The Federal Board of Revenue (FBR) has instructed field formations to implement the provisions of section 7E, pertaining to tax on a deemed income basis, for properties in Punjab. It has come to light that section 7E, previously deemed inoperative for properties in Punjab, has been reinstated. The tax department issued a partial modification of Instructions of Circular No. 03 of 2023-24 in response to this development.
To address challenges in implementing the newly inserted sub-section (2A) of section 236C of the Income Tax Ordinance, 2001, introduced through the Finance Act, 2023, the FBR issued instructions via Circular No. 03 of 2023-24 on August 15, 2023. This directive aimed to resolve any difficulties arising from the amendment. However, the Single Bench of the Lahore High Court, Lahore, through W.P. No. 52559 of 2022 dated 06.04.2023, declared the provisions of section 7E ultra vires under Entry 47 of Part-I of the Fourth Schedule to the Constitution of Pakistan. Consequently, the operation of section 7E was suspended within the jurisdiction of the Lahore High Court.
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In response to this legal development, the FBR issued instructions through Para 02 of Circular No. 03 of 2023-24. The circular clarified that its contents would not apply to cases falling under the jurisdiction of the Lahore High Court, as per the judgment in W.P. No. 52559 of 2022 dated 06-04-2023, unless the said judgment was reversed, suspended, or vacated in an Intra-Court Appeal or by the Supreme Court of Pakistan. The tax department filed an Intra-Court Appeal (ICA) before the Lahore High Court, Lahore, challenging the earlier decision of the Single Bench. Subsequently, the Lahore High Court, Lahore, set aside the previous judgment of the learned Single Bench on February 15, 2024.
Following the Lahore High Court’s decision in ICA No. 35908 of 2023 titled “The Commissioner Inland Revenue Vs Muhammad Osman Gul,” dated 15.02.2024, the FBR withdrew the earlier instructions that deemed section 7E of the Ordinance as inapplicable in cases under the jurisdiction of the Lahore High Court. This withdrawal was effective from 15.02.2024.
As stated in Para 02 of Circular No. 03 of 2023-24, the applicability of section 7E hinged on the suspension of the Single Bench judgment. Therefore, with the Lahore High Court overturning the earlier decision through ICA No.35908 of 2023 on 15.02.2024, the FBR requested that field formations in Punjab be informed of the reinstated applicability of the provisions of Section 7E of the Ordinance in cases falling under the jurisdiction of the Lahore High Court.
