IHC upholds super tax in Meezan Bank’s Rs11bn challenge

ISLAMABAD: The Islamabad High Court has rejected Meezan Bank Ltd’s constitutional challenge to the super tax, clearing the way for the levy to apply in a dispute involving about Rs11 billion.

The ruling came from a division bench, which also withdrew interim stay orders and disposed of all pending applications. The court held that parliament had the constitutional authority to impose the tax and maintained the statutory tax regime applicable to banking companies.

Meezan Bank, represented by senior counsel Dr Farogh Naseem, had asked the court to strike down Section 4C of the Income Tax Ordinance, 2001. The bank argued that the provision was unconstitutional and discriminatory, and said it amounted to double taxation because income already taxed under Section 4 was again being subjected to super tax.

The petition also challenged the retrospective enhancement of the levy. Meezan Bank further contended that income arising from Islamic financing agreements entered into before the introduction or enhancement of Section 4C could not be brought within the tax net.

Appearing for the federation and the Federal Board of Revenue, Hafiz Ehsaan Ahmad Khokhar Advocate opposed the petition on maintainability grounds. He argued that the bank had already pursued the statutory forum by filing an appeal before the Appellate Tribunal Inland Revenue, Karachi, and therefore could not simultaneously seek constitutional relief from the high court. He also objected to the court’s territorial jurisdiction, saying the assessment proceedings had taken place in Karachi.

The bench accepted the federation’s position on the tax treatment at issue. It held that liability under Section 4C depended on income accrued during the relevant tax year, not on when the financing contracts were signed. The court also said the Seventh Schedule did not create any distinction between conventional and Islamic banks, and found no constitutional breach in the challenged provision.