M/s. Premium Petroleum (Pvt) Ltd;
Office # 17, Abdullah Centre, LMQ Road,
Multan Cantt Sher Shah Town.                                …Appellant

                                                   Versus

The Commissioner Inland Revenue,
Zone-IV, LTO, Multan.                                                  ...Respondent

Appellant    by:             Mr. Amjad Javaid Hashmi, Advocate
Respondent by:             Mr. Malik Khan, DR

Date of Hearing:            23.09.2025
Date of Order:               23.09.2025

ORDER

M M AKRAM (JUDICIAL MEMBER): The titled appeals, along with the accompanying stay applications for interim relief, have been preferred by the appellant against the impugned orders both dated May 22, 2025, relevant to the Tax Years 2022 and 2024. The said orders were passed by the Assessing Officer under sections 205 read with section 147 of the Income Tax Ordinance, 2001 (“the Ordinance”), whereby default surcharge under section 205(1B) of the Ordinance was imposed amounting to Rs.23,995,342/- for the Tax Year 2022 and Rs.57,034,823/- for the Tax Year 2024. Since the factual background and legal issues involved in both appeals are identical, therefore, these appeals are being disposed of through this common order.

2. The brief facts, as gathered from the record, are that the appellant is a company engaged in the business of the sale of fertilizer and solar panels. The appellant was under a statutory obligation to discharge its advance tax liability under section 147 of the Ordinance by ensuring payment of at least ninety percent of the tax chargeable for the relevant tax year. Admittedly, the appellant failed to fulfill this obligation. Consequently, the Assessing Officer issued a show cause notice for the imposition of a default surcharge under section 205(1B) of the Ordinance. The appellant submitted a detailed written reply, which was duly reproduced in the impugned orders. After careful consideration of the reply and application of his independent mind, the Assessing Officer rejected the contentions raised therein and proceeded to impose the impugned default surcharge through orders both dated May 22, 2025. Being aggrieved, the appellant has now filed the present appeals before this Tribunal challenging the validity of the impugned orders on numerous grounds.

3. The appeals were fixed for hearing on 23.09.2025. At the time of the hearing, the learned Authorized Representative (“AR”) of the appellant argued at length that the imposition of a default surcharge under section 205(1B) of the Ordinance is misconceived and legally untenable. It was contended that the appellant’s case falls squarely within the exclusion envisaged under section 205(1)(a) of the Ordinance, as amended by the Finance Act, 2003. By virtue of the said amendment, the word “including” was substituted with “excluding” which, according to the appellant, altered the effect of the provision from creating liability into granting exemption from default surcharge in cases of non-payment of advance tax under section 147. Reliance was placed upon established principles of statutory interpretation and judicial precedents to contend that any ambiguity in a penal provision must necessarily be resolved in favour of the taxpayer. It was further argued that the provisions of section 205 must be construed harmoniously, and where reconciliation is not possible, precedence ought to be accorded to the exemption clause contained in section 205(1)(a).

Without prejudice to the foregoing, it was further submitted that the expression “shall be liable” used in section 205(1) does not impose a mandatory compulsion but confers discretion upon the authority, which must be exercised judiciously and not mechanically. The learned AR emphasized that in the present case, no mala fide intention or willful default on the part of the taxpayer has been established, and as such, the proceedings are without lawful justification. Additionally, it was highlighted that for Tax Year 2022, a refund was due to the appellant, and therefore, no liability to pay advance tax under section 147(4) of the Ordinance could have arisen, rendering the proceedings ab initio void. The learned AR also argued that under section 136 of the Ordinance, the burden of proof in original proceedings lies upon the revenue, which has failed to discharge this obligation. Furthermore, it was submitted that advance tax represents no more than an adjustable prepayment of tax, akin to an interest-free loan to the State, and the legislature never intended to penalize non-payment of such installments so as to avoid the specter of double jeopardy. It was also urged that the liability under section 205(1B) arises only in situations where default occurs in relation to estimates filed under subsections (4A) or (6) of section 147, which, according to the appellant, does not apply to the instant case. Relying on the principles of strict interpretation of fiscal statutes and the doctrine of unintelligibility, the learned AR prayed that the exclusion envisaged under section 205(1)(a) be acknowledged, and that the impugned orders be annulled accordingly.

4. Conversely, the learned Departmental Representative (“DR”) appeared on behalf of the revenue and vehemently supported the impugned orders. It was submitted that the orders passed by the Assessing Officer are speaking and well-reasoned orders, duly passed after affording adequate opportunity of hearing to the taxpayer and after a detailed consideration of all contentions raised by the appellant. The learned DR, therefore, prayed for dismissal of the appeals.

5. We have heard the arguments advanced by both parties and carefully examined the record. It is an admitted position that the taxpayer did not discharge its statutory liability to pay advance tax under section 147 of the Ordinance. The sole controversy for determination is whether such failure attracts liability to a default surcharge under section 205(1B) of the Ordinance. In order to appreciate the prime contention raised by the learned AR for the appellant, it is expedient to reproduce the relevant statutory provisions of section 205 of the Ordinance, which read as under:

“205. Default surcharge. — (1) A person who fails to pay –

(a) any tax, excluding the advance tax under section 147 and default surcharge under this section;

(b) any penalty; or

(c) any amount referred to in section 140 or 141, on or before the due date for payment shall be liable for default surcharge at a rate equal to twelve percent or KIBOR plus three percent per annum, whichever is higher on the tax, penalty or other amount unpaid computed for the period commencing on the date on which the tax, penalty or other amount was due and ending on the date on which it was paid:

Provided that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due date given in the notice under subsection (2) of section 137 issued in consequence of the said order, and does not file an appeal under section 131, he shall not be liable to pay default surcharge for the period beginning from the due date of payment in consequence of an order appealed against to the date of payment in consequence of notice under sub-section (2) of section 137.

(1A) A person who fails to pay advance tax under section 147 shall be liable for default surcharge at a rate equal to twelve percent or KIBOR plus three percent per annum, whichever is higher on the amount of tax unpaid computed for the period commencing on the date on which it was due and ending on the date on which it was paid or date on which the return of income for the relevant tax year was due, whichever is earlier.

(1B) Where, in respect of any tax year, any taxpayer fails to pay tax under sub-section (4A), or (6) of section 147 or the tax so paid is less than ninety per cent of the tax chargeable for the relevant tax year, he shall be liable to pay default surcharge at the rate of twelve percent or KIBOR plus three percent per annum, whichever is higher on the amount of tax so chargeable or the amount by which the tax paid by him falls short of the ninety per cent, as the case may be; and such default surcharge shall be calculated from the first day of April in that year to the date on which assessment is made or the thirtieth day of June of the financial year next following, whichever is the earlier:

Provided that in the case of person having a special tax year, the default surcharge shall be calculated on and from the first day of the fourth quarter of the special tax year till the date on which assessment is made or the last day of special tax year, whichever is earlier.

(2) ……………………”

A plain reading of the above provisions reveals the following scheme:

i. Section 205(1)(a), as amended through the Finance Act, 2003, expressly excludes advance tax under section 147 and default surcharge under this section from its ambit. Hence, subsection (1) does not itself create liability for a default surcharge in cases of non-payment of advance tax.

Section 205(1A) was also subsequently inserted through the Finance Act, 2003, to specifically address situations where a person fails to pay advance tax under section 147 within the prescribed timelines.
Section 205(1B), introduced through the Finance Act, 2004, further covers situations where the taxpayer either fails to pay tax under subsections (4A) or (6) of section 147, or pays less than ninety percent of the tax chargeable for the relevant year. It prescribes the manner in which the default surcharge is to be calculated.

6. The learned AR contended that the exclusion contained in section 205(1)(a) constitutes a blanket exemption from liability to default surcharge in respect of advance tax defaults. It was argued that the use of the term “excluding” in subsection (1)(a) entirely removes advance tax from the ambit of surcharge liability, rendering subsections (1A) and (1B) inapplicable. It was further urged that any ambiguity in the statutory language must, in line with settled principles, be resolved in favour of the taxpayer. However, this contention is untenable for the following reasons:

i. The legislative history clearly shows that in 2003, Parliament amended section 205(1)(a) to exclude advance tax from the general liability prescribed in subsection (1). However, in 2003 and 2004, Parliament consciously enacted subsections (1A) and (1B) respectively to create a distinct and comprehensive regime for the levy of default surcharge in cases of advance tax defaults. This sequence reflects a deliberate legislative intent to separate general defaults (covered under subsection (1)) from advance tax defaults (regulated under subsections (1A) and (1B)).

ii. Subsection (1)(a) excludes advance tax defaults only for the limited purpose of subsection (1). However, subsections (1A) and (1B), being later and specific provisions, independently impose liability in cases of failure to pay advance tax. To interpret subsection (1)(a) as granting a blanket exemption would render subsections (1A) and (1B) redundant, which is impermissible under settled rules of statutory interpretation (ut res magis valeat quam pereat).The principle of harmonious construction requires that statutory provisions be read in a way that does not render any term redundant. It is a trite law that while interpreting the law, in particular, fiscal laws, the provisions be construed such that between two or more reasonable constructions of their terms that which will save them should prevail. The statute should be read as a whole, and all possible efforts should be made to apply and adhere to the rules of purposive and harmonious construction so that the allegedly conflicting provisions can be reconciled and saved. Reliance is placed on the judgments reported as Waqar Zafar Bakhtawari v. Mazhar Hussain Shah (PLD 2018 SC 81), Lucky Cement LTD v. Commissioner Inland Tax (2015 SCMR 1494); Collector of Sales Tax and Central Excise (Enforcement) v. Mega Tech (Pvt.) Ltd. (2005 SCMR 1166); Abdul Saboor v. Federation of Pakistan (2024 PTD 517); and Reliance Commodities (Private) Ltd v. Federation of Pakistan, (2020 PTD 1464).

iii. It is also a well-established principle that where a general provision conflicts with a special provision, the latter prevails. While subsection (1)(a) lays down a general exclusion, subsection (1B) specifically addresses defaults in advance tax payments and therefore governs the present matter.

iv. The insertion of subsection (1B) through the Finance Act, 2004, was clearly not superfluous. Its object was to fill the gap created by the 2003 amendment and to expressly impose liability to a default surcharge in cases where the taxpayer fails to meet the prescribed advance tax obligations. The legislative intent is thus manifest that advance tax defaulters are not exempt from default surcharge, but are dealt with under a special regime.

v. The alleged conflict between section 205(1)(a) and section 205(1A) does not exist. The provisions address separate fields and can be harmoniously construed. Section 205(1)(a) relates to general non-payment of tax, while section 205(1A) specifically addresses advance tax shortfall. Thus, both coexist without contradiction.

vi. In the present case, the appellant has admittedly failed to discharge ninety percent of its advance tax liability as required under section 147. This factual position squarely attracts the provisions of section 205(1B). The reliance placed by the taxpayer on section 205(1)(a) is wholly misconceived, since that clause merely excludes advance tax from subsection (1), leaving its treatment to the subsequent special provisions, i.e., subsections (1A) and (1B).

On a combined and harmonious reading of section 205, it is clear that subsection (1)(a) cannot be construed as a blanket exemption from default surcharge in cases of advance tax defaults. Rather, it excludes such defaults from the scope of subsection (1), while subsections (1A) and (1B) independently regulate liability in such cases. The legislative amendments of 2003 and 2004 must be read together, and when so construed, the taxpayer’s case falls squarely within the ambit of subsection (1B). Accordingly, the contention of the taxpayer is untenable, and liability to default surcharge under section 205(1B) rightly arises in the present case.

7. The argument that advance tax is a mere “interest-free loan” has no legal basis. As explained by the Lahore High Court in Lone Cold Storage, Lahore Vs Revenue Officer, Lahore Electricity Power Co. and others, (2010 PTD 2502), advance tax is a statutory obligation designed to ensure timely revenue collection, and failure to pay it below the prescribed threshold squarely triggers default surcharge under section 205(1B).

8. The taxpayer’s objection regarding subsections (4A) and (6) of section 147 is unfounded, as section 205(1B) also expressly covers cases where less than ninety percent of the tax chargeable has been paid. In the present case, the show cause notice clearly established such a shortfall, which remains undisputed by the taxpayer.

9. The plea regarding the refund position is equally untenable. Liability to pay advance tax arises independently of any subsequent refund position, which may only be adjusted at the stage of return finalization, and does not absolve default in the discharge of statutory advance tax obligations.

10. In view of the foregoing, the appellant taxpayer has failed to make out a case for exclusion from tax liability. The contentions raised are without merit, misconceived in law, and contrary to binding judicial pronouncements. The show cause notice has rightly been issued under section 205(1B), and the computation of default surcharge stands unchallenged. The appeals filed by the taxpayer are dismissed. The orders of the Assessing Officer imposing default surcharge amounting to Rs. 23,995,342/-and Rs.57,034,823/-under section 205(1B) of the Ordinance in respect of the tax years 2022 and 2024 respectively are upheld in toto. Accordingly, the miscellaneous applications are disposed of.

-SD-

M M AKRAM

-SD- Judicial Member

CH. MUHAMMAD AZAM

Member

M. M. Akram Reported Judgements

Pages

Tuesday, September 23, 2025

M/s Premium Petroleum (Pvt) Ltd Vs Commissioner Inland Revenue, Zone-IV, LTO, Multan

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