Business Recorder
ISLAMABAD: The Federal Constitutional Court (FCC) reserved judgment on petitions challenging the constitutional validity of Section 7E of the Income Tax Ordinance, 2001, which provides for taxation on deemed income arising from immovable property. The FCC judgment will have significant constitutional implications regarding the scope of Article 189, legislative competence under Article 77, the doctrine of deemed income, and the extent of judicial restraint in taxation matters within Pakistan’s evolving constitutional framework. A two-member bench, headed by Chief Justice Amin-ud-Din Khan, on Thursday heard appeals arising from judgments of the Sindh, Lahore, Peshawar, and Islamabad High Courts concerning the validity of the tax imposed through the Finance Act, 2022. The petitioners’ counsel argued that Section 7E, in substance, imposes a tax on immovable property under the guise of income taxation, thereby exceeding the legislative competence of Parliament. It was contended that the provision creates artificial or notional income without actual realization, which is inconsistent with settled principles of taxation law. The provision was further challenged on the ground that it violates Article 25 of the Constitution by introducing arbitrary classification among similarly placed taxpayers. The Federation, however, defended the provision as a valid fiscal measure, submitting that Section 7E falls within the legislative competence of Parliament under Article 77, read with Entry 47 of the Fourth Schedule of the Constitution. It was argued that the concept of “deemed income” is a well-recognized legal fiction in tax jurisprudence, designed to capture untaxed economic capacity and prevent avoidance of income tax. The respondents maintained that the provision does not impose a tax on property itself but rather on the economic benefit and presumed income arising from ownership of certain immovable assets. Hafiz Ahsaan Ahmad Khokhar, appearing on behalf of the Secretary, Revenue Division, argued that under Article 191 of the Constitution, read with the Supreme Court Rules, 2025—particularly Orders 12, 13, and 25—a two-member bench of the Federal Constitutional Court is fully competent to hear and adjudicate the present matter. He submitted that the constitutional framework governing the Court expressly permits the Constitution of such benches, and therefore any objection to its composition lacks legal merit. He emphasized that procedural arrangements within the Court are part of its internal constitutional autonomy and cannot be challenged unless shown to be in clear violation of constitutional mandate. Hafiz Ahsaan emphasized that while Article 189 ordinarily gives binding effect to judgments of the Supreme Court, the establishment of the Federal Constitutional Court under the post-restructuring constitutional framework has altered the institutional landscape of constitutional adjudication. He submitted that judgments of the Supreme Court delivered before this constitutional restructuring are not binding in the strict sense upon the Federal Constitutional Court and instead operate as persuasive authority to be considered in light of the new constitutional structure. He further contended that Article 189 cannot be interpreted in a manner that undermines the independent interpretative authority of the Federal Constitutional Court in matters specifically entrusted to it under the Constitution. According to him, constitutional interpretation must reflect institutional evolution, and precedent cannot override express constitutional redistribution of jurisdiction. He further submitted that the Lahore High Court and Sindh High Court had correctly interpreted the constitutional scheme and properly upheld the legislative competence behind Section 7E, appreciating the distinction between property taxation and income taxation through legal fiction. However, he argued that the Islamabad High Court, Balochistan High Court, and Peshawar High Court had, in certain interpretations, not correctly appreciated the constitutional framework and had transgressed settled legal principles by conflating property tax with deemed income taxation, thereby reaching legally unsustainable conclusions. According to him, Section 7E remains fully intra vires the Constitution and consistent with established principles of fiscal jurisprudence. Copyright Business Recorder, 2026
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