Key Takeaways
- Islamabad High Court dismissed a petition filed by Meezan Bank challenging the constitutional validity of Section 4C.
- The court upheld the levy of super tax and vacated interim stay orders.
- Meezan Bank argued that the section was unconstitutional, discriminatory, and amounted to double taxation.
In a significant legal ruling, the Islamabad High Court has dismissed a petition filed by Meezan Bank Ltd challenging the constitutional validity of Section 4C of the Income Tax Ordinance 2001. The court upheld the levy of super tax and vacated interim stay orders, reaffirming the statutory taxation regime applicable to banking companies.
Meezan Bank had argued that Section 4C was unconstitutional, discriminatory, and amounted to impermissible double taxation as income already taxed under Section 4 of the ordinance was subjected to an additional super tax. The bank also challenged the retrospective enhancement of the levy, arguing that income arising from Islamic financing agreements executed before the introduction or enhancement of Section 4C could not be taxed.
In opposition, Hafiz Ehsaan Ahmad Khokhar Advocate, representing the Federation and the Federal Board of Revenue (FBR), raised objections to the petition’s maintainability. He argued that Meezan Bank had already availed the statutory remedy by filing an appeal before the Appellate Tribunal Inland Revenue (ATIR) in Karachi and therefore could not invoke the IHC's constitutional jurisdiction.
The division bench agreed with the federation’s arguments, ruling that liability under Section 4C was determined by income accrued during the relevant tax year rather than the date on which financing contracts were executed. The court found no constitutional violation and held that the Seventh Schedule made no distinction between conventional and Islamic banks.
Senior counsel Dr Farogh Naseem, representing Meezan Bank, argued that the bank had already availed its statutory remedy by filing an appeal before ATIR in Karachi. However, the bench disagreed, stating that the court’s jurisdiction was based on the relevant tax year rather than the date of contract execution.
The ruling is expected to have significant implications for banking companies operating under the Income Tax Ordinance 2001, particularly those involved in Islamic financing agreements. The decision upholds the constitutional validity of Section 4C and reaffirms the statutory taxation regime applicable to banking companies.
Meezan Bank’s petition was dismissed on July 28th, 2026, marking a definitive end to the legal dispute over the super tax. The court's ruling is seen as a victory for the FBR in its efforts to ensure compliance with existing tax laws and maintain a consistent taxation regime across all banking companies.
