ISLAMABAD: The Federal Constitutional Court (FCC) on Thursday declared Section 7E of the Income Tax Ordinance, 2001, unconstitutional, ruling that all actions, proceedings and notices initiated by the Federal Board of Revenue (FBR) and Commissioners Inland Revenue (CIR) under the provision were without lawful authority and stood set aside.
A two-member FCC bench, headed by Chief Justice Aminuddin Khan and comprising Justice Ali Baqar Najafi, announced the short order in more than 300 petitions challenging the controversial provision before various high courts.
The Section 7E was introduced through the Finance Act, 2022 for tax year 2023 and provided for taxation on deemed or notional income arising from ownership of certain immovable properties, subject to specified exemptions relating to personal residences, agricultural land and other exempt categories recognised under the statutory framework.
The petitions had questioned the legality of Section 7E on multiple grounds, including lack of legislative competence, double taxation, discrimination and violation of fundamental rights.
The court had reserved its verdict on April 30 after hearing detailed arguments from all parties.
Allowing the petitions filed by taxpayers against judgments of the Sindh High Court (SHC) and Lahore High Court (LHC), the FCC converted the civil petitions into appeals and ruled in favour of the taxpayers.
At the same time, the court dismissed petitions filed by the FBR against judgments of the Peshawar High Court (PHC) and Balochistan High Court (BHC).
“Having heard learned counsel for the parties at considerable length and upon due deliberation, we are persuaded to hold that Section 7E of the Income Tax Ordinance, 2001, is ultra vires the Constitution and is accordingly struck down, being void ab initio,” Chief Justice Aminuddin Khan stated while announcing the short order in open court.
The order further stated that detailed reasons for the judgment would be recorded separately.
The court subsequently disposed of all transferred cases accordingly.
The court, in its short order, noted down that the insertion of Section 7E in the Income Tax Ordinance, 2001, through the Finance Act, 2022, was assailed before all the provincial high courts, including the Islamabad High Court (IHC), on constitutional grounds.
“The Peshawar High Court and the High Court of Balochistan declared the impugned provision to be ultra vires the Constitution and struck it down,” says the short order, adding that the IHC, while not invalidating the provision in its entirety, read it down and declared subsection (2) thereof to be ultra vires the Constitution.
Similarly, the short order noted that against the judgment of the single judge of the IHC, the ICAs were pending before the division bench of the same court and two writ petitions were also pending, which were requisitioned vide order dated 6-4-2026 in the light of Article 175E(5) of the Constitution and same were transferred to the court.
“A single judge of the Lahore High Court allowed the writ petitions; however, the said judgment was reversed in intra-court appeals by a division bench, which allowed the appeals and dismissed the petitions,” the short order said.
The court further noted down in its order that the SHC similarly dismissed the constitutional petitions. Consequently, the taxpayers assailed the judgments of the LHC and SHC, whereas the federal government/FBR/Commissioner Inland Revenue challenged the judgments rendered by the Peshawar, Balochistan, and Islamabad high courts.
