The Supreme Court has dismissed appeals filed by the Federal Board of Revenue (FBR) in a significant tax case, ruling that dividend income is subject to a 10% final withholding tax and cannot be taxed at the standard 35% corporate tax rate.
The verdict was delivered by a two-member bench headed by Chief Justice Yahya Afridi, with the detailed judgment authored by Justice Aqeel Ahmed Abbasi.
The case centred on the interpretation of Sections 5 and 39 of the Income Tax Ordinance, 2001.
The FBR argued that dividend income should be treated as part of a company’s general taxable income and taxed at the normal corporate rate of 35%.
However, the petitioner companies contended that dividend income falls under a separate tax regime and is subject to a 10% final withholding tax under Section 5 of the ordinance.
The Supreme Court upheld the earlier ruling of the Islamabad High Court, agreeing that dividend income constitutes a separate tax block and cannot be treated as general corporate income.
The court held that only Section 5 applies to dividend income and that the 10% withholding tax represents the taxpayer’s final liability.
Describing the FBR’s interpretation as legally unsustainable, the apex court dismissed all appeals filed by the tax authority.
The case was brought by several companies, including Saudi Pak Industrial and Agricultural Investment Company, Fauji Foundation, Fauji Fertilizer, and Cap Gas, which challenged the FBR’s interpretation of the tax law.