2001 PLP 3919 (PTD)

(a) (c) (i) The value of the shares of joint stock companies registered in Pakistan which are quoted on a recognised Stock Exchange shall be taken to be the face value, or the break‑up value as determined in the manner provided in sub‑clause (ii), whichever is lower and the value of shares of joint stock companies registered in Pakistan which are not quoted on a recognised Stock Exchange shall be taken to be the face value, or the break‑up value so determined, whichever is higher. (ii) The break‑up value shall be determined in the following manner, namely:‑‑‑ The total wealth of the company shall first be determined. This shall be done by adding to the paid‑up capital, the debentures, reserves and the balance as per Profit and Loss Account, the provision for liabilities in the balance sheet being carefully scrutinised with a view to excluding therefrom items which should really form part of the reserves. From the total so arrived at, the paid‑up value of the preference shares and the debentures shall be deducted. The resulting balance shall be divided by the amount of the paid‑up ordinary share capital to arrive at the value of each rupee of paid‑up capital. The value of shares held by the assessee shall then be determined by multiplying the sum so arrived at by the paid‑up vain of Inch shares " The Rules were made by the Central Board of Revenue in exercise of the powers conferred upon it by section 46 of the Act for carrying out the purposes of the Act, hence, these statutory Rules have the force of law whereby reasonable restrictions could be imposed on two different classes of companies for imposition of wealth tax. The main grievance of the respondents non‑quoted companies is that they could not be discriminated against the quoted companies, inasmuch as, the value of the share of the quoted companies is taken on the face value or the break‑up/market value, whichever is lower but in case of non‑quoted companies, the value of share is taken on its face value or the break‑up/market value whichever is higher. The controversy between the parties is on the phrases of 'whichever is lower' and 'whichever is higher' and respondents' case is that they are being discriminated by the latter phrase. Article 25(1) of the Constitution of Pakistan provides that all citizens are equal before law and are entitled to equal protection of law. Equal protection, however, does not envisage that every citizen is to be treated alike in all circumstances but it contemplates that persons similarly situated or similarly placed are to be treated alike and that reasonable classification/distinction is permissible. The rule in question has classified the companies as quoted and non‑quoted, on the ground that the former's shares are listed with the Stock Exchange and their break up/market value can easily be ascertained whereas the latter's shares are not listed with the Stock Exchange and as such their market value cannot be conveniently ascertained. The aforesaid classification is based on substantial difference between the two classes of companies which has reasonable relation to the object sought to be achieved and thus the rule is‑neither unreasonable nor arbitrary. Article 25(1) of the Constitution does not forbid reasonable classification of companies for the purpose of taxation. The bar laid down in the said Article is that there should be no discrimination within the same class of people or group of people and it does not prohibit reasonable classification but such classification must be rational and based on intelligible differentia which distinguishes persons or things that are grouped together from those which are left out of the group and that difference must have rational nexus with the object sought to be achieved by such classification. In case of I. A. Sharwani v. Government of Pakistan 1991 SCMR 1041 this Court after considering considerable case‑law on Articles 25(1) of the Constitution, formulated the following principles with regard to equal protection of law and reasonableness of classification:‑‑‑ "

26. From the above‑cited cases the following principles of law are deducible:‑‑ (i) That equal protection of law does not envisage that every citizen is to be treated alike in all circumstances, but it contemplates that persons similarly situated or similarly placed are to be treated alike; (ii) that reasonable classification is permissible but it must be founded on reasonable distinction or reasonable basis; . (iii) that different laws can validly be enacted for different sexes, persons in different age groups, persons having different financial standings, and persons accused of heinous crimes; (iv) that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances, may be unreasonable in the other set of circumstances; (v) that a law applying to one person or one class of persons may be constitutionally valid if there is sufficient basis or reason for it, but a classification which is arbitrary and is not founded on any rational basis is no classification as to warrant its exclusion from the mischief of Article 25; (vi) that equal protection of law means that all persons equally placed be treated alike both in privileges conferred and liabilities imposed; (vii) that in order to, make a classification reasonable, it should be based‑‑ (a) on an intelligible differentia which distinguishes persons or things that are grouped together from those who have been left out; (b) that the differentia must have rational nexus to the object sought to be achieved by such classification.

27. The learned Attorney‑General has also referred in extenso certain passages from V.N. Shukla's Constitution of India, 7th Edition. Suffice to refer a passage wherein the learned author has inferred following principles as to classification with reference to various judgments of the Indian Supreme Court on Article 14 of the Indian Constitution:‑‑‑ (a) A law tray be Constitutional even though it relates to a single individual if, on account of sorter special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself. (b) There is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the Constitutional principles. The person, therefore, who pleads that Article 14 (correspondent to Article 25 of Pakistani Constitution) has been violated must make out that not only has he been treated differently from others but he has been so treated from persons similarly circumstanced without any reasonable basis and such differential treatment 'has been unjustifiably made. However, it is extremely hazardous to decide the question of the Constitutional validity of a provision on the basis of the supposed existence of facts by raising a presumption. Presumptions are resorted to when the matter does not admit of direct proof or when there is some practical difficulty to produce evidence to prove a particular fact. (c) It must be presumed that the Legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience, 'and that its discriminations are based on adequate grounds. (d) Tie Legislature is free to recognise the degrees of harm and may confine its restriction to those cases where the need is deemed to be the clearest. (e) In order to sustain the presumption of constitutionality, the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. (f) While good faith and knowledge of the existing conditions on the part of the Legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the Court on which the classification may reasonably be regarded as based, the presumption of the constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. (g) A classification need not be scientifically perfect or logically complete. (h) The validity of a rule has to be judged by assessing its overall effect and not by picking up exceptional cases. What the Court has to see is whether the classification made is a just one taking all aspects into consideration. " The same proposition in a different context came Runner consideration in Elahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC 582; wherein this Court after discussing the case‑law and the treaties deduced the following principle "

31. From the above case‑law an the treaties, inter alia the following principles of law are deducible:‑‑ (i) That in view of wide variety of diverse economic criteria, which are to be considered for the formulation of a fiscal policy, Legislature enjoys a wide latitude in the matter of selection of persons, subject- matter, events, etc. for taxation. But with all this latitude certain irreducible desiderata of equality shall govern classification for differential treatment in taxation law as well. (ii) That Courts while interpreting laws relating to economic activities view the same with greater latitude that the laws relating to civil rights such as freedom of speech, religion, etc. keeping in view the complexity of economic problems which do not admit of solution through any doctrinaire or strait jacket formula as pointed out by Hones, J. in one of his judgments. (iii) That Frankfurter, J., in Morey v. Doud (1957) U.S. 457 has remarked that 'in the utilities, tax and economic regulation cases, there are good reasons for judicial self‑restraint if not judicial deference to the legislative judgment'. (iv) That the Legislature is competent to classify persons or properties into different categories subject to different rates of tax. But if the same class of property similarly situated is subject to an incidence of taxation, which results in inequality amongst holders of the same kind of property, it is liable to be struck down on account of infringement of the fundamental right relating to equality. (v) That 'a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonable'. "(Willi's Constitutional Law). (vi) That the tests of the vice of discrimination in a taxing law are less rigorous. If there is equality and uniformity within each group founded on intelligible differentia having a rational nexus with the object sought to be achieved by the law, the Constitutional mandate that a law should not be discriminatory is fulfilled. (vii) That the policy of a tax, in its operation, may result in hardships or advantages or disadvantages to individual assessees which are accidental and inevitable. Simpliciter this fact will not constitute violation of any of the fundamental rights. (viii)That while interpreting Constitutional provisions Court should keep in mind, social setting of the country, growing requirements of the society/nation, burning problems of the day and the complex issues facing the people, which the Legislature in its wisdom through legislation seeks to solve. The judicial approach should be dynamic rather than static, pragmatic and not pedantic and elastic rather than rigid. (ix) That the law should be saved rather than be destroyed and the Court must lean in favour of upholding the constitutionality of legislation keeping in view that the rule of Constitutional interpretation is that there is a presumption in favour of the constitutionality of they, legislative enactments unless ex facie if is violative of a Constitutional provision." It is manifest from the above case‑law that reasonable classification of persons, properties or things is in no way violative of the principle of equality and differentiation between a class of persons on the basis of valid and reasonable classification is permissible under the Constitution. The equal protection of law in the field of taxation does not mean that the tax burden should be equally imposed on every person, property or thing but it means that the persons or objects similarly situated and in similar circumstances should be taxed by the same standard. A taxing statute, Rules or any provision thereof cannot be struck down merely on the ground that different tax is imposed on differently placed companies, as differentiation between a group of companies on the basis of rational and reasonable classification is permissible. The difference in determination of value of shares of companies quoted on a stock exchange and that of those companies not quoted on stock exchange, being differently grouped, the circumstances in determining the value of shares by different modes cannot be said to be discriminatory.

9. The contention that the rule in question is confiscatory in its nature s misconceived, for, as it has been observed above that the same is neither discriminatory nor overrides any provision of the Act but is based on reasonable classification as the two sets of companies are distinct and different from each other. As the determination of value of shares of quoted companies unlike that of the quoted companies is controlled by private limited companies, therefore, their break‑up/market value being not freely determinable in the open market, no exception‑to the formula laid down in the rule in question can be taken. The contention of the learned counsel is thus accordingly repelled.

10. For the foregoing reasons, we allow these appeals, set aside the impugned judgment and hold the rule in question to be intra vires. There shall be no order as to costs. Q.M.H./M.A.K./F‑42/5 Appeal allowed.