FCC Declares Deemed Property Income Tax Unconstitutional
In a landmark decision, the Federal Constitutional Court (FCC) has declared Section 7E of the Income Tax Ordinance 2001 unconstitutional and void. This ruling brings huge relief to thousands of property owners across Pakistan who were facing tax demands on deemed income from their immovable properties even when no actual rent or income was earned.
The two-member bench headed by Chief Justice Aminuddin Khan and Justice Ali Baqar Najafi announced the short order on Thursday. The court ruled that all notices, proceedings, and actions initiated by the Federal Board of Revenue (FBR) under this controversial section now stand terminated and have no legal effect.
Section 7E was introduced through the Finance Act 2022. It treated a fixed percentage (usually 5%) of the fair market value of certain properties as taxable income. The FBR used this provision to tax idle or under-utilized real estate assets. However, many taxpayers challenged it in different high courts, arguing it violated fundamental rights and imposed tax on something that was not actual income.
After hearing detailed arguments from both sides, the Federal Constitutional Court concluded that Section 7E was essentially a tax on property ownership rather than on income. The court held that this exceeded the constitutional limits of taxation powers and therefore could not be sustained.
This decisive judgment settles the legal confusion created by conflicting verdicts from various high courts. The Peshawar and Balochistan High Courts had earlier struck down the section, while other courts had given mixed rulings.
The court has made it clear that all FBR notices and recovery actions under this section are now invalid. Property owners who received tax demands under Section 7E can now breathe easy as the entire provision has been declared null and void.
This FCC ruling is being seen as a major victory for taxpayers and a significant check on the FBR’s powers to impose new forms of taxation without proper constitutional backing. Detailed reasons for the judgment will be released later.
