The Islamabad High Court (IHC) has issued an order preventing the Federal Board of Revenue (FBR) from recovering income tax from Askari Bank Limited. This decision challenges the tax department’s calculation method, which prescribes the tax rate based on the bank’s assets-to-deposit ratio.

In its ruling, the IHC has also directed the FBR and the Attorney General for Pakistan to submit a report and para-wise comments within two weeks.

Askari Bank has contested Rule 6C(6A) of the 7th Schedule of the Income Tax Ordinance, 2001. The court’s order specifies that no coercive action will be taken against the bank until the next hearing, based on any calculations made by the tax department under this rule.

The bank’s legal counsel argued that the tax department is attempting to impose taxes on income derived from investments in Federal Government securities by setting the tax rate according to the gross advances-to-deposit ratio. This approach, they claim, improperly regulates the bank’s business, which exceeds the scope of a Money Bill and violates Article 73 of the Constitution.

Furthermore, the counsel contended that the tax imposition is retroactive, as the investments in question did not mature during the financial year, and the tax could not be retrospectively applied. The impugned rule is also said to conflict with Section 46B(3) of the State Bank of Pakistan Act, 1956, which grants the State Bank exclusive authority to issue directives to banks and prohibits other public authorities from issuing conflicting directions.

Askari Bank maintains that it conducts its banking operations in accordance with the prudential regulations set by the State Bank of Pakistan. The bank argues that no other authority has the jurisdiction to regulate its business, as attempted through the contested rule.