LHC Rules Against Retrospective Super Tax for Tax Year 2022

LHC Rules Against Retrospective Super Tax for Tax Year 2022

PkRevenue.com – The Lahore High Court (LHC) has declared that the super tax under Section 4C of the Income Tax Ordinance, 2001, cannot be imposed retrospectively on companies and individuals for the tax year 2022.

The decision was made by a division bench of the LHC in response to appeals challenging the retrospective imposition of the super tax, which petitioners argued impaired their vested rights.

The bench, comprising two members, issued its judgment in ICA No. 48745 of 2023, siding with the appellants/taxpayers. The court set aside the portion of the impugned judgment that upheld the retrospective application of Section 4C by including the words “for the tax year 2022.” The LHC declared that these words could not undermine the rights conferred on taxpayers by the end of the tax year on June 30, 2022, as these were considered past and closed transactions.

The ruling effectively means that the super tax under Section 4C cannot be applied to the appellants for the tax year 2022, a decision that also extends to appellants with a special tax year. The judgment emphasized the principle of non-retroactivity, ensuring that the tax obligations of individuals and companies could not be altered after the fact.

Central to the litigation was the issue of discrimination due to differing rates of taxation across various sectors. The court highlighted that without an intelligible criterion, isolating certain sectors for higher taxation rates compared to others in the same income bracket was unjust. The LHC noted that this view aligns with the holdings of the Sindh High Court and the Islamabad High Court in similar cases.

The LHC stated, “Certain sectors without any intelligible criteria cannot be isolated from the rest of the persons similarly placed and sought to be taxed at a higher rate than those persons who earn an income in the same bracket.” This principle underpinned the decision, underscoring the importance of equitable taxation policies.

The ruling has been hailed as a victory for taxpayers who have been contesting the retrospective imposition of the super tax. Legal experts believe this judgment reinforces the protection of vested rights and the principle of non-retroactivity in tax legislation.

The LHC’s decision not only aligns with the judgments of other high courts in Pakistan but also sets a precedent for ensuring that tax laws are applied fairly and without retrospective effect. This ruling is expected to have significant implications for future tax legislation and its implementation across the country.