MIAN ALLAH NAWAZ, J.- This judgment will govern three batches of Constitution petitions. The first batch comprises of 283 petitions which have been filed by Public Limited Companies, Private Limited Companies and Registered Firms. These, in substance, seek to challenge the constitutional validity of Section 80-D of the Income Tax Ordinance (XXXl of 1979). It shall be hereinafter referred as the "Ordinance" Section 80-D was inserted in it by Finance Act (XII of 1991). This Act was passed by the Majlis-e-Shoora/Parament and received the assent of the President on 20th June, 1991. It was promulgated w.e.f, first day of July, 1991. The second batch members 61 petitions and is by contractors and importers. These petitions and the vires-of Section 80-C of the Ordinance, which was inserted into the Ordinance by means of Act (XII of 1991). This Act was passed by the Majlis-e- Shoora/Parliament and received the assent of the President on 30th Jude, 1991. It was promulgated w. e f. First day of July, 1991. The third batch consists of 70 petitions. These have been moved by exporters and call in question the legality of Section 80-CC which was inserted into Ordinance by Finance Act (VII of 1992). The array of parties of first, second and third batch of the petitions is completely given in Appendix-A, B and C respectively.
2. The aforesaid provisions of the Ordinance were debated by the learned counsels for the parties thoroughly and comprehensively. On behalf of the petitioner, Raja Muhammad Akram, Senior Advocate, Dr., Ilyas Zafar, Mian Ashiq Hussain, Mr, Imtiaz Javed Hashmi, Mr. Umar Atta Bandial, Mian Saqib Nisar, Dr. A Basit, Mr. S.H. Rizvi, Syed Zahid Hussain, Syed Ali 7-afar and Dr. M. Mohy-ud-Din Qazi, Advocates argued to assail the challenged provisions. While on behalf of respondent No.1, Mr. Faqir Muhammad Khokhar, learned Deputy Attorney General of Pakistan entered appearance. He represented the Attorney General of Pakistan #ho was not available on account of his unavoidable engagements. Mr, Muhammad Ilyas Khan, Advocate, appeared on behalf of respondents No. 2,3 and 4.
3. Raja Muhammad Akram, Advocate, while leading the arguments on behalf of the petitioners' side, raised following points in order to demonstrate the constitutional invalidity of challenged provisions:
(i) That no tax can be levied without the authorization by Majlis-e- Saoora/Parliament under Article 77 of the Constitution. Furthermore the Majlis-e-Shoora can only enact tax laws within the ambit of entry 47 contained in Part-1 of Fourth Schedule under Article 70(6) of the Constitution of Pakistan (1973) (here-in-after referred as entry 47 of the Schedule). According to the learned counsel the word "Income" embodied in entry 47 of the Schedule, contained the principle of profits/losses; that the tax could be levied on the gains of the assessee and not on the basis of his gross income. On the basis of this submission, it was represented that Section 80-C, 80-D made the turnover/any deemed or accrued income, as a basis of tax and so these provisions were repugnant to entry 47 of the Schedule and were so without any lawful consequence.
(ii) That the laws enacted by the Parliament had to be in conformity with the basic rights contained in Part-II of the Constitution. Relying upon the above Chapter of the Constitution, the learned counsel contended that if any tax law or any of its provision enacted by the Parliament offended Articles 18, 21, 23, 24, 25 and 26 of the Constitution, such enactment or provision was void ab initio and was liable to be struk down by this Court under Article 8 of the Constitution. According to the learned counsel the challenged provisions ere violative of Articles noted above -situations arising out of the operation of challenged provisions, He cited the example of four imaginary companies with a gross tum over of rupees I0O Crores. According to him:
(a) A company with a gross turn-oyer of rupees I0O Crores might make profit and the tax payable by it might be Rs.50 lacs or more and stated that this company was not hit by Section 80-D of the Ordnance.
(b) Another company, having same turnover, might earn the profit which may be less and its tax liability might be Rs 10 lacs. Even this company will not be hit by Section 80-D.
(c)Another company, with the same turn-over might not earn any profit , but still this company will have to pay the tax under Section 80-D of the Ordinance. This company when examined within company (a) and
(b) shall be accorded uneven and unequal treatment and would have . To pay same tax which the company (a) and (b) would pay.
(d) Last but least there may be another kind of company/companies, with the same turn-over but they might be in a loss and might have not earned any profit at all This company, regardless of its loss, will have to pay rupees 50 lacs from its own resources.
Proceeding further, he submitted that the company a,b,c, and d, irrespective of their losses and gains will have to pay rupees 50 lacs as tax As far as company (a) is concerned it is not affected by the operational parameters of Section 80D of the Ordinance. The companies/company (b), (c) and (d) are hit by the above provisions. The companies (c) and (d) fall in extremely awkward position. These companies, while clearing their tax liability, will have to pay from their own resources and to sell their properties. Section 80-D on above analysis, according to the learned counsel, is confiscatory in nature and in second instance provides no reasonable classification. It actually makes uneven, even, and accords same ' treatment between equals and unequals. The net effect of Section 80-D of the Ordinance is that this provision contravenes noble constitutional doctrines of equal treatment and provision forbidding confiscation of the properties of the people without compensation. The same principle, according to the learned counsel, applies to Sections 80-C and 80 CC of the Ordinance. Raja Muhammad Akram, Advocate relied upon following decisions to support the above proposition:
(i) KP. Moopil Nair vs. State of Kerala ([AIR 1961 SC 552J.
(ii) Anandige Sham Bhai vs. AgrU.T. Officer [AIR 1963 SC 591];
(iii) State of Kerala vs. Haji Kutty [AIR 1969 SC 378];
(iv) Bhupinder Singh vi. The State [AIR 1986 H.P33]; and
(v) Govemment of Pakistan vs. Muhammad Ashraf [PLD 1993 SC 176].
(iii) That sections 80-D, 80-C and 80-CC provided fictional income/deemed income as a basis for computation of tax on flat rate. This prescription completely overlooks the realities and ignores the principle of gains, losses, deductions and exemptions contained in the scheme of Income Tax Ordinance, 1970. According to the learned counsel, the legislature has clubbed genuine tax payers, and tax evaders together, on the basis of a deemed income. These provisions, therefore, have no nexus with the object of Finance Act, 1991 or Finance Act, 1992 mid are discriminatory in nature.
The written notes, too, Were submitted by Raja Muhammad Akram, Advocate, which have been placed on the record of Constitution Petition No. 8621/91.
4. Dr. Ilyas Zafar, while appearing in Constitution Petitions No. 11794/92 and 9532/92, submitted that Section 80-C was violative of Agreement concluded between Islamic Republic of Pakistan and Peoples Republic of China vide an instrument dated 27.12.1984. This instrument was executed under Section 173 of the Ordinance. It was agreed therein that the Govemment of Pakistan ( would tax the petitioner on the basis of principle of profits and losses and not on the basis of turn-over.
According to the learned counsel, the above petitioners had sustained heavy losses, and, therefore, did not owe any tax liability in the terms of Memo of Understanding dated 27.12.1984. On the above circumstance, it was represented that the respondents were estopped on the principle of promissory estoppel to enforce the provision of Section 80-C of the Ordinance against the petitioners. According to the learned counsel, the instrument of understanding between the Government of Pakistan and Peoples Republic of China, was contained in NTR 1992. SL174.
4-A. - On behalf of the petitioner in W.P. 884/94, learned counsel represented that the petitioner in this writ petition was Lahore Development Authority; that it was not a commercial organization and had been created to develop the city of Lahore. According to the learned counsel, the Lahore I Development Authority was immune from any tax under Section 80 of the Ordinance and so the respondent had no jurisdiction whatsoever to tax the LDA under challenged provisions. The learned counsel relied upon following precedents in support of his contention;
(i) Ata-ul-Haq vs. Chaiman and Members of the Election Appeal Committee (PLD 1964 Dacca 70)
(ii) Zakir Ahmad vs. University of Dacca (PLD 1965 Dacca 122).
(iii) Deputy Manager Director, National Bank of Pakistan vs. Ata-ul-Haq (PLD 1965 SC 201).
(iv) Chief Secretary, Govemment of Punjab vs. Commr of I.T. (PLD 1976 I Lah.258)
Dr. Ilyas Zafar, Advocate, while arguing Petitions No. 776/91, 9365/912, 9527/91, 1029/92, 536/92, 145/92, 1835/92, 5334/93, 11358/92,1051/93 and 13274/94, stressed that the petitioners in the above- noted petitions were those undertakings which were exempted from tax liability under Sections II8, 118-B, 118-D, 120, 122-D, 125 and 125-A of the Ordinance. Under these ' provisions the investors/companies were given Highlighting the above, it was argued that the respondents had no jurisdiction whatsoever to take away the above concessions granted to the above petitioners on the principle of promissory , estoppel. Reliance was placed on M. Afzal & Sons vs. Federal Govemment of Pakistan (PLD 1978 Lah. 468). Collector of Central Excise & Land Customs vs. Aziz- ud-Din Industries Ltd. (PLD 1970 SC 439), WAPDA vs. Capt Nazir Hussain and Others (1986 SCMR 96) and AsstL Commissioner vs. Dhannendra Trading Co. (1989 PTD 839). He concluded by saying that Section 80-D was repugnant to the Injunctions of Islam which commands the Muslims to fulfil their promise/undertakings given. Reference was made to verse: 177 of Surah Baqra of the Holy Qur'an.
Winding up his arguments, the learned counsel pointed out that ' the petitioners in petitions No. 8931/91, 9526/91, 12269/91 535/92, 3541/92, 301/93,161/93, 640/93, 6027/92 and 569/92, were the undertakings which had sustained heavy losses and they are under no liability to pay tax.
According, to the ' learned counsel Section 80-D nullifies the effect of Sections 34 and 35 of the Ordinance and so is harsh, unreasonable and oppressive legislative prescription having no regard for the concrete concept of income.
5. Mr. Zia-Ullah Kiani, Advocate, appearing on behalf of M/s Govemment Contractors Assedation/petitioner in writ petition bearing Np. 8575 of 1991, relying upon the following precedents, contended that Section 80-C of the Ordinance was beyond the term of Entry 47 in Fourth Schedule and was violative of the definition other Income contained in Section 2(24) of the Ordinance. He placed reliance upon.
(i) (ii) #tbs
(iii) 1995
(iv) #the
(v) (vi) #tbs
(vii) Key Law Reports
(viii) #the
(ix) (x) #tbs
(xi) Tax.& C. 54
(xii) #the
(xiii) (xiv) #tbs
(xv) I
(xvi) \
(xvii) #the (xviii) Commissioner Income Tax vs. Shaw Wailance [AIR 1932 P.C.138]
(xix) Kamkshy Narain Singh vs. Commissioner of Income Tax [(194311ITR 513 (P.C.)].
(xx) Pakistan Industrial Development Corpn, vs. Pakistan (1992 P.T.D. 576).
(xxi) Commissioner of I.T. Vs. Smith, Kline & French of Pakistan Ltd. [(1991 SCMR 2374)]
(xxii) Commissioner of Income Tax vs. Harprasad & Co. (P) Ltd. (1975) 99 ITR 118] (xxiii) Commissioner of Income Tax vs. Moula Bux Corpn. Ltd. (PLD 1990 S.C. 1990).
(xxiv) Shrin Munir vs. Govt, of Punjab (PLD 1990 SC 295).
(xxv) State vs. Zia-ur-Rehman (PLD 1973 SC 49).
(xxvi) Federation of Pakistan vs. Saeed Ahmad Khan, (PLD 1973 S.C. 49).
(xxvii) Commissioner of Income Tax vs. Anwarafy Haji Noor Muhammad (1992 SCMR 458).
(xxviii) Inamur-Rehman vs. Federation of Pakistan (1992 SCMR 563).
(xxix) KTMoopil Nair vs. State of Kerala (AIR 1961 S.C. 552).
(xxx) Luchman Dass vs. State of Punjab (AIR 1963 S.C. 222).
(xhr) A. Appukutty vs. Sales Tax Officer (AIR 1966 Kerala 55).
(xv) M/s. Chhotabhai vs. Union of India (AIR i962 SC 1006). ,
(xvi) Chhatrasinhji Kesansinhji Thakore vs. CJ.T. [(1966) 59 ITR 562 (SC)].
(xvii) State of Andh. Vs. Raja Reddy (AIR 1967 SC 1458).
(xviii) va/w Fraser & Co Ltd vs. C.L T. [1982) 137ITR 493].
(xix) C/.7V vs. B.C Snnivaso Setty [198l) 128 ITR 294 (SC)].
(xx) Shree Sajjan Mills Ltd. Vs. CL T. [1985)156 ITR 585]
(xxi) K V.ALM. Reemanathan Chettiar vs. CI.T. [(1973) 88 ITR 169 (SC)]. {{MISARRANGED DATA}}
6. Mian Ashiq Hussain, Advocate entered appearance in 9150/91, 9943/92 and 5359/92 and argued that Section 80-C of the Ordinance, in final analysis amounted to erosion of distribution of Revenue between Federation and Provinces ordained under Article 160 of the Constitution and, therefore, it was a void provision. He relied upon P.ID.C.\s. Pakistan (1992 PTD 576) to contend that deeming income, as made basis in the challenged provision, was wholly offensive to the object of Finance Act, 1991 as well as of 1992. He further stressed that the concept of Income was inseparably linked to the concept of gains and losses and income tax can be only levied upon the income which was a gain to the Assessee, after deducting the expenditure and losses, if any. He banked upon the definition of income given in Corpus Juris Secundum Vol 89, page 731, Patiala State Bank's case (AIR 1941 Bom.93). Mr. Ali Bin Abdul Qadir, a Senior Member of the Tax Bar Association, Lahore, strenuously ^contended that the definition of income contained in Entry No. 47 in Fourth Schedule be considered with reference to the meaning which were in the mind of the framers of the Constitution. He traced chronology of this entry and stated that the similar entry existed in the Govemment of India Act, 1933 and previous Act of 1922 which was replaced by the Ordinance of 1979. According to the learned counsel, the legislative chronology indicated that the income tax was to be levied on the income after deducting the expense and losses and after taking into consideration the exemptions contained in the Income Tax Act, 1922 and Ordinance of 1979.
According to the learned counsel, the challenged provisions had totally abolished the above concepts and had demolished edifice on which the Scheme of Taxation rested. This being the position, challenged provisions as a matter of act are tax on turn-over and so they, in reality are imposed on sales of assessee and mot on the income.
7. Mr. Saqib Nisar, while entering the debate, laid stress upon the construction of definition of word income by Privy Council in Commissioner, Income Tax vs. Shaw Wallace (AIR 1932 PC 138).
According to the- learned counsel the income is a fruit of a tree or a fruit of harvest That fruit had to be obtained after taking into consideration all what has been spent in harvesting or rearing of the tree. He relied upon the definition of income given in Corpus Juris Secundum and definition of the same word' in Black's Law Dictionary. He concluded that word turn-over in Section 80-D of the Ordinance, could not be substituted for income. He also stressed that a fiction cannot be extended to provide for results which are foreign to object of Statute. Relying upon JJC Jute Mills Co, vs, State of UP. (AIR 1961 SC 134) and Entry Club vs. State of Mysore (AIR 1967 Mysore 25)'the contended that the result of the application of challenged provisions will be simily disastrous. The learned counsel sought support from A. .Sanyasi Rao vs. Govt of A.P (1989) 178 I.T.R 31
8. Mr. Umar Ataa Bandial, Advocate, explained the concept of tum over to argue that the same could not be made legitimate basis for the purpose of levying income tax. He relied upon Federation of Hotel & Restaurant vs. Union (AIR 1990 Sc 1937) The Elel Hotels and Investment Ltd. Vs Union of India (AIR 1990 SC 1664) and R.P Engineering Co. Vs Zila Panshad, Bareilly(AIR 1980 SC 1088)
9. Dr. Abdul Basit, Senior Advocate, entered the debate in the last He at the very out set, contended that the Ordinance was promulgated by late Gen. Muhammad Zia-ul-Haqon 28.6.1979 that he had broken the Constitution and was a usurper. Continuing, he contended that the Ordinance was issued by a person who was not competent to enact the same so the Ordinance was not a valid piece of legislation. He further argued the illegally constituted Assembly by the usurper, was not competent to can Article 270-A in the Constitution and validate the invalid laws. On this basis it was contended, that the Ordinance was anviled piece of legislation and any amendment in the same suffered from the inherent legal infirmity. He relied upon Editorial notes contained in a quarterly journal LEGAL OPINION printed and published by Amir Ali Shah for Idara Technic Qanoon om its Head office located at Qanoon Manzil, Behind High Court, Lahore. These notes occur at page 22 of the aforesaid Legal Opinion. He further contended that as far as non-bobstante clauses in 80-C, and 80-CC are concerned, these are not a bar to the power of judicial review of this Court under Artical 199 of the Constitution. While owning the arguments of the other counsels, he contended that neither 80-D, and 80-CC were retrospective nor these provisions were applicable to finance year 1991-92.
10. Mr. Muhammad Ilyas Khan, Senior Advocate, Supreme Court of Pakistan, while defending the challenged provisions, raised following points.
Firstly, that the Constitution deals with the structure of the State. It the State. It confess powers, rights and privileges on the various limbs of the State. It deals with the distribution of power between the Federal Govemment and the Provincial Governments. It is a living document and is to be interpreted in the widest possible manner to ensure the continuity and balanced in the various organs of the State. The entry No. 47 of the Schedule is to be interpreted not in a restricted manner but with wide and comprehensive connotation in order to meet the grown sodo-dynamies of the Sate. He relied upon Shridhar vs. Poona City Municipality (AIR 1941 Bombay) Elel Hotels & Investments Limited and others vs. Union of Lndia (AIR 1996 SC 1964). Navinchandra Mafatla, Bombay vs. Commissioner of Income Tax, Bombay City (1954) 26 I.T.R. 758 (S,C, of India), Bhagwan Dan Jain vs. Union of India & others (1981) 128 I.T JR 315 (S.C.).Sakarla Balabhai vs. Bala Bhai (1975)
100 LR.T. (Guj) Page. 97). PXD.C. Vs Pakistan (1992 SCMR 891). And Docars Teea Co. Limited vs. Commissioner of Agricultural I. Tax, (1961) 4 I.T.R. 6 (S.C. India).
Secondly, that the concept of deemed income incorporated in challenged provisions, was not foreign to taxation scheme in vogue in the subcontinent According to the learned counsel, it was fully ingrained in Income Tax Act, 1922 and then in Income Tax Ordinance, 1979 Explaining further the learned counsel relied upon following provisions: S. No. Relevant Section Subject
1. 2(20) Deemed dividend.
2. 2(24) \ Bonus shares - not to be considered as income in certain cases.
3. 12(8) A discontinued business shall be deemed to have continued for the purpose of Income Tax Ordinance.
4. 12(12) - Assets other than stocks and shares purchased from Co. At less than market value difference deemed to be income of the purchaser.
5. 12(13) Un-adjustable advance rent deemed to be income to be taxed in ten years (l/10th each year).
6. 12(18) Bonus exceeding Rs. 1.00,000 received otherwise than through crossed cheque deemed to be income of the recipient of loan.
7. 12(19) Payment received by lessor against leased assets to be income of certain persons.
8. 13(l)(a) Un-explained credits in books to be income of the assessee.
9. 13(l)(aa) Un-explained investment etc. To be income.
10. 13(l)(b) Ua-explained/uorecorded investment etc, to be income,
11. 13(l)(c) Money or valuable article, the sources of which remain received is deemed to be income and tax is collected at ' 20% of such income. #tbs unexplained, is deemed income.
12. 13(1) (c) Un-explained expenditure deemed income.
13. 19 The charge is on ALV rather than the actual rent received.
14. 25(c) Trading Lability remaining unpaid for more than three years deemed to be income.
15. 29 Clandestine transactions deemed to be transactions of the beneficiary.
I6. 50(3) Any sum (chargeable to tax) when paid out to a nonresident such sum is deemed to be income and tax is to be withheld at normal rates.
17. 78 Every agent who is declared to be or is treated as an agent is deemed to be an assessee.
18. 79 When business transaction is arranged between a resident and a non-resident where no profit or loss arise to a resident reasonable profits be determined by 1TO to be income of resident.
19. 80 Shipping business of nonresident Aggregated receipts to be deemed to be income and tax at 8% is collected.
20. 80(A) Ali-line business of a nonresident Aggregate receipts are to be deemed to be income and tax at 3% is collected.
21. 80(AA) Aggregate of technical fees #the finance Act, 1991 Inserted Sections 80-B.80-C & 80-D #tbs 156 #the #tbs 132 #the #tbs 99(5) #the #tbs 25. #the #tbs 24. #the #tbs 23. #the #tbs
22. 88 All income arising to any person by virtue of a revocable transfer of assets, is deemed to be income of the transferor.
Where department takes no action upon refund application of assessee till 30th June, amount of refund is deemed to be due to assessee.
Where appeal is not decided within three months, the relief claimed shall be deemed to have been given.
If the mistake pointed out by the assessee is not rectified by the department within a given period, the mistake is deemed to have been rectified.{{TABLE MISARRANGED}} On the above basis, it was represented that the law-makers with a devoted loyalty, had incorporated the concept of deeded income in taxation schemes of this country, in various provisions of Income Tax Act, 1992 and Income Tax Ordinance, 1979; that the assessee have accepted this concept without any demur mid have been paying tax in consonance with the "deemed income" Now, it was too late for the petitioners to signal out the challenged provisions and throw challenge to them. Reliance was placed on Commissioner of Income Tax, Bombay vs. Mani Lai Dhanji (44 I.T.R. 876 S. VC (India) Commissioner of Income Tax, A.P. Vs. C.P. Sarathy Mudaliar (83 I.R.T. 170 S.C. (India) Dahi Laxmi Dal Dactory vs. Income Tax Officer (103 I.T.R,. 353).
Thirdly, That it is settled that the legislature has full power to make/eoact retrospective legislation.
Reliance was placed on M/s Haider Automobile Ltd. Vs. Pakistan (PLD 1969 SC 623), Madurai Distt Central Co-op, Bank limited vs. IIIrd Income Tax Officer (1975) LTU. Volume 101 Mst. Rafiquen Nessa vs Lai Bahadur Ghetn (AIR 1964 Sc 1511). Collector of Central Excise vs. Azizuddin Industries Ltd. (PLD 1970 SC and Monnuid-un-Nasa vs. Land Commissioner (PLD 1975 S.C. 397).
On the above arguments, it was prayed that all these petitions be dismissed.
11. Mr. Faqir Muhammad Khokhar, the learned Deputy Attorney General of Pakistan, appeared on behalf of learned Attorney General of Pakistan who did not appear in this Court on account of his unavoidable engagements. Mr. Khokhar represented the Federation with immeasurable industry and defended the challenged provisions of the Ordinance, in addition to the points raised by Mr. Muhammad Ilyas Khan, learned counsel for the Department, on the following reasons: Fristly, That the fundamental rights enumerated in Para-II of the Constitution were divisible into two classes; that one class was applicable to the citizens while the other class was applicable to citizens and non-citizens. He pointed out that Articles 15,16.17,18,19,20,23,25, and 28 pertained to basic rights to the citizens and non-citizens; that Articles 18 and 25 were not applicable to public limited companies, private limited companies, registered and unregistered firms which were not, by any stretch of imagination, citizens but were legal entities. On the above view, he contended that the petitions which challenge the validity of Section 80-D of the Ordinance are not maintainable. In order to fortify his point of view, he cited following decisions of superior judiciary:
(i) S.T. Corpn, of India vs. Commercial Tax Officer (AIR 1963 SC 1811).
(ii) Indo. China S. Navign Co. Vs. Jaspis (AIR) 1964 SC 1140).
(iii) Barhum Cherminals Ltd. Vs. Company Law Board (AIR 1967 SC 295).
(iv) Amntsar Municipality vs. State of Punjab (AIR 1969 SC 1100)
(v) Anwar vs. State of J&K (AIR 1971 SC 237).
(vi) State of Gujrat vs. Shri Ambica Mills (AIR 1974 SC 1300).
(vii) Divisional Forest Officer vs. Bishwanath Tea Co. Ltd. (AIR 1981 SC 1368).
(viii) National Starch & Chemical vs. Weikfield Produces Co. (AIR 1990 Kerala291).
Secondly. That the right to tax, no doubt, Was constitutional yet it was not a basis right of the citizen/legal persons. According to the learned counsel, the petitions so did not disclose justiciable right.
Thirdly, That the right to equal treatment did not mean and include the negative of equal treatment. Explaining further, he added that the claim of petitioners was that un evens were being treated evenly. This aspect was not covered by Article 25 of the Constitution. Reference was made to Tika Ramji vs. The State of U.P (AIR 1956 SC 676)
Fourthly. That the term income' embodied in section 2(24) of the Ordinance was not exhaustive in nature but it was an inclusive term. No strict interpretation can be placed upon this term, for the purpose of supporting the above view, the learned Deputy Attorney-General cited following precedents:
(i) I.T. Commr.Vs. Teja Singh (AIR 1959 SC 352)
(ii) M.D. Central Co-op. Bank vs. IIIrd I.T. Officer (AIR 1975 SC 2016)
(ill) Commr. Income Tax, Bombay vs. Bombay Corpom. (AIR 1930 P.C.54)
(iv) Samina Shauka! Ayub Khan vs. Co. Mr. Of I.T. Rawalpindi (PLD 1981S.C. 85).
(v) Commissioner of Income Tax vs. Maula Bux Corpn. Ltd. (PLD 1990S.C. 990 at 996).
(vi) Pakistan Industrial Development Corpn, vs. Pakistan (1992 SCMR 891).
(vii) Chuhannal Jakannal vs I.T. Commr. (AIR 1988 SC 1384).
Fifthly & lastly, that the challenged provisions were enacted to combat tax evasion, corruption and deviational tendencies plaguing both the assessee as well as the tax hirearchy. Relying upon the findings of Tax Reforms Commission Report, the learned Deputy Attorney-General submitted that the corruption was so rampant in the Tax Department and amongst the assessee that even half of the due income tax was not collected by the concerned department. This happened as a result of the collision between the assessee and the Tax Authorities and it happened on account of inadequate accounting, structure in the Society. He contended that in such circumstances the Federal legislature was constrained to adop the principle of presumptive tax in order to eliminate the alone-noted tendencies. On this view, the learned Attorney-General strenuously contended that the petitioners had come to this Court with unclean hands and that the petitions merited to be rejected.
12. From the fore-going narration of rival contentions of the parties, the following questions arise for determination:
(i) Whether the Majlis-e-Shoora was competent to enact Sections 80-C, 80-CC and 80-D of the Ordinance within the terms of entry 47 of the Schedule?
(ii) Whether the legislature is not competent to levy income tax on presumptive/deemed income.
Whether the tax on Ttura over or sources' is, in fact, a tax on sales and is not a tax on income within the meaning of section 2(24) of the Ordinance?
(iv) Whether the impugned provision do not provide any reasonable classification having nexus with the object of Finance Act, 1991 and Finance Act, 1992?
(v) Whether the challenged provisions are retrospective or prospective in nature?
(vi) Whether the respondents are precluded by the Principle of promissory estoppel to enforce Section 80-D against those foreign companies who are operating in Pakistan under an agreement conduced between the Federal government of Pakistan and the Govemment of People Republic of China as suggested by Dr. Ilyas Zafar, Advocate?
(vii) Whether the Ordinance is invalid law as it was enacted by a usurper and Article 270-A of the Constitution was passed by incompetent legislature?
(viii) Whether the petitioners have come to this Court with unclean hands and are not entitled to discretionary relief under Article 199 of the Constitution?
(ix) Whether the public limited companies, private limited companies, registered under the Companies Ordinance. 1984, registered firms and un-registered firms are not entitled to seek the protection of Articles 18,23 and 25 of the Constitution.?
13. The stage is, now, set to answer the foregoing questions. We will take up first questions. No. (i) and, (ii) The key to their answer lies upon the meaning and scope of the word income embodied in entry N6. 47 of the Schedule and Section 2(24) of the Ordinance. The principles of construction pertaining to these two words are well settled and fully entrenched. These came into examination in Bhagwan Dass Jain vs. Union of India (1981) Vol, 128, page 31 (SC) At page 318 of this judgement it was held: "Entry 82 of List of the Seventh Schedule to the Constitution empowers Parliament to levy" taxes on income other than agricultural income". Now it is well-settled that the entires in the Lists in the Seventh Schedule to the Constitution should not be read in a narrow or restricted sense and each and every subject mentioned in the entires should be read as including within its scope all ancillary and subsidiary matters which can fairly and reasonably be comprehended in it Words in the Constitution conferring legislative power should receive a liberal construction and should be interpreted in their widest amplitude."
The learned Judge while delivering the opinion, noted with approval, a passage from a Book of Income Tax (2nd Edn.) Vol.1, by simonat page 502, which related to tax on the income attributable to property. It is stated as follows: "It is now clear, however, that
(1) Income-tax is but one tax imposed by the Income Tax Acts.
(2) Income tax is a tax upon income; and
(3) Schedule A is but one of five Schedules which provide varying methods of estimating measure of that income from different sources for the purposes of charge to a tax"
The above rule was followed by the Division Bench of Kerala High Court in T.K. Aboobacker v. Union of India (1989) Vol 177, page 358). It was held: "It is well settled that the entries in the fists are "hot powers of legislation but only field or legislative heads and designs to define and delimit the respective areas of legislative competence of the State and Union legislature. The language of the entries will have to be given the widest scope and in interpreting the entry, it would not be reasonable to import any limitation by comparing or contrasting it with any other entry in the same list. Normally the constitutionality will have to be presumed in interpreting the enactment, as stated by P.H Lane learned author of Australian Federal System, 2nd Edn. At pp. 106 and 107: "In testing the validity of a law, it is required to (i) scrutinize very terms of the challenged law, its specific provisions and the law as a whole;and
(ii) ascertain from these terms the precise and immediate impact of. The law, what kind of control or restriction is exerted by the lay in the realm of rights and duties.
Parliament has, prana facie, power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to pre-emption as it chooses.
The power to tax is the one great power upon which the whole rational fabric is based.. It is not only the power to destroy, but it is also the power to Keep alive."
The above canon of construction was reiterated by the Supreme Court of India in Federation of Hotels & Restaurants vs, Union of India (AIR 1990 SC 1637).
14. The word income as contained in Section 2(24) of the Ordinance, came up for consideration before the Supreme Court of Pakistan in Pakistan Industrial Development Corporation vs. Pakistan (1992 P.T.D. 576); it was held: "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 expended 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 statue 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 pf 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".
15. The ratio deducible from the foregoing examination is as follows:
(i) That the Constitution is a living document; that it reflects the ideological aspiration of the people and is made through their will; that it deals with the governance of the State; that it lays down the frame-work of the distribution of the powers and subjects between the federation and federating units; that it delimits the power of various limbs of State; Le. Legislature, executive and judiciary.
Being a permanent document it is to be considered liberally and with wide and comprehensive connotation designed to meet the exigencies of the State and changing conditions of sodo-religio and economical dynamic of the State. It is to be given purposive, organic construction; each and every provision of the Constitution is to be construed in such a manner that it is not rendered surplus age. It there is any conflict between the two provisions, the same are to be interpreted on the basis of the theory of reconciling them.
(ii) The entries in the Schedules to the Constitution are not to be given any circumscribed pedantic construction. These are to be examined in widest possible spectrum. These entries, are the fields in which the legislature of the State are empowered to act and frame laws.
(iii) The word 'income' embodied in Section 2(24) of the Ordinance is not exhaustive import but is inclusive in nature. This word like 'income' in Entry No. 47 is to be construed as largely as possible.
(iv) The constitutionality of Statute/law is presumed till it is rebutted on the showing of some irrefutable circumstances.
Applying these principles, to the contentions of parties we are in no manner of doubt that the Federal Legislature was fully competent to enact the challenged provisions. These did relate to the income.
16. Now we tum to second question which is allied to the first It is true that the Ordinance imposes a tax on income and nothing else. Before we proceed further we would like to have a bird's eye view of this Ordinance. It consists of fourteen chapters and five Schedules. Chapter-I pertains to Short title extent, its commencement and Definition; Chapter-II relates to Administration; Chapter-m governs charges of tax; Chapter-IV deals with computation of total income; Chapter-V provides allowances and reliefs; Chapter-VI covers the subject of payment of advanced tax; Chapter VII deals with the problems relating to assessment; Chapter-VHI provides for tax liability in special cases; Chapter-DC pertains to recovery to tax; Chapter-X covers with-Refunds and Tax Credit; Chapters XI, XII and XIII provide for Penalties, Offences, Prosecution and Appeals and Revisions etc.; Chapter-XHI-A relates to Settlement of certain cases; Chapter-XTV governs Miscellaneous matters.
For the purpose of controversy in hand, Chapters 1, III and some provisions of Chapter-IX and challenged provisions occurring in Chapter-VHI are relevant. Section 9 states that subject to provisions of the Ordinance, there shall be charged, levied and paid for each assessment year, income tax in respect of the total income of the year. This Section is followed by Section 11 which defines the scope of total income. Section l2 further incorporate the concept of 'deemed income'.
Then provisions pertaining to deductions, exemptions and assessment of tax liability on the basis of income which is left after excluding deductions and exemptions.
17. From the above analysis, it becomes crystal dear that Section 11, Section l2 and Section 2(24) of the Ordinance do not only make the actually received income as basis of Tax but also make income which might not have been received but might have been deemed to have been received or might have been deemed to have accrued. The concept of 'deemed income' stood incorporated in the Scheme of Taxation in the Income Tax Act, 1922 and it was again embodied in the Ordinance.
The fictional income or Presumptive basis for income Tax is not inserted in challenged provisions for the first time. The in- depth study of the Ordinance < shows that Section 2(24), Sub-sections (8), (l2),(13),(18),& (19) of Section 12. Clauses (a), (aa), (b), (c)K(e), of Subsection (1) of Section 13, Section 19, Section 25(c), Sections: 29,50(3), 78,79, 80, 80(A), 80(AA), 88, 99(5), 132 and 156, provide presumptive income as basis of taxability. From this, it clearly follows that the concept of 'deemed income' or 'presumptive income' embodied in Sections 80-C, 80-CC and 80-D, is not new but had been the part and parcel of Income Tax Scheme from inception in the sub-Continent and then in Pakistan, in various shapes.
18. The Science of tax evasion is as old as science of taxation. There has been a persistent and un- ending struggle between the legislature and those taxpayers who are determined to evade their tax liability and shift it to the shoulders of their fellow beings. Lord Green, very correctly, said in Lord De Walden v.; IR 25 TC, 134(CA) 1942) 10ITR Suppl 90,94 as follows: "For years a battle manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders oh to those of their fellow subjects.
In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom, the present appellant has not ben the least successful It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the servants of penalties. It scarcely lies in the mouth of 'the taxpayer who plays with fire to complain of burnt figures.
These golden words are fully applicable to socioeconomic dynamics of our Society which is steeped into tax evasion, the avoidance of tax, their non-reporting, corruption and smuggling. The smuggled goods are being sold in big rides right in the presence and right in the face of and- smuggling agencies. These aspects of Society are not longer secret. No normative values are in operation to condemn, ridicule the deviationists. The theory of approbation and reprobation seem to be non-existent. The revenue evaders, black marketers, corrupt officials, smugglers the beneficiaries of corruption and so on so-forth, do walk in the Society without any fear of censure/ridicule and roam like unbridled stallions. The up-holder of normative values seem to have capitulated before deviatory. We are here, reminded of maxim that Chief devil of good is its capacity to fight. No doubt the supremacy of rule of law without supportive normative values is mere illusion. Dealing with these problems, the National Finance Commission said in 1986: "The extent of tax evasion is difficult to estimate precisely even in countries which have reliable economic statistical data. Kaldor in his "Survey of the Indian Taxation System" made an estimate of the order of magnitude of evasions in India by a method and on premises which are by no means precise. From the national income statistics he extracted the non-salary income in each sector, made certain assumptions in respect of the percentage of income in each sector that was above the tax exemption limit, multiplies the non-salary income with this percentage and arrived at the amount which should have been subjected to tax. On comparing his estimate with the amount of non-salary income which was actually assessed to tax, he found that more than half the total non- salary income had escaped taxation. Though this method of calculation depends on assumptions on which there can be disagreement, it appears to be the best mode of calculation available. We have, therefore, used a some what similar method to arrive at an approximate projection of the extent of tax evasion. Based on the National Income Accounts for 1984-85, the methodology adopted in Annexure VII shows that as against the assessed income of Rs. 19,299 million, the amount that escaped income tax was Rs. 50,763 million. In other words 72.4 % of the income liable to tax escaped taxation in the relevant year. This represents escaped income for one year only. As the income tax paid on assessed income works out historically to about 365% of that income, that tax evaded on Rs.50,763 million would be Rs. 18,528 million for the year 1984-85 as against about Rs.7,000 million actually assessed that year. Similar projection can be made for earlier years which will indicate that the evaded runs into astronomical figures.
Another method of calculation adopted in Annexure VIII indicates the cumulative amount of black money in our economy. This estimate Gives the cumulative figures of total black wealth in Pakistan at Rs. 1,80,000 million by taking into account approximate amounts of black money existing at present in the forms of un-accounted for bank deposits, currency notes, gold and other valuables, black capital in business, undisclosed real estate, foreign deposits and assets and household effects and luxury cars.
A comparison of the extent of black money in Pakistan with die extent of black economy in India may also be found revealing. Studies Undertaken in India to quantify the extent of black income give varied estimates but with the unanimous conclusion that tax evasion is rampant there. The estimates made yield figures which range from 3.6% of the GNP. to as high as 13.7% of the GNP and from Rs. 1,72,090 million of tax evaded income to Rs. 4,68,660 million of black economy generated in a year. The se estimates have been reproduced in Annexure IX."
On the basis of above findings the Commission recommended following remedial measures: "5.23 The existing legal provisions for discouraging cash transaction have, thus, proved to be inadequate. However, the introduction of mechanical and electronic Cash Registers can now serve the same purpose as these machines also permit easy verification of the periodic sale-volume. It is, therefore, suggested that use of cash Registers may be made obligatory in certain types of business and the cost incurred compensated by allowing it as revenue expenditure over a period of two years instead of allowing it as depreciation allowance over a number of years as at present.
5.24 Another remedy for this problem would be to put some legal restraint on the unlimited quantum of transactions which can be made in cash., This approach was adopted by the Taxation Commission of 1974 which recommended that "it should be made obligatory that payment of every transaction above Rs. 10,000 be made through a bank draft, pay order, bank transfer or crossed cheque to payee's account failing which the transaction may n6t be accepted for tax purposes'. While realizing that such problems cannot be tackled through legal provisions as the mode of monetary transaction is influenced and determined essentially by various factors like the stage of social development and the economic character of the market, one cannot help reaffirming the same approach. The main objection generally raised against introduction of such measures is the possibility of fraudulent issuance of unrealizable cheques by the unscrupulous.
This fear can be taken care of by requiring the banks to introduce easily encashable "commercial cheques" on the pattern of travellers cheques with the modification that this cheque would be encashable by the person to whom it has been given by the holder after affixing his own signatures. Similarly, all payments claimed for income tax purposes in excess of Rs. 25,000 can be required to be made only through the banking channels, In view of local conditions payments made to agriculturists on account of 'purchase of agricultural produce may be exempted from this provision for the present. This provision will not, of course, be able to take care of transactions intended to be kept outside the books but will certainly be a step in the right direction and would help in checking underreporting of income.
5.25. In many cases, tax evaded income is reploughed into business by our businessmen in the form of fictitious loans mostly from persons stated to be enjoying tax-exempt income. An effective check can be introduced in this area by prescribing that no loan, advance or deposit of Rs.25,000 or more shall be acceptable for purposes of income tax assessment unless, it has been received through an account payee cheque or account payee bank draft."
19. It appears that the Federal Legislature , on account of impediments created by vested Elites, was not able to give statutory recognition to aforesaid remedial measures suggested by the Commission. Resultantly our cherished State had to face a macro-economic instabilities and colossal defect in the budgets. Those, who mattered, had to listen to what the World Bank suggested to them. A round table discussion in relation to economies of 3rd world, was organized by the World Bank in 1991. Musgrave and Gillis-renowned economists, suggested that taxation in developing countries be based upon presumptive incomes of individuals, legal entities/companies. They must pay tax on the basis of 8% of their wealth. Number of other economists followed the suggestions of Musgrave with further analysis of economies of IIIrd World.
Resultantly the presumptive income tax system was experimented in Malavi, Korea and Spain with success. The studies further reveal that this concept of tax had been in vogue in France in some- what different forms. It will be apt to note that France is said to be the mother of democratic traditions and is house of Voltaire and Rausseau who had evolved the underlying philosophies of basic rights. Confronted with the above dismal position, the Legislators enacted Sections 80%- C,80-CC and 80-D in order to plug tax evasion. These challenged provisions institute presumptive income as a base for levying of the income tax. The normal methodology of computation of total income; deduction, exemption were done away with a minimum rate of income tax bn the basis of turn-over gross receipts and sale proceeds. Is this methodology prohibited by any provision of the Constitution or any provision of the Ordinance? On indepth study of the Ordinance, our answer is "No". The deemed income presumptive income has been the part and parcel of the taxation design introduced in Income Tax Act, 1922 and Income Tax Ordinance, 1979. The' receipt of income is not the sole criterion for the tax liability. It was so held by Supreme Court of Pakistan in Samino Shoukat Ayub vs. Commission of Income Tax, Rawalpindi (PLD 1981 Sc 85). Their lordships in the same case, quoted with approval, the observation contained in United Provinces vs Mst Attiqua Begum & others (AIR 1941FC 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 the ancillary or subsidiary matters which can fairly or reasonably be same to be comprehended in it."
20. For what has been stated above, we are clear in our mind that the challenged provisions were validly made and enacted by the Parliament. The contentions of the learned counsel for the petitioners are found to be whole devoid of force and are accordingly repelled.
21. After answering questions No. (!) & (U), we now turn to question No. (ii) ,and (iv). Before proceeding further we would like to reproduce the findings of the Supreme Court m State of Gujrat v. SriAmblka Mills l4d (AIR 1974 SC 1300). While delivering the opinion, Mathew J, said: "Statutes are directed to less than universal situations. Law reflect distinction that exist in fact or at least exist in the judgment a legislators-those who have the responsibility for making law fact.
Legislation is essentially empiric. It addresses itself to the more or less crude outside world and not to the neat, logical models of the mind. Classifications inherent in legislation. To recognize marked differences that exist infact is living law, to disregard practical differences and concentrate on some abstract identities is lifeless logic.
In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment, the legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulations, the uncertainty, 'the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events-self- limitation can be seen to be the path to judicial wisdom and institutional prestige and stability."
(p.784) (of SCR: atpp. 1314 15 of AIR) , "Thus we stand on familiar ground when we continue to acknowledge that the justices of this Court lack both the expertise and the familiarity with local problems so necessary to the making of wise decisions with respect to the raising and disposition of public revenues. Yet, we are urged to direct the State either to alter drastically the present system or throwout the property tax altogether in favour of some other form of taxation. No Scheme of taxation, whether the tax is imposed on property, income, or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the Court doe s well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the Equal Protection Clause." (p. 729) (of SCR: at p. 592 of AIR).
"It is now well settled that though taxing laws are not outside Art. 14, however, having regard to the wide variety of diverse economic meterial that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject- matter, events, etc, for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the read effect of its provisions. A legislature does not, as an old saying goes., have to tax everything in order to be able to tax something. If there is equality and uniformity within each ground, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying; items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes.
"But with all latitude certain irreducible, desiderata of equality shall govern classifications for differential treatment in taxation laws as well The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grounded together and absent in the others left out of the class. But, this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognized that no precise or set formula or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied.
The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience.
Classifications based on differences in the value of articles of the economic superiority of the persons of incidence are well recognized. A reasonable classification is one which indues all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law."
22. On the question of presumptive taxation there has arisen a strong divergence of opinions in various High Courts of India. Section 44-C and Section 206-C of Indian Income Tax Act provide a presumptive basis of income in charging income tax. These provisions came up for consideration before Andhra Pradesh High Court in A. Sanyasi Aao v. GovL of Andhra Pradesh [(1989) 178 ITR 31], on the ground of Legislative incompetence, violation of equality protection clause and unreasonable restriction on the freedom of trade that High Court, while upholding the legislative competence of legislature, held that the challenged provisions were contrary to Articles 14, 19(1) (f) and 19(g) of the Indian Constitution. The following confusions were reached by the learned Judge: "We find it difficult to say that the submissions of learned counsel for the petitioners based upon artides 14 and 19(1) (g) are without substance. Literally read, section 44-AC brings about a legislative assessm ent of the profits and gains of persons trading in specified goods. The normally applicable provisions, sections 28 to 43C, 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 fictious names, or in the names of faceless persons; or persons of little means. We will also accept the respondent' submission that because of the above factors, the State was losing 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______________ "
Section 44C was, however, not struck down but in view of the public interest, the High Court decided to read down the said provisions, deleting the non obstante clause contained therein and entitling the tax payers to show in the normal proceedings under that Act, that the tax collected on presumptive basis was not correct. This view was followed by Orrisa High Court in Sri Vankateswara Timber Depot vs. Union of India [(1991) 189ITR 741] and by Haryana High Court in Sat Pal and Co. Vs. Excise and Taxation Commissionei{(1990) 185 ITR 481] and T.K Aboobacker vs. Union of India [(1989)
177 ITR 358J. The proposition was fully considered in P. Kunhammad Kutty Haji's case, supra, wherein ft was held as follows: "The Statute under attack has many a jacket to shield it. The presumption of constitutionality is a strong one difficult to penetrate ordinarily. The judicial approach throughout has been to allow the Legislature flexibility at the joints, particularly when a taxing statute is under attack. The vigour with which the Land Tax Act had been shot down is not seen in the later stages of constitutional decision making as regards taxing statutes. Be that as it may, the guiding principles would allow the executive (which has a better experience of men and matters) to have a greater freedom in this area.
Apart from stating that it is an undue burden and that the provisions are discriminatory, the petitioners have not been able to marshal materials massive enough to make the court feel that a constitutional guarantee of a trade citizen is under serious jeopardy or that he has been subjected to an evil and vicious discrimination. In that back ground, the attack has to fall and the petitioners have" to seek solace elsewhere."
Bearing the above principles in our mind, we herein proceed to analyse Sections 80-C, 80-CC and 80-D of the Ordinance. Section 80-C applies to certain Contractors and Importers. Under it, the whole amount received by a person on account of supply of goods or on execution of contract or the amount spent by any Importer of goods(also including custom duty and sales tax) is deemed to be the income of such person. Like-wise Section 80-CC relates to income of certain Exporters.
This provision enacts that the whole of export proceeds of a person is deemed to be his income.
Section 80-D prescribes a minimum tax on turnover of certain companies or registered firms. This provision levies tax at the rate of 1/2% as minimum tax on the turn-over of the business or trade of the Company/registered firm. The liability under the above provisions varies from 1/2% to 1% in case of exports and 2% in case of imports and 2/2% in case of supplies. These rates of tax, when compared with the tax salbs given in the Schedules, seem to be minimum. These rates neither look to be arbitrary nor excessive and so these cannot be characterized confiscatory or expropriatory.
No material whatsoever has been placed on record of these petitions to demonstrate the unreasonableness of these rates. On each date of hearing the petitioners were inquired as to whether the trading community, including the petitioners, would like to own the remedial measures suggested by the Commission fully highlighted on page 32 of this judgment and would keep the account accordingly. None of the petitioner, in fact, volunteered to accept the above-quoted suggestions. The petitioner counsel did not sate, at all, that they would be willing to accept the mechanism of payment of every transaction above Rs. 10,000/-through cheques, drafts crossed cheques and pay orders, so as to ensure the accuracy of the. Accounts and so as to eliminate discretionary power of the tax hierarchy. The bedrock of the petitioner case is that the challenged provisions have not taken into account the margin of profit of the Contractors, Importers, Exporters, the Public limited Companies, the private Limited Companies and registered firms and contingency of losses. It can be hardly disputed that the margin of profit/any accrual of losses depends upon number of factors including he relative efficiency of management and exploitation for the opportunities at the correct times and so on and so forth. It is also not disputed that the petitioner have prepared their case on the basis of deductions and exemptions allowance which were allowed in the Ordinance. No doubt under the charging Section of the Ordinance, the charge is upon the total income. Deductions and exemptions have been given under the Ordinance by taking into consideration variety of the circumstances which cannot be enumerated. Deductions as well as exemptions are not the prerogative of the tax payers. Furthermore the Scheme of Ordinance empowers the Assessing Authority to reject the accounts of tax-payers and impose tax in exercise of his discretionary powers. Seen from above perspective, it becomes clear that the case of the petitioners is wholly built upon hypothetical and speculative considerations and without even looking into the positive features of challenged provisions. It was essentially the duty of the petitioners to prove beyond any reasonable doubt, that the challenged provisions contained rates of income tax which were manifestly excessive, unreasonable and disproportionate to the gains and profits of the petitioner, no such exercise, in correct perspective, was made.
23. The bare reading of Sections 80-C, 80-CC and 80-D of the Ordinance, shows that these provisions are applicable to certain Contractors, certain Importers/Exporters, certain Companies and certain registered Firms, No distinction amongst these classes have been made. The aforenoted tax-payers have been selected as a class without any discrimination, inter se. The differentia is provided. The minimum rate of impost has been specified and not left to the discretion of the Government or the tax hierarchy. The object of the above, legislative measure was clearly spelt by the Finance Minister who said no the floor of the House that those measures were intended to broaden the base of the taxpayers, to simplify the procedure of assessement and to eliminate the discretionary power of the tax-hierarchy. On deep analysis we have found that the challenged provisions do meet the above objects and there is solid nexus between classification and the object underlying the challenged provisions. The challenge [Vol. Xiv thrown by the petitioner is based upon, as already shown, on subjective and hypothetical approach. None of the petitioners, as already stated, had come to Court with cogent and credible material to demonstrate that he had suffered actual toss, without taking into consideration the net work of deductions and exemptions granted to trading Companies by the C.B.R, or by the Act. This being the position we have no difficulty in coming to the conclusion that the challenge to Sections 80C, 80CC and 80-D comes on wholly untenable grounds. The petitions are, therefore, found to be wholly devoid of merit. On the above analysis we hold that the challenged provision are neither contrary to equal protection clause nor are confiscatory in nature.
24. We are not inclimed to answer questions (vi) as well as (ix). In so far as question No.(vi) is concerned, it has arisen out of written note submitted by Dr. Ilyas Zafar, Advocate, in writ petitions No. 9532/92,11794/92,9926/92,12269/91, 533/94 and 884/94. The point was not argued by the learned counsel in Court and it was not replied by the learned Standing Counsel for the respondents. It was also not attended to by the learned Deputy Attorney-General. The point is of far- reaching significance and needs complete rehearing. The same point has ben raised in writ petitions. No 5174/92, and 8415/91. Further writ petition No. 7608/93 and 10571/91, proceeds on somewhat different background, and needs rehearing. In he contect of this scenario-we order that the office shall fix writ petition. No. 9532/92, 11794/92, 9926/92, 12269/91,533/94, 884,94, 5174,92, 8415/91, 768/93,10571/91,9527/91,1139/92,1150/92,1151/92,1812/92,1814/92, 3759/92, 4660/92, 9432/92, 9561/92, 9564/92,11227/92, 1301/93, 4483/93,5021/93 5022/93, 5052/93, 5834/93, 10152/93, 16169/93, 16172/93, 1041/94, 8509/94, 8558/94,7408/92, 673/93,5651/94 and 14033/94 for rehearing in the second week of February, 1965.
25. As regards question No (ix) we are not persuaded to deal with it as its answer has become unnecessary on account of our findings on questions No.(i) (ii) and (iv).
26. Now the only questions surviving for examination are questions No. (v) , (vi) and (viii). Question No. (v) is free from difficulty. It is a settled law that the legislature has power to make laws with retrospective effect. The reading of Finance Act, 1991, Finance Act, 1992 and Finance Act, 1993, clearly indicates that they have been made effective from 1st of July of the respective years. This being the position the point urged by the learned counsel for the petitioners pales into insignificance. The tax payers as well as the tax-hierarchy we are sure, will act strictly in accordance with the frame work of the Finance Acts of 1992 and 1993.
27. Now we turn to question No. (vii). It is sufficient to note that this question was taken care of by the august Supreme Court of Pakistan in Federation <4 Pakistan v. Ghulam Mustafa Khan (PLD 1989 S.C. 26). While dealing with the tires lnd validity of Article 27Q-A, his lordship Mr. Justice Saad Saood Jan, speaking for the Bench, said; "29. Apart from that, it will be noticed that clause (2) of the Article 270-A, as it stands worded includes within its purview all orders made, proceedings taken or acts done by any authority or by any person during the period of the Martial Law in exercise of the powers, derived from any proclamation, Presidents Order, Ordinances, Martial Law Regulations, Martial law orders, enactments, notification, rules, orders or bye-laws. Similarly, it also encompasses all orders made, proceedings taken and acts done in execution of or in compliance with any order made, or sentence passed by any authority in the exercise or purposed exercise of the aforementioned powers. Now during the period of the Martial Law the Superior Courts did continue to function. Their jurisdiction was ousted only in respect of orders made or actions taken by the Martial Law authorities and the Military Courts. As regards orders, actions and proceedings taken by the other authorities in the country, there was no dog on their jurisdiction. They, thus, continued to exercise their power of judicial review in respect of the acts, actions and proceedings made, taken or held by the other authorities. If the argument, of the learned Attorney- general is taken to its logical confusion, all such acts, actions and by the Superior Courts in exercise of their power of judicial review, would stand revived, for, the words, "notwithstanding any judgment of any Court" as occurring in clause-(2) of Article 270-A are too strong to yield any other result; further, all pending constitutional petitions challenging the legality of the orders of no- Martial Law authorities or Courts would become infractions. This could not possibly be the intention of the Parliament in enacting the clauses (2) and (5). Even the learned Attorney-General did not care to canvass such a proposition. Had it done so, this would have been indeed an impossible position to take."
This question was again taken care of by the Supreme Court in an order passed in a petition under Article 184(3) of die Constitution of Islamic Republic of Pakistan, filed by "Wukala Mahaz Barai Takaful Dastoor" in following words: "The dedarations and the directions sought are of the nature which will have far-reaching consequences/effects which may even affect the present set up of the Government and/or persons who are not before us. After the lifting of Martial law, three National Assemblies have been elected which could any of the amendments made by the Chief Martial Law Administrator. The petitioner has not challenged any specific order with reference to any specific provision of the Constitution. The examination of the above petition will involve a very detailed exercise of scrutiny of various amendments made in the Constitution by the Chief Martial Law Administrator. In our view, such a general exercise is not warranted after the lapse of more than even years from (he lifting of Martial Law. We are, therefore, not inclined to entertain the above petition. It Is, accordingly, dismissed."
The law expounded by the Supreme Court is binding upon this Court under Article 189 of the Constitution. Dr. Abdul Basit, the learned counsel appearing on behalf of the petitioner, who urged this point, might raise this question before the Supreme Court.
28. As regards question No. (viii)we are inclined to reproduce the findings of the National Finance Commission already noted in Para 17(pp32-33). These are followed: "...Based on the National Income Accounts for 1984-85, the methodology adopted in Annexure VII, shows that as against the assessed income of Rs. 19,299 million, the amount that escaped income tax was Rs. 50 50,763 million. In other words 72.4% of the income liable to tax escoped taxation in the relevant year. This represents escaped income for one year only. As the income tax paid on assessed income works out historically to about 36% of that income, the tax evaded on Rs. 50, 763/-million would be Rs. 18,528 million for the year 1984-85 as against about Rs. 7,000 million actually assessed that year. Similar projection can be made for earlier which will indicate that the tax evaded runs into astronomical figures.
Another method of calculation adopted in Annexure. VHI indicates the cumulative amount of black money in our economy. This estimate gives the cumulative figure of total black wealth in Pakistan at Rs. 1,80,000 million by taking into account approximate amounts of black money existing at present in the forms of un-accounted for bank deposit, currency notes, gold and other valuables, black capital in business, undisclosed real estate, foreign deposits and assets are household effects and luxury cars..." This report pertains to year 1986. Much water has flown through the bridge. We are now at the verge of 1994. With the passage of time of the volume of block-money on account of lack of accounting measure has resulted into almost parallel economy. We must deal with this problem as challenge, otherwise it v^ll be a danger to our own existence. The petitioners who represent the trading community were asked to prepare then- accounts in accordance with the remedial measures suggested by the Commission or give their weight to passing of such laws which must be instrumental for reliability on accounting. We regret to note that none of the petitioners cane forward to give recommendations to the remedial measures suggested by the Commission or to propose any alternative formula for counting. This depicts lamentable picture.
The problem of black-money is built upon a triangular, namely (i) those who evade revenues due to State (ii) those who are instrumental for facilitating the tax/revenue evasions and (ii) those who applaud, appreciate and ansulate the evaders. This is, short, the sodo-logical expansion of the supremacy of deviating behaviour. The concerned authorities, the public at large, the representative of the Chamber of Commerce, must attend to this problem In order to give a responsibility to fabric of Society and save it form further ruin and disaster. For the above reasons we are inclined to hold that the petitioners have not come to this Court with clean intention.
29. As a result of above discussion we hold that the challenged provisions of Sections 80C, 80CC and 80D of the Ordinance were validly made and enacted by the Federal Legislature and are neither discretionary nor confiscatory. As for as the ratio K.T. Moopl Nair vs, State of Kerala (AIR 1961 SC 552), is concerned it is not applicable to the controversy in hand. The aforesaid precedent proceeds on wholly distinguishable facts and is not relevant to the facts of this case. In result these petitions are found to be without any merit and are accordingly dismissed leaving the parties to bear their own costs.
30. For the above reasons we also direct the Registrar of this Court to send copy of this judgment to the Ministry of Finance, the Chamber of Commerce, at Lahore, and Karachi.
31. Before parting with this judgment we would like acknowledge very valuable contributions made by the learned counsel for both parties. We had been grossly benefited by very illuminating debate in which M/s. Raja Muhammad Akram, Dr. Ilyas Zafar, Mian Ashiq Hussain, Mr, Imtiaz Javaid hahmi, Mr. Umar Atta bandial, Mian Saqib Nisar, Dr. Abdul Basit, Mr. S.H. Rizvi, Syed Zahid Hussain, Syed Ali Zafar and Dr. M. Mohy-ud-Din Qazi Advocate have participated. We are equally obliged to recognise the contribution made by Mr. Muhammad Ilyas Khan, Advocate, the learned Standing Counsel for Income Tax Department and Mr. Faqir Muhammad Khokhar, the learned Deputy Attorney- General. Both of them represented their clients with remarkable industry, enormous labour and elucidated the legal questions with clarity.