IHC declares super tax ‘ultra vires’ Constitution

ISLAMABAD: The Islamabad High Court (IHC) has ruled that Section 4C — Super tax on high-earning persons and companies — of Income Tax Ordinance 2001 is ultra vires the fundamental rights and against the Constitution.

“[Section] 4C, as it stands now, falls to be ultra vires the fundamental rights under articles 18, 23 and 24, read with Article 4 of the Constitution,” read a verdict authored by Justice Ejaz Sardar Ishaq Khan on Thursday.

Referring to the Supreme Court’s verdict in the Imrana Tiwana case, the court said Section 4C was “held to be against the scheme of the Constitution and should either be read down or declared ultra vires for the reasons given” in this judgment. In the light of the apex court verdict, the IHC said those taxpayers from whom the tax was collected in the form of final tax, will not be subject to super tax.

In the detailed judgment, the IHC judge said the move to exclude previous years’ loss, depreciation and amortisation allowances from the definition of income by making changes to the definition of income in Section 4C of the Income Tax Ordinance has also been declared unconstitutional.

“[Section] 4C, as read down, will have prospective application only, and will not apply to any transactions or events past and closed on or before 30th June 2022,” the verdict added.

Moreover, the court said the super tax will not apply to the benevolent funds, 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.

In the verdict, the court also termed the move to levy super tax at the rate of ten% on ten industries as discriminatory.

The IHC has cancelled all the super tax notices and given instructions to issue new notices as per the judgment.

Several companies, including Fauji Fertilizer Company Limited, had filed petitions against the super tax in the Islamabad High Court.

The petitioner companies were represented by advocates Salman Akram Raja, Adnan Haider Randhawa and other lawyers dealing with tax matters.