SHC dismisses banks’ petitions against imposition of windfall tax

The Sindh High Court (SHC) on Thursday dismissed the National Bank of Pakistan’s (NBP) and other private banks’ petitions against the imposition of windfall tax observing that a statutory provision could not be struck down on the basis of apprehensions or surmises.

The NBP and others had assailed the vires of the law with regard to the imposition of the windfall tax. The federal government had imposed the tax upon windfall gains of the banking sector, demonstrated to have been realised on account of sudden foreign currency fluctuation. The petitioner had earlier obtained interim orders with regard to imposition of the windfall tax.

The petitioners’ counsel submitted that the Section 99D was inserted in the Income Tax Ordinance in 2023 which envisaged retrospective taxation; unsustainable on the touchstone that such a tax liability had become a thing of the past and closed transaction at the close of the tax year.

The counsel submitted that the impugned taxation was discriminatory and the SRO was issued during the caretaker government and not placed before Parliament in the requisite time, hence, it ought to be struck down.

They said the impugned taxation amounted to an illegal delegation of the statutory authority as it did not conform to the requirements laid out in the Section 99D and vitiated the protection available in the law to a past and closed transaction.

The Federal Board of Revenue sought dismissal of the petitions submitting that windfall tax was retrospective by nature and there was no constitutional defect in its imposition. A division bench of the SHC comprising Justice Agha Faisal and Justice Abdul Mobeen Lakho after hearing the arguments of the counsel observed that the petitioners’ counsel was requested to identify how the Section 99D offended the Article 25 of the Constitution in the light of the interpretation of judgments of the superior courts.

The high court observed that the counsel had categorically stated that apprehension was that the provision was capable of being used in a discriminatory manner. The SHC observed that a statutory provision could not be struck down on the basis of apprehensions or surmises.

The high court observed that the petitioners were not in unison insofar as challenge to the vires of the Section 99D was concerned, and the arguments articulated to impugn the constitutionality thereof could not be sustained and no case stood made out to impeach the constitutionality of the Section 99D upon the touchstone of Supreme Court’s judgment.

The SHC observed that the impugned SRO was placed before Parliament within the time and the plain language of the provision demonstrated that the imposition covered any of the last three tax years preceding the tax year 2023 and onwards.

The high court observed that as per its view, retrospectivity was clearly contemplated in the provision, therefore, no occasion arose to consider the SRO incongruent thereto. The bench observed that insofar as windfall profits from foreign currency fluctuation were concerned, the SRO appeared to have identified the relevant sector, being banking companies, and predicated the determination inter alia upon a five year arithmetic mean, gleaned from the respective annual returns in the sector, relative to the gains in the tax year sought to be taxed.

The high court observed that no dissonance of the SRO from the Section 99D could be demonstrated on this count either. Regarding issuance of the SRO during the caretaker government, the bench observed that the Section 230 of the Elections Act 2017 required a caretaker government to inter alia perform functions necessary to run the affairs of government, be impartial, and take actions in the public interest that were not irreversible by the future elected government.

The high court observed that no argument was articulated before it to suggest that the imposition of windfall tax was anything but necessary to run the affairs of government, impartial, in the public interest and reversible by the subsequent elected government.

The SHC observed that the challenge to the imposition of windfall tax could not be substantiated and dismissed the petition. It also turned down the petitioners’ counsel request for suspension of its order observing that in the event that the oral motion was granted, the necessary effect would have been to resurrect the order and perpetuate the suspension of the relevant law, notwithstanding that the challenge to the vires thereof had already been dismissed. The SHC observed that grant of the oral motion would militate against the edicts of the Supreme Court and denied the oral motion for suspension.