FCC urged to rule: Charge applicable to each ‘block’ must be governed by law in force on last day

ISLAMABAD: The Federal Constitutional Court (FCC) was urged to rule that, although a Special Tax Year is identified by reference to the normal tax year in which it ends, the charge applicable to each “block” must be governed by the law in force on the last day of the respective block.

A three-judge bench of the FCC, headed by Chief Justice Amin-ud-Din Khan, on Monday heard appeals filed by the Federal Board of Revenue (FBR) against judgments of the Sindh, Lahore, and Islamabad High Courts concerning the levy of Super Tax under Section 4C, inserted into the Income Tax Ordinance (ITO), 2001 through the Finance Act, 2021.

Advocate Adnan Haider, representing Trans World Associates, submitted that the split of the charge is not only necessary but also more equitable, as tax rates almost invariably change on the first day of the second block with the announcement of a new budget.

READ MORE: Super Tax levy: FCC urged to take into consideration 27th Amendment, other factors

He argued that this approach would place special tax year holders on par with normal tax year holders, as both would know in advance which tax rates apply to their earnings, and their tax liability would crystallize on the last day of the relevant block.

Haider contended that under Section 74(1) of the ITO, a tax year comprises 12 months, while Section 74(2) provides that a special tax year may differ from a normal tax year (which corresponds to a financial year) and is denoted by the normal tax year in which its last day falls. He explained that his client follows the calendar year (January 1, 2021 to December 31, 2021), which is denoted as Tax Year 2022.

He emphasized that, in the present matter, three six-month blocks are relevant for a Special Tax Year: the first block (January 1, 2021 to June 30, 2021), which falls in Financial Year 2021 and is not subject to Section 4C of the ITO, 2001; the second block (July 1, 2021 to December 31, 2021), which falls in Financial Year 2022 and to which Section 4C was retrospectively applied; and the third block (January 1, 2022 to June 30, 2022), which also falls in Financial Year 2022 and is similarly subject to retrospective application of Section 4C.

Haider submitted that FBR’s counsel, Asma Hamid, relied on Lotte Akhtar (2011 PTD 2229) to argue that the levy imposed during the third block is chargeable even for the period falling within the first block in the case of a special tax year holder, despite the taxpayer’s accounts having closed at the end of the second block.

He contended that this interpretation would unlawfully expand a special tax year from 12 months to 18 months. Such an interpretation, he argued, would seriously prejudice special tax year holders and effectively convert Section 74(2) of the ITO, 2001 from a machinery provision into a charging provision, which it is not.

The taxpayer’s counsel further argued that the conflicting interpretations adopted by the High Courts not only make an 18-month period (three six-month blocks) relevant for special tax year holders but also cause prejudice.

He explained that when a charge is imposed in the third block, tax is extracted from special tax year holders even for the first block; however, when a benefit is granted in the third block, it is denied to special tax year holders on the ground that their accounting year had already ended with the close of the second block.

Haider stated that his client had already paid super tax for the first two blocks of its Special Tax Year 2022.

He added that after the Islamabad High Court read down Section 4C of the ITO in Fauji Fertilizer, the petitioner approached the IHC seeking a refund. However, the High Court declined to order a refund and directed the taxpayer to avail departmental remedies.

He maintained that the petitioner was forced to bear the burden of super tax for the first block, which falls in Financial Year 2021, when Section 4C of the ITO, 2001 was not in force. In contrast, taxpayers following a normal tax year were not subjected to super tax for that period—and rightly so.

Farogh Naseem and Adnan Haider have concluded their arguments. From today (Tuesday), Ahmed Jamal Sukhera is scheduled to present his arguments.

Copyright Business Recorder, 2026