Commercial entities can adjust their super tax liability against tax credits, rules FCC

ISLAMABAD: The Federal Constitutional Court (FCC) ruled on Monday that commercial entities could adjust their super tax liability against tax credits.

A two-member bench, comprising FCC Chief Justice Aminuddin Khan and Justice Aamer Farooq, issued the ruling on an appeal filed by CM Pak Limited – a Chinese multinational telecom operator – against the March 25, 2026, Islamabad High Court’s (IHC) rejection of a similar plea.

“We find no justification for holding that super tax paid under Section 4C of the Income Tax Ordinance (ITO) is incapable of being adjusted where there is a tax credit under Section 168 of the ordinance, thereby compelling the taxpayer to pursue only the refund mechanism under Section 170,” stated Justice Farooq in the judgement he authored.

In the six-page order, Justice Farooq observed that interpreting the application of Chapter X to Section 4C’s scheme in a constrained way was “unwarranted”.

“No principled basis has been offered for such a selective incorporation and restrictive interpretation,” the verdict said, adding that if Chapter X was attracted, its provisions must be given effect in accordance with their terms, including section 168 where applicable.

“To hold otherwise would amount to reading into the statute a limitation that the legislature has not imposed,” Justice Farooq observed.

The query raised before the FCC was whether the income tax in general and super tax in particular paid pursuant to Section 4C of ITO 2001 was adjustable or not where there was tax credit within the meaning of Section 168 of the ordinance.

The super tax was imposed by the National Assembly on the income of specified high-earning sectors. The super tax was conceived as an additional charge on income. After its enactment, the constitutional validity of Section 4C was assailed before the superior courts, but the challenge ultimately culminated in its vires being upheld.

Following the affirmation of the constitutional validity of the super tax by the FCC, the Federal Board of Revenue (FBR) issued a notice on February 9, 2026 requiring the petitioner business to discharge its liability towards the super tax.

In response, an exchange of correspondence ensued between the petitioner and FBR, wherein the petitioner company maintained that: “The company has available excess taxes deduction at source of Rs2.2 billion relating to tax year 2022, which was adjustable against the super tax payable as determined by good self in the notice dated Feb 19, 2026.”

The FBR, even so, declined the request; consequently, the petitioner company approached IHC, but the high court dismissed the plea.

Justice Farooq observed that a tax credit under Section 168 of ITO was conceptually and statutorily distinct from a refund maintained under Section 170 – a provision which establishes a self-contained statutory mechanism for claiming a refund and necessarily requires an application to be made before the Commissioner under Section 170(1).

FCC explained 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 (1) and the all provisions of Chapter X shall apply.

The reference to Section 137(1) already governs the date and manner of payment, the verdict went on.

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

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.

By employing the expansive phrase “all provisions of Chapter X”. It includes Section 168 and the same delineates credit for tax collected or deducted, the legislature intended to incorporate the complete statutory regime under Chapter X, including the tax credit regime, and not merely Chapter X’s procedural aspects, the judgement stated.

Had the parliament intended otherwise, it could have expressly limited the incorporation to procedural provisions. The court cannot read such a limitation into the statute where none exists, the FCC said.

The FCC set aside the IHC March 25, 2026 order with a direction that the petitioner business will be at liberty to seek adjustment, if any, before the competent taxing authority. It shall determine such claim in accordance with ITO.