Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The power to tax involves the power to destroy—McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819)
The controversies surrounding super tax under section 4C of the Income Tax Ordinance, 2001 have taken a troubling turn after the judgement of Islamabad High Court, in M/s CM Pak Limited v Federation of Pakistan & others (W.P. 1125 & 1126 of 2026, decided on 25-03-2026), holing that “no right of adjustment of withholding taxes against the liability arising under Section 4C can be claimed”.
The judgement follows the short order of Federal Constitutional Court (FCC) of Pakistan, which has declared section 4C to be a separate and standalone tax on ‘income’. However, a careful reading of the Islamabad High Court judgement reveals that applicable statutory provisions and relief sought by the petitioner have been ignored, rendering the judgement per incuriam on the face of the record itself.
The Islamabad High Court has itself reproduced the petitioner’s contention/prayer:
“It is further respectfully prayed that the sum of PKR 89,640,124 (Pak rupees eighty-nine million six hundred and forty thousand one hundred and twenty four) that has been paid under protest by the Petitioner Company be refunded to it. Alternatively, the said amount be adjusted against any future tax liabilities of the Petitioner Company.”
This prayer goes to the heart of the controversy. The petitioner had already paid a huge amount under protest and sought either its refund or adjustment against any future tax liabilities. The Islamabad High Court dismissed the petition for lack of assistance, ignoring the statutory provisions governing advance payments and their adjustments and refund, particularly section 4C(5A), 147(10) and section 170(3)(a) of the Income Tax Ordinance, 2001.
This omission is not minor. It strikes at the legal sustainability of the judgement itself. Section 4C(5A) and section 147(10) of the Income Tax Ordinance, 2001 provide:
4C(5A): The provisions of section 147 shall apply on tax payable under this section.
147(10): “Where the advance tax paid under this section exceeds the tax due on the basis of return of income, the excess amount shall be refundable to the taxpayer or adjustable against tax liability of the taxpayer.”
A cumulative reading of sections 4C(5A) and 147(10) clearly establishes that excess tax paid cannot be retained by the revenue and must either be refunded or adjusted. Super tax collected in excess or paid under protest falls squarely within this principle. This statutory linkage is explicit and leaves no room for interpretive dilution.
Further, section 170(3)(a) of the Income Tax Ordinance, 2001 provides:
“(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall–
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance”.
The above statutory command is mandatory and admits no discretion. The use of the word “shall” leaves no discretion with the tax authorities or courts. Once excess tax is paid, adjustment becomes a statutory right.
The Islamabad High Court’s judgement does not even mention these provisions. This is particularly significant because the petitioner had specifically sought refund or adjustment of excess amount paid under protest. The failure to consider these directly applicable statutory provisions, with due respect, renders the judgement per incuriam, as courts are bound to consider applicable law before deciding the issue.
This matter assumes even greater importance because the Islamabad High Court relied heavily on the short order of the FCC of Pakistan, which held:
“Super tax is a tax on income independent of the tax levied under section 4… Section 4C is a self-contained provision… standalone tax on income.”
However, even if super tax is independent, it does not follow that refund and adjustment provisions cease to apply. Independence of levy does not eliminate statutory rights of adjustment of excess tax or refund.
The Court’s reasoning, with due deference, conflates two distinct legal issue: constitutionality/exclusiveness of super tax and adjustment of tax paid. Even an independent tax remains subject to refund and adjustment provisions unless specifically excluded. Section 4C contains no such exclusion. Nor can such exclusion be implied in taxation statutes where strict construction is the governing rule.
The aspects related to constitutionality of super tax have already been highlighted in an earlier critique, ‘Fallacies behind super tax validation’, Business Recorder, February 10, 2026. This article questions how super tax ignores statutory computation mechanisms and creates arbitrary tax burdens. These concerns now stand reinforced by the Islamabad High Court’s judgement.
The most distressing aspect of main controversy around super tax is on the argument that multiple taxes on ‘income’ are permissible under the Constitution of Islamic Republic of Pakistan [“the Constitution”]. While legislatures may impose multiple levies, such taxes must still comply with Constitution, statutory adjustment and refund provisions. Ignoring these provisions effectively allows revenue authorities to retain excess tax paid, by way of advance or otherwise, without legal authority.
This raises serious constitutional concerns under Articles 23 and 24 of the Constitution relating to protection of property. Retaining excess tax without adjustment or refund amounts to compulsory exaction beyond lawful authority.
The Islamabad High Court, as per judgement, treated the matter as settled by the FCC’s short order. However, FCC’s short order dealt primarily with constitutional validity, not adjustment of tax and/or refund. The High Court’s judgement has not made a distinction between constitutional validity of super tax and statutory entitlement to adjustment. This distinction is critical. Even if section 4C is valid, taxpayers remain entitled to adjustment and refund under the Ordinance.
It may be recalled that the FCC, in its short order of January 27, 2026, in an attempt to validate imposition of super tax under the Income Tax Ordinance, 2001, has unsettled the well-established constitutional jurisprudence. The detailed order is not released even after lapse of 78 days (until the writing of these lines).
The short order of FCC extends power to Parliament, in reality to Federal Board of Revenue (de facto legislator in tax matters) to abuse Entry 47, Part I of the Federal Legislative List by invoking different labels and multiple charging sections against the same economic activity (taxable event of enjoying ‘income’). This approach effectively converts Entry 47 into an open-ended taxation power, contrary to settled principles of constitutional interpretation—see details in ‘Fallacies behind super tax validation’, Business Recorder, February 10, 2026.
Adding further complexity to an already unsettled position, the Islamabad High Court, by ignoring explicit provisions of sections 4C(5A), 147(10) and 170(3)(a), has effectively denied statutory rights without addressing them. Such omission, with due respect, constitutes classic per incuriam judgement. The implications extend beyond this case. If this reasoning stands, revenue authorities may retain excess tax despite statutory provisions requiring adjustment or refund. This would undermine taxpayer rights and erode fiscal certainty.
The controversy around super tax, therefore, deepens. Instead of clarifying the law, Islamabad High Court’s judgement has created further uncertainty by ignoring relevant statutory provisions and taxpayers’ rights.
Given the importance of the issue and its wider fiscal implications, the matter requires early and authoritative determination by the Supreme Court on the question of statutory entitlement to adjustment of excess taxes paid against liability under section 4C. Until then, the debate on super tax will continue, now compounded by a judgement that appears per incuriam on the face of the record.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions