ISLAMABAD: The Federal Constitutional Court (FCC) was urged to rule that while a Special Tax Year is identified with the normal tax year in which it ends, the tax charge applicable to each “block” should be determined by the law in force on the last day of that block.
A three-judge FCC bench, headed by Chief Justice Amin-ud-Din Khan and comprising Justice Syed Hassan Azhar Rizvi and Justice Arshad Hussain, heard appeals filed by the Federal Board of Revenue (FBR) against judgments of the Sindh, Lahore, and Islamabad High Courts relating to the levy of Super Tax under Section 4C of the Income Tax Ordinance (ITO), 2001, introduced through the Finance Act, 2021.
Advocate Adnan Haider, representing Trans World Associates, argued that splitting the tax charge across blocks is necessary and fair, as tax rates often change with the announcement of a new budget. He emphasized that this approach would place Special Tax Year holders on equal footing with normal tax year taxpayers, providing clarity on applicable rates and ensuring tax liability crystallizes on the last day of each block.
Haider explained that under Section 74(1) of the ITO, a tax year is 12 months, while Section 74(2) allows a Special Tax Year to differ from a normal tax year, denoted by the year in which its last day falls. His client follows the calendar year (January 1 to December 31, 2021), denoted as Tax Year 2022.
He noted that three six-month blocks are relevant for the Special Tax Year:
Block 1: Jan 1 – Jun 30, 2021 (Financial Year 2021; Section 4C not in force)
Block 2: Jul 1 – Dec 31, 2021 (Financial Year 2022; Section 4C applied retrospectively)
Block 3: Jan 1 – Jun 30, 2022 (Financial Year 2022; Section 4C applied retrospectively)
Haider contended that FBR’s counsel, Asma Hamid, relying on Lotte Akhtar (2011 PTD 2229), argued the third block’s levy is chargeable even for the first block, effectively extending a Special Tax Year from 12 to 18 months. He said such an interpretation would prejudice taxpayers and convert Section 74(2) from a procedural provision into a charging provision, which it is not.
He further highlighted inconsistencies in High Court rulings, which allow the tax for the first block to be imposed but deny benefits in the third block, prejudicing Special Tax Year holders. His client had already paid super tax for the first two blocks of Special Tax Year 2022 and sought a refund after the Islamabad High Court read down Section 4C in Fauji Fertilizer; however, the court directed the petitioner to avail departmental remedies.
Advocates Farogh Naseem and Adnan Haider have concluded their arguments. Ahmed Jamal Sukhera is scheduled to present his arguments from Tuesday.
