ISLAMABAD: The Federal Constitutional Court (FCC) was told on Tuesday that the legislature could not be deemed to contradict itself by conferring a benefit and creating vested right under one provision (4B) and simultaneously taking it away under another provision (4C) for the same tax period.
A three-member bench of FCC, headed by Chief Justice Amin-ud-Din Khan, heard the Federal Board of Revenue (FBR) appeals against the judgments of Sindh, Lahore and the Islamabad High Courts (IHC) regarding levy of Super Tax under Section 4C, inserted in the Income Tax Ordinance, 2001 through Finance Act 2022, on high-earning individuals and companies.
Khalid Jawed Khan, representing Karachi-based taxpayers, argued that the legislature as well as the federal government, including FBR, have always treated 4B and 4C interchangeably. The Super Tax has been collected under either Section 4B or 4C.
He contended that Article 260 of the Constitution defines two distinct types of income taxes: Excess Profits Tax and Business Profits Tax. Since the Constitution explicitly differentiates between the two – reflecting the historical distinction where they have always been levied under separate provisions – they cannot be conflated or treated as identical, he said, adding excess Profits Tax, in particular, is a form of windfall tax, unrelated to business performance or effort.
The taxpayer counsel submitted that the rate of 10 percent i.e. under first proviso, Division IIB has been explained and defended by FBR as tax on windfall or exponential profits. Windfall tax was not part of ITO, 2001, for TY 2022, as it was only levied for the first time by the Finance Act, 2024, by insertion of Section 99D. It has its own distinct preconditions for levy. Thus, levy of excess tax at six percent under first proviso for TY 2022, was imposed without enabling provision and not recoverable. He said that factually this is incorrect that any sector made the windfall profit/gain during the Covid.
Jawed, earlier argued that the first proviso to Division IIB which creates a sub classification with 10 percent tax rate (as against 4 percent tax rate for all others) is not based on income but nature of business. This is in conflict with Section 4C which provides for only one classification i.e. ‘income of every person’. It does not permit any sub classification under the Schedule and that too by adding a proviso thereto. The first proviso to the Schedule clearly deviates from the charging section and cannot be given effect as held by the Supreme Court.
He said the sub classification in the first proviso discriminating solely on the basis nature of business and not income is otherwise based on no rational classification or intelligible differentia having any nexus with the charging section. Therefore, it is discriminatory in violation of Article 25 of the Constitution and liable to be struck down.
Khalid Jawed, while completing his arguments, prayed that appeals of the FBR against the High Courts’ judgment be dismissed.
The hearing was adjourned till Wednesday.
Copyright Business Recorder, 2026
Comments
Comments are closed for this article.