The government of Punjab rightly levied the same through section 9 of Finance Act 2013 that reads as

under:

"Capital

gains

tax

on

notwithstanding

(2)

immovable

anything

For

property.-

(1)

contained

purposes

This
in

section
any

of

shall

have

other

this

effect
law:

section-

(a) "acquisition" means transfer of property through any mode including gift, bequest, will, succession,
inheritance, devolution, dissolution of an association of persons or, winding up or liquidation of a
company;

(b) "Board of Revenue" means the Board of Revenue established under the Punjab Board of Revenue
Act,

1957

(XI

of

1957);

(c) "Collector" means the Collector of the district appointed under the Punjab Land Revenue Act, 1967
(XVII of 1967) and includes the Collector of a subdivision or any other officer specially empowered by
the

(d)

Board

of

Revenue

to

"Government"

perform

the

Government

functions

of

"person"

(i)

an

the

the

Collector;

Punjab;

individual;

association

of

of

includes-

an

(iii)

(iv)

and

means

(e)

(ii)

exercise

persons;

company;

body

corporate;

(v)

(vi)

political

(vii)

foreign

subdivision

of

public

government;

foreign

government;

international

and

organisation;

(f) "recorded value" means the value declared by the transferor in the instrument, provided that the
declared value of the property shall not be less than the value specified in the valuation table notified
by

the

Collector

of

the

district;

and

(g) "tax" means capital gains tax on sale of an immovable property and includes any penalty, fee and
charge

or

any

sum

or

amount

leviable

or

payable

under

this

section.

(3) A gain occurring from the sale of immovable property by a person in a tax year shall be chargeable
to tax in that year at the following rate:-

=================================================================
S. No

Description

Rate

=================================================================
1.

Sale within one year of

5% of the capital gain or

acquisition

2% of the recorded value

at the time of sale,
whichever is higher

2.

Sale between more than

one but within two years
of acquisition

3.

Sale between more than

two but within three

4% of capital gain

years of acquisition
4.

3% of capital gain

Sale between more than

three but within four
years of acquisition

5.

2% of capital gain

Sale between more than

four but within five
years of acquisition

6.

1% of capital gain

Sale after five years of

acquisition

No tax.

=================================================================

(4) The Collector shall determine the capital gain through calculating difference in valuation at the time
of acquisition and sale on the basis of valuation table notified by the Collector of the district under
section 27-A of the Stamp Act, 1899 (II of 1899) or the recorded value in the transfer deed, whichever
is higher.
(5) The Collector shall assess and collect the tax, and for this purpose, may exercise any power of the
Collector under section 6 of the Punjab Finance Act 2010 (VI of 2010).
(6) For purposes of appeal, review or revision, an order passed under this section shall be deemed to
be an order of a Revenue Officer within the meanings of sections 161, 162, 163 and 164 of the Punjab
Land Revenue Act 1967 (XVII of 1967).
(7) Where the tax has been recovered from a person not liable to pay the same or in excess of the
amount actually payable, an application may, in writing, be made to the Collector for the refund of the
tax or the excess amount within one year of the payment of the tax.
(8) The Board of Revenue may, by notification in the official Gazette, make provisions relating to the
collection and recovery of the tax or for ancillary matters.
(9) The Government may, by notification in the official Gazette, exempt a class of immovable property
or a class of persons from the levy or recovery of the tax subject to such conditions as may be
specified in the notification".
In 2010, the Revenue Advisory Council (RAC) of FBR recommended imposition of Capital Gains Tax
(CGT) on the sale of immovable property. It was claimed that FBR obtained "favourable" opinion from
the Law & Justice Division of Ministry of Law, Justice and Parliamentary Affairs that after the 18th
Constitutional Amendment, the Federal Government was entitled to levy CGT on the sale of immovable
property. In the light of recommendation of Law & Justice Division of Ministry of Law, Justice and
Parliamentary Affairs, RAC asked the FBR to propose to the government methodology of the imposition
of CGT on immovable property. In the past, a group working on tax reforms proposed to the
government to impose 10 percent CGT on the sale of immovable property after excluding impact of
inflation, depreciation of rupee and actual price paid on the purchase from the present market price.
FBR was of the view that the real issue in the imposition of CGT was not constitutional bar after 18th

Constitutional Amendment, but the correct valuation of immovable properties as sellers and buyers
conceal the actual payment-in majority of the cases, sale deeds were three times lower than the fair
market value of actual transaction.
Prior to the amendment in Entry 50 of the Federal Legislative List of Fourth Schedule to the 1973
Constitution through 18th Constitutional Amendment, the National Assembly had no power to levy
capital gain tax on disposal of immovable property. But after the 18th Amendment in Constitution, on
the wrong advice of Law Ministry and FBR, the same was levied by deleting clause (c) of subsection 5
of section 37 of the Income Tax Ordinance, 2001 through the Finance Act 2012.
Entry 50 of the Federal Legislative List, as amended by the 18th Constitutional Amendment, reads as
under: "50. Taxes on the capital value of the assets, not including taxes on immovable property". Prior
to the amendment, the language of Entry 50 of the Federal Legislative List was:
"50. Taxes on the capital value of the assets, not including taxes on capital gains on immovable
property".
In the light of omission of words "capital gain", FBR sought the opinion of Law & Justice Division about
its scope and import. According to FBR, the Law & Justice Division endorsed its point of view that after
amendment in Entry 50 of Federal Legislative List through the 18th Constitutional Amendment Act of
2010, the levy of tax on capital gain on the disposal of immovable property had become federal
subject and now National Parliament could legislate on it.
Historically, gain on disposal of immovable property fell outside the ambit of Income Tax Ordinance,
2001. Section 37(5)(c) of the Income Tax Ordinance, 2001 before amendment provided that "capital
asset does not include any immovable property". However, after misinterpretation of amended Entry
50 of the Federal Legislative List by Law & Justice Division, the Finance Act 2012 removed these words
to bring gain on disposal of immovable property, including agricultural lands, within the ambit of
income tax.
Income Tax Ordinance, 2001 also through Finance Act 2012 inserting a new section 236C for collection
of tax from the seller at the time of transfer of property at the rates provided in the First Schedule. It
was explained by FBR in Circular No 2 of 2012 as under:
"To overcome the administrative problems in respect of collection of CGT on disposal of immovable
property and to keep a track of the transactions of immovable property adjustable advance
withholding tax @ 0.5% of the consideration received on sale/transfer of immovable property was
levied on sellers/transferors of immovable property under section 236C of the Income Tax Ordinance,
2001.
It is clarified that the advance tax to be collected under section 236C has been introduced for the
purposes of providing a mechanism for collection of capital gain tax on disposal of immovable property.
The actual quantum of capital gain and tax payable thereon is to be computed at the time of filing of
return of income. Section 236C is not an independent provision and does not operate in isolation. Since
Capital Gain Tax has been imposed only on disposal of properties held for a period up to two years
therefore, advance tax is also to be collected from sellers who held the immovable properties for a
period up to two years"
FBR in 2012, at the time of imposition of capital gain tax on disposal of immovable property said "it
would help in broadening of tax base and substantially enhance revenue. It would play a major role in
plugging one of the loopholes for whitening untaxed money in the name of capital gain. The imposition
of the CGT on immovable property is in line with the principle that every income is taxable unless
specifically exempted. It would also bring stability in the prices of immovable property conveying

healthy message to the masses". None of these goals was achieved since the imposition of CGT by FBR
as official figures confirm that collection was miserably low. Now the same tax has been levied by
Punjab from July 1, 2013. It is obvious that either the federal government or the Punjab government
has committed violation of Entry 50 of the Constitution. Interestingly, nobody has noticed this anomaly
till today.
As discussed above, Law & Justice Division misinterpreted the amendment in Entry 50 of the Federal
Legislative List through 18th Constitutional Amendment. Entry 50 clearly debars the federal
government from levying any kind of tax on immovable property. The Law Ministry and FBR did not
realise that even Capital Value Tax (CVT) was transferred to provinces in the wake of 18th
Constitutional Amendment. If federal government cannot levy any tax on immovable property, how
can it tax "capital gain" arising out of immovable property? This simple proposition was ignored both
by Law Ministry and FBR.
It is worthwhile to mention that the erstwhile Wealth Tax Act, 1963, levied under Entry 50 of the
Federal Legislative List, was challenged under Article 199 of the Constitution. The matter went up to
the Supreme Court. In its decision reported as Haji Mohammad Shafi and Others v Wealth tax Officers
and Others 1992 PTD 726, the Supreme Court held that Parliament under Entry 50 of Federal
Legislative List was competent to levy wealth tax on the value of assets. It was held that the manner in
which valuation of any immovable asset was made could not be termed as "tax on capital gain".
Before the amendment in Entry 50 of Federal Legislative List by the 18th Constitutional amendment,
the federal government was barred from taxing "capital gain on immovable asset." Now this bar has
been extended to "taxes on immovable property".
One wonders how FBR and Law & Justice Division by just omission of words "capital gains" in Entry 50
of the Federal Legislative List concluded that right to taxation was shifted to federal government. They
failed to see that second part of Entry 50 is couched in negative phrase.
After the imposition of tax on gain of immovable property by Punjab in 2013, FBR and Law Division are
required to revisit their opinion and read the law in its proper context and in the light of judgement of
Supreme Court in Haji Mohammad Shafi and Others v Wealth tax Officers and Others 1992 PTD 726.
The phrase "not including taxes on immovable property" in Entry 50 cannot be read to "include taxes
on capital gains on immovable property". Plain reading of Entry 50 of Federal Legislative List, as it
stands now, confirms that the National Parliament can levy taxes on capital value of moveable assets
but has no authority to levy taxes, including capital gain tax, on immovable property. It is obvious that
taxes include tax on capital gains.
The way FBR and Law & Justice Division have read plain language of Entry 50 of Federal Legislative List
speaks volumes about their level of competence. But it is strange that parliamentarians sitting in
National Assembly have also failed to read the supreme law of the land correctly and committed a
blatant violation while levying income tax on gain arising out of disposal of immovable property.
The Punjab Assembly has correctly read Entry 50 of Federal Legislative List and levied tax on gain of
immovable property in 2013. If the federal government is of the view that its interpretation of Entry 50
of Federal Legislative List is correct it should refer the matter to the Supreme Court under Article
184(1) of the Constitution that has exclusive jurisdiction in any dispute between any two or more
governments.