Coercive interpretation of fiscal laws: IHC slaps heavy penalties on FBR officers

ISLAMABAD: The Islamabad High Court (IHC) in a major decision has set a precedent by imposing significant costs on Federal Board of Revenue (FBR) officers for their coercive interpretation and misapplication of fiscal laws governing advance income tax obligations in terms of Section 147 of the Income Tax Ordinance, 2001.

The judgment underscores the judiciary’s commitment to upholding fairness and protecting taxpayers from arbitrary actions.

It is reliably learnt that the case, brought before the IHC by petitioners represented by renowned tax lawyer Ch. Naeem Ul Haq, challenged the FBR officers’ actions in enforcing advance income tax recovery.

Minute sheets in tax assessment issue: IHC issues notices to FTO, FBR chief, others

The petitioners argued that the officers had resorted to coercive measures and misinterpreted the law, resulting in undue financial and administrative burdens.

After thorough deliberation on the arguments presented by Ch. Naeem Ul Haq, the IHC ruled in favor of the petitioners. The court found that the FBR officers had acted beyond their legal authority and failed to adhere to the principles of justice and equity in enforcing tax obligations.

In a decisive move to deter such misconduct in the future, the court ordered the FBR officers involved to pay a cost of Rs. 100,000 to each petitioner. The amount is to be disbursed within 30 days, emphasizing the urgency and seriousness of compliance.

When contacted, Ch Naeem ul Haq told BR that this landmark ruling is expected to have far-reaching implications for the enforcement of tax laws in the country. Legal experts have lauded the judgment, calling it a victory for the rule of law and a reminder to regulatory authorities to exercise their powers judiciously and within the bounds of legality. Ch. Naeem ul Haq, speaking after the verdict, expressed satisfaction with the outcome.

He stated, “This judgment is not only a win for my clients but also for the integrity of the legal system. It reaffirms that no authority is above the law and that taxpayers have a right to fair treatment.”

The IHC order states “The case is one of a malfeasance where without serving any notices on the petitioner, funds were collected from the petitioner’s bank and the tax return for the year 2019 also created a refund for the petitioner, which further confirms that the amount coercively recovered was not due to be paid by the petitioner The scheme for advance tax as applicable under the 2001 Ordinance is no different. It is based on the pay-as-you earn principle.

The obligation to pay rests largely on the income of the previous tax year as evident from the formulas provided under Section 147(4) and Section 147(4B) applicable to Companies/Association of Persons and individual taxpayers, respectively. Recovery was affected without the Tax Department issuing any notice to the petitioner under Section 137 or 138 of the 2001 Ordinance.

The Tax Department simply elected to issue a notice under Section 140 of the 2001 Ordinance to the bank with which the petitioner was maintaining an account and coercively recovered the advance tax demand from the petitioner’s bank account.

Such recovery was illegal for having been undertaken in breach of due process requirements prescribed under Section 147(7) read with Sections 137 and 138 of the 2001 Ordinance and is therefore declared to be without legal authority. Section 147(10) of the 2001 Ordinance provides that any excess advance tax payment is to be refunded to the taxpayer in terms of Section 170 of the 2001 Ordinance.

The petitions are allowed in the above terms, along with costs in the amount of Rs.100,000 payable by respondent No.2 in each petition to the petitioner, within a period of thirty day, IHC ordered.

Copyright Business Recorder, 2025