The Lahore High Court Multan Bench has set aside orders of the Appellate Tribunal Inland Revenue and Commissioner Inland Revenue (Appeals) in a significant tax reference involving advance tax under Section 236H of the Income Tax Ordinance, 2001, holding that liability cannot be determined on the basis of arbitrary percentage formulas without legal backing.
The case was strongly contested by Advocate Furqan Ahmed Khan, representing the respondent-taxpayer, assisted by Mr. Rehan Ahmad Khan Advocate, while the department was represented by its counsel before the court.
The court, while deciding Income Tax References Nos. 62 to 65 of 2025 through a consolidated judgment, observed that the practice of restricting taxable turnover to 33% for the purpose of advance tax on sales to retailers had no basis in law or statutory support.
The dispute arose from assessments made against a distributor of beverages for tax years 2014 to 2017, where tax authorities alleged non-compliance with advance tax obligations under Section 236H. The taxpayer had argued that a significant portion of sales was made directly to end consumers rather than retailers, and therefore should not be subject to withholding tax.
Earlier, the Commissioner Inland Revenue (Appeals) had restricted taxable sales to 33% of total turnover relying on earlier decisions and industry practice, a view later upheld by the Appellate Tribunal Inland Revenue.
However, the High Court held that while tax authorities cannot rely on arbitrary benchmarks, the assessing officer is equally bound to determine actual taxable liability based on verifiable transaction records. The court emphasized that Section 236H applies specifically to sales made to retailers and does not extend to direct consumer sales.
The bench noted that both lower authorities had erred one by applying an unsupported percentage formula and the other by failing to properly examine factual sales data. Consequently, the court remanded the matter back to the assessing officer for fresh determination in light of actual transaction records and legal principles.
The judgment sets aside all impugned orders and directs a reassessment of tax liability strictly on factual verification rather than presumptive calculations.