1999 P T D 1070
[Lahore High Court]
Before Malik Muhammad Qayyum, J
SIEMEN PAKISTAN ENGINEERING COMPANY LIMITED
Versus
THE PROVINCE OF PUNJAB through Secretary, Revenue Department, Government of Punjab, Provincial Secretariat, Lahore and 2 others
Writ Petition No.20056 of 1997, heard on 02/12/1998.
(a) Punjab Finance Act (XV of 1977)---
----S.3---Constitution of Pakistan (1973), Art. 163 & Fourth Sched.---Federal Legislative List, Part I, Item 47---Provincial taxes in respect of professions etc. ---Provinces are granted limited power of taxation subject to the condition that tax imposed should not exceed the limit fixed by the Federation---Tax on professions, trades, callings and employments cannot legally be said to be an income-tax, although in reality it may be.
As is evident from the perusal of Article 163, Constitution of Pakistan (1973), the tax by which Provincial Assembly is permitted by said Article is, in fact, an income-tax within the meaning of Item 47 of the Federal Legislative List, Part I of the Fourth Schedule to the Constitution but by Article 163, the Parliament would have exclusive powers to make laws with respect to it. The Constitution-makers thought it fit to grant limited power of taxation in this respect to the Provinces but subject to the condition that the tax imposed should not exceed the limit fixed by the Federation. It is to be seen that the provincial tax virtually amounts to double taxation as the assessee is also paying the general tax imposed by the Federation.
Although it is true that tax on professions, trades, callings or employments virtually amounts to tax on income but such a tax could be levied as the tax on income falls within the domain of the Federal Legislative List. As already pointed out, Article 163 of the Constitution itself raises a presumption that tax on professions, trades, callings and employments shall not be considered to be a tax on income in view of this deeming fiction. It cannot legally be said that the tax on professions, trades, callings and employments is an income-tax, although in reality it may be.
B.K. Bhander v. Dhaman Gaon Municipality AIR 1966 SC 249 ref.
Tribal Textile Mills Ltd, Lahore v. Province of Punjab through Chief Secretary to Government of Punjab, Lahore and another PLD 1979 Lah. 206 distinguished.
(b) Punjab Finance Act (XV of 1977)---
----S.3 & Second Sched., Entry 1---Professions Tax Limitation Act (XX of 1941), S.2---Constitution of Pakistan (1973); Arts. 163 & 268---Provincial Legislature in face of Professions Tax Limitation Act, 1941 which was an existing law, had no power to levy any tax on professions, trades, callings or employments beyond the limits fixed by the Parliament i.e., Rs.50---No tax beyond the limit of Rs.50 fixed by the Professions Tax Limitation Act, 1941 could be levied by the Provincial Legislature and the rate of taxation could not be provided with reference to income-tax paid and to that extent Second Sched to Punjab Finance Act, 1977 travelled beyond the scope of charging section.
B. K. Bhander v. Dhaman Gaon Municipality AIR 1966 SC 249 ref.
Tribal Textile Mills Ltd, Lahore v. Province of Punjab through Chief Secretary to Government of Punjab, Lahore and another PLD 1979 Lah. 206 distinguished.
(c) Punjab Finance Act (XV of 1977)---
----S.3 & Second Sched., Entry No. l [as substituted by Punjab Finance Act (IX of 1997)]---Professions Limitation Act (XX of 1941), Preamble---Levy of tax on professions, trades, callings and employments ---Principles--?Taxable event in tax leviable on professions, trades, callings and employments is the factum of being in the trade, profession, calling and employment, rate of taxation must, therefore, necessarily be relatable to that event and not to the income earned by a person---Second Sched., Entry No. 1, Punjab Finance Act of 1977, therefore, could not purport to levy tax on the basis of income-tax paid by a company---Tax on professions, trades, callings and employments beyond the limit of Rs.50 as fixed by Professions Limitation Act, 1941 was declared to be illegal and without lawful authority.
By section 3 of the Punjab Finance Act, 1977, the tax is leviable on professions, trades, callings and employments. The taxable event in such taxes is the factum of being in the trade, profession, calling and employment. The rate of taxation must, therefore, necessarily be relatable to that event and not to the income earned by a person. The Schedule, therefore, could not purport to levy tax on the basis of income-tax paid by a company.
No tax beyond the limit of Rs.50 fixed by the Professions Limitation Act, 1941 could be levied by the Provincial Legislature and further that the rate of taxation could not be provided with reference to income-tax paid and to that extent the Schedule travels beyond the scope of charging section.
Tax on professions, trades, callings and employments beyond the limit of Rs. 50 was declared to be illegal and without lawful authority.
Excise and Taxation Officer, Karachi and another v. Burmah Shell Storage and Distribution Company of Pakistan Limited and 5 others 1993 SCMR 338 ref.
Imtiaz R. Siddiqui for Petitioner.
H. Ghulam Haider Alghazali, Addl. A.-G. for Respondents.
Date of hearing: 2nd December, 1998.
JUDGMENT
That judgment shall dispose of writ petitions, a list of which is attached, all of which involve the same controversy.
2. By the Punjab Finance Act, 1977 (Act XV of 1977) a tax on persons engaged in professions, trades, callings or employments was levied with effect from 1-7-1977 at the rates mentioned in the Schedule, a perusal whereof shows that these rates were in fixed amounts of money with reference to each profession, trade, calling or employment. However, the aforesaid Act was amended by the Punjab Finance Act, 1997 (Act -IX of 1997) and in the Second Schedule the entry at Serial No. l was substituted with the result that so far as Companies registered under the Companies Ordinance, 1984 were concerned, the rate of tax was to be 1 % of the net income-tax payable by the Companies subject to a minimum of Rs.200. The constitutionality of this amendment has been challenged by the petitioners in these petitions.
3. The learned counsel for the petitioners has contended that by the impugned amendment the tax has been levied on the income of the Company which is beyond the legislative power of the Provincial Legislature as tax on income can only be legislative by the Parliament -in view of Item No.43 of the 4th Schedule to the Constitution; that in any case, the Schedule travels beyond the scope of charging section which provides for levy of tax on professions, trades, callings or employments and not on the income of the Companies, that in any case, even if the tax be considered to be a tax on professions, trades, callings or employments, the rate of taxation could not exceed the limitation fixed by the parliament and as such the Schedule is ultra vires Article 163 of the Constitution; that the petitioners are not carrying on trades, callings or employments but are engaged in manufacture of goods and as such no tax can be levied on them.
4. The learned counsel for the respondents, on the other hand, has defended the impugned levy by arguing that the Provincial Legislature was competent to levy tax on professions, trades, callings or employments.
5. Before proceeding further, it will be useful to narrate legislative history of Article 163 of the Constitution of Islamic Republic of Pakistan, 1973. The demarcation of the powers of the Federal and Provincial Legislatures for the first time was made in India by Government of India Act, 1935. Item 46 of List 2 of the Government of India Act, 1935 empowered the Provincial Legislature to levy taxes on the professions, trades, callings and employments. Basu in his commentary or the Constitution of India, Silver Jubilee Edition at page 297 has stated that taking undue advantage of the unlimited powers the Provincial Government proposed to levy an employment tax on all salaries of Rs.250 and above earned in the province whether received or receivable in or outside the province. This employment tax was indeed an income-tax in disguise. The Act was passed by the Provincial Legislative Assembly. The Governor?-General had referred it to Secretary for India for removal of doubt with regard to powers of taxation given to the Provincial Assembly under Item No.46 of the Provincial Legislative List. It was pursuant to that reference that section 142-A was inserted in the Government of India Act, 1935 by India and Burma (Miscellaneous Amendment) Act, 1940. This section reads as under:---
"142-A.---(1) Notwithstanding anything in section one hundred of this Act, no Provincial Law relating to taxes for the benefit of a Province or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.
(2) The total amount payable in respect of any one person to the Province or to any one municipality, district board, local board, or other local authority in the Province by way of taxes on professions, trades, callings and employments shall not, after the thirty first day of March nineteen hundred and thirty nine, exceed forty rupees per annum. Provided:
(3) The fact that the Provincial Legislature has power to make laws as aforesaid with respect to taxes on professions, trades, callings and employments, the generality of the entry in the Federal Legislative List relating to taxes on income."
6. Section 142-A of the Government of India Act, 1935 was adopted by Indian Constitution and substantially reproduced as Article 276 thereof with the difference that the upper limit of such tax payable per annum was raised from Rs.50 to Rs.250. Section 142-A of the Government India Act, 1935 was also adopted by the Pakistan Constitution of 1956 and substantially reproduced as section 117. Unlike the Indian Constitution, however, the upper limit of the tax was allowed to remain as Rs.50 per annum as in section 142 of the Government of India Act, 1935.
?7. The rationale upon which section 142-A of the Government of India Act, 1935 was enacted and on which Article 276 of the Indian Constitution rested was stated in B.K. Bhander v. Dhaman Gaon Municipality (AIR 1966 SC 249, at p.257), which reads as follows:
"It is that the legislative spheres of the Provinces and the Centre came to be clearly demarcated in regard to items falling within Lists I and II of Schedule VII of the Government of India Act and now to those falling within the same lists of Schedule VII of the Constitution. Taxes on professions, trades, callings and employments are taxes on income and are, thus, outside the provincial/and now State---lists and belong exclusively to Parliament and before that to the Central Legislature. 'Yet under a large number of laws enacted before the Government of India Act, 1935 came into force, power was conferred on local Governments and local authorities to impose taxes on such activities. This was obviously in conflict with section 100 of the Government of India Act. When this was realised section 142-A was enacted by the British Parliament which saved the power conferred by pre-existing laws but limited the amount payable to Rs.50 after 31st March, 1939."
8. It was held (at page 259) in that case that "where power exists to assess and recover a tax up to a particular limit and the assessment or recovery of anything above that amount is prohibited, the assessment or recovery of an amount in excess is wholly without jurisdiction and nothing else". It was further held at page 262 of the report that "where there is an express prohibition in a statute against a local authority from imposing a tax---or where a prohibition can be imposed---whether it be with regard to an item of taxation or with regard to rate of tax or the quantum of tax payable by an individual assessee---the action of a local authority or of any of its instrumentalities in transgressing that prohibition must be regarded as being in excess of its jurisdiction". It was further held that as there was a prohibition in section 142-A of the Government of India Act and in Article 276 of the Constitution "which precludes a State Legislature from making a law enabling a local authority to impose a tax on professions, trades, callings and employments in excess of Rs.250 per annum; these provisions have to be read in the Act or to be deemed by implication to be there as the Constitution is the paramount law to which all other laws are subject---If, therefore, after the date specified in section 142-A, the Government of India Act or after the commencement of the Constitution a local authority or any of its instrumentalities imposes a tax which is in excess of the permissible amount, it would be exceeding its jurisdiction---".
9 The analogous provision in the 1962 Constitution was Article 141, which reads as under:
" 141. A Provincial Law may impose taxes, not exceeding such limits as may from time to time be fixed by Act of the Central Legislature on persons engaged in professions, trades, callings or employments and no such Provincial law shall be regarded as imposing a tax on income. "
And this provision has been reproduced as Article 163 in the 1973 Constitution in following terms:
"Provincial taxes in respect of professions etc ---A Provincial Assembly may by Act impose taxes not exceeding such limits as may from time to time be fixed by Act of (Majlis-e-Shoora (Parliament), on persons engaged in professions, trades, callings or employments and no such Act of the Assembly shall be regarded as imposing a tax on income. "
10. As is evident from the perusal of the aforesaid provision, the tax by which Provincial Assembly is permitted by Article 163 is, in fact, an income-tax within the meaning of Item 47 of the Federal Legislative List, Part I of the Fourth Schedule to the Constitution but by Article 163, the Parliament would have exclusive powers to make laws with respect to it. The Constitution-makers thought it fit to grant limited power of taxation in this respect to the Provinces but subject to the condition that the tax imposed should not exceed the limit fixed by the Federation. It is to be seen that the provincial tax virtually amounts to double taxation as the assessee is also paying the general tax imposed by the Federation.
11. The learned counsel for the petitioners have pointed out that the Federal Legislature had promulgated the Professions Tax Limitation Act (XX of 1941) section 2 of which provides that notwithstanding anything contained in any law for the time being in force, the rate of tax shall not exceed Rs.50 per annum.
12. This Act, according to its preamble was promulgated with a view to give effect to section 142-A of the Government of India Act, 1943 which is similar to Article 163 of the present Constitution. On the promulgation of 1956 Constitution, it remained in force as an existing law in view of Article 224 of the Constitution of Islamic Republic of Pakistan, 1956 and subsequently under Article 225 of the Constitution of 1962 and lastly Article 268 of the present Constitution. It may be mentioned that the Professions Tax Limitation Act was treated as an existing law and was amended at late as 8-7-1981 by Ordinance No. XXVII of 1981. In face of this law the Provincial Legislature had no power to levy any tax on professions, trades, callings or employments beyond the limits fixed by the Parliament i.e., Rs.50. B.K. Bhander's case (supra) (AIR 1966 SC 249) discussed above may be referred to with advantage.
13. It may be stated that the validity of section 3 of Punjab Finance Act (XV of 1977) was examined by Single Judge of this Court in Tribal Textile Mills Ltd., Lahore v. Province of Punjab through Chief Secretary to Government of Punjab, Lahore and another (PLD 1979 Lahore 206). It was held that the Provincial Legislature could levy the tax at the rates mentioned in the Schedule. However, it appears that the attention of the learned Single Judge was not drawn to the Professions Limitation Act (XX of 1941) and that case was decided on the assumption that the Federal Legislature has not fixed any limit for imposition of tax on professions, trades, callings or employments. That case is of no help.
14. Although it is true that tax on professions, trades, callings or employments virtually amounts to tax on income but there is no merit in the contention that such a tax could not be levied as the tax on income falls within the domain of the Federal Legislative List. As already pointed out, Article 163 of the Constitution itself raises a presumption that tax on professions, trades, callings and employments shall not be considered to be a tax on income in view of this deeming fiction. It cannot legally be said that the tax on professions, trades, callings and employments is an income-tax, although in really it may be.
15. The next contention of the learned counsel, however, is that the Schedule after amendment travels beyond the scope of the charging section. By section 3 of the Act, the tax is leviable on professions, trades, callings and employments. The taxable event in such taxes is the factum of being in the trade, profession, calling and employment. The rate of taxation must, therefore, necessarily be relatable to that event and not to the income earned by a person. The Schedule, therefore, could not purport to levy tax on the basis of income-tax paid by a company.
11. A somewhat similar situation arose in the case of Excise and Taxation Officer, Karachi and another v. Burmah Shell Storage and Distribution Company of Pakistan Limited and 5 others (1993 SCMR 338). By section 10 of the West Pakistan Finance Act (I of 1962), a tax on the value of the goods imported or exported, as the case may be, against the licence was levied according to the scales set out in the Third Schedule to the Act. The Schedule, however, instead of providing for scale on the basis of the value of the goods imported or exported provided scale purporting to levy tax on the value of the licensee. This inconsistency was held to be irreconcilable and the Schedule was struck down by the Supreme Court in that case.
12. It follows from the above discussion that, no tax beyond the limit of Rs.50 fixed by the Professions Limitation Act (XX of 1941) could be levied by the Provincial Legislature and further that the rate of taxation could not be provided with reference to income-tax paid and to that extent the Schedule travels beyond the scope of charging section.
In view of what has been stated above, all these petitions are allowed and tax on professions, trades, callings and employments beyond the limit of Rs. 50 is declared to be illegal and without lawful authority.
No order as to costs.
M.B.A./S-295K/L?????????????????????????????????????????????????????????????????????????????? Petition allowed.