IN THE HIGH COURT OF SINDH AT KARACHI

I.T.R.A. No.162 of 2015

[Commissioner Inland Revenue Zone-1 v. M/s. North Star Textile Mills Limited]

PRESENT:

Mr. Justice Arshad Hussain Khan

Mr. Justice Amjad Ali Sahito

*****

Applicant : Through Mr. Faheem Ali Memon, Advocate

Respondent : Nemo

Date of hearing : 29.09.2026

Date of order : 29.09.2026

O R D E R

ARSHAD HUSSAIN KHAN J; This Reference Application under Section 133 of the Income Tax Ordinance, 2001 is directed against the order of the Appellate Tribunal Inland Revenue, Karachi Bench, dated 04.09.2015 in ITA No.771/KB/2013 (Tax Year 2012). The Applicant proposes the following question of law:

"Whether on the facts and circumstances of the case the learned Tribunal was justified to rely on an earlier decision of the Tribunal in ITA No.582/KB/2010 dated 05.01.2011, when in the department reference filed against the above decision the Hon'ble High Court of Sindh in ITRA No.132/2011 dated 07.05.2013 in the case of M/s. Kassim Textile Mills Ltd., had set aside the above decision of the learned Tribunal and allowed the departmental reference application, and therefore the earlier decision relied upon by the Tribunal was no more in field?"

2. The Respondent's return for Tax Year 2012 was treated as an assessment order under section 120 of the Income Tax Ordinance, 2001 (“the Ordinance”). Subsequently, the assessment was amended under section 122(5A) of the Ordinance, being considered erroneous and prejudicial to the interest of revenue, inter alia, by disallowing the Respondent's claim for adjustment, in Tax Year 2012, of minimum tax paid and brought forward from earlier tax year(s) under section 113(2)(c) of the Ordinance. The controversy, therefore, relates to whether such brought-forward minimum tax was lawfully available for adjustment against the Respondent's tax liability for Tax Year 2012. In appeal, the Commissioner Inland Revenue (Appeals), vide order dated 17.06.2013, deleted the addition made under section 21 and directed the Deputy Commissioner Inland Revenue to allow the adjustment under section 113(2)(c). The Department's appeal against the said order was dismissed by the Appellate Tribunal Inland Revenue (“Tribunal”) vide order dated 04.09.2015. Insofar as section 113(2)(c) is concerned, the Tribunal maintained the findings of the Commissioner (Appeals), which were based upon the Tribunal's earlier decision in ITA No.44/KB/2008 dated 25.06.2008. The finding relating to section 21 has not been challenged in the present Reference and, therefore, does not require consideration.

3. Learned counsel for the Applicant, inter alia, submits that the interpretation of section 113(2)(c) of the Ordinance, on the basis of which the Tribunal upheld the adjustment of brought-forward minimum tax, has subsequently been held to be erroneous by this Court as well as by the Honourable Supreme Court of Pakistan. He, therefore, contends that the impugned order, to that extent, cannot be sustained. In support of his contention, learned counsel has relied upon Commissioner Inland Revenue, Zone-II, Karachi v. Messrs Kassim Textile Mills (Pvt.) Limited, Karachi [2013 PTD 1420] and Messrs Kassim Textile Mills (Pvt.) Limited v. Commissioner Inland Revenue, Karachi [2025 SCMR 1248].

4. We have heard learned counsel for the Applicant and examined the material available on record alongwith the case laws.

5. The question as framed is not precisely worded. However, when read with the statement of the case, it is evident that the Applicant essentially challenges the Tribunal's decision allowing adjustment of brought-forward minimum tax under section 113(2)(c) of the Ordinance, on the ground that the interpretation of the said provision adopted in the earlier decisions relied upon by the Tribunal was subsequently held to be erroneous. We, therefore, reformulate the question of law as follows:

“Whether, on the facts and circumstances of the case, the learned Tribunal was justified in allowing adjustment of brought-forward minimum tax under section 113(2)(c) of the Income Tax Ordinance, 2001, on the basis of earlier decisions of the Tribunal, when the interpretation of the said provision underlying those decisions was subsequently held to be erroneous by this Court and the judgment of this Court was upheld by the Honourable Supreme Court of Pakistan?”

6. The Tribunal's order dated 05.01.2011, passed in ITA No.582/KB/2010, was the subject matter of I.T.R.A. No.132 of 2011. By judgment dated 07.05.2013, reported as Commissioner Inland Revenue, Zone-II, Karachi v. Kassim Textile Mills (Pvt.) Ltd. [2013 PTD 1420], a Division Bench of this Court held that section 113(2)(c) does not operate as an exemption from the charge of minimum tax under section 113(1) and has no application where no tax is otherwise payable. The Tribunal's view that the expression “actual tax payable” could mean “zero or otherwise” was held to be erroneous. Consequently, the Tribunal's order dated 05.01.2011 was set aside and the reference was answered in favour of the Department.

7. The aforesaid judgment was challenged before the Honourable Supreme Court of Pakistan in Civil Appeal No.743 of 2014 and was decided, along with connected matters, vide judgment reported as Messrs Kassim Textile Mills (Pvt.) Ltd. v. Commissioner Inland Revenue, Karachi [2025 SCMR 1248]. The Supreme Court dismissed the taxpayer's appeal and allowed the appeals arising from contrary judgments of the Lahore and Islamabad High Courts. It held that section 113(2)(c), as applicable from Tax Year 2009 until its subsequent amendment, was clear and unambiguous and that the expression “actual tax payable” contemplated that some amount of tax must actually be payable in the relevant year before the benefit of carry-forward could arise. It was further held that Circular No.17 of 2004 could not override the express language of the statute. The Supreme Court also held that the first proviso to section 113(2)(c), substituted by the Finance Act, 2021, operates prospectively and extends the benefit of carry-forward where no tax is payable only from the date of its substitution.

8. The law laid down by the Supreme Court is binding in terms of Article 189 of the Constitution of the Islamic Republic of Pakistan, 1973. The Tribunal's order dated 05.01.2011 having been set aside, and the interpretation of section 113(2)(c) underlying that order and the earlier Tribunal decisions having been held to be erroneous, those decisions could not furnish a lawful basis for allowing the Respondent's claim. Consequently, to the extent that the Tribunal upheld the adjustment of brought-forward minimum tax on the basis of the said interpretation, the impugned order cannot be sustained. Since the claim in the present case pertains to Tax Year 2012, the Respondent can also derive no benefit from the proviso substituted by the Finance Act, 2021, which operates prospectively.

9. There is, however, a material distinction which requires consideration. The principle laid down in Kassim Textile Mills precludes carry-forward where, in the year in which the minimum tax was paid, no tax was actually payable under Part-I, Division-II of the First Schedule. It does not preclude the operation of section 113(2)(c) where some tax was actually payable but the minimum tax paid exceeded such tax; in such a case, the excess may, subject to the statutory conditions, be available for carry-forward. The orders of the authorities below do not disclose the tax year or years from which the minimum tax claimed by the Respondent was brought forward, nor do they contain any determination as to whether tax was actually payable in those years and, if so, whether and to what extent the minimum tax paid exceeded such tax. These are factual matters which cannot appropriately be determined in the present reference and require examination by the fact-finding forum.

10. In view of the foregoing, the question, as reformulated, is answered in the negative, in favour of the Department and against the Respondent. However, such answer does not, by itself, entail outright restoration of the disallowance, since the Respondent's entitlement, if any, to adjustment of the excess minimum tax depends upon the factual determination identified in the preceding paragraph.

11. Accordingly, the impugned order dated 04.09.2015, to the extent that it upholds the adjustment of brought-forward minimum tax under section 113(2)(c), is set aside and the matter is remitted to the Appellate Tribunal Inland Revenue, Karachi, for decision afresh on this issue, after affording the parties an opportunity of hearing and in the light of the law laid down in Commissioner Inland Revenue, Zone-II, Karachi v. Kassim Textile Mills (Pvt.) Ltd. [2013 PTD 1420] and Messrs Kassim Textile Mills (Pvt.) Ltd. v. Commissioner Inland Revenue, Karachi [2025 SCMR 1248]. The Tribunal shall determine, in respect of each tax year from which minimum tax is claimed to have been brought forward, whether tax was actually payable under Part-I, Division-II of the First Schedule and, if so, whether and to what extent the minimum tax paid exceeded such tax. The Respondent's entitlement to adjustment shall thereafter be determined in accordance with section 113(2)(c), as applicable to the relevant tax year.

12. The Reference Application stands disposed of in the above terms. The Registrar shall transmit a copy of this judgment, under the seal of the Court, to the Appellate Tribunal Inland Revenue, Karachi, in terms of section 133(8) of the Ordinance.

JUDGE

Naveed PA