KARACHI: The Islamabad High Court (IHC) has ruled that the super tax imposed under Section 4C of the Income Tax Ordinance 2001 will not have any retrospective application and will only apply to transactions or events that occur after 30th June 2022.
The IHC issued its judgment on a number of petitions filed by companies and individuals who challenged the levy of super tax under Section 4C, which was introduced in the Finance Act 2022. The petitioners also impugned the notices of demand or recovery issued by the Commissioner of Income Tax.
Counsel for petitioners M/s Askari Bank Limited Employees Gratuity Fund, M/s Askari Bank Employees Provident Fund, Adnan Haider Randhawa contended that the super tax was unconstitutional and violated their fundamental rights to conduct trade and business, to hold property, and against deprivation of property.
Other prominent petitioners include NHA, NTC, M/s ZTBL General Provident Fund, M/s OGDCL, M/s Kohat Textile Mills Limited
M/s UCH Power (Private) Limited, M/s UCH-II Power (Private) Limited, M/s Attock Petroleum Limited Employee Welfare Trust, M/s Mari Petroleum Company Limited, Fauji Foundation and several others.
Counsel leading the petitioners Salman Akram Raja also argued that the super tax should not apply to the income accrued in the year 2022, as the liability to tax crystallises on the close of the last day of the financial year.
The IHC, in its verdict, read down Section 4C and held that it will not apply to the benevolent funds holding exemptions from tax under the other provisions of the Ordinance; will not apply to petroleum and exploration companies to the extent its application results in the taxation of such companies exceeding the thresholds stipulated in Rule 4 of the Fifth Schedule to the Ordinance; and all notices of demand or recovery impugned in the petitions are set aside, without prejudice to the revenue’s right to issue fresh notices not inconsistent with this judgment.
The IHC’s ruling has implications for businesses and individuals who are liable to pay super tax for the year 2023, as announced by the government recently. The super tax is a surcharge on income tax payable by persons having income above a certain threshold.