Summary Federal Constitutional Court declares Section 7E unconstitutional, ruling deemed property income tax unlawful and terminating all related FBR proceedings, resolving conflicting high court decisions n
LAHORE (Web Desk) – The Federal Constitutional Court has declared Section 7E of the Income Tax Ordinance, 2001, unconstitutional, ruling that the provision imposing tax on deemed property income is void in its entirety.
A two-member bench headed by Justice Aminuddin Khan and comprising Justice Ali Baqar Najafi announced the decision, stating that all notices, proceedings and actions initiated under the provision by the Federal Board of Revenue and the Revenue Division stand terminated.
Section 7E, introduced through the Finance Act 2022, treated a fixed percentage of the fair market value of certain immovable properties as taxable income, even where no actual income was generated.
The measure had been designed to expand the tax base by targeting under-declared or idle real estate assets. However, it faced legal challenges in multiple high courts on grounds including double taxation, discrimination, and violation of fundamental rights.
Conflicting rulings had emerged earlier, with the Peshawar and Balochistan High Courts striking down the provision, while the Sindh and Lahore High Courts upheld it in certain cases. The Islamabad High Court had partially declared it unconstitutional.
During the proceedings, counsel for the government argued that the concept of deemed income was recognised in tax law and fell within Parliament’s authority under Article 77 of the Constitution.
However, the court ruled that the provision effectively imposed a tax on ownership of property rather than on actual income, making it incompatible with constitutional requirements.
The judgment also noted that the decision resolves legal uncertainty created by divergent high court rulings, with detailed reasons to be issued later.
