APPELLATE TRIBUNAL
INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.407/IB/2026
(Tax Year 2015)
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M/s Teradata Pakistan (Pvt)
Limited, Marval Arcade, Executive Block, Civic Centre, Gulberg Greens,
Islamabad. NTN:2931381 |
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Appellant |
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Vs |
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Commissioner Inland
Revenue, Zone-I, CTO, Islamabad. |
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Respondent
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Appellant By: |
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Mr.
Rashid Mehmood, FCCA |
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Respondent By: |
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Mr. Sheharyar Akram,
DR |
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Date of Hearing: |
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07.04.2026 |
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Date of Order: |
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08.04.2026 |
ORDER
M.
M. AKRAM (Judicial Member): The appellant-taxpayer
has filed the present appeal against the impugned Order dated March 5, 2026,
passed by the learned Commissioner Inland Revenue (Appeals-IV), Zone-I,
Corporate Tax Office, Islamabad, under section 129(1) of the Income Tax
Ordinance, 2001 (hereinafter referred to as “the Ordinance”) for the tax
year 2015, whereby the order passed by the assessing officer under section 4B
of the Ordinance was maintained. The appellant has assailed the impugned
appellate order on various grounds set forth in the memorandum of appeal.
2. Briefly stated, the facts of the case are that the appellant
filed its return of income for the tax year 2015, declaring taxable income at
Rs. 403,513,796/-, along with income from imports, which at the relevant time
constituted final discharge of tax liability, as well as certain exempt income.
Subsequently, the assessing officer issued a notice under section 4B of the
Ordinance on 10.06.2016, requiring compliance by 16.06.2016. The appellant
submitted its reply vide letter No. IT/2431/2016 dated 18.06.2016; however, no
adverse order was passed thereon until the issuance of a fresh notice in
December, 2025. Thereafter, the Authorized Representative (AR) of the
appellant appeared before the assessing officer on 05.12.2025 and submitted a
reply along with certain documentary evidence, which was found unsatisfactory
due to a lack of proper substantiation. Consequently, another notice dated
29.01.2026 was issued for payment of super tax amounting to Rs. 19,791,962/-
under section 4B of the Ordinance. In response, the appellant furnished a
written reply dated 17.02.2026; however, the same was again found
unsatisfactory for want of sufficient supporting evidence. Accordingly, the
assessing officer finalized the proceedings and passed an order under section
4B on 20.02.2026, thereby creating a super tax demand of Rs. 17,791,962/-.
3. Being aggrieved, the appellant preferred an appeal before the
learned Commissioner Inland Revenue (Appeals-IV), who, vide order dated March
5, 2026, upheld the order passed by the assessing officer. Dissatisfied with
the said decision, the appellant has now filed the instant appeal before this
Tribunal on various grounds.
SUBMISSION OF THE
APPELLANT
4. The case was heard on
07.04.2026. The learned AR for the appellant vehemently contended that the
entire action of the Department is void ab initio, being in flagrant violation
of the mandatory procedure prescribed under the Ordinance. It was argued that a
return of income filed under section 114 attains the status of a deemed
assessment order under section 120 of the Ordinance, which, under the statutory
framework, can only be modified, altered, or enhanced through recourse to
section 122 of the Ordinance. It was submitted that, in the present case, no
proceedings for amendment of assessment were ever initiated under section 122;
therefore, the deemed assessment continues to hold the field and remains
legally binding.
4.1 The learned AR further contended that the alleged super tax
liability, not having been computed or declared in the return, does not form
part of the assessed income or tax liability and, as such, cannot be enforced.
It was emphasized that the relevant provisions relating to recovery merely
provide a procedural mechanism for realization of tax already determined and do
not authorize the creation or quantification of a fresh liability. According to
the learned AR, the Department has erred in law by conflating the distinct
concepts of “assessment” and “recovery,” which operate in separate domains
under the Ordinance. In support of these submissions, reliance was placed on
the settled principle that no tax can be recovered unless it has first been
lawfully assessed in accordance with the prescribed procedure.
4.2 It was further contended that the impugned order is barred by
limitation in terms of section 122(2) of the Ordinance. The learned AR
submitted that this specific contention was duly raised before the learned
CIR(A); however, the same was not addressed in the impugned order.
4.3 On merits, the learned AR contended that the assessing officer
failed to compute the income in accordance with the provisions of section 4B of
the Ordinance. It was submitted that the appellant had declared a taxable
income amounting to Rs. 403,513,796/-. It was further explained that, in
respect of receipts subjected to the final tax regime, the corresponding
imputable income was required to be computed in terms of section 2(28A) of the
Ordinance, which, in the present case, amounted to Rs. 45,965,739/-. Accordingly,
the aggregate income for the purposes of section 4B worked out to
Rs.449,479,534/-, which is below the prescribed threshold of Rs. 500 million
for the tax year 2015. It was further contended that both the authorities below
failed to appreciate that exempt income is to be excluded while computing
income for the purposes of levy of super tax under section 4B. In view thereof,
it was argued that the provisions of section 4B were not applicable to the
appellant, and the levy of super tax was without lawful authority.
DEPARTMENT ARGUMENTS
5. Conversely, the learned Departmental Representative (DR)
was unable to controvert the submissions advanced by the appellant on the legal
point. Even on merits, he conceded that the appellant’s income falls below the
threshold of Rs. 500 million as prescribed under section 4B for the relevant
tax year.
FINDINGS
6. We
have given thoughtful consideration to the submissions advanced by the learned
representatives of both sides and have undertaken a careful and comprehensive
examination of the material available on record. At the outset, it is pertinent
to clarify that the vires of section 4B of the Ordinance is not a matter in
controversy in the present proceedings. Even otherwise, the said issue stands
conclusively settled by the Hon’ble Federal Constitutional Court through its
consolidated judgment dated 28.01.2026 rendered in the case titled M/s DG Khan Cement Company Ltd. v.
Federation of Pakistan, etc., whereby the
challenge was decided against the taxpayers and, inter alia, sections 4B
and 4C were held to be intra vires the Constitution. In these circumstances,
and having regard to the arguments put forth as well as the grounds set out in
the memorandum of appeal filed by the appellant, the following questions arise
for our adjudication:
i. Whether the charge of
super tax under section 4B of the Ordinance operates independently, or whether
its enforceability is contingent upon the exercise of powers under section 122?
ii. Whether the statutory
limitation period prescribed under section 122(2) & 122(4) applies to the
levy and recovery of super tax under section 4B, or whether such levy can be
made without any temporal restriction?
iii. Whether, for the
purpose of levying super tax under section 4B, it is mandatory for the
Commissioner to first invoke section 122 and amend the deemed assessment order
under section 120 before creating or enforcing the super tax liability?
iv. Whether, in a case where a taxpayer has declared income exceeding the prescribed threshold but has failed to discharge super tax liability, the tax authorities are required to invoke section 122 before proceeding to levy and recover such super tax?
RELEVANT LAW
“SECTION
4B
4B.
Super tax for rehabilitation of temporarily displaced persons.―
(1) A super tax shall be imposed for rehabilitation of temporarily displaced
persons, for tax years 2015 and onwards, at the rates specified in Division IIA
of Part I of the First Schedule, on income of every person specified in the
said Division.
(2) For the
purposes of this section, “income” shall be the sum of the following:—
(i) profit on
debt, dividend, capital gains, brokerage and commission;
(ii) taxable
income other than brought forward depreciation and brought forward business
losses under section (9) of this Ordinance, if not included in clause (i);
(iii) imputable
income as defined in clause (28A) of section 2 excluding amounts specified in
clause (i); and
(iv) income
computed, other than brought forward depreciation, brought forward amortization
and brought forward business losses under Fourth, Fifth, Seventh and Eighth
Schedules.
(3) The super tax
payable under sub-section (1) shall be paid, collected and deposited on
the date and in the manner as specified in sub-section (1) of section 137 and all
provisions of Chapter X of the Ordinance shall apply.
(4) Where the
super tax is not paid by a person liable to pay it, the Commissioner shall by
an order in writing, determine the super tax payable, and shall
serve upon the person, a notice of demand specifying the super tax payable and
within the time specified under section 137 of the Ordinance.
(5) Where the
super tax is not paid by a person liable to pay it, the Commissioner shall
recover the super tax payable under subsection (1) and the provisions of Part
IV,X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall,
so far as may be, apply to the collection of super tax as these apply to the
collection of tax under the Ordinance.
(6) The Board may,
by notification in the official Gazette, make rules for carrying out the
purposes of this section. (Emphasis supplied)
SECTION
120
120.
Assessments.—(1) Where a taxpayer has furnished a complete return of income
other than a revised return under sub-section (6) of section 114 for a tax year
ending on or after the 1st day of July, 2002,—
(a) the
Commissioner shall be taken to have made an assessment of taxable income for
that tax year, and the tax due thereon equal to the respective amounts adjusted
under sub-section (2A) ; and
(b) the return
shall be taken for all purposes of this Ordinance to be an assessment
order issued to the taxpayer by the Commissioner on the day the
adjustments were made under sub-section (2A) return was furnished.
................................(Emphasis
supplied)”
SECTION 122
122.
Amendment of assessments.— (1) Subject to this
section, the Commissioner may amend an assessment order treated as issued under
section 120 or issued under section 121, or by making such alterations or
additions as the Commissioner considers necessary.
(2) No order under
sub-section (1) shall be amended by the Commissioner after the expiry of five
years from the end of the financial year in which the Commissioner has issued
or treated to have issued the assessment order to the taxpayer.
(3) Where a
taxpayer furnishes a revised return under sub-section (6) or (6A) of section
114 —
(a) the
Commissioner shall be treated as having made an amended assessment of the
taxable income and tax payable thereon as set out in the revised return; and
(b) the taxpayer’s
revised return shall be taken for all purposes of this Ordinance to be an
amended assessment order issued to the taxpayer by the Commissioner on the day
on which the revised return was furnished.
(4) Where an assessment order (hereinafter
referred to as the “original assessment”) has been amended under sub-section
(1), (3) or (5A), the Commissioner may further amend, as many times as may be
necessary, the original assessment within the later of —
(a) five years
from the end of the financial year in which] the Commissioner has issued or is
treated as having issued the original assessment order to the taxpayer; or
(b) one year from
the end of the financial year in which the Commissioner has issued or is
treated as having issued the amended assessment order to the taxpayer.
(4A) In respect of
an assessment made under the repealed Ordinance, nothing contained in
sub-section (2) or, as the case may be, sub-section (4) shall be so construed
as to have extended or curtailed the time limit specified in section 65 of the
aforesaid Ordinance in respect of an assessment order passed under that section
and the time-limit specified in that section shall apply accordingly.
(5) An assessment
order in respect of tax year, or an assessment year, shall only be amended
under sub-section (1) and an amended assessment for that year shall only be
further amended under sub-section (4) where, on the basis of audit or on the
basis of definite information the Commissioner is satisfied that —
(i) any income
chargeable to tax has escaped assessment; or
(ii) total income
has been under-assessed, or assessed at too low a rate, or has been the subject
of excessive relief or refund; or
(iii) any amount
under a head of income has been mis-classified.
(5A) Subject to
sub-section (9), the Commissioner may, amend, or further amend, an assessment
order, if he considers that the assessment order is erroneous in so far it is
prejudicial to the interest of revenue.
(5AA) In respect
of any subject matter which was not in dispute in an appeal the Commissioner
shall have and shall be deemed always to have had the powers to amend or
further amend an assessment order under sub-section (5A).
(5B) Any amended
assessment order under sub-section (5A) may be passed within the time-limit
specified in sub-section (2) or sub-section (4), as the case may be.
(6) As soon as
possible after making an amended assessment under subsection (1), sub-section
(4) or sub-section (5A), the Commissioner shall issue an amended assessment
order to the taxpayer stating–
(a) the amended
taxable income of the taxpayer;
(b) the amended
amount of tax due;
(c) the amount of
tax paid, if any; and
(d) the time,
place, and manner of appealing the amended assessment.
…………………………………..
7. It is
pertinent to note that sections 120, 121 and 122 form integral components of
Chapter X of the Ordinance. Section 4B, as reproduced above, expressly
incorporates a reference to Chapter X, thereby mandating that its provisions
shall apply in the context of invoking the levy, determination, and recovery of
super tax under Section 4B. In order to address the questions posed
comprehensively and provide a reasoned analysis, it is first essential to
understand the overarching scheme
and structural framework of the Ordinance. Such an
understanding is necessary to appreciate the interrelationship between the
charging provisions, assessment mechanisms, and recovery procedures, and to
ensure that any conclusions drawn are firmly grounded within the statutory and
procedural context envisaged by the Legislature. This approach allows for a
harmonious interpretation of the Ordinance, consistent with the principles of
fiscal jurisprudence, and ensures that the distinct yet interdependent roles of
sections 120, 121, 122, and 4B are properly recognized and applied.
7.1 Scheme
of the Ordinance
We
begin by noting that there are three well-recognized stages in the imposition
of a tax. In Whitney v. IRC
(1926) 10 TC 88, in a celebrated exposition that has stood the test of time, Lord Dunedin
articulated the position in the following terms:
“Now,
there are three stages in the imposition of a tax: there is the declaration of
liability, that is, the part of the statute which determines what persons in
respect of what property are liable. Next, there is the assessment. Liability
does not depend on assessment. That, ex
hypothesi, has already been fixed. But
assessment particularizes the exact sum which a person liable has to pay.
Lastly, come the methods of recovery, if the person taxed does not voluntarily
pay.”
This classical categorization
has also been elaborated upon in the local context by Rustam S. Sidhwa
in M/s Friends Sons and Partnership Concern
v. The Deputy Collector Central Excise and Sales Tax, Lahore,
(PLD 1989 Lahore 337), wherein the learned
Judge explained, with clarity and precision, the distinct yet interdependent
nature of charging, assessment, and recovery provisions in fiscal statutes. Against
this settled doctrinal backdrop, the scheme of the Ordinance becomes manifest.
The Ordinance envisages a comprehensive and well-structured statutory
framework, wherein the processes of imposition (charge), determination
(assessment), and recovery/collection of tax are governed by distinct yet
interrelated provisions. Broadly, the scheme comprises:
(i)
charging provisions, such as
sections 4, 4B and 4C, etc., which create the legal liability to tax;
(ii)
assessment provisions,
including sections 120, 121, and 122, which provide the mechanism for
determination and quantification of such liability; and
(iii)
recovery provisions,
contained in Chapter X and allied parts, which deal with the enforcement and
collection of tax already determined to be payable.
This tripartite structure
reflects a deliberate legislative design and is in consonance with the
principle laid down in Whitney v. IRC
(supra), namely that while liability may arise under the charging provisions,
it must nonetheless be crystallized through the process of assessment before
any steps for recovery can be lawfully undertaken. It ensures that no tax is
recovered unless it has first been properly assessed in accordance with law. In
this regard, the Hon’ble Supreme Court in Messrs
Elahi Cotton Mills Ltd. v. Federation of Pakistan
(PLD 1997 SC 582) authoritatively held that tax liability must not only be
imposed but also assessed and recovered strictly in accordance with the
procedure prescribed by law, thereby underscoring the imperative of adhering to
the statutory framework.
7.2 Nature
and Scope of Section 4B
7.2.1 Section 4B of the Ordinance, in its true
character and legal import, constitutes a charging provision whereby a distinct
and additional levy, namely super tax, is imposed for specified tax years upon
particular classes of taxpayers as delineated in Division IIA of Part I of the
First Schedule. Subsection (1) unequivocally creates the charge by mandating
that a super tax shall be imposed on the “income” of every person falling
within the prescribed categories. Subsection (2) further elaborates the scope
of such “income” by providing an exhaustive and composite definition,
encompassing various heads including profit on debt, dividend, capital gains,
brokerage and commission, taxable income (subject to specified exclusions),
imputable income as defined under section 2(28A), and income computed under the
relevant Schedules. Thus, subsections (1) and (2), when read conjointly, lay
down both the incidence and the measure of the levy, thereby completing the
essential elements of a charging provision.
7.2.2 However, the subsequent subsections, namely
subsections (3), (4), and (5), do not operate in the realm of charge or
determination of liability per se; rather, they are ancillary and procedural in
nature, designed to regulate the manner of payment, collection, determination
in cases of default, and eventual recovery of the tax so imposed. Subsection
(3) stipulates that the super tax payable under subsection (1) shall be paid,
collected, and deposited in accordance with section 137(1), and significantly, it
expressly incorporates “all provisions of Chapter X” of
the Ordinance. This incorporation is of considerable legal consequence, as
Chapter X embodies the complete code relating to assessment, including
self-assessment under section 120, best judgment assessment under section 121,
and amendment of assessment under section 122. By employing the term “all,”
the Legislature has unequivocally signalled its intention that the
quantification and determination of super tax liability must adhere to the
established assessment framework of the Ordinance.
7.2.3 Subsection (4) provides that where a person
liable to pay super tax fails to discharge such liability, the Commissioner
shall, by an order in writing, “determine the super tax payable”
and issue a notice of demand in terms of section 137. Notwithstanding the use
of the expression “determine,” this provision cannot be construed
as conferring an independent or self-contained power of assessment detached
from the statutory machinery prescribed under Chapter X. It neither lays down
any procedure for assessment nor displaces the applicability of sections 120,
121, or 122, which exclusively govern the process of computing and determining
tax liability. Rather, subsection (4) operates in a limited and consequential
domain, enabling the Commissioner to formalize and enforce an already existing
and ascertainable liability, whether arising from self-assessment or otherwise
lawfully determined, by issuing a demand where such liability remains unpaid.
7.2.4 Subsection (5) further reinforces this
interpretation by providing that, in cases of non-payment, the super tax shall
be recovered in accordance with the recovery provisions of the Ordinance,
including Parts IV, X, XI, and XII of Chapter X and Part I of Chapter XI, “so
far as may be.” This phraseology clearly indicates that the provision
is concerned with the mode and mechanism of recovery, and not with the creation
or determination of liability. It imports the procedural framework for
collection and recovery applicable to income tax generally, thereby ensuring
parity in enforcement without altering the foundational requirement of prior
lawful assessment.
7.2.5 A careful, contextual, and harmonious reading
of subsections (3), (4), and (5) thus makes it abundantly clear that these
provisions do not confer any autonomous or overriding authority to assess or
determine tax liability in derogation of the prescribed assessment regime. The
repeated use of the expression “tax payable” across these
subsections is of critical significance, as it necessarily presupposes the
prior crystallization of liability in accordance with law. The provisions
proceed on the settled assumption that the quantum of tax has already been
determined through the statutory assessment process, and what remains is its
payment, enforcement, or recovery.
7.2.6 Consequently, subsections (4) and (5) of
section 4B must be confined strictly to the domain of implementation and
recovery. They cannot be interpreted as creating a parallel mechanism for
assessment or as dispensing with the mandatory requirements of sections 120,
121, and 122. Any interpretation to the contrary would not only disrupt the
coherent scheme of the Ordinance but would also render the carefully structured
assessment provisions redundant, an outcome that is neither supported by the
language of the statute nor consistent with settled principles of fiscal
interpretation.
7.3 Effect of Deemed Assessment under Section
120
7.3.1 Section 120 of the Ordinance provides that a
complete return of income furnished by a taxpayer shall be treated as a deemed assessment order for all purposes
of this Ordinance. This statutory mechanism effectively
confers legal finality upon the income and tax disclosed in the return, thereby
formalizing the taxpayer’s self-assessment in accordance with the law. The
deemed assessment is, however, inherently limited in scope to the particulars
expressly disclosed by the taxpayer in the return, including the income
declared, the tax computed thereon, and any adjustments made or admitted.
7.3.2 Importantly, the ambit of a deemed assessment does not extend to any tax liability or
component thereof that was neither declared nor computed in the return.
The Hon’ble Supreme Court of Pakistan, in Commissioner of Income Tax v. Eli Lilly Pakistan (Pvt.)
Ltd. has unequivocally held that tax liability can only be
established and enforced through the statutory assessment machinery. It cannot
be presumed, inferred, or enforced outside the framework expressly provided by
the Ordinance. The statutory design ensures that the principles of due process,
fair notice, and opportunity for representation are fully respected before any
tax demand can be legally crystallized.
7.3.3 In the present case, it is an admitted fact that the
appellant did not compute or declare any liability in respect of super tax
under section 4B in the return of income filed for the relevant tax year.
Consequently, such liability cannot be regarded as having been lawfully
assessed or as forming part of the deemed assessment under section 120. In
other words, the deemed
assessment cannot be construed to automatically encompass obligations that were
neither calculated nor disclosed by the taxpayer, including the
super tax claimed by the tax authorities. Therefore, any attempt to treat such
liability as having been legally determined under section 120 would be contrary
to the statutory framework and would lack legal validity.
7.3.4 In essence, the deemed assessment under section
120 provides finality only
to what is actually declared and admitted by the taxpayer; it
cannot be extended by inference to create or assume additional liabilities that
were omitted or uncomputed in the return. This principle safeguards the
taxpayer against arbitrary or retrospective imposition of tax, ensuring that
any correction or inclusion of omitted tax components must occur strictly under
the statutory procedure provided, namely through the amendment mechanism under section 122.
7.4 Whether
Filing of Return Implies Admission of Super Tax
7.4.1 The
contention advanced by the Department that the mere filing of a return amounts
to an admission of liability for all applicable taxes, including super tax, is
not tenable. A return of income is fundamentally a self-assessment statement,
and its evidentiary value is confined to the facts and figures expressly
declared therein. It constitutes an admission only to the extent of the income
disclosed and the tax liability computed by the taxpayer. To hold otherwise
would lead to the untenable proposition that every potential tax implication
arising from declared income stands automatically admitted, even if not
computed or acknowledged by the taxpayer. Such an interpretation would not only
stretch the legal fiction embodied in section 120 beyond its intended scope but
would also render the statutory assessment machinery, particularly section 122,
redundant and otiose.
7.4.2 This position is further reinforced by the
consistent practice under the Ordinance in analogous situations. For instance,
in cases involving the levy of minimum tax under section 113, where a taxpayer
fails to compute or pay such tax in the return, the Department does not treat
the mere declaration of turnover as an admission of liability to minimum tax so
as to directly trigger recovery proceedings. Instead, the Additional
Commissioner invariably invokes the provisions of section 122(5A) to amend the
assessment and determine the minimum tax liability in accordance with law. This
clearly demonstrates that where a particular tax has neither been computed nor
admitted in the return, the proper course is to undertake assessment
proceedings rather than presume an admission and proceed to recovery.
7.4.3 Applying the same principle, it cannot be
accepted that the appellant, by merely declaring income above the prescribed
threshold, admitted liability for super tax which was neither computed nor
included in the return.
7.5 Necessity
and Mandatory Invocation of Section 122
7.5.1 The scheme of the Ordinance unequivocally
provides a specific, structured, and exclusive mechanism under section 122 for
dealing with situations where income has been under-assessed, tax has been
undercharged, or has altogether escaped assessment. This provision is not
merely procedural in nature; rather, it constitutes a substantive safeguard
within the statutory framework, enabling the Commissioner to revisit, amend, or
modify an assessment in accordance with law, while simultaneously ensuring
adherence to the cardinal principles of natural justice, most notably, the
right of the taxpayer to be confronted with the proposed action and to be
afforded a fair opportunity of being heard.
7.5.2 In cases where a return has been filed, and a
deemed assessment has come into existence under section 120, any omission, such
as the non-declaration or non-computation of super tax under section 4B,
squarely falls within the mischief contemplated by section 122. Such omission
clearly constitutes a case of “tax not charged” or, at the very least, an
instance of under-assessment. The statutory design does not permit the
Department to circumvent this prescribed mechanism; rather, it mandates that
any correction to a deemed assessment must necessarily be undertaken through
the express procedure laid down in section 122.
7.5.3 This position is further fortified by
subsection (5A) of section 122, which specifically empowers the Commissioner to
amend a deemed assessment where it is found to be “erroneous insofar as it is
prejudicial to the interest of revenue.” The legislative intent behind section
122(5A) is to address precisely those situations where, due to omission,
misstatement, or incorrect application of law, the declared or deemed
assessment fails to capture the correct tax liability, thereby causing loss to
the revenue. The omission of the super tax from the return is a classic example
of such a contingency, directly attracting the jurisdiction contemplated under
section 122(5A).
7.5.4 Therefore, once a deemed assessment is in
place, the only lawful and statutorily sanctioned course for the Department to
enhance, modify, or correct the tax liability, whether on account of super tax
or otherwise, is to invoke section 122, including subsection (5A) where
applicable. Any attempt to determine or recover such liability dehors this
mechanism not only undermines the legislative scheme but also bypasses the
procedural safeguards embedded therein, including the issuance of a show cause
notice and the provision of an opportunity of hearing.
7.5.5 The failure to invoke section 122 in such
circumstances is not a mere procedural irregularity; rather, it goes to the
root of jurisdiction and vitiates the entire proceedings. The statutory
framework does not leave room for alternative or parallel modes of assessment
or determination once a deemed assessment exists. Accordingly, recourse to
section 122, particularly in light of subsection (5A), was not optional or
discretionary, but a mandatory legal requirement, the non-compliance of which
renders the impugned action procedurally defective and legally unsustainable.
7.6 Distinction
Between Assessment and Recovery
7.6.1 It is a cardinal and well-entrenched principle
of tax jurisprudence that the processes of assessment and recovery are
conceptually distinct, sequential in operation, and governed by separate
statutory provisions, each serving a fundamentally different purpose within the
overall scheme of taxation law. The stage of assessment is concerned with the
determination, computation, and crystallization of tax liability in accordance
with the charging and machinery provisions of the statute. It is at this stage
that the quantum of tax payable by a taxpayer is ascertained through legally
prescribed procedures, such as self-assessment, best judgment assessment, or
amendment of assessment, as envisaged under the relevant provisions of the
Ordinance. This process necessarily incorporates procedural safeguards,
including the issuance of notices, consideration of taxpayer responses, and the
provision of an opportunity of hearing, thereby ensuring compliance with the
principles of due process and natural justice.
7.6.2 In contradistinction, the stage of recovery
arises only after the tax liability has been validly and lawfully determined.
Recovery provisions are essentially enforcement mechanisms designed to secure
the collection of an already ascertained and legally enforceable tax demand.
These provisions do not, and cannot, partake of the character of assessment,
nor do they confer any authority to determine, enhance, or create a tax
liability in the first instance. Their function is purely ancillary and
consequential, aimed at effectuating the realization of dues that have already
been brought into existence through the assessment process.
7.6.3 Within this statutory context, subsection (5)
of section 4B, which provides for the recovery of super tax in accordance with
the relevant provisions of the Ordinance, must be construed strictly as a
recovery mechanism. The language employed therein, particularly the phrase “the
super tax payable,” clearly presupposes the prior determination and
crystallization of liability through lawful means. It does not, either
expressly or by necessary implication, authorize the Commissioner to assume the
role of an assessing authority or to bypass the established assessment
framework contained in Chapter X of the Ordinance.
7.6.4 Any attempt to invoke section 4B(5) of the
Ordinance as a substitute for, or in derogation of, the assessment provisions,
such as sections 120, 121, or 122, would amount to a fundamental misapplication
of the law. Such an interpretation would effectively conflate two distinct
statutory stages, thereby disrupting the carefully structured legislative
scheme and rendering the assessment provisions redundant. More importantly, it
would result in the denial of essential procedural safeguards to the taxpayer,
including the right to notice, the opportunity to explain or contest the
proposed liability, and the right to be heard, protections that are integral to
a fair and lawful assessment process.
7.6.5 Therefore, it must be unequivocally held that
recovery provisions, including section 4B(5), can only be set in motion after a
valid assessment has been made and a lawful demand has arisen. They cannot be
utilized to create, determine, or enhance tax liability independently of the
prescribed assessment machinery. Any action taken in contravention of this
settled principle would suffer from a jurisdictional infirmity, going to the
very root of the matter, and would consequently render the entire proceedings
void ab initio and legally unsustainable.
7.7 Harmonious
Interpretation
7.7.1 A harmonious and purposive interpretation of the relevant provisions
of the Income Tax Ordinance, 2001 leads to the inescapable conclusion that each
provision is intended to operate within its own distinct sphere, without
encroaching upon or rendering redundant the domain of another. In this
statutory framework, section 4B constitutes the charging provision for the levy
of super tax; section 120 governs the mechanism of self-assessment based on the
return filed by the taxpayer; section 122 provides the legal basis for
amendment of assessment in cases of omission, misstatement, or
under-assessment; and section 4B(5) facilitates the recovery and collection of
tax once it has been validly and lawfully determined in accordance with the
prescribed assessment machinery. Any interpretation that seeks to allow section
4B(5) to operate in isolation, so as to create or enforce a tax liability that
has not undergone the due process of assessment, would not only disturb the
coherent scheme of the Ordinance but would also render the assessment
provisions otiose, an outcome that cannot be attributed to legislative intent.
7.7.2 This principle of harmonious construction has
been consistently affirmed in judicial pronouncements. In M/s Multan Electric Power Co. Limited
(MEPCO) v. CIR (WHT), RTO, Multan (2016 PTD 2567), it was
emphatically held that a statute must be read as an organic whole and its
provisions reconciled in a manner that avoids conflict and ensures that none is
rendered nugatory. Similarly, in Pakistan
Tobacco Company Ltd. v. Federation of Pakistan (2016 PTD
596), the Court reiterated that fiscal statutes must be interpreted strictly in
accordance with their plain language, without importing any intendment or
presumption, while at the same time recognizing that machinery provisions are
to be construed liberally to give full effect to the charging provisions.
7.7.3 In the same vein, in Allied Motors Ltd. v. Commissioner of
Income Tax (2004 PTD 1173), it was held that the scheme of
law must be examined in its entirety and no provision should be considered in
isolation. Likewise, in CIT
v. Kamran Model Factory (2002 PTD 14), the Court
underscored the principle that every word used in a statute must be given
effect, and no part thereof should be treated as redundant or surplusage. The
principle of harmonious interpretation was further reinforced in Mustafa Prestressed R.C.C. Pipe Works
Ltd. v. Commissioner of Sales Tax [(1990) 62 Tax 119 (H.C.
Kar.)], and by the august Supreme Court in Hirjana & Co. (Pak) Ltd. v. Commissioner of Sales Tax
[(1975) 31 Tax 78 (S.C. Pak.)], wherein it was held that courts must confine
themselves to the clear words of the statute and refrain from supplying
omissions or implying meanings not expressly provided. Similar views were
echoed in CIT v. Nagina
Talkies [(1974) 29 Tax 115 (H.C. Kar.)] and CIT v. Hoosen Kasam Dada
(1960 PTD 574), emphasizing that statutory provisions must be reconciled to
yield a reasonable and coherent interpretation.
7.7.4 Applying these settled principles, it becomes
evident that the Legislature, by employing the term “all” in section
4B(3), has consciously extended the applicability of the assessment framework, particularly
the provisions contained in Chapter X, including sections 120 and 122, to the
levy of super tax. Furthermore, section 4B(5), by incorporating the phrase “so
far as may be,” imports the procedural and recovery mechanisms
contained in Parts IV, X, XI, and XII of Chapter X, as well as Part I of
Chapter XI, for the purpose of collection and recovery of super tax in the same
manner as tax under the Ordinance.
7.7.5 Thus, while section 4B, to the extent of
creating the charge, may be regarded as an independent provision, its
subsections (3), (4), and (5) cannot be read in isolation. Rather, they must be
construed in harmony with one another and in conjunction with the broader
statutory scheme of the Ordinance. Such an interpretation ensures that the
legislative intent is preserved, the integrity of the assessment and recovery
mechanism is maintained, and no provision is rendered redundant or ineffective.
8. In light of the scheme and statutory framework of the Ordinance
reproduced above and the settled principles governing fiscal legislation, the
questions posed are answered as follows:
(i)
Whether the charge of super
tax under section 4B of the Ordinance operates independently, or whether its
enforceability is contingent upon the exercise of powers under section 122?
a) The charge of super tax under
section 4B(1), read with subsection (2), undoubtedly operates as an independent
charging provision, inasmuch as it creates the legal liability to pay super tax
on specified classes of income. However, its enforceability is not independent
of the assessment machinery provided under the Ordinance.
b) While liability arises by virtue of the charging provision,
it does not become enforceable in the absence of a proper determination through
assessment. By virtue of section 4B(3), which expressly incorporates “all
provisions of Chapter X,” the Legislature has made it abundantly
clear that the quantification and crystallization of such liability must take
place within the framework of sections 120, 121, and 122.
c) Accordingly, where the super tax has not been computed or
declared, its enforcement necessarily becomes contingent upon the invocation of
section 122, particularly section 122(5A), to amend the deemed or original
assessment. Section 4B cannot be read as a self-contained code for assessment. Reliance
is placed on the judgment of the Hon’ble High Court titled Reliance Commodities (Private) Limited vs
Federation of Pakistan and others, (2020 PTD 1464)
(ii)
Whether the statutory
limitation period prescribed under section 122(2) & 122(4) applies to the
levy and recovery of super tax under section 4B, or whether such levy can be
made without any temporal restriction?
a)
Yes, the limitation period
prescribed under section 122(2) and 122(4), as the case may be, squarely applies to the levy of super tax in
cases where such tax has not been assessed or determined.
b)
Once a return is filed and
a deemed assessment under section 120 comes into existence, any omission of
super tax constitutes a case of:
i.
tax not charged, or
ii.
where section 122(5)
applies.
Such situations fall exclusively within the ambit of section 122, and
therefore, any action to bring such liability to tax must be taken within the
statutory time limit prescribed therein. To hold otherwise, i.e., that super
tax may be levied or recovered without temporal restriction, would:
i.
defeat the scheme of
finality attached to assessments,
ii.
render section 122(2) and
122(4) nugatory, and
iii.
permit indefinite reopening
of settled matters, which is impermissible in fiscal jurisprudence.
Thus, a super tax cannot be levied or enforced beyond the limitation
period, unless the case falls within any lawful exception expressly provided by
statute.
(iii)
Whether, for the purpose of
levying super tax under section 4B, it is mandatory for the Commissioner to
first invoke section 122 and amend the deemed assessment order under section
120 before creating or enforcing the super tax liability?
a) Yes,
it is legally mandatory for the Commissioner to invoke section 122 of the
Ordinance before creating, enhancing, or enforcing any super tax liability
under section 4B in circumstances where a deemed assessment already exists
under section 120.
b) Where
a taxpayer has duly filed a return of income, such return attains the status of
a deemed assessment order under section 120 for all the purposes of this
Ordinance, thereby conferring legal finality upon the income declared and the
tax liability computed therein, subject only to amendment in accordance with
law under section 121 or 122 of the Ordinance. In a situation where:
(i)
a return has been filed,
(ii)
a deemed assessment stands
crystallised, and
(iii)
The super tax under section
4B has either not been computed at all or has been computed incorrectly in the
opinion of the assessing officer; the statutory framework does not permit the
creation or variation of such liability through any means other than a formal
amendment of the assessment under section 121 or 122.
c) Section
122 is the exclusive mechanism provided by the legislature for altering a
concluded assessment, whether by way of creating a new liability, enhancing an
existing one, or correcting an erroneous computation. It ensures due process by
affording the taxpayer an opportunity of being heard and by subjecting the
proposed amendment to defined jurisdictional conditions and limitations.
d) In
contrast, section 4B(4), which authorises the Commissioner to “determine” super
tax in cases of non-payment, cannot be interpreted as an independent or
self-contained charging or assessment provision. Its scope is confined to
enforcement and consequential determination, operating only where a valid and
pre-existing liability has already been brought on record through lawful
assessment proceedings. It does not empower the Commissioner to bypass the
assessment framework or to unilaterally create a fresh tax liability outside
the parameters of section 122.
e) Accordingly,
any attempt on the part of the tax authorities to impose, determine, or recover
super tax without first undertaking a lawful amendment of the deemed assessment
under section 120 is manifestly inconsistent with the statutory scheme of the
Income Tax Ordinance, 2001. Such a course of action effectively circumvents the
prescribed mechanism for assessment and reassessment, thereby depriving the
taxpayer of the procedural safeguards expressly embedded in the law, including
the right to prior notice, an opportunity of being heard, and a reasoned
determination through a speaking order. It would, therefore, amount to an
unlawful assumption of jurisdiction, exercised in a manner not sanctioned by
the legislature.
f) In
consequence, any super tax liability sought to be created or enforced in this
manner would lack legal foundation, rendering the action without lawful
authority and liable to be declared void ab initio by a competent forum.
g) This
interpretation is further reinforced by the structure and design of the
prescribed return forms, both at the relevant time for Tax Year 2015 and under
the current regime. In both instances, the return of income expressly contains
a dedicated column for the computation and declaration of the super tax payable
by the taxpayer. This clearly reflects the legislative intent that the super
tax is to be computed, declared, and made part of the self-assessed liability
at the stage of filing the return, which subsequently attains the status of a
deemed assessment under section 120. Therefore, where such computation is
absent or considered erroneous, the only lawful recourse available to the
Commissioner is to invoke section 122 for amendment of the assessment. Any
deviation from this statutorily prescribed course would not only defeat the
scheme of self-assessment but also undermine the integrity and finality
attached to the return as a deemed assessment order. Reliance is also placed on
the judgment of the Hon’ble High Court titled Reliance Commodities (Private) Limited vs Federation of
Pakistan and others, (2020 PTD 1464).
iv.
Whether, in a case where a
taxpayer has declared income exceeding the prescribed threshold but has failed
to discharge super tax liability, the tax authorities are required to invoke
section 122 before proceeding to levy and recover such super tax?
a) Yes,
unequivocally, the tax authorities are required to invoke section 122 of the
Ordinance before proceeding to levy or recover super tax in such a case. The
mere fact that a taxpayer has declared income exceeding the prescribed
threshold for the purposes of super tax does not, in itself, give rise to an
automatically enforceable tax liability. Under the statutory framework,
enforceability of any tax liability depends upon its proper computation,
declaration, and incorporation into the assessment. Where the taxpayer, despite
having income above the threshold, has
(i)
neither computed the super
tax, nor
(ii)
declared it in the return of
income, such liability does not form part of the deemed assessment created
under section 120. Consequently, there is no admitted or determined liability
on record which can be directly enforced or recovered by the Department.
b) In
these circumstances, the Department cannot presume the existence or admission
of such liability, nor can it bypass the assessment mechanism by resorting
straight to recovery or unilateral determination. The law mandates that before
any such liability can be enforced, it must first be validly brought on record
through the prescribed process of assessment or amendment.
c) Accordingly,
the proper and lawful course available to the Commissioner is to invoke section
122, preferably under subsection (5A), where applicable, so as to reopen and
amend the deemed assessment. Through such proceedings, the Commissioner must
(a) issue the requisite notice, (b) provide the taxpayer with an opportunity of
being heard, (c) determine the correct amount of super tax liability in accordance
with law, and (d) create a lawful demand through an amended assessment order.
Only thereafter can the machinery provisions relating to recovery be validly
set into motion.
d)
This approach is not only in
consonance with the statutory scheme but is also consistent with established
departmental practice in analogous situations, such as the application of
minimum tax under section 113, where any omission or incorrect computation
similarly necessitates recourse to section 122. Adherence to this procedure is
essential to preserve the integrity of the assessment framework, uphold due
process, and ensure that no tax liability is imposed or recovered except
through the authority of law.
9. ON MERIT
9.1 As a settled proposition of law, once proceedings are declared
void ab initio on
account of a fundamental jurisdictional defect, it is ordinarily not necessary
to examine the case on the merits. The rationale is self-evident: where the
very assumption of jurisdiction is unlawful, all subsequent actions and
proceedings emanating therefrom stand vitiated, leaving no valid lis for
adjudication on substantive issues. In this regard, reliance may be placed upon
the judgment of the Hon’ble Supreme Court of Pakistan in Moulana Atta Ur Rehman v. Al-Hajj
Sardar Umer Farooq and others (PLD 2008 SC 663), wherein it
was held as under:
“In
the same string are the cases reported as Rehmatullah and others v. Saleh Khan
and others (2007 SCMR 729), Punjab Workers' Welfare Board Government of Punjab
and Human Resources Department, Lahore v. Mehr Din (2007 SCMR 13), Muhammad
Tariq Khan v Khawaja Muhammad Jawad Asami (2007 SCMR 818) and All Pakistan
Newspapers Society v. Federation of Pakistan and others (PLD 2004 SC 600). The
learned High Court has not appreciated the law laid down in the above-reported
cases. It is well settled that when the basic order is without lawful
authority and void ab initio, then the entire superstructure raised thereon
falls to the ground automatically as held in Yousaf Ali v. Muhammad Aslam Zia
(PLD 1958 SC 104).” (Emphasis supplied)
It is thus firmly established
that jurisdiction constitutes the very foundation of any legal proceeding.
Where the authority initiating the action lacks lawful jurisdiction, whether
due to absence of statutory competence, non-fulfilment of mandatory
preconditions, or violation of essential procedural requirements, the entire
proceedings are rendered a nullity in the eyes of law. In such a situation,
embarking upon an examination of the merits would ordinarily amount to a purely
academic exercise, as any findings so recorded would have no independent legal
efficacy absent a valid assumption of jurisdiction. However, in order to
advance the cause of complete justice and to obviate the possibility of
multiplicity of proceedings in the event that the jurisdictional finding is set
aside by a superior forum, it is considered appropriate to also examine and
decide the matter on the merits in the alternative. Accordingly,
notwithstanding the position that adjudication on merits is not strictly
required in view of the jurisdictional defect noted above, we deem it
appropriate to proceed to decide the instant case on merits as well.
9.2 Upon a careful
consideration of the submissions advanced by the learned AR and perusal of the
material available on record, we find substantial force in the contention of
the appellant. The core issue revolves around the proper computation of
“income” for the purposes of levy of super tax under section 4B of the
Ordinance and whether the threshold prescribed therein has been correctly
applied by the authorities below.
9.3 It is an admitted position
that the appellant declared a taxable income amounting to Rs. 403,513,796/-.
However, section 4B(2) envisages a specific and composite definition of
“income”, which is distinct from the conventional concept of taxable income.
The provision mandates inclusion of, inter alia, imputable income as defined
under section 2(28A) in respect of receipts subjected to the final tax regime.
In this context, the appellant rightly computed imputable income of
Rs.45,965,739/- attributable to such receipts.
9.4 When the declared taxable
income is aggregated with the imputable income so computed, the total income
for the purposes of section 4B comes to Rs. 449,479,534/-. This computation is
in consonance with the statutory scheme and has not been controverted by the
Department. Significantly, the said figure falls below the prescribed threshold
of Rs. 500 million applicable for the tax year 2015, as provided in Division
IIA of Part I of the First Schedule.
9.5 We further observe that
the authorities below failed to properly appreciate the nature and scope of
section 4B(2), particularly in relation to the treatment of exempt income. The
scheme of the provision, when read harmoniously, indicates that only such income
as is envisaged within the statutory definition can be brought within the ambit
of super tax. Income which is expressly exempt under the Ordinance cannot be
artificially included so as to inflate the threshold for applicability of
section 4B. The failure to exclude such exempt income has resulted in an
erroneous computation, thereby vitiating the very basis of the impugned levy.
9.6 It is also pertinent to
note that the learned DR, after examining the factual and legal position,
fairly conceded to the submissions advanced on behalf of the appellant. Such a concession,
being in line with the statutory provisions, lends further credence to the
appellant’s stance.
9.7 In view of the above, we
are persuaded to hold that the income of the appellant, computed strictly in
accordance with section 4B read with section 2(28A), does not exceed the
prescribed threshold. Consequently, the foundational requirement for the applicability
of the super tax is not met in the present case.
10. Conclusion
10.1 In light of the foregoing
discussion and having examined the facts, legal provisions, and submissions of
the parties, it is evident that the provisions of section 4B of the Ordinance,
while constituting a valid charging provision for super tax, are not attracted
to the appellant in the present case. The appellant’s total income, computed in
accordance with section 4B read with section 2(28A), amounts to
Rs.449,479,534/-, which is below the prescribed threshold of Rs. 500 million
for the relevant tax year. The authorities below erred in including exempt
income and in miscomputing the aggregate income, thereby imposing a super tax
without lawful authority.
10.2 It is further emphasized
that the enforceability of the super tax under section 4B is inseparably linked
with the assessment provisions of the Ordinance. The statutory framework
clearly mandates that:
i.
liability must first be
properly assessed, whether through self-assessment under section 120 or
amendment under section 122, before any recovery can be effected;
ii.
Section 122 constitutes the
exclusive mechanism to remedy omissions, under-assessment, or errors in deemed
assessments; and
iii.
The limitation provisions
under section 122 apply fully, restricting the temporal scope for levy or
amendment.
Any attempt to levy or recover super tax without observing these
statutory safeguards would be contrary to law, violative of due process, and
legally unsustainable. In consequence, the impugned orders of the authorities
below, insofar as they charge super tax, are set aside, and the appeal of the
taxpayer is allowed.
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Sd/- -Sd/- -SD- (M. M. AKRAM) JUDICIAL MEMBER |
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Sd/- -SD- (SHARIF UD DIN
KHILJI) MEMBER |
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