Summary: Income Tax Ordinance (XLIX of 2001)--- ----Ss.2(54)(e), 152, 161 & 205---Telecommunication companies---International interconnection arrangements---Failure to withhold tax from payments made to international interconnecting counter parties, allegation of---Tax demand by the department, challenge to---Characterization of interconnect payments as ‘royalty’---Legality and scope---Briefly, present income tax references arose from demands raised by the tax department under sections 161 and 205 of the Income Tax Ordinance, 2001, alleging that the applicant telecom companies failed to withhold tax on payments made to their foreign international interconnecting telecom operators; the tax authorities treated these payments as “royalty” under S. 2(54)(e) of the Ordinance on the premise that, through interconnect agreements, the applicants were using or had the right to use the industrial, commercial, or scientific equipment and networks of their foreign counterparts for the conveyance of international telecommunication traffic, and therefore were liable to deduct withholding tax under S. 152; the assessing officer’s view was upheld by the appellate forums, leading to the present references---Main issue for determination before the High Court was “whether payments made under international telecom interconnection agreements constituted “royalty” as consideration for the use or right to use equipment of the foreign operators, or whether they were payments for services of traffic conveyance where the use of equipment was merely incidental?”---Held: Interconnection agreements were made for conveyance of traffic between the interconnecting networks with the use of the respective equipment and networks being necessarily incidental to the contracted services of two-way conveyance of traffic---There was no warrant in law or logic for the tax department to characterize a transaction contrary to what the parties contracted between them if the operative nature of the transaction remained what was contracted and was not a sham cover for the real underlying transaction---In a nutshell, the proposition and stance of the tax department was so preposterous that unveiling it tested the very limits of commons sense and logic---Section 2(54)(e) made it clear that, in order to constitute royalty, the consideration must be for the use or right of use of the counterparty’s equipment; the contractual promise by the counterparty must be that the first party would or would have the right to use, the counterparty’s equipment---If however, the promise was that the counterparty would provide services or goods that in order to perform that promise would entail the use of the counterparty’s equipment by the counterparty, then the consideration was not for the use of the counterparty’s equipment, but for the services or goods procured by the first party---It was concluded that the interconnect payments did not constitute royalty---Question of law was answered in negative, in favor of the taxpayer companies and against the tax department. Syed Ali Zafar, Ali Sibtain Fazli, Abad-ur-Rehman, Hassan Ahmed Khan and Naeem Ahmed for Applicants. Osama Shahid Barrister Atif Rahim Burki and Arshad Mehmood for Respondents. Date of hearing: 4th November, 2025.

Summary: Scope of section 34(4) of the Income Tax Ordinance, 2001, in the context of liability of Workers Participation Fund. 102Jail Appeal 10692/21 Muhammad Imran Gochhi Vs The State . Mr. Justice Ali Zia Bajwa 01- 12- 2025 2025 LHC 7145

Summary: (a) Sales Tax Act (VII of 1990)--- ----Ss. 11, 33 & 37A---Sales tax liability---Determination---Raid, conducting of---Part heard case, transfer of---Scope---Petitioner / taxpayer was aggrieved of raid conducted by authorities on its premises and sought quashing of FIR registered by authorities---Question raised was that during proceedings before Judge in Chambers of High Court proceedings could not be transferred to Division Bench of High Court---Held: There was no authority vested in High Court or office of the Chief Justice of High Court to transfer a part heard matter from one Bench to another in exercise of administrative powers---Contrary proposition would be in breach of principle of judicial independence---Determination of criminal liability was contingent upon prior determination of civil rights and obligations of taxpayers---State was to first determine civil tax liability of petitioners / taxpayers through assessment proceedings undertaken pursuant to S. 11 of Sales Tax Act, 1990---Once such liability was ascertained and quantified on a balance of probabilities, only then the State could initiate criminal proceedings for the purposes of S. 33 of Sales Tax Act, 1990 to establish beyond reasonable doubt that petitioners / taxpayers were liable for an offence under such provision and the penalty would follow---Exercise of authority under S. 37A of Sales Tax Act, 1990 against petitioners / taxpayers or their officers or directors for a purported offence under S. 33 of Sales Tax Act, 1990 was devoid of legal authority and of no legal effect---High Court in exercise of Constitutional jurisdiction quashed the FIR registered against petitioners / taxpayers---Constitutional petition was allowed in circumstances Taj International (Pvt.) Ltd. and others v. Federal Board of Revenue and others 2014 PTD 1807; Directorate of Intelligence and Investigation-FBR v. Taj International (Pvt.) Ltd. and others 2025 PTD 1270; Collector of Sales Tax v. Mega Tech 2005 SCMR 1166; Agha Steel Industries Ltd. v. Directorate of Intelligence and Investigation 2019 PTD 2119; Waseem Ahmed v. Federation of Pakistan 2014 PTD 1733; Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others 1993 SCMR 1905; Zikar v. Government of State of MP AIR 1951 Nagpur 11; Chundra Gupta v. Secretary AIR 1995 SC 44; Crown v. Abdul Aziz PLD 1952 Sindh 1; Abdul Aziz v. PIA PLD 1995 Kar. 566; Human Rights case PLD 2019 SC 183; M. Imtiyaz v. M. Naeem PLD 2023 SC 306; Adnan Afzal v. Capt. Sher Afzal PLD 1969 SC 187; M.H. Khondkar v. The State PLD 1966 SC 140; Islamic Republic of Pakistan v. Abdul Wali Khan PLD 1976 SC 57; Noor Fatima v. Federation of Pakistan (Writ Petition No.2667 of 2024); Muhammad Azam Khan Swati v. The State 2023 PCr.LJ 350; Anil Kumar Verma v. U.P. State Industrial Development (Writ-A No.5822 of 2014); Rajkot Cancer Society v. Municipal Corporation, Rajkot AIR 1988 Gujrat 63; Neetu Singh v. Rajeev Saumitra TR.P.(C) 55/2015), Suo Motu Case No.4 of 2022 PLD 2023 SC 387; Muhammad Imtiyaz v. Ch. Muhammad Naeem and others PLD 2023 SC 306; Human Rights Case No. 14959-K of 2018; PLD 2019 SC 183; Raja Amer Khan v. Federation of Pakistan PLD 2025 SC 869; Waris Mean v. The State PLD 1957 SC (Pak.) 157; Syed Mushahid Shah v. Federal Investigation Agency 2017 SCMR 1218; Messrs East and West Steamship Company v. Pakistan PLD 1958 SC (Pak.) 41; Manzoor v. The State PLD 1972 SC 81; Mst. Sughran Bibi v. The State PLD 2018 SC 595; Khizar Hayat and others v. Inspector General of Police (Punjab), Lahore and others PLD 2005 Lah. 470; Saad Sumair v. National Accountability Bureau PLD 2022 Isl. 371; Amjad Mustafa Malik v. Director General, National Accountability Bureau PLD 2021 Isl. 266; Muhammad Akhter v. The State PLD 1968 SC 281; Doctor Nauman Hamid Niaz v. Federation of Pakistan PLD 2025 Isl. 24 and Collector of Customs, MCC Islamabad and others v. Israr and others 2021 PTD 501 rel. (b) Interpretation of statutes--- ----Fiscal laws---Object, purpose and scope---Penalizing tax evaders---Provisions of fiscal statutes are to be understood and interpreted to give effect to the object and purpose of such statutes---Object and purpose of such statutes is to collect tax and ensure voluntary tax compliance---Penalizing tax evaders or slapping jail terms on delinquent taxpayers are not stand-alone objects of the Sales Tax Act, 1990---Seeking activation of criminal justice machinery against delinquent taxpayers in a trigger-happy manner as an initial measure cannot be the object of any rational tax administration. (c) Sales Tax Act (VII of 1990)--- ----S. 2(37)---Tax fraud---Proof---Principle---Allegation of tax fraud cannot stand in a set of circumstances where after assessment proceedings, it is concluded by relevant adjudicatory forums that a taxpayer is not liable for understatement or underpayment of tax or has not made a claim for tax credit for tax refund that overstates its entitlement---That is why the tax liability for tax fraud is contingent on prior determination of a taxpayer’s civil liability. (d) Interpretation of statutes--- ----Fiscal laws---Penalty provision---Scope---Penalty provisions in a tax statute, where penalty is linked to “tax involved” are to be interpreted keeping in view the principle of proportionality. CIR v. General Tyre Ltd. 2013 PTD 387 and Kite Maker v. ITO (2021) 483 I.T.R 353 (Karela) rel. (e) Sales Tax Act (VII of 1990)--- ----Ss. 2(37) & 11---Tax fraud---Attempt---Principle---No case of an attempt of offence can be made out in circumstances where as a consequence of assessment proceedings undertaken pursuant to S. 11 of Sales Tax Act, 1990, the adjudicatory authorities come to the conclusion that no case of understatement / underpayment of tax liability or overstatement of entitlement to tax credit / tax refund is made out against a taxpayer. Directorate of Intelligence and Investigation-FBR v. Tai International (Pvt.) Ltd. and others 2025 PTD 1270 rel. Dr. Farogh Naseem, Sardar Haseeb Iftikhar Ahmed and Salman Abbas for Petitioners (in Writ Petitions Nos.3646 and 3647 of 2024). Sheikh Zafar ul Islam, Tanveer Ahmad, Danial Zafar and Usama Rauf for Petitioners (in Writ Petitions Nos.3757 and 3943 of 2024). Bilal-ud-Din Butt and Naveed Ahsan Sial for Petitioners (in Writ Petition No.3781 of 2024). Barrister Muhammad Umer Riaz, Umer Ejaz Gillani, Rana Rehan, Barrister Ali Aun, Muhammad Alee, Ch. Ehtisham ul Haq, Syed M. Nauman Shah, Rehan Seerat and Ch. Kamil Hayat for the Tax Department along with Razi ul Haq Qureshi, Deputy Director, Intelligence and Investigation, Inland Revenue, Islamabad for Respondents. Fahad Khan Tareen, Assistant Attorney General for Respondents. Date of hearing: 19th August, 2025. BABAR SATTAR, J.--- Through this judgment the afore-titled Writ Petition as well as Writ Petitions listed in Annexure-A to this judgment will be decided as they involve the common question of what legal prerequisites must be abided by the State before initiating criminal proceedings in exercise of authority under Section 37A of the Sales Tax Act, 1990 ("Sales Tax Act").

Summary: Constitution of Pakistan, 1973--- ----Arts. 8, 10A, 175F, 199, 202A & Third Schedule---Income Tax Ordinance, 2001, S. 109-A---Constitution (Twenty-Sixth Amendment) Act, 2024---Constitution (Twenty-Seventh Amendment) Act, 2025---Challenge to vires of statutory provision---Jurisdiction of Constitutional Bench vis-à-vis Regular Bench under erstwhile Art. 202A---Dominant object theory---Ad-interim order suspending operation of law---Maintainability of challenge thereto---Petitioner, after availing 2018 Amnesty Scheme and declaring ownership of foreign company, was issued notice under S.109-A, Income Tax Ordinance, 2001---He challenged both vires of said provision and the notice issued thereunder before Sindh High Court, which initially granted ad-interim restraint against passing of any final adverse order---Later, Constitutional Bench of High Court recalled said interim order on ground that courts ought not suspend operation of law, particularly in revenue matters---Before Federal Constitutional Court, principal question was whether Constitutional Bench, under erstwhile Art. 202A, possessed jurisdiction to entertain matter whose dominant relief was declaration that impugned law was ultra vires---Held, challenge to vires of statute, in substance, sought relief under Art.199(1)(a)(ii), namely declaration that law was “without lawful authority” and “of no legal effect”, and not merely a direction under Art.199(1)(a)(i) or enforcement of fundamental rights simpliciter---Under pre-27th Amendment regime, such matter did not fall within exclusive jurisdiction of Constitutional Bench---Only forum competent to grant final relief could competently grant interim relief; therefore, Constitutional Bench lacked jurisdiction from the outset and its order recalling the earlier ad-interim order was without jurisdiction---Court further held that ad-interim order which had effect of suspending operation of law could validly be brought in challenge before this Court, as until law is finally declared ultra vires it must ordinarily continue to operate---However, in view of subsequent constitutional amendment, exclusive writ jurisdiction now vests in Constitutional Benches and similar matters would henceforth lie before such Benches---Matter was remanded to Sindh High Court for fresh decision by competent Bench in accordance with law. Kh. Muhammad Fazil v. Mumtaz Munnawar Khan Niazi (deceased) through legal heirs (2024 SCMR 1059); Attock Cement case (2024 SHC 1302); Benazir Bhutto v. Federation of Pakistan (PLD 1988 SC 416); Rahim Shah v. Chief Election Commissioner (PLD 1973 SC 24); Federation of Pakistan v. Aitzaz Ahsan (PLD 1989 SC 61); Marbury v. Madison (5 U.S. 137 (1803)) rel. (a) Constitution of Pakistan, 1973---Art. 202A (as it stood before Twenty-Seventh Amendment)---Jurisdiction of Constitutional Benches of High Courts---Scope--- Under erstwhile Art.202A, Constitutional Benches were not vested with entire writ jurisdiction under Art.199 but only with limited classes of matters specified therein---Therefore, question whether matter was to be heard by Constitutional Bench or Regular Bench had to be determined by reference to true nature of relief claimed. (b) Constitutional jurisdiction---Dominant object theory---Application--- For determining proper forum under former Art.202A, Court must examine pleadings, prayer clause and ultimate effect of relief sought so as to ascertain dominant or substantive relief, while treating merely consequential relief as ancillary---Such exercise is judicial in nature and not dependent upon drafting alone. (c) Challenge to vires of statute---Nature of relief--- Where petitioner assails validity of statutory provision and seeks declaration that same is contrary to Constitution, dominant relief is one under Art.199(1)(a)(ii), namely that impugned law is “without lawful authority” and “of no legal effect”---Such relief is, in substance, in nature of certiorari / declaratory judicial review, even if consequential directions are also sought. (d) High Courts---Power of judicial review---Inherent constitutional authority--- Power of High Court to strike down law ultra vires Constitution is inherent in constitutional scheme and flows from its role as guardian of Constitution, read with judicial oath and constitutional supremacy---Such authority is not negated merely because relief of declaration is not textually set out in identical terms in every clause of Art.199. (e) Interim relief---Competence of forum--- Interim relief may only be granted by forum competent to render final decision on lis---Consequently, where Constitutional Bench lacked jurisdiction to decide vires challenge under former Art.202A, it also lacked competence to pass or recall interim orders in relation thereto. (f) Ad-interim order suspending operation of law---Propriety and challenge thereto--- As a general constitutional principle, until a law is finally declared ultra vires, it should ordinarily continue to operate in normal course---An interim order having effect of suspending operation of law, especially in revenue matters, is therefore open to challenge before this Court and cannot be shielded merely because it is ad-interim in form. (g) Twenty-Seventh Constitutional Amendment---Effect--- After enactment of Constitution (Twenty-Seventh Amendment) Act, 2025, exclusive writ jurisdiction under Art.199 now lies with Constitutional Benches of High Courts, and Regular Benches no longer possess such jurisdiction---Accordingly, a case of like nature would now fall to be heard by Constitutional Bench. (h) Remand---When warranted--- Where impugned order has been passed by a Bench lacking jurisdiction, proper course is to set aside such order and remit matter for fresh adjudication by competent Bench in accordance with law. Petition allowed; impugned order set aside; matter remanded for decision by competent Bench of Sindh High Court in accordance with law.

Summary: Are gifts inter se family relations immune from the conditionalities prescribed in section 39(3) of the Income Tax Ordinance, 2001. 121Writ Petition- Miscellaneous- Rent 4274-23 MUHAMMAD IRSHAD VS KHAWAR SABTAIN ETC Mr. Justice Mirza Viqas Rauf 20- 11- 2025 2025 LHC 6820

Summary: Income Tax Ordinance (XLIX of 2001)--- ----Ss.109, 111 & 122---Re-characterization of income and deduction---Assessing Officer, powers of---Issuance of prior / separate notice for re-characterization of the transaction---Whether a requirement---Appellate Tribunal Inland Revenue non-suited the department and annulled determinations on the ground that no prior notice was issued before embarking upon an exercise of recharacterization of transaction under Income Tax Ordinance, 2001 (‘the Ordinance, 2001’)---Validity---Undisputedly, taxpayer (when being asked by the Assessing officer about the nature of the transaction, substance and economic rational thereof) was obligated to justify, explain and substantiate that deduction claimed was in accordance with the law and otherwise not intended as a tool to avoid tax bordering tax evasion ; and if taxpayer fails, the Assessing officer is within the scope of jurisdictional mandate to unshackle the transaction and identify its true character---Assessing officer is not bound to accept the transaction as devised by the taxpayer but entitled to unfold the layering and understand substance thereof---Said course is permissible and is legally, classified as, recharacterization of the transaction envisaged in terms of S. 109 of the Ordinance, 2001---Section 109 of the Ordinance, 2001 starts with the caveat “for the purposes of determining liability of tax under the ordinance....”, which indicates that resort to recharacterization mechanism could be made in the circumstances and such pathway is a permissible mode for determining the tax liability---It is fallacious to believe that recharacterization process is independent of scrutiny undertaken in terms of S. 122 of the Ordinance, 2001---No similarity could be claimed qua to recharacterization mechanism and an instance where explanation was sought in the context of S. 111 of the Ordinance, 2001, when in later case taxpayer is confronted with the identity / acquisition of a tangible asset or possession of money, and asked to provide source thereof and in former case transaction was transacted and claimed as valid one---And what was required to be determined is true character or substance thereof---Piercing of transaction to unfold its true character is in essence recharacterization thereof which is elaboration of concept of “look at” versus “look through”---Recharacterization is the consequence of exercise of jurisdiction under S. 122 of the Ordinance 2001 and objective thereof is to reverse an unintended tax advantage, not otherwise available---Power / authority to recharacterize transaction is part and parcel of the jurisdiction exercisable while undertaking re-assessment of deemed assessment order---It was evident from the contents of show-cause notice that explanation was sought qua legality of expenses paid to the certificate holders and explanation provided was found inadequate and commercially deviant, whereupon the Assessing officer denied claim of an allowable expense after unearthing the true character / substance of the transaction---In brief, recharacterization is an incidence / process of evaluating and defining the real nature of the transaction---Therefore, power to ascertain substance of the transaction, contrary to its form, while undertaking re-assessment of assessment order, is not a mutually exclusive exercise but mutually inclusive process; and is part and parcel of jurisdiction to amend the assessment---No violation of due process principle was apparent when respondent / taxpayer was put to notice with respect to the transaction claimed as allowable deduction, and same would always be entitled to explain the transaction and establish objectivity thereof, to dislodge impression of avoidance of tax---Process of recharacterization of transaction is part of the jurisdiction exercised under S. 122 of the Ordinance, 2001 and no fresh notice was required before uncovering the substance of the transaction---Since the Appellate Tribunal Inland Revenue had dismissed the appeal on the ground of absence of due process requirement i.e. absence of notice before carrying out recharacterization of transaction, therefore, High Court remanded the matter to the Tribunal for deciding the appeal of the department on merits afresh---Reference application, filed by Department, was allowed accordingly. Muhammad Shaukat Qamar for Applicant. Muhammad Usman Hadi and Jamil Ahmad Shaikh for Respondent.

Summary: Section 109 of Income Tax Ordinance, 2001 - Scope of recharacterization of assessment - review jurisdiction by Inland Officer(s). 134Objection Case (Writ) 151940/25 Waqar Ahmad Vs Additional District Judge etc Mr. Justice Muzamil Akhtar Shabir 18- 11- 2025 2025 LHC 6605

Summary: (a) Passports Rules, 2021--- ----Rr. 21, 22(2) & 23(6)---General Clauses Act (X of 1897), S. 24-A---Passport Control List (PCL), placing name on---Procedure---Speaking order---Order for placement of a citizen on PCL cannot be issued in a mechanical fashion without recording reasons and stating grounds applicable to the circumstances of the citizen in terms of R. 23(6) read with R.21 of Passports Rules, 2021---Unless a penal order directing that passport of a citizen be impounded, confiscated, cancelled or inactivated is passed while identifying relevant grounds that mandate that the citizen’s right to liberty and travel ought to be interfered with in accordance with law, such order would not be sustainable in the eyes of law---It is only where an order finding that a citizen’s passport is liable to be impounded, confiscated, cancelled or inactivated has been so passed, can the relevant Division of Federal Government and Directorate General, Immigration and Passport discharge their ministerial function of placing name of such individual on PCL in terms of R. 22(2) of Passport Rules, 2021. Shabana Noor Ahmed v. D.G. Immigration and Passport PLD 2019 Sindh 456 rel. (b) General Clauses Act (X of 1897)--- ----S.24-A---Reasons for an order---Object, purpose and scope---Reasoned order is a sine-qua-non for exercise of discretion, especially when it impinges on the fundamental rights of a citizen---Substance of reasons then forms part of the inquiry undertaken by a Court while exercising judicial review powers, whereby Court can satisfy itself that the reasons are just and proportionate to legitimate State interest being pursued by executive authorities to pursue the objects of law under which such authority is being exercised. (c) Constitution of Pakistan--- ----Art. 10A---Right of fair trial and due process of law---Scope---Provision of Art. 10A of the Constitution has been enacted to give right of due process, a Constitutional standing. (d) Sales Tax Act (VII of 1990)--- ----S. 2(6A)---Exit from Pakistan (Control) Ordinance (XLVI of 1981), S.2---Exit from Pakistan (Control) Rules, 2010, R.2(d)---Constitution of Pakistan, Arts. 4, 9, 10A, 15, 25 & 199---Constitutional petition---Exit Control List---Freedom of movement---Due process of law---Tax defaulter---Placing name on Exit Control List---Petitioner was aggrieved of placing his name on Exit Control List on the allegation of tax default committed by him---Validity---In holding that a person is a defaulter under the provisions of Sales Tax Act, 1990 there must be a finding made after assessment and adjudicatory proceedings that a demand for sales tax due and payable remains outstanding against that person and is yet to be paid---Petitioner could not be considered to be in default of tax or liabilities in terms of R. 2(d) of Exit from Pakistan (Control) Rules, 2010 merely because authorities had formed an opinion that he was liable for sales tax fraud for illegally seeking income tax adjustment---On the basis of such opinion, a penalty could not be inflicted on petitioner in the form of curtailing his civil rights and liberties by placing his name on ECL or PCL or PNIL pending determination of the fate of any criminal charge brought against him or adjudicatory proceedings initiated against him under the provisions of Sales Tax Act, 1990---High Court declared that placement of petitioner’s name on ECL, PCL and/or PNIL was tantamount to colorable exercise of authority in breach of provisions of Passports Act, 1974, Exit from Pakistan (Control) Ordinance, 1981 and Arts. 4, 9, 10A, 15 & 25 of the Constitution and such actions were of no legal effect---High Court directed Federal Government to ensure that name of petitioner was removed from ECL, PCL and PNIL and no fetters were to be placed on the rights of petitioner to travel on the ground that he was liable for tax fraud, unless it was determined through the adjudicatory process provided under provisions of Sales Tax Act, 1990 that he was a defaulter---Constitutional petition was allowed, in circumstances. Montgomery Floor and General Mills Ltd. v. The Director, Food Purchase PLD 1957 Lah. 914; Zahur Ilahi v. The State PLD 1977 SC 273; Farooq Ahmed Khan Laghari v. Federation of Pakistan PLD 1999 SC 57; Pakistan Muslim League (N) v. Federation of Pakistan PLD 2007 SC 642; Government of Pakistan v. Dada Amir Haider Khan PLD 1987 SC 504; Dr. Shireen M. Mazari v. Federation of Pakistan 2024 MLD 1020; Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457; Chairman, NAB v. Nasar Ullah PLD 2022 SC 497; Federation of Pakistan v. E-movers (Pvt.) Ltd. 2022 SCMR 1021; CIR v. M/s Rose Food Industries 2023 SCMR 2070; Sheikh Shan Ilahi v. Federation of Pakistan PLD 2023 Lah. 359; Tabish Badar v. Ministry of Interior 2023 CLC 1457; Sabir Iqbal v. Cantonment Board PLD 2019 SC 189; Shehryar Afridi v. Federation of Pakistan (W.P. No.2491 of 2023); Wajid Shamas-ul-Hassan v. Federation of Pakistan PLD 1997 Lah. 617; Federal Government v. Miss Ayan Ali 2017 SCMR 1179; Mian Ayaz Anwar v. The Federation PLD 2010 Lah. 230; Kent v. Dulles 357 US 116 (1958); Aptheker v. Secretary of State 378 US 500 (1964); Satwant's case AIR 1967 SC 836; Sheikh Mohammad Mansoor v. Government of Pakistan 2008 MLD 955; Sohail Latif v. Federation of Pakistan PLD 2008 Lah. 341; Munir Ahmed Bhatti v. Government of Pakistan PLD 2010 Lah. 697; Masood Ahmed v. Federation of Pakistan 2010 YLR 28; Mian Munir Ahmed v. Federation of Pakistan 2008 YLR 1508; Zurash Industries v. Federation of Pakistan PLD 2011 Kar. 385; Gen. (Retd.) Parvez Musharraf v. Pakistan PLD 2014 Sindh 389; Federation v. Gen. (Retd.) Pervez Musharraf PLD 2016 SC 570; Syed Masood Hussain Shah v. Federation of Pakistan 2015 MLD 124; Mohammad Sadiq v. Federation of Pakistan PLD 2016 Sindh 263; Tanver Hussain Manji v. Federation of Pakistan 2016 CLC 1534; Yusuf J. Ansari v. Government of Pakistan PLD 2016 Kar. 388; Riaz Ahmed v. Government of Pakistan PLD 2014 Isl. 29; Mst. Nasreen Begum v. Ministry of Interior PLD 2012 Isl. 21; Dr. Joseph Wilson v. Federation of Pakistan 2017 PCr.LJ 1569; Syed Zulfikar Abbas Bukhari v. Federation of Pakistan PLD 2019 Isl. 316; Nadir Mukhtar v. D.G. Immigration and Passport (Writ Petition No.130 of 2025); Shabana Noor Ahmed v. DG Immigration and Passports PLD 2019 Sindh 456; Federal Government of Pakistan v. Government of Punjab PLD 1991 SC 505; Taj International (Pvt.) Ltd. v. FBR 2014 PTD 1807; Directorate of Intelligence and Investigation-FBR v. Taj International (Pvt.) Ltd. and others PLD 2025 SC 633; Wasatullah Jafferi v. Ministry of Interior PLD 2014 Sindh 28 and Jahangir Mehmood Cheema v. Government of Pakistan PLD 2015 Lah. 301 ref. Rehan Kayani and Barrister M. Usama Rauf for Petitioner. Fahad Khan Tareen, Assistant Attorney General for Respondents. Hafiz Ahsaan Ahmed Khokhar for FBR. Moazzam Habib along with Respondent No.3. Malik Abdur Rehman, State Counsel. Nawaz Khan, Director (Policy), Directorate General of Immigration and Passports, Islamabad. Muhammad Azeem Khan, Section Officer (ECL) Ministry of Interior, Islamabad. Muhammad Riaz, Assistant Director (Legal), FIA. Date of hearing: 26th August, 2025.

Summary: Income Tax Ordinance (XLIX of 2001)--- ----S. 133 [as amended through the Finance Act, 2025 reverting the enactment of the Tax Laws (Amendment) Act, 2024]---Enactment---Retrospective effect---Procedural changes---Effect---Beneficial enactment---Scope---The Finance Act, 2025, reverted to the old adjudicatory scheme having one forum of appeal i.e. before the Appellate Tribunal Inland Revenue (ATIR)---Reference Applications against order of Commissioner Inland Revenue (Appeals) (CIR (Appeal) filed before the High Court in view of enactment of the Tax Laws (Amendment) Act, 2024---Remitting to ATIR---Scope---The amendments introduced through the Finance Act, 2025, restoring a right of appeal before the ATIR, is to be given retrospective effect and references filed against orders of CIR (Appeals) be remitted to the ATIR to be treated as appeals and decided in accordance with law---Law as to how a change of forum for adjudication of a dispute or controversy is to be treated as procedural law and such procedural law applies to pending matters, to the extent that they do not adversely affect the rights of parties and do not reopen past and closed transactions---Besides, the amendments made with regard to the forum for adjudication to the Income Tax Ordinance, 2001, through the Finance Act, 2025, was beneficial in nature, being curative and remedial legislation , as it provided for an additional forum for appeal and ought to apply retrospectively---Thus, the changes brought to the forum for hearing a grievance against decision of CIR (Appeals) by virtue of amendments introduced to the ITO through the Finance Act, 2025, being procedural in nature, would apply retrospectively to all pending cases---Said amendment by virtue of providing an additional forum for appeal before the ATIR, as it existed prior to enactment of the Tax Laws (Amendment) Act, 2024, also being beneficial ought to apply retrospectively---Such application of the amendments introduced through the Finance Act, 2025, would, however, only apply to pending cases and not to matters that have attained finality and are past and closed transactions---Consequently, all references that had been filed against decisions of CIR (Appeals) directly before the High Court and were pending adjudication were liable to be remitted to the ATIR, which would treat them as appeals pending before the ATIR and decide them in accordance with law---High Court directed that the Court fee paid by the applicants, while filing of these references, be reimbursed to them---References applications were disposed of accordingly. Harris Hasan Syed v. The Commissioner Inland Revenue (I.T.R No.21137/2025); Adnan Afzal v. Capt. Sher Afzal PLD 1969 SC 187; Ch. Safdar Ali v. Malik Ikram Elahi and another 1969 SCMR 166; Hafiz Mohammad Abdullah v. Imdad Ali Shah and another 1972 SCMR 173; Mst. Yasmeen Nighat and others v. National Bank of Pakistan and others PLD 1988 SC 391; Yusuf Ali Khan Barrister-at-Law, Lahore v. Messrs Hongkonk and Shanghai Banking Corporation, Karachi and another 1994 SCMR 1007; Muhammad Shabbir and another v. Quaid-e-Azam University through Vice-Chancellor, Islamabad and others 2022 SCMR 487; Muslim Commercial Bank v. Punjab Labour Appellate Tribunal 2025 SCMR 303; Messrs Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652; Commissioner of Income Tax v. Shahnawaz Ltd. and others 1993 SCMR 73 and Commissioner of Income Tax v. J.D. Sugar Mills Ltd. 2009 PTD 481 ref. Mirza Saqib Siddeeq, Waqas Ahmed, Hafiz Muhammad Idris, Syed Farid Bukhari, Wasim Abid, Barrister Usama Rauf, Faisal Jaffar, Nauman Rafique, Rana Sufyan Qayyum, Muhammad Ali Haider, Muhammad Mohsin Nazir, Ch. Naeem ul Haq and Ahmed Bin Aqeel for Applicants. Osama Shahid, Hassan Ali Khan, Rehan Seerat, Ch. Kamil Hayat, Ghulam Qasim Bhatti, Babar Bilal and Shazia Bilal for Tax Department. Dates of hearing: 6th, 7th and 10th November, 2025. BABAR SATTAR, J.--- Through this judgment we will decide the fate of the afore-titled Income Tax Reference as well as Income/Sales Tax References listed in Annexure-A to this judgment.

Summary: (Against judgment dated 16.06.2022 passed by the Lahore High Court, Lahore in P.T.R. No. 349 of 2010). Income Tax Ordinance (XLIX of 2001)--- ----Ss.67, 120, 122(5), 148 & 237---Income Tax Rules, 2002, R.13---Income tax---Manufacturer deriving income from locally manufactured products and imported finished goods---Imported goods subjected to final tax at import stage---Allocation/apportionment of expenditures between presumptive and non-presumptive income---PTR (presumptive tax regime) income on importation of goods---Re-apportionment of expenses by applying Rule 13 of the Income Tax Rules, 2002---Legality---Briefly, for tax year 2003, the petitioner taxpayer derived income from two sources: locally manufactured beverages chargeable under the normal tax regime and imported finished beverages subjected to final tax at import stage under section 148 of the Income Tax Ordinance, 2001---The taxpayer filed its return under Section 120, which became a deemed assessment, wherein it apportioned common expenditures between the two income streams on the basis of gross profit ratio---The Commissioner Inland Revenue amended the deemed assessment under Section 122 by reallocating expenditures between presumptive and non-presumptive income through application of Rule 13 of the Income Tax Rules, 2002, using a sales-based formula---The departmental appeal failed, but the appellate tribunal set aside the amendment, whereafter the High Court, in a tax reference, reversed the tribunal’s decision---The taxpayer then sought leave to appeal before the Supreme Court against the High Court’s judgment---Pivotal question of law for consideration was as to “whether the appellate tribunal was justified to hold that Rule 13 of the Income Tax Rules, 2002 was not mandatory for purpose of apportionment of expenses under Section 67 of the 2001 Ordinance?”---Held: As long as “any” reasonable basis was used for the proration of expenditures the basis applied by the taxpayer could not be defeated or denied simply for the reason that applying Rule 13 of Income Tax Rules, 2002 would have resulted in a larger or enhanced tax liability---Or, to invert that observation, it was impermissible to conclude that since the non-application of Rule 13 (and the reasonable basis actually adopted by the taxpayer in its stead) resulted in a smaller tax burden that, in terms of Section 122(5), amounted to income chargeable to tax escaping assessment or led to the total income being under-assessed---That would be to completely misconstrue and misapply both that provision and Section 67(1)---The point, for present purposes, was reinforced by sub-rule (2) which provided that any expenditure incurred for a particular class or classes of income was to be regarded as so allocated---From this, it was clear that submission made on behalf of the petitioner was correct that the manufacturing and other such expenses incurred for the local production of beverages had to be allocated solely to the non-PTR (presumptive tax regime) income and had nothing to do with the PTR income---For such expenditure the question of proration did not arise---The order amending the deemed assessment showed that the department, while applying the formula laid down in sub-rule (3), had taken “total admissible expenses” into account, which was incorrect in the facts and circumstances of the case---Nature of the exercise required (i.e., allocation between PTR and non-PTR income) and keeping in mind the relevant factors as applicable i.e., the relative size and nature of the activities (local manufacture versus import to which the expenditure related) the basis actually adopted was a reasonable one---That sufficed for purposes of subsection (1) of Section 67---It followed that the approach taken by the department and upheld by the High Court was not sustainable---Leave petition was converted into an appeal and the question posed was answered in the affirmative, in circumstances. Adnan Haider, Advocate Supreme Court for Petitioner. Ahmed Pervaiz, Advocate Supreme Court for Respondent (via video-link, Lahore). Date of hearing: 3rd October, 2025.