FBR Orders to Start Charging Tax on Immoveable Properties in Punjab (7E Update)

The Federal Board of Revenue has given directions to apply provisions of 7E (tax on deemed income basis) for properties in Punjab.

According to FBR 7E, which was earlier made inoperative for properties in Punjab, has once again become operative, and the tax department has issued a partial modification of Instructions of Circular No. 03 of 2023-24.

Instructions were issued through Board’s Circular No. 03 of 2023-24 dated 15.08.2023 to remove any difficulties in the implementation of newly inserted sub-section (2A) of section 236C of the Income Tax Ordinance, 2001, (“the Ordinance”) introduced through Finance Act, 2023.

The Single Bench of the Lahore High Court, Lahore vide W.P. No. 52559 of 2022 dated 06.04.2023, declared the provisions of section 7E ultra vires in terms of Entry 47 of Part-I of the Fourth Schedule to the Constitution of Pakistan. As a result, the operation of the provisions of section 7E of the Ordinance was suspended under the jurisdiction of  Lahore High Court, Lahore.

Accordingly, instructions were issued through Para 02 of Circular No. 03 of 2023-24, reproduced for ease of reference as under:

It is clarified that contents of the Circular will not apply in cases falling in the Jurisdiction of Lahore High Court with reference to the Judgement in WP no. 52559 of 2022 dated 06-04-2023 unless the said judgment is reversed, suspended, or vacation in an Intra Court Appeal or by the Supreme Court of Pakistan.”

The department filed an Intra Court Appeal (ICA) before the Lahore High Court, Lahore, and the Court has set aside the earlier decision of the learned Single Bench vide order dated 15.02.2024.

In pursuance of  Lahore High Court’s decision vide ICA No. 35908 of 2023 titled “The Commissioner Inland Revenue Vs Muhammad Osman Gul”, dated 15.02.2024, the earlier instructions regarding non-applicability of section 7E of the Ordinance in cases falling under the Jurisdiction of Honorable Lahore High Court, Lahore which was conveyed through para 02 of subject Circular are hereby withdrawn with effect from 15.02.2024.

Since para 02 of Circular No. 03 of 2023-24 clearly states that upon suspension of the Single Bench judgment, the provisions of section 7E would be applicable.

The Lahore High Court has overturned a previous decision that prevented a specific tax law (Section 7E of the Ordinance) from applying in Punjab. This means that this tax law will now be enforced for cases under the jurisdiction of the Lahore High Court, which covers the province of Punjab.

In simpler terms, a tax law that was previously not applicable in Punjab is now in effect for cases handled by the Lahore High Court. This change applies to the entire province of Punjab.

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