Section 42 of Companies Act, 2017: IHC adjudicate on tax references filed by SECP-registered firm

ISLAMABAD: The Islamabad High Court (IHC) has recently adjudicated three income tax reference applications filed by a company registered with the Securities and Exchange Commission of Pakistan (SECP) under section 42 of the Companies Act, 2017.

The company, which operates schools affiliated with a private housing society, contended that, despite the absence of the Commissioner’s approval under section 2(36) of the Income Tax Ordinance, 2001 (Ordinance), it is nonetheless entitled to claim a tax credit under section 100C of the Ordinance for the tax years 2015, 2016, and 2017.

The company’s argument was based on the assertion that its case fell under section 100C(2)(a) of the Ordinance, thereby obviating the need to meet any further conditions for availing the full 100% tax credit. Additionally, the company argued that its registration with the SECP as a non-profit entity should be deemed sufficient to entitle it to the tax credit under section 100C.

Initially, the IHC admitted the company’s tax references and granted an interim injunction against the recovery of taxes. However, when the case was argued at length, the IHC concurred with the submissions made by the Commissioner’s legal counsel, Osama Shahid (Advocate), and ruled that, notwithstanding the company’s registration status with the SECP, in order to avail tax credit under section 100C of the Ordinance, the company was required to obtain the Commissioner’s approval under section 2(36) of the Ordinance.

The failure to fulfill this essential condition resulted in the company being held liable for tax, declared by Islamabad High Court.

The section 100C of the Ordinance has been subjected to frequent amendments by the legislature, which have raised significant concerns regarding its interpretation and application. Nevertheless, with this recent judgment from the Islamabad High Court, it is hoped that the lingering ambiguity surrounding section 100C of the Ordinance will be resolved, providing much-needed clarity.

Copyright Business Recorder, 2025