LAHORE: The Appellate Tribunal Inland Revenue (ATIR), Lahore, has ruled that super tax payable under Section 4C of the Income Tax Ordinance, 2001, can be adjusted against verified income tax refunds, holding that although super tax is an independent levy, it remains a tax due under the Ordinance.
The tribunal set aside orders that had denied the taxpayer the benefit of adjusting refundable income tax against an outstanding super tax demand. It directed the Commissioner Inland Revenue to first verify the taxpayer’s refund claim and adjust any amount found payable before initiating recovery proceedings under Sections 138 and 140.
The decision provides significant relief to taxpayers facing super tax demands while having pending tax refunds with the Federal Board of Revenue (FBR).
In the case before the tribunal, the taxpayer had already paid Rs12.648 million in super tax but disputed the recovery of the remaining Rs58.27 million, arguing that it should be adjusted against an income tax refund of Rs230.955 million claimed for Tax Year 2025.
The ATIR stayed recovery of the outstanding super tax demand and instructed the Commissioner to verify the refund claim under Section 170 of the Income Tax Ordinance. If the refund is found admissible, it must first be adjusted against the super tax liability, with only the remaining balance, if any, recoverable thereafter through a reasoned or “speaking” order.
The tribunal clarified that the dispute was not about reducing the computation of super tax through withholding tax credits. Instead, it concerned the adjustment of an already established tax refund against an outstanding tax demand.
ATIR also distinguished the earlier CM Pak judgment, stating that the previous case dealt with the adjustment of withholding tax credits while calculating super tax liability, not the adjustment of verified refunds against a super tax demand. It held that the Commissioner (Appeals) had incorrectly relied on that judgment to reject the taxpayer’s request.
According to the tribunal, Section 170(3)(a) requires the Commissioner to adjust any verified excess tax against “any other tax due” under the Income Tax Ordinance before issuing a refund. Since super tax is imposed, assessed and recovered under the same law, it qualifies for such adjustment.
The tribunal further observed that tax authorities cannot begin coercive recovery measures, including bank account attachment under Section 140, while ignoring refundable amounts available to the taxpayer. It referred to Rule 210B, which requires authorities to ensure that no refundable amount is available for adjustment before approving recovery proceedings.
Addressing the department’s argument that refunds require a formal application under Section 170(1), the tribunal held that this interpretation was incomplete. It explained that while taxpayers must claim refunds through the prescribed procedure, Section 170(3)(a) independently establishes the statutory order for adjusting excess tax once it has been determined to exist.
However, the tribunal clarified that an unverified or disputed refund does not automatically extinguish a super tax demand. The Commissioner retains the authority to verify whether the refund is actually payable or has been reduced by other liabilities. Nevertheless, the Commissioner must examine the claim on its merits and cannot reject adjustment solely because super tax is an independent levy.
The tribunal ultimately directed the Commissioner to determine the taxpayer’s refund entitlement for Tax Year 2025 and, if found due, adjust it against the outstanding super tax demand. Only the remaining liability, if any, may then be recovered in accordance with the law after issuing a speaking order.
