LAHORE: The Lahore High Court’s two-member bench comprising Justice Jawad Hassan and Justice Sardar Akbar Ali has ruled that the super tax under Section 4C of the Income Tax Ordinance, 2001, cannot be imposed on capital gains from inherited immovable property where the applicable capital gains tax rate is zero per cent.
As per media reports, the LHC bench announced the verdict in an income tax reference filed by Khairullah Khan against the Appellate Tribunal Inland Revenue and tax authorities. The court set aside a ₨114.7 million super tax demand raised on the sale of ancestral property held since 1980.
According to the judgment, the complainant declared income exceeding ₨1.14 billion in tax year 2024 from the sale of inherited property, and the return was deemed finalised under the Income Tax Ordinance.
However, the assessing officer initiated proceedings under Section 4C and imposed super tax through an order issued on February 28, 2025.
The taxpayer challenged the levy before the tribunal, which upheld the demand, leading to an appeal before the High Court.
Counsel for the applicant argued that the property was inherited and held for more than six years, making the gain subject to a zero per cent tax rate under Section 37(1A). He maintained that where no income tax liability existed, no super tax could be imposed, adding that applying super tax on income already taxed at a nil rate amounted to indirectly taxing exempt income.
The Federal Board of Revenue defended the levy, arguing that Section 4C operated independently and applied to all high-income individuals regardless of the source of income.
The tax authorities argued that capital gains taxed at zero per cent still formed part of taxable income and therefore attracted super tax.
The bench rejected the argument, observing that fiscal laws must be interpreted strictly and that no tax could be imposed through implication or administrative interpretation.
The court held that Section 37(1A) created a special statutory regime for gains arising from immovable property and that once the legislature prescribed a zero percent tax rate, no tax liability remained.
