ISLAMABAD: The Supreme Court has decided that legislation that violate the fundamental rights protected by the Constitution cannot be made by national or provincial assemblies, either retroactively or prospectively.
The remarks were delivered by Justice Syed Mansoor Ali Shah, who presided over a three-judge panel that heard appeals against changes to Section 65B of the Income Tax Ordinance (ITO), 2001 that were introduced in 2019.
Justice Shah stated in the ruling that Article 8 of the Constitution limited the legislative authority of the national legislature and local legislatures by prohibiting them from passing any legislation that would impair citizens’ constitutional rights. This clause forbade the province assembly and the parliament from using their legislative authority in any way.
According to Justice Shah, the restriction also applies to laws that are both retroactive and prospective.
A 10% tax credit was available to industries that purchased and installed new machinery between July 1, 2010, and June 20, 2021, according to an ITO provision that was in place until the 2019 budget.
Nevertheless, changes made to the Finance Act of 2019 resulted in the ending year being moved from 2021 to 2019 and a reduction in the tax credit rate from 10% to 5%.
The modification was contested by several enterprises before the Sindh High Court, which invalidated the part that reduced the tax credit to 5 percent in a ruling dated February 20, 2023. The Commissioner of Inland Revenue appealed the ruling to the Supreme Court.
The judge stated that there had been a “violation of the prohibition against discrimination” due to the tax credit rate drop. Additionally, it violated Article 25, which says that every citizen has the right to “equal protection of the law and is equal before the law.”
Justice Shah explained the rationale for this remark, stating that the plan to reduce the tax credit rate to five percent discriminated against the businesses that bought and installed the gear by June 30, 2019.
“For the tax years 2010 through 2018, they have not received the same treatment as other taxpayer companies.”
The ruling acknowledged that although courts typically grant the state discretion in terms of fiscal legislation, this discretion is “not infinitely elastic” in light of previous rulings from the Supreme Court, and fiscal policy is not completely outside the purview of Article 25.
The SHC’s decision to set aside the section lowering the tax credit rate was largely supported by the bench, which converted the petitions into appeals.
The high court’s interpretation of the subsection (2) alteration, which changed the years from 2021 to 2019, has been overturned.
