Lahore: The Lahore High Court has ruled that super tax under Section 4C of the Income Tax Ordinance, 2001, cannot be imposed on capital gains from inherited immovable property where the applicable capital gains tax (CGT) rate is zero per cent.
According to media reports, a two-member bench comprising Justice Jawad Hassan and Justice Sardar Akbar Ali issued the verdict in an income tax reference against the Appellate Tribunal Inland Revenue and tax authorities. The court set aside a super tax demand of PKR 114.7 million raised on the sale of inherited property held since 1980.
The case concerned tax year 2024, in which the taxpayer declared income exceeding PKR 1.14 billion from the sale of inherited immovable property. The tax return was deemed finalised under the Income Tax Ordinance, but tax authorities later initiated proceedings under Section 4C and imposed super tax through an order issued on February 28, 2025.
The taxpayer challenged the levy before the tribunal, arguing that the property had been inherited and held for over six years, making the gain subject to a zero per cent tax rate under Section 37(1A) of the ordinance. Counsel maintained that where no income tax liability existed, no super tax could be imposed, arguing that applying super tax on income taxed at a nil rate effectively amounted to indirectly taxing exempt income.
Tax authorities defended the levy, contending that Section 4C operated independently and applied to high-income individuals regardless of the source of income. They argued that capital gains taxed at zero per cent still formed part of taxable income and therefore attracted super tax.
The bench rejected the argument, observing that fiscal laws must be interpreted strictly and that taxes cannot be imposed through implication or administrative interpretation. The court held that Section 37(1A) created a special statutory regime for gains arising from immovable property and that once the legislature prescribed a zero per cent tax rate, no tax liability remained.
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