Federal Board of Revenue (FBR) cannot recover Advance Tax coercively without issuing Proper Notice and Procedural Compliance under the Income Tax Ordinance, 2001 --- Islamabad High Court, Islamabad
Islamabad 23-12-2024: In a significant ruling, the Islamabad High Court (IHC) has declared coercive recoveries of advance tax by the Federal Board of Revenue (FBR) without adhering to due process under the Income Tax Ordinance, 2001, as illegal. The judgment, authored by Mr. Justice Babar Sattar, resolves three Writ Petitions challenging the recovery of advance tax without the issuance of required notices under Sections 137 and 138.
The petitions filed by the Pakistan Telecommunication Authority, Communicator’s Globe (Pvt.) Ltd., and Excel Labs (Pvt.) Ltd.—challenged the legality of coercive recoveries made under Sections 140 and 147 of the Income Tax Ordinance, 2001. The FBR had attached the petitioners’ bank accounts to recover substantial amounts of advance tax, allegedly without issuing requisite notices or following statutory procedures.
The judgment addressed three key legal questions:
- The nature of advance tax liability under Section 147.
- The consequences of default in advance tax payment by taxpayers.
- Whether the FBR can initiate coercive recovery measures without complying with due process.
The Court held that advance tax is a statutory obligation and part of the broader income tax regime under the “pay-as-you-earn” principle. Advance tax is mandatory and forms part of the definition of “tax” under Section 2(63) of the Income Tax Ordinance, 2001.
The Court clarified that advance tax is provisional and adjustable against a taxpayer’s final liability, with any excess refundable.
The Court emphasized that recovery of advance tax must follow proper procedures, including the issuance of notices under Sections 137 and 138, before initiating coercive measures like attaching bank accounts. Recovery without these steps is a violation of Section 147(7).
The Court noted that the FBR has the authority to reject taxpayers’ estimates of advance tax liability only when expressly authorized, such as during the applicability of the second proviso to Section 147(6). In the absence of this authority, such estimates cannot be rejected arbitrarily.
The ruling offers significant relief to taxpayers by reinforcing the requirement for due process in tax recovery actions. It reaffirms taxpayers’ rights to file estimates under Section 147(6) and ensures that coercive measures cannot be taken without proper notice and procedural compliance.
Powered by Froala Editor
