Taxes to be determined based on the entire year’s income, rules Supreme Court
SC explained that the tax year is specifically defined in Section 74 of the 2001 Ordinance, which means a period of 12 months.
A ruling by Justice Faisal Arab who was a part of a three-judge bench headed by Justice Umar Ata Bandial has declared that income tax liability will be based on the taxable income generated in one whole tax year and not in parts of it. This judgment was a result of an appeal filed by the FBR against a verdict issued by the Sindh High Court.
The Sindh High Court declared that Section 4A of the 2001 Ordinance does not envisage proportionate determination of the tax liability of the entire tax year 2011 for the purposes of calculating surcharge for the 31/2 month period, and only that income was to be taken into consideration, which pertained to such period only.
The Supreme Court, overruling the Sindh High Court’s verdict, stated that there is no provision in 2001 Ordinance that allows splitting of a tax year into two periods for the purposes of determining two separate taxable incomes of the same tax year.
It added 2001 Ordinance clearly provides that income tax liability is to be determined for the entire period of a tax year not any part of it. SC explained that the tax year is specifically defined in Section 74 of the 2001 Ordinance, which means a period of 12 months. This normally ends on 30th June
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