Section 166 of Income Tax Ordinance, 2001 explained that tax recovery shall be first from a person in the estate of liquidation or bankruptcy.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021. The Ordinance incorporated amendments brought through Finance Act, 2021.
Following is the text of Section 166 of the Income Tax Ordinance, 2001:
166. Priority of tax collected or deducted. — (1) Tax collected by a person under Division II of this Part or Chapter XII or deducted from a payment under Division III of this Part or Chapter XII shall be —
(a) held by the person in trust for the Federal Government; and
(b) not subject to attachment in respect of any debt or liability of the person.
(2) In the event of the liquidation or bankruptcy of a person who has collected or deducted tax from a payment under Division III of this Part or Chapter XII, the amount collected or deducted shall not form part of the estate of the person in liquidation or bankruptcy and the Commissioner shall have a first claim for that amount before any distribution of property is made.
(3) Every amount that a person is required to deduct from a payment under Division III of this Part or Chapter XII shall be –
(a) a first charge on the payment; and
(b) deducted prior to any other amount that the person may be required to deduct from the payment by virtue of an order of any Court or under any other law.
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