Pakistan: 4B/4C cannot be applied without invoking or amending under section 122 of the Ordinance

Case Summary:

The instant matter arose from proceedings initiated against Teradata Pakistan (Pvt.) Limited for Tax Year 2015 regarding the levy of super tax under section 4B of the Income Tax Ordinance, 2001. The taxpayer had filed its return of income under section 114, declaring taxable income amounting to Rs. 403,513,796/- along with certain income subjected to final tax regime and exempt income. Upon filing, the return attained the status of a deemed assessment order under section 120 of the Ordinance.

Subsequently, the Department initiated proceedings under section 4B on the ground that the taxpayer was liable to super tax. Although notices were initially issued in 2016, no adverse order was passed at that time. Later, after a considerable lapse of time, fresh proceedings were initiated in 2025, and eventually an order under section 4B was passed creating a super tax demand amounting to Rs. 17,791,962/-. The said order was upheld by the Commissioner Inland Revenue (Appeals), against which the taxpayer preferred an appeal before the Appellate Tribunal Inland Revenue.

Before the Tribunal, the taxpayer contended that once the return had attained the status of a deemed assessment under section 120, no additional liability could lawfully be created without first invoking amendment proceedings under section 122 of the Ordinance. It was further argued that section 4B merely constitutes a charging provision and does not provide an independent mechanism for assessment or recovery of tax. On the merit, the taxpayer also contended that its aggregate income, computed in accordance with section 4B read together with section 2(28A), remained below the statutory threshold of Rs. 500 million applicable for Tax Year 2015.

The Tribunal examined the statutory framework of the Ordinance and observed that the law contemplates separate stages of charge, assessment, and recovery of tax. It was held that although section 4B creates the charge of super tax, the same cannot be enforced independently of the assessment machinery as provided under Chapter X of the Ordinance. The Tribunal observed that section 4B (3) expressly incorporate all provisions of Chapter X, including sections 120 and 122, thereby making amendment proceedings mandatory where super tax had neither been computed nor declared in the return.

The Tribunal further held that recovery provisions cannot substitute for assessment proceedings and that sections 4B (4) and 4B(5) merely relate to enforcement of already determined liability. Consequently, the failure of the Department to invoke section 122 before creating the alleged super tax liability was held to be a jurisdictional defect rendering the proceedings void ab initio.

Apart from the jurisdictional issue, the Tribunal also examined the matter on the merits and held that the taxpayer’s aggregate income amounted to Rs. 449,479,534/- still remained below the prescribed threshold of Rs. 500 million. Accordingly, the Tribunal concluded that the provisions of section 4B were not applicable in the instant case and annulled the impugned super tax demand.

Disclaimer:

This Tax update provides a broad overview and should not replace detailed analysis or professional judgment.

Reference/Citation

ITA No.407/IB/2026 - APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I, ISLAMABAD   

‍