“A collection of tax where it is not due is as detestable as its non-payment when it is due.” — Nasim Sikander J, in CIT Companies, Lahore v State Cement Corporation (Pvt) Ltd, Lahore 2002 PTD 1603

The order of the Lahore High Court in Writ Petition No. 24928 of 2026 [Honda Atlas Cars (Pakistan) Limited v Federation of Pakistan & others], passed on April 30, 2026, raises a fundamental constitutional question: can the Federal Board of Revenue (FBR) levy “default surcharge” under section 205 of the Income Tax Ordinance, 2001 where payment obligations were regulated, deferred or suspended through judicial orders passed by constitutional courts?

The issue is of immense national importance because it potentially affects hundreds of taxpayers who challenged the constitutionality of super tax under section 4C of the Income Tax Ordinance, 2001 and complied with interim arrangements ordered by the Lahore High Court [(2023) 128 TAX 90 (H.C. Lah.) & (2024) 129 TAX 702 (H.C. Lah.)], Sindh High Court [(2023) 127 TAX 112 (H.C. Kar.)], Islamabad High Court [(2023) 128 TAX 141 (H.C. Isl.) & (2024) 130 TAX 394 (H.C. Isl.)], and later the Supreme Court/Federal Constitutional Court (FCC) of Pakistan.

The petition before the Lahore High Court arose after the FBR issued a notice on April 2, 2026, under section 205 seeking recovery of “default surcharge” for the tax year 2022. The petitioner argued that no surcharge could lawfully be imposed because payments had throughout remained governed by judicial orders.

The Court itself recorded that recovery proceedings had earlier been stayed subject to the furnishing of post-dated cheques, and later, following orders of the Supreme Court/FCC, 50% of the liability was deposited, and thereafter the remaining disputed amount was deposited immediately after final adjudication.

The petitioner’s argument, as reflected in paragraph 2 of the order, was legally compelling. Section 205 applies where a taxpayer “fails to pay” tax within the time. The expression “fails” is not merely mechanical or arithmetic. It imports a default attributable to taxpayer conduct—negligence, refusal, withholding or inexcusable omission.

Where payment stands deferred because a constitutional court itself has suspended recovery or prescribed payment modalities, the delay cannot legally be attributed to taxpayer default. This is not merely a technical issue of tax administration. It goes to the heart of constitutional governance and the rule of law.

A taxpayer who invokes constitutional jurisdiction to challenge a levy and complies with all judicial directions cannot later be punished for obeying the court. The ancient equitable maxim actus curiae neminem gravabit—an act of the court shall prejudice no one—squarely applies. If constitutional courts regulate recovery through interim orders, the consequences of such judicial arrangements cannot later be converted into grounds for fiscal punishment.

Article 77 of the Constitution mandates that no tax shall be levied........

© The Friday Times