Can Withholding Tax Be Adjusted Against Super Tax? An ATIR Order Says Yes

Super Tax under Section 4C of the Income Tax Ordinance, 2001 has become a significant line in the tax computation of many companies. A recurring dispute has been whether tax already deducted at source — for example under Section 153(1)(c) on contracts — can be adjusted against that Super Tax liability, or whether the taxpayer must pay in full and pursue a refund separately.

A recent consolidated order of the Appellate Tribunal Inland Revenue (ATIR), Bench-II, Karachi addresses this question directly.

The case

• Appellants: M/s Umer Jan & Company and another appellant
• Appeals: ITA Nos. 547/KB/2026, 548/KB/2026 and 549/KB/2026
• Tax Years: 2023 and 2024
• Order dated: 4 September 2026

The dispute

The taxpayers' position was that tax deducted under Section 153(1)(c) constitutes a tax credit under Section 168 and should be adjusted against the overall tax liability — including Super Tax under Section 4C.

The tax authorities took the alternative view: the taxpayer should seek relief through the refund mechanism under Section 170 rather than adjusting the credit against Super Tax.

The practical difference is cash. Adjustment reduces what is payable now. A refund claim means paying first and recovering later, through a separate process with its own timelines.

What the Tribunal held

Relying on the Federal Constitutional Court's decision in M/s CM Pak Limited v. Federation of Pakistan, the Tribunal recognised that Section 4C(3) incorporates the provisions of Chapter X of the Ordinance — which includes the tax-credit mechanism under Section 168.

Three points follow:

• Eligible tax deducted at source must be considered when determining the taxpayer's overall tax liability.
• The availability of a refund mechanism under Section 170 does not eliminate the taxpayer's statutory right to claim an admissible credit under Section 168.
• The tax authorities must verify the admissibility and actual quantum of the credit before determining the consequential net liability.

The impugned orders were set aside to the relevant extent, and the competent tax authorities were directed to issue appeal-effect orders after allowing the admissible tax credit against the liability under Section 4C.

What this does not mean

The order does not make every amount deducted at source automatically adjustable. The taxpayer must still establish the amount and eligibility of the credit under the applicable statutory provisions — with withholding certificates, reconciliations and supporting records that survive verification.

The principle that matters

Tax credit under Section 168 cannot be disregarded merely because a refund route may also be available.

For companies with meaningful Super Tax exposure and significant tax withheld during the year, that principle deserves a place in the tax computation — and, where assessments have gone the other way, in the appeal strategy.

What to do now

• Reconcile tax withheld under Section 153 and other provisions to withholding certificates and FBR's records, so the quantum can be established without argument.
• Review current-year Super Tax computations for credits that were not claimed.
• Review pending assessments and appeals for Tax Years 2023 and 2024 where adjustment against Super Tax was denied.
• Where refund claims under Section 170 are already filed for such amounts, consider how the two routes interact before the next hearing.