' MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---In all the above petitions the following common points have been raised:- "(a) That section 2(e)(ii) of the Wealth Tax Act, 1963 substituted vide Wealth Tax (Amendment)
Ordinance, 1980 imposing wealth tax in the case of a firm an association of persons, or a body of individuals, whether incorporated or not and a company, on immovable property held for the purpose of the business of construction and sale, or letting out, of property, is ultra vires the Constitution of the Islamic Republic of Pakistan as it militates against the powers of the Federal Legislature to frame laws in relation to Entry No,50 of Part-I of the Fourth Schedule viz. "Taxes on the Capital value of the assets, not including taxes on capital gains on immovable property".
(b) That according to the constitutional history of Pakistan, imposition of tax on immovable property i,e, land and buildings, is. Within the legislative competence of the Provinces and the Federal Legislature is precluded from imposing any tax on immovable property. There is already a tax on buildings imposed by the Provinces under the West Pakistan Immovable Property Tax Act, 1958. Thus, imposing wealth tax on immovable property is ultra vires the Constitution as it amounts to infringing the Legislature field of the Provinces and it also amounts to double jeopardy and thus section 2(e)(ii) is ultra vires the Constitution.
(c) That section 2(e)(ii) read with section 7 and Rule 8(3) imposes a charge of 2.5% of the Market value of the immovable property, year after year, thus expropriating the entire property. The charge created by section 2(e)(ii) is thus violative of Article 23 of the Constitution, and consequently ultra vires the Constitution.
(d) The application of section 2(e)(ii) to the Petitioner company also offends Article 25 of the Constitution since public limited companies have been excluded under section 2(h) of the Wealth Tax Act; 1963. Consequently section 2(e)(ii) being discriminatory is ultra vires the Constitution.
(e) That Explanation to section 2(ii) introduced through Finance Act, 1991 is likewise ultra vires the Constitution of the Islamic Republic of Pakistan as it militates against Entry 50 of Part I of the Fourth Schedule to the Constitution.
(f) That circular No, 18 of 1991 (Wealth Tax) dated 2-7-1991 issued by the Respondent No,2 is ultra vires the Constitution in a like manner being in conflict with Entry No,50 of Part I of the Fourth Schedule to the Constitution and also contrary to the interpretation of section 2(e)(ii) laid down by the Honourable Supreme Court of Pakistan in Appeal No, K-140 of 1981, dated 19-1-1989 (Messrs B.P.
Biscuit Factory Ltd., v. Wealth Tax Officer).
(g) That the impugned noticed issued by the Respondent No,3 are ab initio illegal, void without jurisdiction or in excess of jurisdiction as it is ultra vires the main provisions of section 2(e)(ii) as well as Explanation 2 to section 2(e)(ii) introduced through the Finance Act, 1991 as well as the interpretation by the Hon'ble Supreme Court in Appeal No, K-140 of 1981, dated 19-1-1989."
2. For the sake of convenience the facts are taken as alleged in C.P. No,D-1408 of 1991, which are as under:--
3. The petitioner is a private limited company carrying on the business of cotton trading and shipping. The petitioner purchased a double storeyed building at Karachi, and built certain sheds on the plots acquired on lease for stocking cotton bails for the purpose of export. At one point of time, the petitioner had very extensive and vast business but after nationalization of cotton factories in the year, 1970, the business operation of the petitioner was reduced. With the reduction in the volume of business, trading activities, the space in the immovable properties became surplus which were given on lease and licence to the other parties. It is contended that property is not held by the petitioner for the purpose of letting out but for the changed circumstances, the surplus space has been let out. The Wealth Tax Act, was promulgated in the year 1963 and the companies were liable to pay the wealth tax for the assessment year 1963-64 but from the assessm ent year 1964-65 onward the companies were excluded from the levy of wealth tax. Again through the Wealth Tax (Amendment) Ordinance, 1980, the companies were inter alia made liable to wealth tax retrospectively with effect from the year, 1979-80 by making an amendment in section 3 which is the charging section of Wealth Tax Act, 1963, and by the substitution of definition of 'assets' contained in section 2(e)(ii), which reads as follows:-- "(ii) in the case of a firm, an association of persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out, of property;"
4. It is contended that the charge of wealth tax in case of companies, firms and AOP etc., was limited only to the extent of immovable properties held for the purpose of construction and sale or letting out of property. It is further alleged that the petitioner is not holding the immovable property for the purpose of business or construction and sale or letting out of property but did not file wealth tax return under section 14 of the Wealth Tax Act, 1963, for the assessment year 1979-80. The Assessing Officer, issued notice calling upon the petitioner to file the Wealth Tax return, in response whereof the Wealth Tax Return was filed stating therein that the petitioner does not hold the immovable property for letting out and therefore, it was not liable to Wealth Tax. The objection was rejected and the Wealth Tax was charged. The appeal filed before the Appellate Assistant Commissioner, was rejected. Second appeal was preferred before the ITAT and during the pendency of appeal, Hon'ble Supreme Court of Pakistan, passed judgment in the case of B.P. Biscuit Factory Ltd., v. Wealth Tax Officer 1996 SCM R 1470. It was held by Hon'ble Supreme Court that, "only such immovable properties as are held for the purpose of business or construction and sale and or letting them out fall within the definition." It was further held that immovable property held for the purpose of letting out property would not be liable to Wealth Tax. By placing reliance on the above judgment of Hon'ble Supreme Court, the ITAT accepted the appeal and held that the Wealth Tax was not chargeable in the case of petitioner. Similarly assessments were completed up to the Assessm ent year 1984-85 which were cancelled by the ITAT in second appeal. At the time of filing of this petitioner the appeals for the Assessment years 1985-86, 1986-87 and 1987-88 were pending adjudication before the Tribunal. The petitioner filed Wealth Tax return for the assessment year 1989-90 showing net wealth at nil on, the basis of the judgment of the Hon'ble Supreme Court, while no return of Wealth Tax was filed for the. Assessment years 1990-91 and 1991-92. Section 2(e)(ii) was amended through Finance Act, 1991, and an explanation was added which reads as follows:-- "(1) in section 2, in clause (e), in sub-clause (ii), the following Explanation shall be added at the end and shall be deemed always to have been so added, namely:-- "Explanation.---For removal of doubt it is hereby declared that immovable property and the purpose, referred to in this sub-clause, includes-
(i) immovable property held for the purpose of letting out, or business of letting out, of property;
(ii) immovable property held for the purposes of construction and letting out of property; and
(iii) immovable property held for the purpose of construction and sale of property."
5. Scope of the above Explanation was explained by the C.B.R. In Circular No,18, dated 2-7-1981. After the issuance of above circular the Wealth Tax Officer, issued notice under section 17 for re-opening the assessm ent for the Assessm ent year 1990-91 and called upon the petitioner to file the return of Wealth Tax. Similar notice was issued for the Assessment year .1991-1992 as well.
6. In the grounds it is alleged that the Federal Legislature derives its power for the levy of Wealth Tax from Entry No,50 of Part-I of the Fourth Schedule to the Constitution of Islamic Republic of Pakistan, which reads as follows:-- "Taxes on the Capital value of the assets, not including taxes on capital gains on immovable property."
7. It is alleged that the capital value representing the market value on immovable property is outside the domain of Federal Legislature and consequently, section 2(e)(ii) of the Wealth Tax Act, 1963 imposing tax on immovable property i,e, land and buildings is ultra vires the Constitution. It is alleged that all the Provinces in Pakistan are charging tax on the immovable properties under West Pakistan Immovable Properties Tax Act, 1958, and therefore, imposition of another tax on immovable property by the Federal' Legislature amounts to double jeopardy and double taxation which is not warranted by the Constitution and on this account also section 2(e)(ii) is ultra vires the Constitution. It is also contended that the Wealth Tax imposed under section 2(e)(ii) is calculated under section 7 read with Rule 8(3) on the market value or a multiple of the Annual Letting Value, year after year. The adoption of the market value as the basis of wealth tax every year is expropriatory and confiscatory.
8. It is next contended that under the charging section 3 of the Wealth Tax Act, 1963, a company has been made chargeable to Wealth Tax but under section 2(e)(ii) read with section 2(h), all companies in which the Government has 50% equity or such companies are listed on the Stock Exchange have been exempted from the Wealth Tax. This classification is unreasonable and discriminatory and offends Articles 25 of the Constitution. Thus, according to petitioner section 2(e)
(ii) is ultra vires the Constitution and void under Article 8 of the Constitution. The vires of explanation added to section 2(e)(ii) through Finance Act, 1991 is also alleged to be ultra vires the Constitution on the ground raised earlier that it is beyond the domain of law making Authority of Federal Legislature under Entry No,50, Part-I of the Fourth Schedule to the Constitution. The validity of Circular 18/91, dated 2-2-1991, issued by Respondent No,2, is also alleged to be ultra vires the Constitution on same grounds. The notices under sections 17 and 14(2) of the Wealth Tax Act, 1963, issued by the Respondent No,3 to charge Wealth Tax on the petitioner have also been assailed as ab initio, void, without jurisdiction or in excess of jurisdiction being arbitrary, illegal and of no legal effect. It is further contended that the notices issued to the petitioner who is not holding immovable property for letting out is illegal and without jurisdiction.
9. The common relief which has been sought is that section 2(e)(ii) of the Wealth Tax Act, may be declared to be ultra vires the Constitution, being beyond and outside the powers of Parliament envisaged by Entry 50 of Part-I of the Fourth Schedule and that explanation to section 2(e)(ii) of the Wealth Tax Act, introduced through Finance Act, 1991, may also be declared to be ultra vires and the petitioners may be declared to be not chargeable to Wealth Tax, as they are not holding the property for the purpose of letting out and that the notices issued under sections 17 and 14(2) of the Wealth Tax Act, may be quashed.
10. We have heard Messrs Sirajul Haq Memon and Shahenshah Hussain, Advocates for the petitioners and Messrs Sajjad Ali Shah, D.A.G., Nasrullah Awan and Jawaid Farooqui, Advocates for the respondents. The learned Advocates for. The petitioners have reiterated the contentions raised in the petitions.
11. On the other hand, the learned D.A.G. And the learned Advocates for the respondents have submitted that the point in issue already stands decided by the Hon'ble Supreme Court and now there is no scope for any further finding by this Court.
12. We have considered the contentions raised in the petitions and the arguments of the learned Advocates, we are persuaded to agree with the submissions of learned Advocates for the respondents that the issue pertaining to the validity of Wealth Tax already stands decided by the Hon'ble Supreme Court in the case of Haji Muhammad Shafi v. Wealth Tax Officer 1992 PTD 726 and are further covered by the dicta laid down by the Hon'ble Supreme Court in the case of Messrs Elahi Cotton Mills Ltd. v. Federation of Pakistan, PLD 1997 SC 582.
13. In the case of Haji Muhammad Shafi (supra) the leave to appeal was granted by the Hon'ble Supreme Court to consider the following questions:-- "(1) Whether Wealth Tax Act, 1963, is ultra vires the Constitution,
(2) Whether in view of the fact that the tax is imposed by the Federation under Wealth Tax Act, 1963, as well as by the Province under West Pakistan Urban Immovable Property Tax Act, 1958, on the same immovable property, this is the case of double jeopardy and, thus, illegal".
14. In this case a petition was filed assailing the charging of Wealth Tax in the hands of petitioner in the status of Association of Persons as one unit. In the petition the validity of Wealth Tax Act, was challenged on the ground that it was ultra vires the Constitution and on the plea that the tax has been imposed by the Federation under Wealth Tax Act as well as by the Province under the West Pakistan Urban Immovable Property Tax Act, 1958, on the same immovable property, which, cannot be subjected to tax twice. The petition was dismissed by Sindh High Court holding as follows:-- "Firstly we are unable to find any material difference between the concept of taxation under section 3 of the Act and entry No,50 of the Federal Legislative List of Constitution and on the above ground.
The under lying object of aggregation of all the properties of an assessee for the purposes of levy of tax is common both in section 3 of the Act as well as under Entry No,50 of the Federal Legislative List of the Constitution. The fact that the authorities while providing for determination of tax liability of an assessee under the Act, allowed deduction of all his outstanding liabilities from the aggregate value of his assets has no bearing on the character or nature of the tax. This feature of the Act only indicates a mechanism or method provided under the Act for calculation of the tax liability of an assessee under it which certainly cannot affect or change the character or nature of the tax. There is no justification for the above reasons to hold that the tax levied under section 3 of the Act on the net wealth is in any manner different from the tax on the capital value of the assets as contemplated by Entry No,50 of the Federal Legislative List of Constitution. There are no words in Entry No,50 of the Federal Legislative List of Constitution which could be interpreted as placing any fetter on the power of Legislature while providing for tax on the capital value of assets of a person, to allow deduction of liabilities outstanding against him from the value of his assets."
15. The Hon'ble Supreme Court while agreeing with the view taken by the Sindh High Court held as follows:-- "Item 50 of the Fourth Schedule provides for tax on capital value of the assets not including taxes on capital gain on immovable property. Therefore, tax on capital value of assets can be levied which is not disputed at all. Wealth Tax is one of those taxes which intends to subject the assets to taxation. It is nobody's case that the Wealth Tax Act does not charge the assets. The Act has provided a mechanism for imposing and calculating the tax on capital assets. The provision for calculating such tax is provided by the Act. Section 3 denotes which part of the capital value shall be taken into consideration for the purpose of charging Wealth Tax. It is nobody's case that A the net value of assets is not a part of the capital value. The capital value of the assets includes the net value of the assets. The definition of the net wealth under section 2(m) clearly provides that first the aggregate value of all the assets belonging to the assessee has to be taken into consideration.
This is the basis for charging the tax. Now, in order to calculate the tax the aggregate value of liabilities and debts are to be deducted from the aggregate value of assets and the excess so calculated has been termed as 'net wealth' on which tax is calculated at the specified rate. This process of calculating the tax does not exclude the capital value of assets from Wealth Tax charged under section 3."
16. The Hon'ble Supreme Court further repelled the contention that on account of imposition of tax under West Pakistan Urban Immovable Property Tax Act, the imposition of tax under the Wealth Tax Act, amounts to double jeopardy. The Hon'ble Supreme Court held that, at the most it is the case of double taxation which is permissible. It was held that the Wealth Tax was a Federal Tax imposed under law whereas West Pakistan Urban Immovable Property Tax Act is a Provincial tax imposed on the rental value of the property and not on the value of assets of the assessee. The Hon'ble Supreme Court laid down the principle that unless double taxation is prohibited by law it cannot be treated illegal. It was further held that unless there is any prohibition or restriction on the power of the Legislature to impose tax twice on the same subject-matter, double taxation cannot be declared illegal or void though it may be oppressive and inequitable. It was finally held that the imposition of both the taxes referred does not amount to double taxation on the same property as the nature, object and purpose of both the Acts are different, issued by two different legislatures exercising power within their constitutional authority. The appeal was dismissed.
17. In the case of Messrs Elahi Cotton Mills Ltd. (supra) the Hon'ble Supreme Court has laid down the principles of taxation as well as the interpretation of tax laws. It has been held that the Courts while interpreting laws relating to economic activities view the same with greater latitude than the laws relating to civil rights such as freedom of speech, religion etc., keeping in view the complexity of economic problems which do not admit of solution through any doctrinaire or strait jacket formula.
It was also observed that the Legislature particularly in economic activities, enjoys a wide latitude in the matter of selection of persons, subject-matter, events etc., for taxation. The presumption is in favour of the validity of the Legislation. The burden to prove that the same is invalid is on the person who alleges it. The Hon'ble Supreme Court further observed that the Legislature has the prerogative to decide the questions of quantum of tax, the conditions subject to which it is levied, the manner in which it is sought to be recovered, but if a taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax or is confiscatory, the Court may strike down the impugned statute as unconstitutional. It was also held that the tests of the vice of discrimination in a taxing law are less rigorous. If there is equality and uniformity with each group founded on intelligible differentia having a rational nexus with the object sought to be achieved by the law, the constitutional mandate that a law should not be discriminatory is fulfilled.
It was also held that policy of a tax, in its operation, may result in hardships or advantages or disadvantages to individual assesses which are accidental and inevitable. Simpliciter this fact will not constitute violation of any of the fundamental rights. According to Hon'ble Supreme Court, the law should be saved rather than be destroyed and the Court must lean in favour of upholding the constitutionality of a legislation keeping in vide that the rule of constitutional interpretation is that there is a presumption in favour of the constitutionality of the legislative enactments unless ex facie it is violative of a constitutional provision.
18. The Hon'ble Supreme Court further laid down the law that the power to levy taxes is a sine qua non for a State. In fact it is an attribute of sovereignty of a State. It is mandatory requirement of a State as it generates financial resources which are needed for running a State and for achieving the cherished goal, namely, to establish a welfare State. The Legislature enjoys plenary power to impose taxes within the framework of the Constitution. It has prima facie power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to exemption as it chooses, so long as they do not exceed the mandate of the Constitution. The entries in the Legislative List of the Constitution are not powers of legislation but only fields of legislative heads. The Hon'ble Supreme Court also laid down dicta that a Court while examining a fiscal statute should not be carried away with the fact that the same may be disadvantageous to some of the tax payers. If such a fiscal statute is beneficial to the country on the whole, the individual's interest should yield to the national' interest.
19. We are of the opinion that all the issues raised in these petitions are covered by the law laid down by the Hon'ble Supreme Court in the two judgments cited above: After the elaborate judgments of Hon'ble Supreme Court cited above, we do not find any substance in the contentions raised on behalf of the petitioners in these petitions and consequently all the petitions stand dismissed.
20. After hearing the learned advocates for the parties on 24-8-2005, the petitions were dismissed by a short order. These are the detailed reasons in support thereof.