FEDERAL BOARD OF REVENUE ISLAMABAD vs FEDERATION OF PAKISTAN and others
This civil appeal challenges a judgment of the High Court which annulled the Table of tax rates introduced by the Finance Act, 2012 in the Income Tax Ordinance, 2001, specifically regarding the 6th slab of taxable income. The High Court had struck down the statutory provision on the grounds that it lacked certainty, was based on incorrect arithmetical calculation, and lacked a rational basis and reasonableness. The core legal question before the Supreme Court was whether a legislative enactment by Parliament can be annulled on the grounds of arithmetical inaccuracy, lack of reasonableness, or lack of rational basis, absent any legislative incompetence or violation of fundamental rights. The Supreme Court held that declaring a parliamentary statute void requires establishing legislative incompetence or a violation of fundamental rights, and grounds such as incorrect arithmetical calculation or lack of reasonableness are criteria for testing executive action rather than primary legislation. Consequently, the Supreme Court set aside the impugned High Court judgment and allowed the appeal, laying down the principle that statutory tax measures enacted by Parliament cannot be invalidated merely on grounds of arithmetical calculation or perceived unreasonableness unless they violate fundamental rights or constitutional competence.
- Can a statute promulgated by Parliament be declared void solely on the ground of incorrect arithmetical calculation, lack of rational basis, or unreasonableness?
- What are the valid constitutional grounds for declaring a legislative statute enacted by Parliament to be void?
- Are criteria such as lack of reasonableness and incorrect arithmetical calculation applicable for testing the validity of legislative measures or executive actions?
- Income Tax Ordinance, 2001
ORDER
UMAR ATA BANDIAL, J. The impugned judgment of the learned High Court has annulled the Table of tax rates introduced by the Finance Act, 2012 in the Income Tax Ordinance under Clause (IA) of Division-1 of Part-1 of the First Schedule to the Income Tax Ordinance, 2001 on the ground that the 6th slab of taxable income for Rs,2.5/- million and above should be charged to a rate of tax amounting to Rs,420,000 + 20% of the amount exceeding Rs,2.5/- million. The rationale for the declaration of law given against the afore-noted statutory provision is that it lacks certainty , is based on incorrect arithmetical calculation and lacks rationale basis and reasonableness.
2. Learned counsel for the appellant has submitted that the said grounds do not constitute a valid basis for annulling a statute promulgated by Parliament. He has referred to Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176 at page 186) to submit that a tax which is confiscatory is considered to be violative of the fundamental rights and on that ground in the afore-noted precedent case the matter was remanded to the High Court for fresh determination on the facts of the case. None of the grounds taken by the learned High Court in the impugned judgment demonstrate a case of confiscatory taxation. He has submitte d to us a Table of the tax slabs enforced by the Finance Act, 2012 for the tax year 2013 which is reproduced below: TAX SLABS FOR SALARIED INDIVIDUALS FINANCE ACT, 2012 SLAB 1 2 3 4 5 6 Taxable IncomeDoes not Exceeds 400,000Exceeds 400,000 but doesExceeds 750,000 but does notExceeds 1500.000 byt does notExceeds 2,000,000 but does not exceedExceeds 2,500.000 not exceed 750,000exceed 1500,000exceed 2,000,0002,500,000 Rate of Tax0% 5% of the amount exceeded 400,00017500 + 10% of the amount exceeded 750.00095000 + 15% of the amount exceeded 1500,000175000 + 17.5% of the amount exceeded 2,000.000420,000 + 20 % of the amount exceeded 2,500,000 Effective Rate of Tax0% 2.33% 6.16% 8.5% 10.5% 16.8%
3. It is evident from the effective rate of tax for different slabs of income that there is a gradual rise of 2% to 4% in the slabs starting at Rs,400,000/- and going up to Rs,2.5 million taxable income. In the final slab which exceeds taxable income of Rs,2.5 million, the increase in the effective tax rate is 6.3% (abov e the previous effective tax rate of Rs,10.5% in the slabs between Rs,2/- million and. Rs,2.5/- million). He submits that the effective tax rate is by no means confiscatory and this aspect of the case has not been discussed by the impugned judgment whilst issuing the declaration against the Finance Act, 2012.
4. The learned counsel for the respondent No,3 representing the employer has nothing to say in the matter . The affected party , the respondent No,4 is represented but his learned counsel has not attended today's proceedings without there being any request for adjournment being placed before the Court. The said respondent is proceeded against ex parte.
5. To declare a statute promulgated by Parliament under the Constitution to be void is a very serious matter , That declaration may be A given on the ground of incompetence of Parliament to enact the law or for a violation of fundamental rights by the enacted law. In the present case, the impugned judgment lacks discussion or finding on either of the said grounds. A declaration given solely on the ground of incorrect arithmetical calculation, lack of rational basis or reasonableness of the statute is devoid of legal foundation. Such grounds, if at all, are criteria for testing the validity of executive action and not legislative measures. Consequently , we do not agree with the finding given by the learned High Court in the impugned judgment. Be that as it may, learn ed counsel for the appellant has also informed us that in the tax year 2014, the Table of tax rates was again revised and the grievance of the respondent No,4 pertaining to tax year 2013 was redressed.
6. In the light of the foregoing, the impugned judgment is set aside and this appeal is allowed.