ISLAMABAD: The Islamabad High Court (IHC) has dismissed a petition challenging the constitutional validity of Section 4C of the Income Tax Ordinance, 2001, thereby upholding the levy of Super Tax in a dispute involving approximately Rs11 billion.
A Division Bench, comprising Justice Ameen Minhas and Justice Muhammad Azam Khan, on Monday vacated the interim stay orders and dismissed all pending applications, reaffirming Parliament’s constitutional competence to enact fiscal legislation, the statutory appellate framework under the Income Tax Ordinance, and the special taxation regime applicable to banking companies.
Meezan Bank had challenged the enhanced Super Tax regime on multiple constitutional and statutory grounds.
The IHC held that the petition is not maintainable as Meezan Bank had already availed the complete statutory remedy provided under the Income Tax Ordinance by pursuing departmental proceedings and filing an appeal before the Appellate Tribunal, Inland Revenue.
The Court observed that where an effective and adequate statutory remedy exists and has already been invoked, the extraordinary constitutional jurisdiction under Article 199 should not ordinarily be exercised.
The Division Bench held that liability under Section 4C is determined by the income accrued and recognised during the relevant tax year and not by the historical date on which the underlying banking or Islamic financing contracts were executed.
The Court accepted the Federation’s contention that the Seventh Schedule creates a uniform taxation regime for all banking companies and does not recognise any distinction between conventional and Islamic banking for computation of taxable income or levy of tax.
Consequently, Meezan Bank’s contention that income arising from Islamic financing agreements executed prior to the enactment or enhancement of Section 4C could not be subjected to Super Tax was found to have no legal basis under the Income Tax Ordinance.
Dr Farogh Naseem, on behalf of the petitioner, argued that Section 4C was without lawful authority, unconstitutional, discriminatory, retrospective and violative of Articles 4, 10A, 18, 23, 24 and 25 of the Constitution.
He contended that once income had been subjected to tax under Section 4 of the Ordinance, Parliament could not impose another levy on the same income through Section 4C, as this amounted to impermissible double taxation. He further submitted that Section 4C failed to independently define the taxable subject or provide a complete mechanism for determining “income”, rendering it vague and unenforceable.
He also challenged the retrospective enhancement of Super Tax, the exclusion of brought-forward business losses and depreciation from the computation mechanism, and argued that the levy could not be applied to income arising from Islamic financing contracts executed before the enactment or enhancement of Section 4C.
Dr. Naseem maintained that the earlier decision in M/s DG Khan Cement did not specifically examine the legal and regulatory framework governing Islamic banking and therefore did not conclusively determine the issues raised by Meezan Bank.
Hafiz Ehsaan Ahmad Khokhar, representing the federation and the Federal Board of Revenue (FBR), argued that the challenge to Section 4C of the Income Tax Ordinance, 2001 was misconceived, legally untenable and contrary to settled principles of fiscal law. He maintained that Meezan Bank had already participated in departmental proceedings and invoked the complete statutory appellate mechanism by filing an appeal before the Appellate Tribunal Inland Revenue (ATIR), Karachi.
Consequently, the extraordinary constitutional jurisdiction under Article 199 of the Constitution could not be invoked where an adequate and efficacious statutory remedy had already been availed. He further submitted that the Islamabad High Court lacked territorial jurisdiction because the assessment, adjudication and recovery proceedings had been undertaken by the Large Taxpayers Office, Karachi, and entertaining the petition would undermine the statutory scheme and encourage forum shopping.
On the merits, Hafiz Ehsaan argued that Section 4C is a constitutionally valid fiscal measure enacted within Parliament’s legislative competence and that the Constitution does not prohibit multiple fiscal levies in the absence of an express constitutional restriction. He submitted that Section 4 is the principal charging provision for income tax, whereas Section 4C creates an independent levy of Super Tax applicable to specified classes of taxpayers with greater financial capacity.
Referring extensively to the Seventh Schedule of the Income Tax Ordinance, the FBR counsel submitted that Parliament has established a special and self-contained taxation regime for banking companies under which taxable income is computed, and annual income tax returns are filed on an accrual basis.
He stated that since Meezan Bank itself files its annual tax returns under the Seventh Schedule, its contention that Super Tax liability should depend upon the historical execution dates of Islamic financing contracts, rather than the income accrued and recognised during the relevant tax year, had no legal foundation.
Distinguishing the authorities relied upon by the petitioner, including Fauji Fertiliser and Fauji Foundation, Hafiz Ehsaan submitted that those judgments arose under different statutory regimes and did not concern banking companies governed by the Seventh Schedule. He further argued that the controversy had already been conclusively settled by the binding judgment of the Federal Constitutional Court in M/s DG Khan Cement (2026 PTD 625) and therefore prayed for dismissal of the petition.
The judgment is expected to serve as an important precedent on the constitutional validity of Section 4C, reaffirming Parliament’s fiscal competence, the uniform taxation framework under the Seventh Schedule, and the principle that Super Tax is levied on income accrued during the relevant tax year rather than on the historical execution of the underlying banking or Islamic financing contracts.
Copyright Business Recorder, 2026
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