APPELLATE TRIBUNAL INLAND REVENUE,
SPECIAL BENCH, LAHORE
ITA
No.591/LB/26
(Tax
Year 2024)
MA
(Stay) No.736/LB/26
Muhammad
Faisal Ghafoor,
Shop No.7, Shahalam Hotel,
Shahalam Chowk, Lahore.
Registration
No:3520287486285 …Appellant
Versus
The CIR, Zone-V, LTO, Lahore. …Respondent
Appellant
by: Mr. Javed Iqbal Qazi, Advocate
Respondent
by: Mr.
Ali Imran, DR
Date of
hearing: 16.03.2026
Date of order: 16.03.2026
O R D E R
M.
M. AKRAM (Judicial Member):
The titled appeal, along with an application
for interim relief, has been instituted by the appellant–taxpayer against the
impugned order dated 13.02.2026 passed by the learned Commissioner Inland
Revenue (Appeals-V), Lahore (“CIR(A)”), whereby the order passed under
section 4C of the Income Tax Ordinance, 2001 (“the Ordinance”) for the
tax year 2024 was modified.
2. Briefly stated, the facts
of the case are that the appellant is an individual and is registered as a
commercial importer engaged in the import of polypropylene granules and similar
goods. The assessing officer passed an order under section 4C of the Ordinance,
whereby super tax was levied on the income of the appellant in accordance with
the provisions of the said section, thereby creating a tax demand amounting to
Rs. 38,100,403 vide order dated 31.10.2025. Aggrieved by the said order, the
appellant preferred an appeal before the learned CIR(A), who, vide the impugned
order dated 13.02.2026, disposed of the appeal by upholding the levy of super
tax imposed by the assessing officer. However, with regard to the levy of
default surcharge, the learned CIR(A) observed that the credit of the tax
already paid on this account had not been duly considered while computing the
default surcharge. Accordingly, the assessing officer was directed to
re-examine the matter and recompute the default surcharge after properly giving
effect to the credit of the tax already paid.
3. Still dissatisfied with
the impugned order, the appellant has now preferred the instant appeal before
this Tribunal and has assailed the same on various grounds.
4. The case was heard on 16.03.2026. The learned Authorized
Representative (AR) for the appellant submitted that the authorities below
have failed to correctly compute the taxable income of the appellant for the
purposes of levy of Super Tax under section 4C of the Ordinance. It was
contended that while determining the amount on which Super Tax is to be levied,
the tax already paid on the taxable income declared by the appellant ought
first to have been deducted from such taxable income, and only the remaining amount
should have been subjected to Super Tax.
5. The
learned AR argued that the failure to make such a deduction has resulted in the
imposition of super tax upon an amount which already includes income tax
liability, thereby effectively amounting to “tax on tax.” According to the
learned AR, such a methodology is inconsistent with the scheme of the Ordinance
and is legally impermissible. It was further argued that taxation statutes must
be strictly construed, and unless the law expressly authorizes the levy of tax
upon another tax component, such a construction cannot be adopted.
6. Conversely,
the learned Departmental Representative (DR) strongly controverted the
submissions advanced on behalf of the appellant. The learned DR maintained that
the Super Tax has been correctly levied in accordance with the explicit
provisions of section 4C of the Ordinance. It was argued that the charge of
Super Tax under section 4C is attracted on the “taxable income” of the taxpayer
as declared or determined under the Ordinance, and that the statutory language
does not contemplate any deduction of the income tax already paid while
computing the base for the levy of Super Tax. The learned DR further submitted
that the department has not included the amount of tax paid in the taxable
income, nor has it imposed tax upon an amount representing tax itself. Rather,
Super Tax has been charged directly on the taxable income declared by the
appellant, strictly in accordance with the statutory mandate. Therefore, the
contention that the department has levied “tax on tax” is misconceived and
without any legal foundation.
7. In view of the rival submissions advanced by the parties, the
following issue arises for determination:
Whether,
for the levy of Super Tax under section 4C of the Ordinance, the income tax
already paid on the taxable income is required to be deducted from such taxable
income before computing the Super Tax liability, or whether Super Tax is
chargeable directly on the taxable income as defined under section 9 of the
Ordinance?
8. We have carefully considered the arguments advanced by the learned
representatives of both sides and have also examined the available record in
the light of the relevant provisions of the Ordinance. At the outset, it is
necessary to examine the statutory framework governing the concept of “taxable
income.” Section 9 of the Ordinance provides that the taxable income of a
person for a tax year shall be the total income of the person for the year
reduced by any admissible deductions as allowed under the provisions of the
Ordinance. Thus, the statute itself clearly defines taxable income as the
income that remains after all deductions, which are expressly allowable under
the law, have been duly accounted for.
9. It is important to note that the definition of taxable income
contained in section 9 does not envisage any deduction on account of income tax
payable or paid. Income tax is a liability that arises as a consequence of the
determination of taxable income; it is neither an expense nor a permissible
deduction in the computation of such income unless the law explicitly provides
otherwise. Therefore, once the taxable income has been determined in accordance
with the statutory scheme, the tax liabilities imposed under the Ordinance are
to be calculated on that taxable income.
10. Section 4C of the
Ordinance introduces a distinct and independent levy of Super Tax on persons
whose income exceeds the prescribed threshold. The language of section 4C
clearly stipulates that Super Tax shall be imposed at the specified rate on the
taxable income of the person for the relevant tax year. The charging provision
does not provide, either expressly or by necessary implication, that the
taxable income should first be reduced by the amount of income tax payable or
paid before applying the rate of Super Tax.
11. It is a well-established
principle of interpretation in fiscal statutes that where the language of a
taxing provision is unambiguous, it must be applied in its plain and ordinary
meaning. Courts are not permitted to read into the statute any condition or
qualification which the legislature has not incorporated. Had the legislature
intended that the Super Tax should be levied only after deducting the amount of
income tax paid, it would have explicitly provided so within the statutory
framework.
12. Furthermore, the argument
advanced on behalf of the appellant that the department has effectively imposed
“tax on tax” does not withstand scrutiny when examined in the context of the
statutory scheme. Super Tax is not imposed on the income tax liability of the
taxpayer; rather, it is levied on the taxable income itself. The taxable income
remains the base upon which various statutory levies may operate. The mere fact
that more than one tax is calculated with reference to the same income base
does not, by itself, amount to taxation upon tax.
13. In the present case, the
record indicates that the department has computed the Super Tax directly on the
taxable income declared by the appellant. There is nothing on record to suggest
that the income tax paid by the appellant has been added to the taxable income
or that the Super Tax has been levied upon the amount representing the income
tax itself. Consequently, the contention that the department has charged tax
upon tax is both factually incorrect and legally untenable.
14. In view of the foregoing
discussion, we are of the considered opinion that the taxable income determined
under section 9 of the Ordinance constitutes the statutory base for the levy of
Super Tax under section 4C of the Ordinance. The law does not permit the
deduction of income tax paid or payable from such taxable income for the
purpose of computing the Super Tax liability.
15. Accordingly, the
methodology adopted by the department in levying Super Tax on the taxable
income declared by the appellant is in consonance with the provisions of the
Ordinance and does not suffer from any legal infirmity. The objection raised by
the appellant, therefore, cannot be sustained.
16. It is also pertinent to
examine the matter from another statutory perspective provided under the Income
Tax Ordinance, 2001. Section 21 of the Ordinance enumerates certain
expenditures and payments which are specifically disallowed as deductions while
computing income under the head “Income from Business.” For the sake of
clarity, section 21(1)(a) provides as under:
“21. Deductions not allowed.—
Except as otherwise provided in this Ordinance, no deduction shall be allowed
in computing the income of a person under the head ‘Income from Business’ for—
(a) any cess, rate or tax paid
or payable by the person in Pakistan or a foreign country that is levied on the
profits or gains of the business or assessed as a percentage or otherwise on
the basis of such profits or gains.”
A plain reading of the above
provision makes it abundantly clear that any tax, cess, or rate which is levied
on the profits or gains of a business, or which is determined as a percentage
of such profits or gains, is expressly disallowed as a deductible expense while
computing business income. In other words, the legislature has unequivocally
provided that any tax paid on business profits cannot be claimed as a deduction
in determining the income chargeable to tax.
17. In the context of the present issue, the income tax paid by
the appellant on its taxable income is clearly a tax levied on the profits or
gains derived from business. By virtue of section 21(1)(a) of the Ordinance,
such tax cannot be deducted while computing the income of the taxpayer.
Consequently, the contention of the learned AR that the income tax paid should
first be reduced from the taxable income before computing the Super Tax is
inconsistent with the express prohibition contained in section 21(1)(a) of the
Ordinance.
18. If the argument advanced on behalf of the appellant were to
be accepted, it would effectively result in allowing the deduction of income
tax paid from the taxable income, which is expressly barred by the statutory
provisions of the Ordinance. Such an interpretation would not only run contrary
to the clear language of section 21(1)(a) but would also undermine the
fundamental scheme of the law relating to the computation of taxable income.
19. Therefore, when sections 9, 21(1)(a), and 4C of the Ordinance
are read harmoniously, it becomes evident that the taxable income determined
under section 9 constitutes the base for the levy of various taxes under the
Ordinance, including the Super Tax under section 4C. The tax paid on such
income cannot be deducted from the taxable income because the law expressly
prohibits such a deduction.
20. Accordingly, the plea of the appellant that the amount of
income tax paid should first be reduced from the taxable income before
calculating Super Tax is not supported by the statutory framework of the
Ordinance. The department has, therefore, rightly computed the Super Tax on the
taxable income declared by the appellant, and the objection raised in this
regard is devoid of legal merit. Consequently, the appeal filed by the
appellant is hereby dismissed.
-SD-
(M.
M. AKRAM)
Judicial
Member
-SD-
(ABDUL BARI RASHID)
Member
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