

However, section 44-AC was not struck down but keeping in view the public interest, the High Court decided to read down the said provisions. As regards section 206-C, it was observed that it provided for withholding of tax, it was, therefore, decided to read section 44-AC as an adjunct to and as explanatory to the said section.

12. The said provisions once again become a subject-matter of controversy before the Orissa High Court in India in the case of Sri Venkateswara Timber Depot v. Union of India and others (1991) 189 ITR 741. In this case also following the view taken by the High Court of Andhra Pradesh, their Lordships held that the said provisions were both discriminatory and arbitrary and they were also confiscatory and thus, opposed to Articles 14 and 19(1)(g) of the Indian Constitution. It was held in this case that: "any such illegal, irrational, or arbitrary action or decision whether in the nature of a legislative, administrative or quasi judicial exercise of power is liable to be quashed being violative of Article 14 of the Constitution. It was further observed: "wisdom of the legislative policy may not be open to judicial review but when the wisdom takes concrete form of law, the same must stand the test of being in tune with the fundamental rights and if it trenches upon any of the fundamental rights, it is void as ordained by Article 13". However, in this case also, the provisions of section 44-AC were read down as was done by the Andhra Pradesh High Court.

13. The view taken in the above cases finds further support from the judgment given by the Punjab and Haryana High Court in the case of Sat Pal & Co. v. Excise and Taxation Commissioner and others (1990) 185 ITR 375. In this case also the same provisions of the Indian Income-tax Act were under attack. The High Court. declined to uphold the legislation on the ground that it had been introduced as a measure to plug large scale evasion and loss of public revenue by the State. It was further held that "the remedy should be proportionate to the evil that was sought to be remedied". The said provisions were held to be violative of both Articles 14 and 19(1)(g) of the Indian Constitution. However, as was done by the Andhra Pradesh and Orissa High Courts, the provisions of section 44-AC were read down as it was held that by resorting to such method, the said provisions could be rendered valid and Constitutional.

14. Learned Standing Counsel has, however, relied upon the observations made by Kerala High Court in the case of P. Kunhammed Kutty Haji and others v. Union of India and others reference to which has earlier been made in this judgment, although in a different context. In this case also, as was pointed out earlier, the provisions of sections 44-AC and 206-C of the Indian Income Tax Act, 1961 had been questioned by the petitioners before the Kerala High Court on similar grounds. It was held that the word "income" used in the relevant entry was sufficiently wide to include imposition of tax by a statutory fiction. Further observations made by the Court indicate that not only the new method of presumptive taxation was now being resorted to in many countries, including France and Israel, but the same has been found by the theoreticians of fiscal administration to be an effective check against evasion. The judgment completely discarded the contention that the provisions were violative of any fundamental right such as enshrined in Article 14 or 19 of the Indian Constitution. Reference has also been made by the learned Standing Counsel to the case of T.K. Aboobacker and others v. Union of India and others (1989) 177 ITR 358 earlier discussed in this judgment. In this case, upon an appeal filed against the above judgment of the learned Single Judge of the Kerala High Court, the judgment was upheld and the provisions of sections 44-AC and 206-C of the Indian Income-tax Act were held to be, both valid and reasonable.

15. Another case upon which learned counsel for the petitioners have heavily leaned is the case of Kunnathal Thathunni Moopil Nair v. State of Kerala and another AIR 1961 SC 522. In this case, the petitioners had impugned the constitutionality of the Travancore-Cochin Land Tax Act, 1955 as amended by Travancore-Cochin Land Tax (Amendment) Act, 1957. Under the said Act a tax called land tax at a flat rate of Rs.2 per acre had been imposed on the petitioner. The validity of the Act was challenged on the ground that as the Act did not have any regard to the quality of the land or its productive capacity, and the levy of the proposed tax tantamounted to imposing unreasonable restrictions on the right to hold property, it was an invasion on the rights guaranteed to the petitioner under Article 19(1)(f) of the Constitution. The legislation was also attacked on the ground of inequality as according to the petitioner, the total burden resulting from such classification was unequal and there was no rational basis for the classification. It was observed by the Supreme Court in this case: --

"In determining the question of the validity or otherwise of such a statute the Court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of the selection or classification. After such scrutiny the Court will strike down the statute if it does not lay down any principle or policy for guiding the exercise of discretion by the Government in the matter of selection or classification, on the ground that the statute provides for the delegation of arbitrary and uncontrolled power to the Government so as to enable it to discriminate between persons or things similarly situate and that, therefore, the discrimination is inherent in the statute itself" (p.299 of the Report (of SCR) : (at p.548 of AIR)."

The provisions of the said Act were also held to be confiscatory and imposing unreasonable restrictions on holding property as they had "the effect of eliminating the private owners through the machinery of the Act". The Supreme Court went on to further observe: --

"Unless the petitioner is very enamoured of the property and of the right to hold it, it may be assumed that he will not be in position to pay the deficit ... every year in respect of the forests in his possession. "

The legislation was, therefore, held to be violative of both Articles 14 and 19(1)(f) of the Indian Constitution. Reliance has also been placed by the learned counsel for the petitioners on the case of Inamur Rehman v. Federation of Pakistan and others 1992 SCMR 563. In this case, the provisions of Article 25 of the Constitution were subjected to examination by the Supreme Court and after review of the entire case-law on the point in Pakistan the Supreme Court came to a conclusion that the provisions of sections 2, 6 and 6-A of the Foreign Exchange (Prevention of Payments) Act, 1972 were violative of Article 25 of the Constitution as the object of the legislation appeared to be to subject selected persons out of those who had repatriated foreign exchange to proceedings to be held by a Special Tribunal presided over by a non judicial Officer. Therefore, such object in itself was per se discriminatory and not permissible by virtue of the equality clause of the Constitution. However, before this case or the case of K.T. Moopil Nair AIR 1961 SC 552 can be called in aid by the petitioners, they must first show that discrimination is writ large on the face of the legislation in question itself. In the case of the former, the provisions of Foreign Exchange (Prevention of Payments) Act, 1972 were held to be discriminatory on the face thereof as it was found that the classification had no nexus with the object sought to be achieved by the said legislation. In K.T. Moopil Nair's case, as is evident from the observations made by the Supreme Court of India, the legislation was struck down as violative of the fundamental rights as the statute had failed to lay down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of selection. The legislation was also held to be confiscatory as the liability of the petitioner to pay land tax was found to exceed his annual income from the forests. The contentions in the present case require examination from an angle, altogether different from the above cases.

16. Although no counter-affidavit has been filed on behalf of the respondents explaining the object sought to be achieved by the legislation in question but reference has been made to the Budget Speech of the Federal Finance Minister in the National Assembly. The measures were referred to by him as "taxation reforms" which were meant "to expand the taxation base". This step, according to him, was necessary because "so long as the largest number of tax-payers do not participate in paying taxes to the Government, we will not be able to reach the desired stage of self -sufficiency". Again, in his next Budget Speech the following year, the Finance Minister while referring to the success of the system of collecting one-half per cent. tax on turnover said:--

"Last year, a minimum tax at one-half per cent. of turnover was levied on those companies which were not paying any tax for any reason or the tax paid by them was less than one-half per cent. of their turnover. This was done so that all companies which were getting various concessions and facilities from the Government could play a positive role in increasing Government revenues. It gives me great pleasure to say that most of these companies have come up to the expectations of the nation in these hard times and made our experiment a success. In the light of such encouraging results, it is proposed that the scope of one-half per cent. minimum tax may be extended to cover all registered firms. Besides, a few legal clarifications are also being issued in respect of this tax."

Similar are the comments by' Member, Income Tax, Central Board of Revenue, which were faxed to the learned Standing Counsel during the pendency of these petitions before us. According to the comments, the new method of presumptive tax was introduced to broaden the taxation base and to do away with the cumbersome procedure of assessment of income-tax.

17. It has been further pointed out by the learned Standing Counsel that for some time, it was felt that majority of the companies had failed to make any significant contribution to the national exchequer, therefore, the new measures were introduced. Reference was made in this regard to the report of the National Tax Reforms Commission which gives analytical data of a number of companies and the amount contributed by them. The report at page 22 thereof indicates that 64 % revenue was coming from 1315 public limited companies and foreign companies and only 34.9% revenue came from 9866 domestic private limited companies. The report further shows that out of 10,877 companies only 3,801 showed net profit in 1991, 3780 in 1989-90 and 3,729 in 1988-89. The number of companies showing loss was 4,658 in 1991, 4586 in 1989-90 and 4140 in 1988-89. A necessity was, therefore, felt to device methods to bring companies and registered firms also to make a significant contribution to the national needs. As regards, sections 80-C arid 80-CC, it has been contended that income-tax from certain contractors, importers, and exporters, was already being deducted at source under the provisions of section 50 of the Income Tax Ordinance, therefore, it was found convenient and feasible to subject them to the newly-introduced provisions. The classification, according to the learned counsel, has therefore, a rational nexus to the object sought to be achieved by the legislation. In Brig. (Retd.) F.B. Ali and another v. The State PLD 1975 SC 506 while explaining the concept of equality as embodied in Article 25 of the Constitution, the Supreme Court observed:--

"Equal protection of the laws does not mean that every citizen, no matter what his condition, must be treated in the same manner. The phrase 'equal protection' of the laws means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other class of persons in like circumstances in respect of their life, liberty, property or pursuits of happiness. This only means that persons similarly situated or in similar circumstances, will be treated in the same manner. Besides, this, all law implies classification, for, when it applies to a set of circumstances, it creates thereby a class and equal protection means that this classification should be reasonable. To justify the validity of a classification, it must be shown that it is based on reasonable distinctions or that it is on reasonable basis and rests on a real or substantial difference of distinction. Thus, different laws can validly be made for different sexes, for persons in different age groups, e.g. minors or very old people; different taxes may be levied from different classes of persons on the basis of their ability to pay. Similarly, compensation for properties acquired may be paid at different rates to different categories of owners. Such differentiation may also be made on the basis of occupations or privileges or the special needs of a particular locality or a particular community.Indeed, the bulk of the special laws made to meet special situations come within this category "

The above view has consistently been followed by the Supreme Court. Reference may also be made in this regard to the case of I.A. Sharwani and others v. Government of Pakistan 1991 SCMR 1041. The Supreme Court once again found in Shirin Munir v. Government of Punjab PLD 1990 SC 295 that classification based on reasonable considerations is permissible and not violative of Article 25. This view has also found favour with the Courts in India. In Federation of Hotel and Restaurant v. Union of India and others AIR 1990 SC 1637 the basis of classification under Expenditure Tax Act, 1987 whereby a hotel was classified as a separate class by virtue of the economic superiority of its customers was held not to be arbitrary or unintelligible nor the same was held to be without rational nexus with the object of the law. The expenditure tax imposed under the said Act was also held not to impose any unreasonable restrictions on trade and thus being violative of Article 19(1)(g) of the Indian Constitution. Similarly, in AIR 1963 Mad. 183, the provisions of section 16(3)(a)(iv) of the Income-tax Act, 1922, as the same were applicable to India were held not to be violative of d Article 14 of the Indian Constitution simply because they made a distinction between a minor son and a minor married daughter with respect to the income derived by either of these persons from assets transferred directly or indirectly to them. -According to the said provisions, the income of minor son was includable in the total income of the father but that of the minor daughter was not made so includable. It was held that the mere fact that the provisions made one form of income includable in the total income of the father and they excluded the other form did not make the said provisions violative of the guarantee of equality before the law under Article 14 of the Indian Constitution. The distinction made between a minor child and a minor married daughter was based on a sound reason and, therefore, it could not be argued that such distinction had no rational relation to the purpose sought to be achieved by the Statute, vie evasion of tax.

18. Learned Standing Counsel has argued that the impugned provisions are not discriminatory as they have been applied to all categories of traders irrespective of their status. Section 80-C of the Ordinance, although originally applied to assessees who were resident in Pakistan but subsequently its scope was enlarged to include non-residents as well. Similarly, in case of section 80-D of the Ordinance although its operation originally extended to companies alone, but by a subsequent amendment the provisions of the section were also applied to registered firms. Therefore, according to the learned Standing Counsel, the provisions were not discriminatory because they include within their ambit persons or class of persons placed under similar circumstances. According to the learned Standing Counsel, there is also a presumption of constitutionality in favour of every statute. To break such protective shield, sufficient material should have been placed by the petitioners before the Court to discharge the onus. So far as the material placed before the Court by the petitioners is concerned, the petitioners have placed before the Court certain charts prepared by them which only indicate that their liability to pay income-tax under the said legislation has been substantially enhanced and in certain cases where the petitioners were not liable to pay any income-tax, a substantial amount has to be paid by them under the impugned legislation. However, the mere fact that the petitioners' liability under the present legislation has increased, can hardly support their contention that the provisions are violative of the fundamental rights guaranteed by Articles 25 -or 18 or 23 of the Constitution. In fact, the material placed before us advances the case of the respondents rather than that of the petitioners- Under section 80-C of the Ordinance the whole of the amount received by a person on account of supply of goods or on execution of a contract or the amount spent by an importer of goods (which shall also include customs duty and sales tax) is to be deemed to be the income of such person. Likewise, under section 80-CC of the Ordinance the whole of export proceeds of a person are to be deemed to be his income. Under section 80-D of the Ordinance, a tax at the rate of one-half per cent. is to be imposed as minimum tax in relation to the turnover of business or trade of a person. The liability for payment of income-tax varies in case of sections 80-C, 80-CC from one-half per cent. to one per cent. of the income in case of exports and from two per cent. in case of imports to two and one-half per cent in case of supplies. These rates neither appear to be expropriatory nor confiscatory. Unless the imposition is disproportionate to income, it cannot be said to be confiscatory. None of the petitioners, with the exception of Pakistan Burma Shell Ltd. C. P. No.557 of 1992 have demonstrated before us that the imposition exceeds their total income nor such material has been placed by them before the Court to support the plea. We propose to deal with the case of Pakistan Burma Shell hereafter, but none of the other petitioners have discharged their onus in this regard. Learned counsel for the petitioners have, however, contended that as the margin of profit in the case of each assessee would differ depending upon the nature of his trade or business the said provisions are clearly discriminatory. These are only hypothetical contentions. In our opinion, the mere fact that margin of profit would be different cannot render the said provisions discriminatory or arbitrary or violative of Article 25 of the Constitution. Profitability in any trade or a business or profession is also commensurate with the relative efficiency of its management although there can be various other factors responsible for the same. However, no two companies or firms having similar trade or business can earn similar margin of profit. The impugned provisions of the Ordinance are apparently based on a presumption that a certain percentage of the assessee's gross receipts would be his minimum profit. The assessee has been taxed accordingly by the said provisions. Since the provisions are applicable to an assessee engaged in a trade or business it can be normally presumed that the assessee will keep a sufficient margin of profit on his total turnover or his gross receipts. The income-tax payable does not appear to be so unreasonable as to be regarded as arbitrary or confiscatory. It is noteworthy that in case of sections 80-C and 80-CC of the Ordinance the assessee is not required to file returns. The provisions have, therefore, been designed to be simple avoiding tedious procedure of assessment for the convenience and benefit of the assessee. In case of section 80-D of the Ordinance, a return has to be filed and in case the tax payable by an assessee is more than one-half per cent. The same will be assessed and paid accordingly. In case, no tax is payable or the tax payable is less than one-half per cent. such tax has to be paid. The provisions of section 80-D on the face thereof do not appear to be discriminatory as they are applicable to the assessees as a class. In India, also a legislative measure was introduced in the Indian Income Tax Act in the form of section 115-J to tax companies known as "Zero-tax companies". Such companies although, had made large profits in their books of account but for the purpose of income-tax, by virtue of various deductions which were claimed, very little taxable income was disclosed. The effort, therefore, was to bring such type of companies within the tax net and, therefore, the Parliament decided to insert section 115-J in the Indian Income Tax Act, 1961. An analogy can clearly be drawn between the said provisions and section 80-D which also by virtue of the non obstante clause inserted therein purport to include such companies or registered firms in the tax net in whose case no tax is payable or has been paid for any reason enumerated in section 80-D of the Ordinance. The application of the provisions of section 80-C or 80-CC of the Ordinance to certain contractors, importers or exporters, etc. as a distinct class is also not difficult to comprehend because tax was already being deducted from them at source under section 50 of the Ordinance. Therefore, the Legislature in its own wisdom made the above provisions applicable to them. Apparently, the tax purported to be levied is neither unreasonable or discriminatory nor it appears to be confiscatory. However, merely because a fiscal statute is unreasonable or oppressive, its Constitutional validity cannot be called in question. N.S. Bindra in his Book, Interpretation of Statutes (7th Edition) at page 771 observes: --

"In construing a taxing measures for determining its Constitutional validity, the question of reasonableness cannot enter a judicial mind. The only consideration which is germane is whether the legislation challenged is permitted by the Constitution. The reasonableness or otherwise of such a statute is a matter of legislative policy and it is not for the Courts to adjudicate upon."

In the Commissioner of Agricultural Income Tax, East Bengal v. V.W.M. Abdur Rehman 1973 SCMR 445 the Supreme Court while referring to the observations made by Rowlatt, J. In Cap. Brandy Syndicate v. Inland Revenue Commissioner (1921) 1 KB 64 observed that: --

"In a Taxing Act one has to look merely at what is clearly said. There is no room for intendment. There is no equity about tax."

19. It has been pointed out with reference to the Constitutional petition filed by Messrs Pakistan Burmah Shell Limited (C.P. No.D-557 of 1992) that the profit actually earned by the petitioner on its entire turnover is less than one-half per cent. which is the minimum tax charged under section 80-D upon the turnover of a company or a registered firm. It has further been pointed out that the turnover of the said petitioner also includes the excise duty which is recovered by the petitioner from its customers and is ultimately transferred to the Government. Consequently, according to the provisions of section 80-D, even such duty would be deemed to be income of the petitioner. It has, however, been pointed out that the petitioner has been exempted as a special case under section 14 of the Income Tax Ordinance from application of the provisions of section 80-D of the Ordinance. Similar relief has also been provided to some other. P.O.L. distributors. It has also been pointed out that relief under the said provisions of the Ordinance has also been provided to certain cigarette distributors. Relief has also been provided to all manufacturing industries where the element of excise duty and sales tax is more than 50 % . However, these are only some of the examples which have been brought to our notice and there can be no doubt that many more can be found if a survey is conducted. But as was held in the case of Federation of Hotel and Restaurant v. Union of India AIR 1990 SC 1637:

"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 earnings 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 174 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. "

The Legislature has a very wide latitude available to formulate fiscal policies as was held in Elel Hotels and Investments' case by the Supreme Court of India. It was also held in the case of P.K.Kutty Haji and others v. Union of India and others (1989) 176 ITR 481:

"The judicial approach throughout has been to allow the Legislature flexibility at the joints, particularly when a taxing statute is under attack."

In the present case, companies and registered firms have been classified by the legislation as a separate class and so have been certain contractors, suppliers, importers and exporters. The object sought to be achieved has been shown to be to generate more funds for the public revenue or to prevent evasion of income-tax. It can hardly be denied that in this country, one of the methods that can be effectively employed to plug loss of revenue is by resort to presumptive taxation. Therefore, there is by reasonable nexus between the legislation and the object it seeks to achieve. As was pointed out earlier, the Legislature has sufficient latitude to classify persons or things in different categories to achieve the object of the legislation. The mere fact that the legislation tends to diminish the assessee's profits is not sufficient to make it confiscatory either. The petitioners have failed to discharge the burden by demonstrating that the legislation in question is not in tune with the fundamental rights.

20. Learned counsel for the petitioners have relied upon certain cases from the Indian jurisdiction, reference to which has earlier been made in this judgment, where the provisions of sections 44-AC and 206-C of the Indian Income Tax Act, 1961 were questioned. The said provisions were held to be violative of fundamental right as it was observed that the remedy should be proportionate to the evil sought to be removed and it should not assume the character of a confiscatory measure. However, no parallel can be drawn between the provisions of sections 44-AC and 206-C and sections 80-C, 80-CC or 80-D of the Ordinance. By section 44-AC of the Indian Income Tax Act a substantial percentage of gross receipts in case of certain trades was deemed to be the assessee's income. The Court upon the material placed before it came to a conclusion that what had been deemed to be the income of the assessee could not reasonably be deemed to be his income. In the present case, as was also pointed out earlier, the income-tax levied on the gross receipts or as the case may be, the turnover does not appear to be unreasonable and the legislation appears to be based on a presumption that the assessee's minimum profit from the trade or business would exceed the income-tax imposed under the said provisions of the Ordinance. Apparently, there appears to be no ground for assuming that such a measure; is discriminatory or confiscatory, barring of course, a few exceptions reference to which has just been made in this judgment. However, as has been pointed out, when a larger benefit, for the community is to be achieved, individual interest must yield to the larger interest. Reference in this regard may also be made to the cases decided by the Kerala High Court where the same provisions of sections 44-AC and 206-C of the Indian Income Tax Act were challenged on similar grounds but the said provisions were held by the Kerala High Court to be intra vires. The petitioners have also heavily relied upon the case of K. T. Moopil Nair, referred to earlier in this judgment but, as has been already pointed out, the said case does not advance the cause of the petitioners on account of its different circumstances which can clearly be distinguished from the present case. As was held in T.K. Aboobacker and others v. Union of India and others (1987) 177 ITR 358 "the power to tax is the one great power upon which the whole national fabric is based........It is not only the power to destroy, but it is also the power to keep alive".

21. In the end, Mr. Khalid Ishaque, one of the learned counsel appearing on behalf of the petitioners has raised a novel argument that section 80-D by use of a non obstante clause overrides many provisions of the Ordinance. The Finance Act having been passed only by the National Assembly, according to the learned counsel, cannot nullify the operation of other laws passed by the Parliament. The expression "Money Bill" has been defined by clause (2) of Article 73 of the Constitution and paragraph (a) thereof indicates that a Bill dealing with the imposition, abolition, remission, alteration or regulation of any tax" would fall within the purview of the said definition. Paragraph (g) in the said clause further indicates that any matter incidental to above or any other paragraph of the said clause (not reproduced herein for the sake of brevity) would fall within the purview of the said definition. Article 73(1) of the Constitution which relates to the procedure with respect to money bills indicates that a money bill shall originate in the National Assembly and after it has been passed by the Assembly, it is to be presented to the President for his assent without the same being transmitted to the Senate. It may be pointed out that although Article 73 of the Constitution provides for a different procedure in respect of Money Bills but when the Bill has been passed by the National Assembly and it receives assent by the President, it will have effect like an Act of Parliament. The fact that the Money Bill was not transmitted to Senate, in no case places it at a lower pedestal when compared to any other Act passed by the Parliament. However, after raising the contention, Mr. Khalid Ishaque did not support it by full length arguments. We would, therefore, refrain from dilating further on this question.

22. Some of the learned counsel appearing on behalf of the petitioners have also raised certain irrelevant issues as it has been argued that legislation in question is opposed to the principles of economics and accounting and that it is hit by the doctrine of promissory estoppel and that it has no nexus with section 9 of the income Tax Ordinance. Little do the learned counsel realised that no legislation can be struck down on any of the said grounds unless it is shown to being conflict with the paramount law, which contention, as shown earlier, has already been repelled. The contentions, therefore, can hardly be countenanced.

23. Consequently, none of the contentions raided by the learned counsel for the petitioners has any force.

In the result, these petitions are dismissed. However, in view of the questions raised, the parties are left to bear their own expenses.

(Sd.)

MAMOON KAZI, JUDGE.

WAJIHUDDIN AHMED, J.---These petitions have been placed before me upon a difference of opinion between my learned brothers Marnoon Kazi, J. (as he then was) and Hussain Adil Khatri, J. (since deceased). Such divergence of opinion, essentially, arose upon an interpretation of the word "income" occurring in Entry No.47 in Part 1 of the Fourth Schedule to the Constitution, which apportions the subject of "tax on income oilier than agricultural income", as a federal legislative subject, In context, Mamoon Kazi, J: found that the deemed income(s) under sections 80-C and 80-D, inserted in the Income Tax Ordinance by the Finance Act, 1991 and section 80-CC, introduced into the Ordinance per Finance Act, 1992, were validly brought on the statute book, while Hussain Adil Khatri, J. came to the conclusion that such deemed income(s) postulated in the quoted sections did not qualify as "income" and sections 80-C, 80-CC and 80-D, aforesaid, being hit by various Constitutional rights, guarantees and mandates were void and of no legal effect.

While the aforementioned sections 80-C, 80-CC and 80-D, together with relevant portions of section 50 in the Income Tax Ordinance, have been reproduced in the order of my learned brother Mamoon Kazi, J., such have been ably paraphrased in the dissenting opinion of Hussain Adil Khatri, J., which dissertation, on account of the signal lucidity of expression and ready /reference, for the purpose of this Order, I venture to reproduce here:

`"Section 80-C read in association with section 50(4) provides that any amount which is received by or accrues or arises or is deemed to accrue or arise to any person being resident, on account of supply of goods or the execution of a contract with the Government or a local authority or a company or a registered firm or any foreign contractor or consultant or consortium, the whole of such amount shall be deemed to be, income of the said person and tax shall be charged thereon and collected at the source of payment in advance, at the rates prescribed in paragraph CCC of Part I of the First Schedule to the Ordinance, and similarly when read in association with section 50(5) the income-tax is to be collected in advance by the Collector of Customs at the same time and in the same manner as customs duty, from every importer of goods, on the basis of value of imported goods as increased by the customs duty and sales tax, at the prescribed rate of two per cent. of such value.

Raw material imported by any industrial undertaking for its own consumption is not liable to be charged with the tax.

The above provisions are applicable to residents of Pakistan. So far as non-residents are concerned, the advance tax is deductible on the amount representing payments on account of a contract for construction, assembly or like projects in Pakistan under section 50(4). .

In section 80-CC read in conjunction with section 50(5-A) all the foreign exchange proceeds realised on account of export of goods by a person being an exporter, the whole of such amount is deemed' to be the income of the said person and the tax thereon is to be charged at the rates specified in paragraph CCCC of Part I of the First Schedule respectively.

Subsection (3) of section 80-C and subsection (2) of section 80-CC respectively provide that nothing contained in the Ordinance shall be so construed as to authorise any allowance or deduction against the income as determined under the respective subsection (1) of the said two sections or any refund of tax deducted or collected under the corresponding provisions of section 50 or set off of any loss under any provision of the Ordinance.

Under section 80-D where no tax is payable or paid by a company or registered firm, resident in Pakistan or the tax payable or paid is less than one-half per cent. of the amount representing its total turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said company or registered firm and tax thereon shall be charged in the manner that where no tax is payable or paid, is equal to one-half per cent. of the said turnover or if the tax payable or paid is less than the above percentage of the turnover, equal to the difference between the tax payable or paid and the said percentage. The turnover is explained to mean the gross receipts, exclusive of trade discounts shown on invoices or bills, derived from sales of goods or from rendering, giving or supplying services or benefits or from execution of contracts.

The explanation declares for the removal of doubt that the expressions. "'where no tax is payable or paid and' the tax payable or paid" apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciations) admissible under any provisions of the Ordinance or any other law for the time being in force.

All the three sections begin with non obstante clauses, which read, 'Notwithstanding anything contained in this Ordinance or any other law for the time being in force...' . "

The word "income" carries time-honoured connotations. In each of the differing opinions, a considerable amount of material has been cited to arrive at the conclusion as to what constitutes income and what does not. For reason of brevity and with a view to avoid repetition, I do not propose to recast the citations already made, except when absolutely necessary or where a precedent, not already referred, requires mention. Reverting, there can be no cavil with the proposition that the concept of income does include what may be termed as deemed income. Indeed, Mian Allah Nawaz, J. who presided over a Division Bench of the Lahore High Court in Aisha Spinning Mills Ltd. v. Federation of Pakistan, 1995 PTD 493, a case where similar questions were examined and where the aforesaid insertions in the Income Tax Ordinance were declared to be valid and unexceptionable, has taken pains to cite innumetable provisions in the Ordinance of 1979 where deemed income is found to be reflected. On that score 1, respectfully, subscribe to the relevant observation in the reported case from the Lahore jurisdiction.

The moot question, however, is whether the Legislature can deem something to be income when, in actual fact, such may not be so. Here also there is not much difficulty. On the contrary, by taking recourse to a deeming provision the Legislature, invariably, qualifies or relegates the deemed thing to be that, which in reality it does not. The crucial question, however, often is whether a Legislature, introducing the deeming clause in a legislation has not over-stepped its legislative powers and travelled into a jurisdiction, which did not belong to it. The problem is more akin to legislative bodies created, governed and controlled by written Constitutions, or subject to other constraints, which may even be of a supra-Constitutional nature. Such parameters are not to be found and, in fact, may be totally absent in relation to law-making bodies with powers ultramelled by a Constitution, reduced to writing. Thus, it has been claimed, as Dicey did, that the British Parliament is sovereign. It operates without any legal restrictions. It can make and unmake laws as it pleases. Indeed, the author of the Law of the Constitution went as far as to quote De Lolme saying: "It is a fundamental principle with English lawyers, that Parliament can do everything but make a woman a man and a man a woman. Dicey himself, though, recognised the obvious limitations on the authority of Parliament and besides, there has been some further re-thinking on the subject and many a obvious constraints, as regards the British Parliament, are now well recognised. In countries, where written Constitutions are in force, while amending or modifying the Constitutional provisions remains a subject for a separate and even qualified treatment, the law-makers, not unlike the other limbs of the state, are confined to legislate only within the Constitutional framework and in cases of transgression, not infrequently, many a consequential amendments are exposed to be struck down, if found wanting on the touchstone of Constitutional mandates. These Constitutional constraints can be further aggravated through interpretative or other devices, such as transpired in the Union of India where the judicial branch of the State came up with the theory of basic structure of the Constitution and ruled that the basic framework of the Indian Constitution could not be altered, even through the process of amendment, the basics identified, being totally unamenable to change. On this side of the Divide, while in Darvesh M. Arbey v. Federation of Pakistan, PLD 1980 Lah. 206 (D.0.2-6-1977) by passing the Constitution (Seventh Amendment) Act, 1977. some opinions, in the background of the Preamble (Objectives Resolution) and the directive principles of policy, were expressed as to inviolability of the broad contours of the Constitution through a process of amendment, the areas identified being Islam, Federalism and democracy, the basic structure theory itself came to be rejected at the level of the Supreme Court in Fauji Foundation v. Shamimur Rehman, PLD 1983 SC 457. Doubts, however, have since been expressed as to the unanimity amongst the Judges on the point as also on the question whether the rejection constituted the ratio decided in the case. Earlier, the apex Court in the Asma Jilani case, PLD 1972 SC 139, had taken recourse to the concept of grund norm and found that the Objectives Resolution of 1949 was such a grund norm for the Islamic Republic of Pakistan, around which revolved the super-structure of the State. Some re- thinking on the subject, however, took place in the cases of State v. Ziaur Rehman, PLD 1973 SC 49 and Federation of Pakistan v. Saeed Ahmed Khan, PLD 1974 SC 151 and the theory of grund norm, virtually, gave way to the written word in the Constitution and the Objectives Resolution stood relegated to the pious status of the preamble to the Constitution, denuded of all claims of enforceability. This state of affairs has changed with the advent of the Article 2A in the Constitution, whereby the mandates in the Objectives Resolution were expressly made enforceable. On the other hand, relative to Principles of Policy, enshrined in Articles 29 to 40, Chapter 2, Part II of the Constitution, such themselves have been upstaged, pursuant to some recent pronouncements of the Supreme Court of Pakistan and no longer remain toothless, as hitherto was the case.

No argument seems to have been addressed before my learned brothers, pivoting the Objectives Resolution which, inter alia, enjoins that sovereignty vests in Allah and the authority to be exercised by the people of Pakistan, within the limits prescribed by Him, is a sacred trust and expressly postulates that equality and social justice shall be fully observed in the State, where Muslims shall be enabled to order their lives, in the individual and collective spheres, in accordance with the teachings and requirements of Islam, as set out in the Holy Qur an and Sunnah. It was, however, urged before me, from the side of the petitioners, that the quoted amendments in the Income Tax Ordinance also offended the foregoing Islamic precepts and being discriminatory and confiscatory in nature could, as well, be declared invalid on that score. I am unable to accede to the argument for two distinct reasons: firstly, because the argument was not raised before the learned Judges, who constituted the Bench and the scope of reference to me, the third Judge, unless unescapable, is confined to the points in difference between the said learned Judges and secondly, the argument is even otherwise wide off the mark because, as would be seen below, the legislation is neither discriminatory nor confiscatory in nature nor does it violate any of the tenets of Islam because, while Islam prescribes some forms of taxation, notably Zakat and Ushr, it seems, consciously, to have left open a broad vista for legislation in a Islamic State through normal channels. This is in line with the fundamental dogma of a religion that was revealed not for a particular time or clime but was to enure for the benefit of mankind through the ages, which followed its advent. In keeping, fundamentals were provided, express mandates were administered and clear prohibitions were enforced, leaving a wide field of permitted activity for the coming generations to fashion their lives with every change in time and space, as it took place. There is predictably nothing, accordingly, in Islam which prohibits, either taxes on income or even deemed income provided, always that the taxation measure does not impinge upon the fundamentals. As would be seen below, the new insertions, in fact, do not.

Coming to the other constraints in Entry 47, aforesaid, it was argued before my learned brothers that, because the purported deemed income did not qualify as income, according to the popular and juristic meanings assigned to that word, the Federal Legislature exceeded its powers in enacting the newly-inserted sections in the Income Tax Ordinance, pursuant to the Successive Finance Acts of 1991 and 1992. In the first place, it must immediately be made clear that a legislative list, such as in Part 1 of the Fourth Schedule to the Constitution, where the entry in question occurs, does not confer legislative powers. Those powers are derived from the main body of the Constitution itself. Such a list only delineates the area or the sphere within which the Parliament, as distinguished from the Provincial Assemblies, to whom the residue, including the concurrent subjects (in the Concurrent List), is assigned, would stand limited by the Constitution to competently legislate. Whatever is beyond the list, either exclusively or concurrently, falls within the domain of the provinces, again to legislate upon. The Federal Legislative List and its complement, the Concurrent Legislative List, contain numerous specified items. Each such item, nay each word in each entry, is to be broadly construed, and a narrow or a restricted meaning, correspondingly, eschewed. Contextually, the general words shall extend to the ancillary or subsidiary matters, which may fairly or reasonably be within their impact or scope: While these implications in general words are more or less of universal application, such have a special significance in the interpretation of a Constitutional provision. A Constitution is an organic whole. It is a living instrument and is to be interpreted in the widest possible manner to generate continuity and to establish balance between the various subjects, catered by it. Therefore, the word "income"., occurring in Entry 47 of the Federal Legislative List or its counterpart in the phrase "tax on income', finding mention in the definitions incorporated in Article 260 of the Constitution, carries the broadest of connotations. Co-extensively, the legislative competence of the Parliament extends to legislate on every facet of income or anything akin to income. Besides, m the definition clause of the Constitution, much as in the definition of income in section 2(24) of the Income Tax Ordinance, the concept of income is inclusive in nature. These definitions are neither exclusive nor absolute and would not restrict the authority of Parliament to legislate, except beyond reasonable limits.

As to reasonable limits, a pertinent question well may be whether Parliament can deem something to be income, which does not have the remotest semblance with income, and thus extend its legislative authority to such a thing? A Constitutional restriction being involved, the answer would, obviously, be in the negative. In the process of judicial review patent Constitutional deviations of the character can be subjected to a corrective mechanism. Here, however, one may hasten to add, that it is not for the Courts to, routinely, question the legislative wisdom. The Constitution has ascribed distinct spheres of activity to the Legislature, the Executive and the Judiciary. Fraught with dangers is the route, whereby one or the other of these organs of the State, casually, impinges upon the jurisdiction of another. The moment the dividing lines, prescribed by the Constitution, get blurred and room for encroachment created, predictable pitfalls would be encountered, gaping. Specific to legislation those entrusted with the function to legislate are better conditioned to comprehend, assess and cater to the economic, social and cultural requirements of the State. But then heavy responsibility lies on the shoulders of those who exercise legislative powers whether it be absolute, as in the case of the British Parliament or qualified as under a Constitutional document. In Blackstone's Commentaries the legislators are warned in these words:

"True it is, that what the Parliament doth, no authority upon earth can undo. So, that it is a matter most essential to the liberties of this kingdom, that such members be delegated to this important trust, as are most eminent for their probity, their fortitude, and their knowledge; for it was a known apophthegm of the great lord treasurer Burleigh, 'that England could never be ruined but by a Parliament'; and, as Sir Matthew Hale observes this being the highest and greatest Court over which none other can have jurisdiction in the kingdom, if by any means a misgovernment should any way fall upon it, the subjects of this kingdom are left without all manner of remedy. To the same purpose the President Montesquieu, though I trust too hastily, presages; that a Rome, Sparta, and Carthage have lost their liberty and perished, so the Constitution of England will in time lose its liberty, will perish: it will perish whenever the legislative power shall become more corrupt than the executive."

The rule, therefore, is that it is only when there is a palpable erosion of Constitutional requirements that a legislation may come - up for being struck down. There also Courts have to be watchful that the evil which they have set out to eradicate is not lesser than the mischief, which may emerge as a consequence of the remedy they determine to administer. In other words, the remedy has to be proportionate to the evil addressed. It is with this note of caution that I propose to examine the validity of the, allegedly, offending provisions aforementioned.

There is nothing new about this legislation. Across the border in India, much as in Pakistan,

several such taxation measures have been introduced from time to time. Of significant importance in so far as Indian Jurisdiction is concerned, were the insertions, through the Finance Act, 1988, of sections 44-AC and 206-C in the Indian Income Tax Act, 1961. Section 44-AC provided that profits and gains of a purchaser of goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) and of a purchaser of timber, obtained on a forest lease, shall be deemed to be 40 % and 35 % respectively of the purchase price. Section 206-C enacted a withholding tax. These provisions, having much in common with those under attack here, were question in the High Courts of Andhra Pradesh, Orissa, Punjab, Haryana and Kerala, as elaborately discussed by my learned brothers. When, however, the matter went to the Indian Supreme Court in the case of Union of India and another v. A. Sanyasi Rao and others, (1996) 219 ITR 330, the opinion expressed was more in line with the conclusion of the Andhra Pradesh High Court and it was found that section 44-AC read with section 206-C (ibid). was not "wholly" hit by Article 14 of the Indian Constitution. Because, however, nothing was shown that the trades involved were different and distinct, even for a re-appraisal in the ordinary course under sections 28 to 43-C of the Income Tax Act, the device of "reading down", as resorted to in a pre -Partition Federal Court Judgment, was adopted, it coming to be declared that the provisions did not (ex post feacto) dispense with a regular assessment in accordance with sections 28 to 43-C in the Indian Income Tax Act. Our own Supreme Court in the case of Elahi Cotton Mills Ltd. and others (their lordship's judgment in C. A. No.308 of 1995 at seq having emerged on 4-6-1997 while this order stood reserved), on its part, while validating sections 80-C, 80-CC and 80-D, aforesaid, has taken recourse to Entry 52 m the Federal Legislative List and reading it with Entry 47 thereof has concluded that the taxes in question are supportable, also, on a nexus with "Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or installation" and, therefore, no need was discoverable for applying the theory of "reading down". Their lordships, however, taking note of the conditional ities in Entry 52, have added that the tax burden, thus cast, would be in "lieu" of other taxes and once resort is made to sections 80-C, 80-CC'or 80-D, no further or fresh charge can be made. This view, with which we, in the High Courts, are bound is, with respect more salutary inasmuch as it does not resurrect the very malady of long drawn and, many a times, fruitless assessment proceedings of businesses, by and large, given to tax evasions.

Reverting, for our purposes here, it still remains to' be seen as to what is income, according to the ordinary or literal meanings of that term. It has been variously, defined to involve return of money from one's business, labour or invested capital. More restrictively, it has been confined to gain derived from capital, from labour or effort, or both combined. The true increase in the amount of wealth, which comes to a person during a stated period of time, is another way m which income is defined. In its usual significance, it is net rather than gross income. Income has been likened to the fruit of a tree or the crop of a field. It has also been said that income refers to a monetary return "coming in" and is conceptually contradictory to loss. Mamoon Kazi, J., in his leading judgment, has quoted Bhaghwati, J., as saying that Parliament could not choose to tax an item as income, which in no rational sense can be regarded as income. But then rationalisation itself has in some jurisdictions brought in capital gains, within the fold of income. Likewise, "free reserves" have been equated with unappropriated profits and then taxed as income. Similarly, what one saves, while using property and what may be converted into income, can also be regarded as income. In the same format, presumptive or, minimum taxes have been introduced in countries as far apart and divergent as the U.S.A., France, Israel, Columbia, Thailand and Blivia. These developments lead one to conclude that while the term income defies any conclusive or crystallised definition, it is, speaking broadly, a return, whether in money or kind, from capital or from labour or effort or both combined. It may be periodic or recurrent or none of either. It may be accumulated in certain hands, revealed from periodic or recurrent releases by the holder. It is possibly this last-characteristic of income, which is targeted by the present legislation.

Having said as much, it needs to be emphasised that the concept of income is neither static nor inelastic. It is, thus, that the dictum of the Privy Council, that income denoted "a periodical monetary return "coming in" with some sort of regularity from definite sources", was revised by the Supreme Court in the case of Samina Shaukat Ayub Khan PLD 1961 SC 85, where their lordships said that income need not necessarily be the recurrent return from a definite source though it is generally of that character. In the last analysis, the question whether a particular kind of receipt is income or not, it was added, would depend for its answer on the peculiar facts and circumstances of the case. Thus, if the nature of the receipt and its source are not satisfactorily explained by the assessee, facts which are generally within his peculiar knowledge, an Income-tax Officer might legitimately presume that the amount in question is income of the assessee from an undisclosed source.

Then there has been an ever-going tussle between Legislatures and those who are disposed to invent devices for, wholly or partially, extricating themselves from the tax net, the artifices, not uncommonly, degenerating into tax evasion. Legislative ingenuity to combat this menace has led to insertion of deeming clauses in legislations wherever and whenever found expedient, on the one hand and severest of penalties, on the other. Even so, generalised measures, sweepingly targeting a class or group of persons are bound to throw up hardship cases. But, it has aptly been said that every cause has its martyrs. In turn, as Greene M.R. puts it in Howard De Walden (Lord) v. Inland Revenue Commissioners (1942) 10 ITR Supp1.90 (94). "It scarcely lies in the mouth of the tax-payer, who plays with fire, to complain of burnt fingers".

In my view, the non obstante clauses, with which the there newly -added sections in the Ordinance begin and the deeming nature of the levy are matters to be reckoned within the back-drop of the aforementioned long drawn struggle between Legislatures the world-over and the tax evaders, universally and single-mindedly, pursuing their unhealthy objectives of evasion.

Here may be taken up the divergent points of view adopted by the two learned Judges regarding the factual background in which the insertions of sections 80-C, 80-CC and 80-D were made in the Income Tax Ordinance. Thus, Mamoon Kazi, J., referred to the 1991 Budget Speech of the Federal Finance Minister, where the measures were referred to as "taxation reforms" meant "to expand the taxation base". According to the Finance Minister, this step was necessary because "so long as the largest number of tax payers would not participate in paying taxes to the Government, we will not be able to reach the desired stage of self-sufficiency". Needless to add that in a modern State taxation is directed not merely to run the Government but also to achieve social, cultural and economic well being of the populace. In the succeeding Budget Speech (1992) the Finance Minister reported success of the system of collecting minimum tax at one-half per cent. of the turnover. Mention was also made by the learned Judge to the comments of the Member, Income Tax, Central Board of Revenue. According to the member, the new method of presumptive tax had worked to broaden the taxation base and to do away with the cumbersome procedure of assessment of income-tax. The conclusion drawn was that the rates of taxes introduced were not unreasonable, muchless being of an expropriatory or confiscatory nature. The same learned Judge was of the opinion that the objective behind the taxation measures was to net in escaped public revenue and to prevent evasion. Presumptive taxation, in this view, was only calculated to plug loss of revenue.

As against this, Hussain Adil Khatri, J. observed that the provisions, assailed in the petitions, were not adopted as an anti-tax evasion measure and, on the contrary, the then Federal Finance Minister in his Budget Speech in the National Assembly had appreciated the fact that most of the companies had come up to the expectations of the nation in hard times. This does not seem to be factually correct and the speech invoked was one made in the year following the insertions of sections 80-C and 80-D, aforementioned. In the case of Aisha Spinning Mills (ibid), the Lahore High Court and in the appeal cases of Ilahi Cotton Mills Ltd. and others etc. (supra) the Supreme Court have elaborately disserted upon the reports of the National Taxation Reforms Commission (NTRC) of December, 1986, and of the Committee on Increasing Exports, recommendations of the Federation of Pakistan Chambers of Commerce and Industry, dated 8-5-1991, the 1991 Budget Speech, the Indian Budget of 1997 and several treatises on the subject of the minimum/presumptive tax. To be specific in the Supreme Court, inter alia, "The Public Finance in Theory and Practice", by Richard & Peggy Musgrave, "Tax Policy and Tax Reforms", selected speeches of Stanley. S. Surrey, "Federal Income Taxation", by Marvin A. Chirelstein, "Sprouse's Income Tax Handbook, 1986" and "The Revenue Code", relating to Thailand, compiled by V.T. Associates were examined in depth. All these would show that a need for across the board presumptive taxation was pressing and indeed acute. Taken into account were wide spread corruption of the revenue officials, on the one hand and the disposition of tax payers to resort to evasion, on the other. NTRC reports that in one year alone the escaped taxable income stood at Rs.5,076 crores as against Rs.1,930 crores, which were actually assessed to tax. Acting on the principle that less Government is the best Government, a world-wide preference for presumptive or minimum taxes is being exhibited. The rationale behind the taxation measures, therefore, cannot be said to have been wanting. Their lordships of the Supreme Court have also been at pains to discover as to how the tax levied exerted its impact on the revenue collection. Based on unassailable data, the conclusion drawn has been that the revenue, in consequence, registered a signal upward trend, pursuant to the new taxation devices. The end, therefore, may have justified the means Desperate situations warrant desperate measures.

As to the question of unequal treatment before law or hardship, no more needs to be said except that in matters, falling within the fiscal domain, the legislative authority enjoys a broader latitude than ordinarily is the case. Equal protection of law, signifies only that no person or group of persons shall be denied the same or similar treatment under law, enjoyed by another or others falling in a class and situated in similar circumstances in matters of life, liberty, property etc. Classification among persons again is nothing new. Its justification can readily be found in discerning and recognising similarity in the circumstances in which a group of persons is situated. Law can then proceed on the resultant classification. Relevant to the element of discrimination. Such has to be tested not so much upon the language of the taxation measure, as upon the effect it creates. Thus, where a class is selected for impact of a tax, it is enough that there is equality and uniformity within those, who are covered by such a class. The classification itself may be rational and reasonable, if it is based on a substantial difference or distinction and any common denominators are located in the constituents of the group clubbed together. On this yardstick, the persons targeted by sections 80-C, 80-CC and 80-D would seem to qualify.

It may be added here that there is a presumption of constitutionality, attaching to every legislative enactment. To pierce through this protective shield, burden lies on the person who throws the challenge. It is not always an easy burden and, if I may say so, the petitioners have failed to discharge it. Similar views have been expressed by the Lahore and Balochistan High Courts and the Lahore view has already been upheld by the Court at the apex.

In conclusion while I agree with the view that sections 80-C, 80-CC and 80-D in the Income Tax Ordinance were validly incorporated, having gone through the intervening Supreme Court judgment, aforementioned, would respectfully add that the variety of reprieves, addressed by their lordships to the appellants before them, would equally and in the same measure apply to the petitioners here. With these observations, the petitions are dismissed but the parties would bear their own costs.

(Sd.)

Wajihuddin Ahmed

Judge.

M.B.A./P-43/KPetition dismissed.