FCC allows super tax adjustment against tax credit

ISLAMABAD: The Federal Constitutional Court (FCC) has held that income tax in general, and super tax in particular, paid under Section 4C of the Income Tax Ordinance, 2001, is adjustable where a tax credit is available within the meaning of Section 168 of the ITO, 2001.

“We find no justification for holding that Super Tax paid under Section 4C of the ITO is incapable of being adjusted where there is tax credit under Section 168 of the ITO,” said a two-judge bench in a judgment authored by Justice Aamir Farooq.

“Such an interpretation finds no support in the statutory scheme. Interpreting the application of Chapter X to Section 4C’s scheme in a constrained way is unwarranted. No principled basis has been offered for such a selective incorporation and restrictive interpretation,” the ruling added.

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The judgment set aside the Islamabad High Court (IHC) decision dated March 25, 2026, and said that the petitioner shall be at liberty to seek adjustment, if any, before the competent taxing authority, which shall determine such claim in accordance with the ITO.

Following the affirmation of the constitutional validity of the Super Tax by the FCC, the Federal Board of Revenue (FBR) issued a notice dated February 02, 2026 requiring the petitioner (CM Pak Limited) to discharge its liability towards the Super Tax.

In response, an exchange of correspondence ensued between the petitioner and the FBR, wherein the petitioner maintained that: “Company has available excess taxes deduction at source of Rs2,212,433,254 relating to tax year 2022 which is adjustable against the super tax payable as determined by good self in the notice dated February 19, 2026.” FBR declined.

Aggrieved by such refusal, the petitioner invoked the constitutional jurisdiction of the IHC under Article 199 of the Constitution, which dismissed the petitions.

Justice Aamir noted that Section 4C(3) provides categorically that the super tax shall be paid, collected, and deposited on the date and manner as specified in Section 137 sub-section 1, and all the provisions of Chapter X shall apply.

It said that the subsequent incorporation of “all provisions of Chapter X (including s.168 of the ITO)”, cannot be reduced to the same procedural function, as that would render the latter phrase redundant.

The judgment further noted that the expression “paid, collected and deposited” is itself indicative of the entire statutory mechanism governing the discharge of tax liability, including its payment, collection, adjustment, credit, and deposit etc. It said that the legislature intended to incorporate the complete statutory regime under Chapter X including tax credit regime, and not merely Chapter X’s procedural aspects. “Had Parliament intended otherwise, it could have expressly limited the incorporation to procedural provisions, it further said that added that the Court cannot read such a limitation into the statute where none exists.

Justice Aamir wrote that a tax credit under Section 168 of the ITO is conceptually and statutorily distinct from a refund claimed under Section 170 of the ITO, that establishes a self-contained statutory mechanism for claiming a refund, which necessarily requires an application to be made before the Commissioner under section 170(1).

The judgment also said that it is equally well settled that fiscal statutes ought to be construed in favour of the taxpayer.

Copyright Business Recorder, 2026