SHER MUHAMMAD MUGHARI Versus The FEDERATION OF PAKISTAN through Secretary Finance Islamabad

SHORT ORDER

AMIN-UD-DIN KHAN, CJ.--- The insertion of Section 7E in the Income Tax Ordinance, 2001, through the Finance Act, 2022, was assailed before all the provincial High Courts, including the Islamabad High Court, on constitutional grounds. The Peshawar High Court and the High Court of Balochistan declared the impugned provision to be ultra vires the Constitution and struck it down. The Islamabad High Court, while not invalidating the provision in its entirety, read it down and declared subsection (2) thereof to be ultra vires the Constitution. Against the judgment of the Single Judge of the Islamabad High Court, I.C.As were pending before the division bench of the Islamabad High Court and two writ petitions were also pending, which were requisitioned vide order dated-06.04.2026 in the light of Article 175E(5) of the Constitution and same were transferred to this Court. A learned Single Judge of the Lahore High Court allowed the writ petitions; however, the said judgment was reversed in intra-court appeals by a Division Bench, which allowed the appeals and dismissed the petitions. The High Court of Sindh similarly dismissed the constitutional petitions. Consequently, the taxpayers assailed the judgments of the Lahore High Court and the High Court of Sindh, whereas the Federal Government! Federal Board of Revenue/Commissioner Inland Revenue challenged the judgments rendered by the Peshawar, Balochistan, and Islamabad High Courts.

2. Having heard the learned counsel for the parties at considerable length and upon due deliberation, we are persuaded to hold that Section 7E of the Income Tax Ordinance, 2001, is ultra vires the Constitution, and is accordingly struck down, being void ab initio. For the reasons to be recorded separately, all the civil petitions filed by the taxpayers against the judgments of the High Court of Sindh and the Lahore High Court are converted into appeals and allowed while civil petitions filed by the FBR/C.I.R against the judgments of the Peshawar High Court and the High Court of Balochistan are dismissed. The transferred cases are disposed of accordingly. Consequently, all actions, proceedings, and notices initiated or taken by the FBR/C.I.R under Section 7E are declared to be without lawful authority and are hereby set aside.

MWA/31/FCC Order accordingly.