The Federal Constitutional Court has allowed eligible corporate taxpayers to adjust certain tax credits against their super tax liabilities, overturning an earlier Islamabad High Court ruling on the matter.

In a six-page judgment authored by Justice Aamer Farooq, the court accepted appeals filed by a private telecommunications company and recognized its right to set eligible tax credits off against its super tax liability.

The court held that tax credits available under Section 168 of the Income Tax Ordinance, 2001 are a distinct statutory entitlement. It said taxpayers cannot be compelled to claim a refund where the law provides for adjustment of an available credit against an outstanding tax liability.

The ruling could have significant implications for large companies facing super tax demands under Section 4C of the Income Tax Ordinance, which has remained subject to extensive litigation since its introduction.

The Federal Constitutional Court had previously upheld the constitutional validity of Section 4C, ruling that super tax constitutes a separate levy on income.

The latest judgment follows an Islamabad High Court ruling in a case involving CM Pak Limited, which had rejected a similar adjustment claim. The high court had held that withholding tax could not be adjusted against super tax because Section 4C operates independently of the regular income tax regime.

The distinction between tax credits, withholding taxes and confirmed tax refunds has become a key issue in super tax disputes.

In July, the Appellate Tribunal Inland Revenue in Lahore also ruled that a verified tax refund could be adjusted against a super tax demand, while distinguishing such refunds from withholding tax credits used in determining super tax liability.