Reasonability

2026 SCMR 227 SUPREME-COURT Judicial Precedent

R. 210C(3)Income Tax Ordinance (XLIX of 2001), S. 140Adverse order passed by the DepartmentRecovery of tax from third parties holding money on behalf of the taxpayerTimeframeReasonabilityScope

Within a short span of time (of about eight and half hours) from the decision by the Commissioner Inland Revenue- Appeals and it being uploaded on the FBR's web portal, notice for immediate recovery from Bank was sought by the Department on the same date as the notice

Department in support of the argument of immediate recovery relied upon Rule 210C(3) of Income Tax Rules, 2002 ('the Rules 2002') which provides that recovery can be effected on the same day that notice under Section 140 of the Income Tax Ordinance 2001, ('the Ordinance 2001') is issued

Held: Rule 210C(3) of the Rules, 2002 is contrary to the requirements of Section 140 of the Ordinance, 2001

Section 140 of the Ordinance, 2001 requires the Commissioner to set a date in the notice for recovery purposes, hence, the requirement of the Rules, 2002 for immediate recovery is against the scheme of Section 140 of the Ordinance, 2001

Reliance on Rule 210C, as urged by the petitioners/Department, would allow the Commissioner to bypass the statutory requirement and initiate immediate recovery, a course of action that not only contravenes the text of the Ordinance 2001 but also undermines its purpose

The Rules 2002 are subordinate or delegated legislation, framed under a statute, and therefore, subservient to the statute itself and must yield where there is any inconsistency

Thus, the clear and unambiguous reading of Section 140 of the Ordinance, 2001 is that the Commissioner shall issue notice in writing to pay the amount stated in the notice by the date set out in the notice

The language of Section 140 of the Ordinance, 2001 does not envisage immediate or mechanical recovery rather the provision contemplates that the Commissioner will issue notice and will give a reasonable timeframe for the purpose of recovery

Possibly a seven day notice can be considered reasonable, however, the reasonableness of the timeframe given can be considered on a case to case basis depending on the circumstances and the facts of the case, given that although the legislative intent is to provide for a date, it has not given a statutory notice period before which recovery can be effected

Said requirement of setting a date for payment of the tax duly places the burden on the Commissioner for substantive compliance and is not a procedural formality

A notice that seeks recovery on the same date as its issuance would defeat the very objective of setting out a date and would render the legal safeguard meaningless

Therefore, in view of the statutory framework and applicable Rules, Section 140 of the Ordinance, 2001 does not permit immediate coercive recovery in the absence of a date set in the notice

Section 140 of the Ordinance 2001 expressly provides that the party holding money on behalf of the taxpayer must be afforded a notice with a due date to discharge its liability

In both present cases, the notices issued under Section 140 of the Ordinance, 2001 seek immediate recovery, thereby blatantly violating the requirements of Section 140 of the Ordinance, 2001, which is illegal

No case for interference was made out

As leave had already been granted, the Civil petitions were converted into appeals and dismissed.

2026 PTD 192 SUPREME-COURT Judicial Precedent

R. 210C(3)Income Tax Ordinance (XLIX of 2001), S. 140Adverse order passed by the DepartmentRecovery of tax from third parties holding money on behalf of the taxpayerTimeframeReasonabilityScope

Within a short span of time (of about eight and half hours) from the decision by the Commissioner Inland Revenue- Appeals and it being uploaded on the FBR's web portal, notice for immediate recovery from Bank was sought by the Department on the same date as the notice

Department in support of the argument of immediate recovery relied upon Rule 210C(3) of Income Tax Rules, 2002 ('the Rules 2002') which provides that recovery can be effected on the same day that notice under Section 140 of the Income Tax Ordinance 2001, ('the Ordinance 2001') is issued

Held: Rule 210C(3) of the Rules, 2002 is contrary to the requirements of Section 140 of the Ordinance, 2001

Section 140 of the Ordinance, 2001 requires the Commissioner to set a date in the notice for recovery purposes, hence, the requirement of the Rules, 2002 for immediate recovery is against the scheme of Section 140 of the Ordinance, 2001

Reliance on Rule 210C, as urged by the petitioners/Department, would allow the Commissioner to bypass the statutory requirement and initiate immediate recovery, a course of action that not only contravenes the text of the Ordinance 2001 but also undermines its purpose

The Rules 2002 are subordinate or delegated legislation, framed under a statute, and therefore, subservient to the statute itself and must yield where there is any inconsistency

Thus, the clear and unambiguous reading of Section 140 of the Ordinance, 2001 is that the Commissioner shall issue notice in writing to pay the amount stated in the notice by the date set out in the notice

The language of Section 140 of the Ordinance, 2001 does not envisage immediate or mechanical recovery rather the provision contemplates that the Commissioner will issue notice and will give a reasonable timeframe for the purpose of recovery

Possibly a seven day notice can be considered reasonable, however, the reasonableness of the timeframe given can be considered on a case to case basis depending on the circumstances and the facts of the case, given that although the legislative intent is to provide for a date, it has not given a statutory notice period before which recovery can be effected

Said requirement of setting a date for payment of the tax duly places the burden on the Commissioner for substantive compliance and is not a procedural formality

A notice that seeks recovery on the same date as its issuance would defeat the very objective of setting out a date and would render the legal safeguard meaningless

Therefore, in view of the statutory framework and applicable Rules, Section 140 of the Ordinance, 2001 does not permit immediate coercive recovery in the absence of a date set in the notice

Section 140 of the Ordinance 2001 expressly provides that the party holding money on behalf of the taxpayer must be afforded a notice with a due date to discharge its liability

In both present cases, the notices issued under Section 140 of the Ordinance, 2001 seek immediate recovery, thereby blatantly violating the requirements of Section 140 of the Ordinance, 2001, which is illegal

No case for interference was made out

As leave had already been granted, the Civil petitions were converted into appeals and dismissed.

2026 CLD 292 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S. 176Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001), S. 9Suit for recovery of damages filed by the customerSale of pledged securities by BankPrior notice to customer / pawnorReasonabilityAct(s) of BankNon-prudence / diligence alleged against BankCause of action, accrual of

Banking Court dismissed the suit for recovery of damages filed by customer / company (appellant) for want of cause of action

Appellant availed a finance facility and ,in order to secure the financing, had pledged shares /securities, which were, after receiving permission from customer in wake of notice, sold by the Bank ; against said act (sale) the Appellant filed suit for recovery of damages of Rs.29.5 million

Plea of appellant ( plaintiff / customer) was that the bank did not act diligently in disposing of the pledged shares ; that the bank was required to dispose of the shares immediately in the wake of loss in the marginal requirements without even giving a notice to the appellant ; as in such eventuality, the appellant would have been saved from the loss of Rs.29.5 million

Validity

Section 176 of the Contract Act, 1872 stipulates a reasonable notice of the sale of pledged securities to be given to the pawnor

In the present case, the pledged shares were sold with permission of the appellant given to the bank vide a letter, wherein the appellant had shown its inability to either repay the finance facility or to pledge further shares in order to adjust the outstanding dues

Bank (defendant / respondent), in fact, acted wisely in adhering to the principles of natural justice by serving a notice to the appellant to makeup for the short fall and then by reminding him repeatedly about it

Appellant, on the contrary, always indulged in delaying performance of obligation in the contract and giving its clear-cut response to the bank to sell off the pledged shares in order to compensate the short fall

Having an option to dispose of the pledged shares on its own without giving a notice to the appellant would not mean that bank was restrained from giving a notice to the appellant before proceeding to sell off the pledged shares, or giving a notice meant that the bank acted mala fide

Said option in the agreement i.e. to sell off the pledged shares/securities without a notice to pawnor had been given to the bank to meet exigent situation, when otherwise all efforts and opportunities given to the borrower for recovery of amount etc. bore no fruit and no option was left to the bank to recover the defaulted amount except by selling off the pledged securities

However, before exercising such drastic step i.e. selling off the pledged share, if the bank had thought to give a notice to the appellant and thereby afford it an opportunity to adjust the outstanding dues, it could not be deemed to have acted negligently or imprudently, and more so, out of malafidely, nor the same could be construed as a breach of the contract enabling the appellant to sue for damages

Thus, the bank followed a normal recourse by giving notices to the appellant to top up the marginal requirement

Appellant in reply only kept on seeking time and ultimately gave permission vide a letter to the bank to sell off the pledged securities

At the time of giving such permission vide letter, the appellant did not take a plea either that the bank had acted malafidely by giving it notices rather than disposing of the pledged securities on its own

Subsequently, taking a U-turn and stating that the act of the bank in disposing of the pledged shares was rooted in mala fide was nothing but an afterthought

From a reading of the (permitting) letter, it was apparent that appellant was trying to arrange for further collateral to adjust the outstanding dues but when finally due to force majeure did not succeed, it allowed the bank to sell off the collateral available with it to recover outstanding dues

Banking Court rightly concluded that no cause of action had accrued to appellant to file the suit against the bank for recovery of damages, when availing of financial facility by it was admitted, its obligation to maintain the value of the pledged shares at 50% over and above outstanding liabilities was not disputed; failure of the appellant to make up for the loss was borne on the record; competency of the bank to sell off the pledged shares was not disputed; and the permission by the appellant to the bank to sell off the pledged shares was in blank and white through a letter which was a part of the record

High/Appellate Court upheld the impugned judgment passed by the Banking Court

Appeal, filed by the customer, was dismissed.

2016 PLD 266 PESHAWAR-HIGH-COURT Judicial Precedent

Judicial review of administrative actionsReasonability

Principles and test of reasonability examined.

2014 PTD 1024 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.67, 114(4), 120, 122(5A), 210, 210(1A), & 211Income Tax Ordinance (XXXI of 1979), Ss. 59(1), 62, 63, 65 & 66AIncome Tax Rules, 2002, R.13Apportionment of deductionsProportionate basisReasonability

Taxpayer contended that company was incorporated to undertake the business of money market activities, capital market activities, project finance activities, corporate finance services and general services; that for such activities, overall business plan was developed and expenditure paid for such development of business and consultancy fee did not relate to earning exempt/Final Tax Regime sources income and was specific to normal tax income and was not required to be apportioned at all being out of ambit of S.67 of the Income Tax Ordinance, 2001 read with R. 13 of the Income Tax Rules, 2002; that expenditure related to normal income and exempt/ Final Tax Regime income were furnished before Taxation Officer with all details and even before First Appellate Authority but both had not considered the details and evidence in this regard; that capital gain (exempt income) was earned in treasury department which made investment in equity; that said department was staffed with few people but had large turnover; and that on the basis of turnover, expenditure could not be allocated to said segment of income

Department contended that where taxpayer derive both Final Tax Regime income and Normal Tax Regime income or taxable income and exempt income, then the same had to be allowed on prorate basis between income covered under Final Tax Regime and Normal Tax Regime and similarly between taxable income and exempt income wherein allowance/deduction/expenditure (by whatever name it is called) was common, the same had to be prorated between the income assessable under Normal Tax Regime and Final Tax Regime on the basis of their ratio of turnover; that such principle was applicable to all types of expenditures where these expenses were common; and that expenses prorated by the Taxation Officer were common and these were to be prorated on the basis of principle of apportionment as envisaged in S.67 of the Income Tax Ordinance, 2001 read with R.13 of the Income Tax Rules, 2002 as where an expenditure/allowance/deduction was exclusively related to any particular head/source of income but wherein deduction/allowance/expenditure was common and it was inseparable the same had to be apportioned/allocated on prorate basis which exactly had been done by the Taxation Officer while allocating common expenses/deduction

Validity

Section 122(5A) of the Income Tax Ordinance, 2001 was invoked for the reason that taxpayer had wrongly apportioned the business expenses against income from other sources

Likewise, expenses had not been properly prorated between commission income and other revenues like fee/service charges which relate both to Final Tax Regime and non Final Tax Regime income and the computation of income had not been made in accordance with the provisions of S.67 of the Income Tax Ordinance, 2001 read with R.13 of the Income Tax Rules, 2002

Diminution in value of investment being a notional loss and merely a provision was not an allowable expenses but had been claimed as expense

Taxation Officer had rightly apportioned common expense/deduction in accordance with the provisions of law and rules

Taxpayer, admittedly did not allocate common expenses to Final Tax Regime and non Final Tax Regime income

First Appellate Authority had rightly found that by not allocating/prorating the common expense the deemed assessment for both the years were definitely erroneous which were also prejudicial to the interest of revenue as well and had rightly been maintained the order of the officer below

Order of First Appellate Authority was upheld and appeals filed by the taxpayer were dismissed by the Appellate Tribunal.