In a significant development for property owners and taxpayers, the Federal Constitutional Court (FCC) has ruled Section 7E of the Income Tax Ordinance 2001 unconstitutional, effectively abolishing the controversial tax on deemed income from immovable properties.
Section 7E, introduced through the Finance Act 2022, targeted properties valued above Rs 25 million. It imposed an annual tax on undeveloped or non-rented assets based on their valuation by the Federal Board of Revenue (FBR), even when no actual income was generated from these properties.
A two-member bench of the FCC, led by Chief Justice Aminuddin Khan, determined that the provision exceeded constitutional boundaries. The court declared all actions, notices, and proceedings initiated under Section 7E null and void.
Notably, the FCC upheld taxpayer appeals against decisions made by the Lahore and Sindh high courts. Meanwhile, it dismissed appeals filed by the FBR and tax authorities challenging rulings from the Peshawar and Balochistan high courts.
The provision had sparked widespread constitutional challenges, with petitioners arguing that it imposed a disguised property tax under the income tax framework and taxed unrealized income. Government representatives had defended the measure as a tool to broaden the tax base and address untaxed wealth.
Ultimately, the FCC’s verdict marks a major victory for taxpayers, striking down a provision that had been a source of significant controversy and legal dispute.
