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Official Citation: 2026 IHC 266599
Court / Jurisdiction: Islamabad High Court
Parties: Meezan Bank Limited vs FOP through Secretary M/o Finance etc.
Ruling Summary: This decision was rendered by the Islamabad High Court, officially reported as 2026 IHC 266599. In this matter between Meezan Bank Limited and FOP through Secretary M/o Finance etc., the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
COURT: Islamabad High Court (Honourable Mr. Justice Inaam Ameen Minhas, Honourable Mr. Justice Muhammad Azam Khan) AUTHOR JUDGE: Honourable Mr. Justice Inaam Ameen Minhas DECISION DATE: 23-JUL-2026 CASE NO: Writ Petition-3479-2024 CITATION: 2026 IHC 266599 PARTIES: Meezan Bank Limited VS FOP through Secretary M/o Finance etc. LAW / SECTION: - SUBJECT: Tax & Banking, Tax REMARKS: Tax: Challenges Amendments brought in Section 6(C) of Tax Laws wherein Enhanced rate of Tax at Federal Government Securities and Application of Taxability. ============================================================ JUDGMENT SHEET ISLAMABAD HIGH COURT, ISLAMABAD JUDICIAL DEPARTMENT Writ Petition No.3479 of 2024 Meezan Bank Limited Versus Pakistan through Ministry of Finance and others
Petitioner by: M/s Dr. Farogh Naseem, Rana Imran Farooq, and Sardar Haseeb Iftikhar Ahmed, Advocates. Respondents by: Hafiz Ahsaan Ahmed Khokhar, Mr. Ihtesham Manzoor, Advocates and Mr. Azmat Bashir Tarrar, AAG. Date of Hearing: 16.06.2026. INAAM AMEEN MINHAS, J.- The petitioner bank has filed the instant constitutional petition with the following prayer: - “(i) declare section 4C to the Income Tax Ordinance, 2001, alongwith any demand notices or recovery proceedings or orders including demand of the main tax of advance tax under section 147 of the 2001 Ordinance to be unconstitutional, while striking down the same; (ii) declare that for contracts of finance entered into:- a) prior to 1.7.2022, which have till date not matured/expired or which have matured on or after 31.12.2023, the Petitioner is not liable to pay any super tax u/s 4C of the 2001 Ordinance; b) after 30.6.2022 and prior to 1.7.2023, which have till date not matured/expired or which have matured on or after 31.12.2023, the Petitioner is only liable to pay super tax @ 4%; c) after 30.6.2023 and prior to 1.7.2024, the Petitioner is liable to pay super tax @ 10%; Uncertified 2 W.P No.3479/2024 (iii) declare that the Petitioner is fully entitled to claim any final discharge of liability under the Final or Presumptive Tax Regime with regard to any of the items mentioned in the Income Tax Ordinance, 2001, including dividends, without any impact of super tax levied u/s 4C of the Income Tax Ordinance, 2001; (iv) declare that the Petitioner is fully entitled to all brought forward depreciation and brought forward losses under the Income Tax Ordinance, 2001, without any impact of super tax levied u/s 4C of the Income Tax Ordinance, 2001; v) declare that the Petitioner shall be entitled to claim imputable income as mentioned in section 2(28A) or any other provision of the Income Tax Ordinance, 2001, without any impact of super tax u/s 4C of the Income Tax Ordinance, 2001; vi) for the purposes of the Fourth, Fifth, Seventh and Eighth Schedules, brought forward depreciation, brought forward amortization and brought forward business losses shall be reckoned, without any impact of super tax u/s 4C of the Income Tax Ordinance, 2001; vii) permanently and pending disposal of the main petition restrain the Respondents, their officers, agents and cronies from levying, charging, imposing or ordering the Petitioner to pay super tax u/s 4C of the 2001 Ordinance or advance tax u/s 147 of 2001 Ordinance in relation to super tax in the manner that for contracts of finance entered into:- a) prior to 1.7.2022, which have till date not matured/expired or which have matured on or after 31.12.2023, the Petitioner is not liable to pay any super tax u/s 4C of the 2001 Ordinance; b) after 30.6.2022 and prior to 1.7.2023, which have till date not matured/expired or which have matured on or after 31.12.2023, the Petitioner is only liable to pay super tax @ 4%; c) after 30.6.2023 and prior to 1.7.2024, the Petitioner is liable to pay super tax @ 10%.” 2. The petitioner is a Public Limited Company engaged in the business of banking. The petitioner in the instant petition has challenged the constitutional validity of Section 4C of the Income Tax Ordinance, 2001 (“ITO 2001”) , and the related provisions introduced through the Finance Act, 2023. Uncertified 3 W.P No.3479/2024 3. The learned counsel for the petitioner argued that the impugned levy of Super Tax is without lawful authority, unconstitutional, discriminatory, retrospective, and violative of Articles 4, 10A, 18, 23, 24, and 25 of the Constitution. It was argued that constitutional sanction for the levy of income tax is traceable to Entry 47 of Part I of the Fourth Schedule read with Articles 70(4) and 142 of the Constitution, while Section 4 is the main charging provision of the ITO, 2001. The learned counsel submitted that once income has been taxed under Section 4, it can no longer be treated as taxable income under Entry 47, therefore, the levy of Super Tax under Section 4C amounts to taxing the same income twice. According to the learned counsel Section 4C does not contain any non obstante clause, deeming provision, or express words stating that it operates in addition to the tax under Section 4. In the absence of clear legislative authority, both provisions cannot be applied to the same income, and any ambiguity in a charging provision must be interpreted in favour of the taxpayer. 4. The learned counsel further argued that Section 4C suffers from serious uncertainty regarding the taxable subject. Referring to Sections 2(29), 2(64), 9, 10, and 11 of the ITO, 2001, he submitted that although the ITO, 2001 defines “taxable income,” “total income,” and different heads of income, it does not clearly define the expression “income” used in Section 4C. According to him, a valid charging provision must clearly identify the person liable to tax, the taxable event, the taxable subject, and the method of calculating the tax. Since Section 4C does not provide an independent mechanism for determining the taxable income, it is vague, uncertain, and incapable of lawful enforcement. He further argued that Section 4C is not self-executing because subsection (6) authorizes the Federal Board of Revenue to frame rules for its implementation. As no such rules had been framed, the statutory mechanism remained incomplete, making the levy unenforceable. 5. The learned counsel further argued that the impugned legislation is arbitrary, unreasonable, and discriminatory. He submitted that the legislature has effectively imposed the same tax twice through different Uncertified 4 W.P No.3479/2024 statutory provisions and names, which amounts to a colourable exercise of power and a fraud upon the Constitution. According to him, the combined burden of normal income tax, Super Tax, and other taxes is excessive, confiscatory, and disproportionate, seriously affecting the petitioner’s ability to carry on its business. He contended that such excessive taxation violates the constitutional guarantees of freedom of trade and business, protection of property, equality before law, and due process under Articles 18, 23, 24, 25, and 10A of the Constitution. Learned counsel further submitted that Article 25 prohibits not only arbitrary classification but also legislation that is unreasonable, disproportionate, or irrational. He argued that Section 4C, because of its retrospective operation, imposition of unexpected liabilities, and lack of any rational connection with its stated objective, is violative of Article 25 of the Constitution. 6. The learned counsel for the petitioner further argued that the judgment of the Honourable Federal Constitutional Court in M/s DG Khan Cement’s case reported as 2026 PTD 625 is distinguishable on facts and does not apply to the present case. He submitted that the said judgment mainly concerned conventional banking companies and other taxpayers, whereas the present petition relates to Islamic banking institutions operating through Shariah-compliant financing modes, including Murabaha, Ijarah, Diminishing Musharakah, and other Islamic financing arrangements. According to him, the special nature of Islamic banking transactions, their accounting treatment under the regulatory framework, and the income arising from such transactions were neither directly in issue nor specifically decided in the said judgment. Therefore, he contended that the principles laid down in the judgment Supra do not conclusively decide the present dispute, and the applicability of Section 4C to income derived from Islamic banking transactions requires independent examination by this Court. 7. The learned counsel also strongly challenged the retrospective application of Section 4C and the increase in the Super Tax rates. He submitted that the petitioner had conducted its business, made Uncertified 5 W.P No.3479/2024 investments, incurred expenses, declared dividends, arranged financing facilities, and taken commercial decisions according to the fiscal law existing during the relevant accounting period. He pointed out that the accounting year for Tax Year 2024 had already ended on 31.12.2023, before the impugned legislation came into force. According to him, the rights and liabilities arising from completed transactions had already become final under the law then in force and could not be changed through retrospective tax legislation. He argued that the tax liability arises when the taxable event occurs, not when the tax return is filed. Therefore, a later law cannot impose an additional tax burden on past and completed transactions. He further contended that the retrospective increase of Super Tax from 4% to 10% creates an unexpected and unreasonable financial burden and violates the principles of legal certainty, vested rights, and legitimate expectation protected under Articles 4 and 10A of the Constitution. 8. The learned counsel also relied upon earlier judgments of this Court and other High Courts regarding the levy of Super Tax. He submitted that these judgments had clarified that the words “in addition to” cannot be read into the charging provisions of Section 4C, and that the provision cannot be interpreted as imposing an additional tax over and above the normal income tax without clear legislative language. According to him, any attempt to enforce Section 4C as an additional levy, despite these judicial pronouncements, amounts to ignoring binding precedents and violates the constitutional guarantee of due process. He further argued that even the remaining part of Section 4C, after judicial scrutiny, is constitutionally defective, lacks proportionality, and should either be declared unconstitutional or read down to make it consistent with the Constitution. 9. The learned counsel further argued that Sections 4B and 4C of the ITO, 2001, both impose the same levy, namely Super Tax, on the same taxable subject, i.e., income. According to him, Section 4B already provides a complete charging mechanism for Super Tax, and once the legislature had imposed the levy through that provision, it could not Uncertified 6 W.P No.3479/2024 introduce another charging provision under Section 4C for the same taxable income. He submitted that the purpose, operation, and effect of Sections 4B and 4C are substantially the same, and their simultaneous application results in impermissible double taxation. He further contended that the constitutional principles of fairness, non-arbitrariness, and proportionality do not allow the State to impose two substantially similar taxes through separate charging provisions merely by changing their name or legislative form. 10. On the point of the challenge to the exclusion of brought forward depreciation and business losses from the computation mechanism under Section 4C(2)(ii) of the ITO, 2001. The learned counsel argued that depreciation allowances and carried-forward business losses are vested statutory rights that accrued to the taxpayer under the law existing when those losses were incurred and, therefore, cannot be taken away or reduced through retrospective legislation. According to him, neither brought forward depreciation nor business losses can legally be treated as “income.” Their exclusion from the computation mechanism artificially increases the taxable income and results in taxation of fictional rather than real income. He submitted that this is contrary to Entry 47 of the Fourth Schedule and violates Articles 10A, 18, 23, and 24 of the Constitution. He further argued that, since Section 4C(2)(ii) does not contain any overriding clause, it cannot override other provisions of the Ordinance that expressly allow adjustment of depreciation and business losses. 11. Moreover, on the point of challenge to the validity of the machinery provisions introduced to implement Section 4C, the learned counsel argued that Sections 4C(5A), 147(4AA), 147(7), and the related provisions regarding advance tax and recovery create a separate system for the collection and recovery of Super Tax without providing taxpayers the procedural safeguards available under the ITO, 2001. According to him, these provisions bypass the established legal procedure, including the requirements of notice, opportunity of hearing, and recovery mechanisms provided in Part IV of the ITO, 2001. He submitted that if Uncertified 7 W.P No.3479/2024 the main levy under Section 4C is unconstitutional, the related recovery provisions cannot survive. He further contended that, even otherwise, the creation of a separate recovery mechanism is contrary to the principles of natural justice and the right to a fair trial and due process guaranteed under Article 10A of the Constitution. 12. The learned counsel further argued that no Super Tax can lawfully be imposed on income that has already been subjected to a final tax liability under the Final Tax Regime prescribed by the ITO, 2001. According to him, once a particular source of income has been finally taxed under a complete and self-contained taxation regime, the legislature cannot later treat the same income as taxable again under Section 4C. He submitted that such a course would defeat the certainty and finality of the Final Tax Regime and would amount to retrospectively reopening tax liabilities that had already been settled. 13. Referring to the financing arrangements and contractual commitments entered into by the petitioner, the learned counsel argued that many contracts had been executed before the introduction of Section 4C and continued thereafter. He submitted that the rights and obligations under those contracts had already become final under the fiscal law in force at the time of their execution. According to him, the subsequent levy of Super Tax on income arising from those contracts imposes an unexpected financial burden and violates Articles 10A, 18, 23, and 24 of the Constitution. He further contended that tax rights crystallize during the relevant accounting period and cannot be changed retrospectively. Therefore, contracts entered into before 01.07.2022 should remain outside the scope of Section 4C, while contracts executed after that date should be governed only by the tax rates and liabilities existing when the relevant rights accrued. In support of his arguments, he also relied upon earlier judgments of this Court granting relief in similar cases involving contracts and transactions extending over multiple tax years. 14. In summary, the learned counsel submitted that Section 4C is a new charging provision introduced through the Finance Act, 2023 in Uncertified 8 W.P No.3479/2024 violation of settled constitutional and fiscal principles. He argued that while a Finance Act may prescribe tax rates, it cannot create a new tax charge with retrospective effect so as to burden completed transactions and vested rights. According to him, the impugned levy is arbitrary, confiscatory, disproportionate, discriminatory, violative of due process, destructive of legitimate expectations, inconsistent with established principles of fiscal law, and beyond the constitutional competence of the legislature. He, therefore, prayed that Section 4C of the Income Tax Ordinance, 2001, the related rate provisions in the First Schedule, and the connected provisions relating to advance tax, withholding, and recovery be declared unconstitutional, ultra vires , and without lawful authority, and that all proceedings initiated thereunder be set aside. In support of his submissions, the learned counsel relied upon the M/s DG Khan Cement Case (C.A. No. 1243/2020) judgment of the Honourable Federal Constitutional Court), 1983 CLC 1585, 1993 SCMR 1905, 2005 PTD 259, 2011 PTD 2229, PLD 2016 SC 398, 2022 SCMR 1583, PLD 2024 SC 1168, PLD 2025 SC 67, and other judgments of the superior Courts of Pakistan. 15. The learned counsels for the respondents strongly opposed the instant petition and argued that the challenge to Section 4C of the ITO, 2001 is misconceived, legally untenable, and contrary to the settled principles of fiscal law. At the outset, they raised preliminary objection regarding the maintainability of the petition and submitted that the petitioner had bypassed the complete and effective statutory remedy provided under the Ordinance. They argued that all issues relating to assessment, computation of income, tax rates, interpretation of the law, and even constitutional objections can be raised before the statutory forums, including the Commissioner Inland Revenue, Commissioner Appeals, Appellate Tribunal Inland Revenue, and thereafter before the constitutional Courts in their statutory jurisdiction. According to them, the constitutional jurisdiction under Article 199 is discretionary and should not ordinarily be exercised where an adequate alternative remedy exists, particularly in tax matters involving disputed questions of law and Uncertified 9 W.P No.3479/2024 facts. In support of these submissions, they relied upon 2025 SCMR 952, 2011 PTD 1558, 2024 SCMR 1168, 2024 PTD 221, and 2026 SCMR 339. 16. The learned counsels further argued that the petition is not maintainable for want of territorial jurisdiction. He submitted that the petitioner bank is assessed, regulated, and administered by the Large Taxpayers Office (LTO), Karachi, and that all assessment, compliance, appeal, and other tax proceedings relating to the petitioner have always been conducted in Karachi. He pointed out that the impugned show cause notice and the subsequent proceedings were also initiated and finalized by the competent Inland Revenue authorities at Karachi, and the petitioner has already challenged those proceedings by filing a statutory appeal before the Appellate Tribunal Inland Revenue. Therefore, according to them, no material or substantial part of the cause of action arose within the territorial jurisdiction of this High Court, and the present petition amounts to impermissible forum shopping. 17. On merits, the learned counsels submitted that the petitioner’s challenge is based on a misunderstanding of the nature of Super Tax under Section 4C. They argued that Section 4C does not impose tax on past transactions, rather, under the ITO, 2001, the taxable event is the accrual, derivation, or recognition of income during the relevant tax year, and not the execution of a contract, investment, financing arrangement, or banking transaction. Referring to Sections 32, 34, and 74 of the ITO, 2001, they submitted that income tax is charged annually on income accrued, arisen, or received during a tax year. Therefore, the date on which a Murabaha, Ijarah, Diminishing Musharakah, investment, or financing arrangement was executed is irrelevant for determining liability under Section 4C. According to them, the only relevant consideration is whether the income accrued, arose, or was derived during the tax year in which the levy was in force. 18. The learned counsels further submitted that banking companies are a separate class of taxpayers governed by the special taxation regime Uncertified 10 W.P No.3479/2024 contained in the Seventh Schedule read with Section 100A of the ITO, 2001. They argued that, keeping in view the unique nature of banking business, the legislature specifically provided in Division IIB of Part I of the First Schedule for the levy of Super Tax on banking companies whose income exceeds the prescribed statutory limit. According to them, this statutory scheme clearly shows that Super Tax is imposed on income earned, accrued, and recognized during the relevant tax year, and not on the historical transactions from which such income may arise. They therefore contended that the petitioner’s attempt to link tax liability with the date of execution of Islamic financing contracts is contrary to the express provisions of the Ordinance and inconsistent with the special tax regime applicable to banking companies. 19. The learned counsels for the respondents also opposed the petitioner’s argument that the judgment of the Honourable Federal Constitutional Court in M/s DG Khan Cement Case reported as 2026 PTD 625 does not apply to Islamic banking institutions. They submitted that the distinction between conventional and Islamic banking is misconceived and is not supported by either the ITO, 2001, or the said judgment. According to them, the Federal Constitutional Court specifically examined the applicability of Section 4C to banking companies governed by the Seventh Schedule and held that Super Tax is payable on income accrued and recognized during the relevant tax year. They argued that the judgment is based on the nature and timing of income recognition, not on the mode of financing or the type of banking transaction. They further submitted that the Seventh Schedule applies to both conventional and Islamic banks, and Rule 3 expressly provides that the accounting treatment of Islamic financing transactions does not affect the computation of income or tax liability under the Ordinance. Therefore, the absence of a specific discussion on individual Islamic financing modes does not lessen the binding effect of judgment reported as 2026 PTD 625, which, according to them, fully governs the present case. Uncertified 11 W.P No.3479/2024 20. Responding to the petitioner’s reliance on the doctrines of vested rights, past and closed transactions, and legitimate expectation, the learned counsels submitted that these principles do not apply to annual taxation laws, where tax liability is determined on the basis of income accrued during the relevant tax year. They argued that no taxpayer has a vested right to remain subject to a particular tax rate forever or to be exempt from future tax laws enacted by the Parliament. According to them, the doctrine of past and closed transactions has already been explained by the recent judgment of the…
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