Commissioner Inland Revenue (Refund Zone) Regional Tax Office, Peshawar Vs Naveed Ahmad Khan

PESHAWAR HIGH COURT, PESHAWAR

(Revisional Jurisdiction) TR No. 164‐P/2025 Commissioner Inland Revenue (Refund Zone), Regional Tax Office, Peshawar.

Vs .

Naveed Ahmad Khan.

Petitioner(s) by: M/S Sajeed Khan Afridi & Umair Jamal, Advocates. Respondent(s) by: Mr. Ghulam Haroon Jally, Advocate. Research Assistance: Mazhar Ali Khan, Research Officer. Date of hearing: 16.09.2026

JUDGMENT

SYED ARSHAD ALI, J.‐

1.This Tax Reference under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance”) has been instituted by the Commissioner Inland Revenue (Refund Zone), Regional Tax Office, Peshawar, assailing the order dated 04.09.2025 passed by the learned Appellate Tribunal Inland Revenue, Peshawar Bench (“the Tribunal”), in ITA No. 254/PB/2022, whereby the Department’s appeal against the order of the Commissioner Inland Revenue (Appeals) was dismissed.

2.The respondent is an individual taxpayer who derives income from the business of executing outsourced contracts awarded by Provincial and Local Government authorities for the collection of public revenues, duties, fees, advertisement charges, and tolls. During the tax period relevant to Tax Year 2020, the respondent was awarded a total of nine distinct contracts, including a contract for the collection of toll tax on the D.I. Khan – Chashma Section of Provincial Highway (S‐11), alongside eight other contracts relating to the collection of excise duty on minerals, outdoor advertisement fees, and municipal publicity taxes.

3.Pursuant to the award of the aforesaid public contracts and tenders, the concerned government departments were required to collect advance tax at source from the respondent in accordance with Section 236A of the Ordinance. The statutory scheme of advance tax on public auctions and tenders as prescribed under Section 236A of the Ordinance reads as under:

“236A. Advance tax on sale by auction.— (1) Any person making sale by public auction [or auction by a tender], of any property or goods [(including property or goods confiscated or attached)] either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under sub‐clause (vi) of clause (b) of subsection (2) of section 80, or a foreign contractor or a consultant or a consortium or Collector of Customs or Commissioner of [Inland Revenue] or any other authority, shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in Division VIII of Part IV of the First Schedule, from the person to whom such property or goods are being sold.

[Explanation.‐‐‐ For the removal of doubt it is clarified for the purpose of this section that‐‐‐ (a) the expression “sale by public auction or auction by a tender” includes renewal of a license previously sold by public auction or auction by a tender; and

(b)where payment is received in instalments, advance tax is to be collected with each instalment.]

(2)The credit for the tax collected under sub‐section (1) in that tax year shall, subject to the provisions of section 147, be given in computing the tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B or section 145 applies, the tax year, in which the “said date” as referred to in that section, falls or whichever is later.

Explanation.‐ For the purposes of this section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees or other levies, by whatever name called.]

[(3) Notwithstanding the provisions of sub‐section (2), tax collected on a lease of the right to collect tolls shall be final tax.]”

4.A plain reading of the statutory scheme reveals that while advance tax collected under Section 236A(1) generally falls

under the Normal Tax Regime (NTR) pursuant to sub‐section (2) allowing full credit and adjustment against the taxpayer’s final tax liability, whereas sub‐section (3) introduces a specific statutory exception. Under Section 236A(3), tax collected specifically on the “lease of the right to collect tolls” is declared to be a final tax under the Final Tax Regime (FTR), discharging the taxpayer’s tax liability in full without any entitlement to refund or adjustment.

5.For Tax Year 2020, the respondent filed his return of income under Section 120 of the Ordinance, claiming a refund of Rs. 18,864,492/‐ under Section 170 of the Ordinance on account of excess advance tax collected under the Normal Tax Regime. The Assessing Officer processed the refund application and issued a notice under Section 177(4) / Section 170 confronting the respondent that since his entire economic activity comprised outsourced revenue collection contracts awarded by government bodies, the entire income fell under the purview of Section 236A(3) as “toll tax” and was subject to the Final Tax Regime; hence, the refund claim was held non‐maintainable.

6.In response, the respondent submitted that except for the single contract relating to the D.I. Khan – Chashma Highway Section, all other eight contracts pertained to the collection of advertisement fees, outdoor publicity charges, and mineral excise duties. He contended that these eight contracts did not fall within the legal definition or concept of “toll tax” and were consequently governed by the Normal Tax Regime under Section 236A(1) read with sub‐section (2). The respondent further pointed out that the Department had consistently accepted this classification and granted similar refunds for preceding Tax Years 2017 and 2018.

7.The Assessing Officer, taking a rigid and sweeping view, held that the expression “toll tax” comprehended all outsourced revenue collection rights awarded by public authorities. Concluding that the respondent’s entire business fell under the Final Tax Regime,

the Assessing Officer rejected the refund claim vide order dated

8.Aggrieved, the respondent preferred an appeal before the Commissioner Inland Revenue (Appeals) (“CIR (Appeals)”). The CIR (Appeals) undertook a comprehensive examination of the nine contracts awarded to the respondent and analyzed the legal definition of “toll” across standard legal dictionaries. The learned CIR (Appeals) concluded that except for the highway contract for the D.I. Khan – Chashma Section, the remaining eight contracts for collection of advertisement fees and mineral excise duties did not constitute “toll tax”. Consequently, vide order dated 27.09.2022, the CIR (Appeals) modified the assessment order and held the respondent entitled to refund/adjustment in respect of the eight non‐toll contracts under the Normal Tax Regime.

9.The Department assailed the order of the CIR (Appeals) before the learned Appellate Tribunal Inland Revenue. The Tribunal dismissed the Department’s appeal on two distinct grounds: firstly, by affirming the legal finding of the CIR (Appeals) that non‐toll collection contracts fall under the Normal Tax Regime; and secondly, by holding that since the return filed by the respondent stood accepted as a deemed assessment under Section 120 of the Ordinance, no refund claim under Section 170 could be entertained unless the underlying deemed assessment was first formally amended under Section 122 of the Ordinance.

10.At the outset, we must express our respectful disagreement with the second reasoning formulated by the learned Tribunal, to the effect that an amendment of assessment under Section 122 is a prerequisite for entertaining a refund application under Section 170. This procedural issue is no longer res integra, having been authoritatively settled by the Hon’ble Supreme Court of Pakistan in Hamid Ashraf (late) through LRs and others v. Commissioner Inland Revenue, Lahore (2020 PTD 1157). The apex Court held that a

deemed assessment under Section 120, resulting automatically upon the filing of a complete return under Section 114, is not a substitute for a refund order, nor does it automatically entitle a taxpayer to a refund without formal scrutiny. The Supreme Court laid down that Section 170 provides an independent, fast‐tracked, and self‐ contained statutory mechanism under which a taxpayer is entitled to apply for a refund immediately following the filing of the return/deemed assessment under Section 120. Section 170 mandates the Commissioner to scrutinize the refund application on its own merits, afford a hearing, and issue a formal refund order under Section 170(4). Because Section 170 is an independent statutory remedy operating directly upon the tax returned and assessed under Section 120, there is no legal requirement whatsoever to initiate or await a formal amendment of assessment under Section 122 before entertaining, processing, and deciding a valid refund application under Section 170.

11.Turning to the primary substantive issue, namely, whether all outsourced revenue collection contracts constitute “toll tax” within the contemplation of Section 236A(3), it is instructive to analyze the exact nature of the nine contracts awarded to the respondent during the tax period in question, as itemized by the learned CIR (Appeals):

1.Right for Collection of Excise Duty on Minerals in Mardan Division for the year 2010‐2020, by Labour Welfare Department, vide No:708 dated: 27‐6‐2019.

2.Auction of Toll Tax Collection Rights on D.I Khan ‐ Chasma Section of Provincial High way (S‐11), by Pakhtunkhwa High Authority vide No: 02‐2019‐20/Toll tender dated: 24‐07‐2019.

3.Grant of one‐year mining lease for Minor Minerals over an area of 2428.5250 Acres near Village Qabool Khol, District Lakki Marwat by Assistant Director Minerals Development, Bannu Division vide No: 84/MDW/LM/ML‐ MM (04)/2016 dated: 08‐02‐2019.

4.Lease rights to Collect Excise duty on Specified Minerals From District Rawalpindi Under the Excise Duty on Minerals (Labor Welfare) Punjab) rules 1971 by Mines labor commissioner vide No: 3737 dated: 15‐10‐2019.

5.Collection of Fee for outdoor Advertisement for the year 19‐20 by Parks and Horticulture Authority Gujranwala vide

No:354 dated 28‐05‐2019.

6.Collection of Advertisement Charges from Banks, National/Multinationals companies, Schools, local Brands, Petrol pumps, CNG pumps, and Hoarding Boards Advertisers with limits of Abbottabad Cantonment, by cantonment Board Abbottabad, vide No:

30/3/Contract/2196 dated: 30‐10‐2019.

7.Award of Contract of Collection Rights of Advertisement Tax for the year 2019‐2020 District Council Faisalabad by District Council Faisalabad.

8.Award of lease for collection of Publicity Tax for year 2019‐2020 District Council Toba Thek Singh.

9.Award of lease for Collection of Advertisement fee by Municipal Committee Toba Thek Singh vide no:

217/Mo(F)/MC/TTS dated: 24.10.2019.

12.The core controversy hinges on the scope and meaning of the expression “toll” or “toll tax”. Crucially, the expression “toll” has not been defined in the Income Tax Ordinance, 2001. It is a cardinal rule of statutory interpretation that where a word or expression is not defined in a taxing statute, it must be assigned its ordinary, natural, and popular meaning as understood in commercial parlance and common usage. Reference to standard lexicons provides valuable guidance in ascertaining this ordinary commercial meaning. As per the Britannica Dictionary “toll” is: “An amount of money that you are required to pay for the use of a road or bridge.” In Collins English Dictionary, “A toll is a small sum of money that you have to pay in order to use a particular bridge or road.” Toll according to Cambridge Dictionary is “A small amount of money that you have to pay to use a road, cross a bridge, etc.” Similarly, Longman Dictionary defines it as “The money you have to pay to use a particular road, bridge etc.”

13.Various other dictionary meanings as assigned to the term 'toll' are set out as follow: The Shorter Oxford English Dictionary on Historical Principles (revised and edited by C. T. Onions, Third Edition, Volume II, page 2206) defines: “The expression ‘toll thorough’ means where a town prescribes to have toll for every beast that goes through their town. The term ‘toll traverse’ means where one claims to have an amount for every beast that is drive over his

ground.” According to Wharton’s Law Lexicon (14th Edition, pages 999–1000): “By Section 3 ‘toll’ includes any rate or other payment payable under the special Act for any passenger, animal, carriage, goods merchandise, articles, matters or things conveyed on the railway. ‘Toll‐thorough’ means, when a town prescribes to have toll for such a number of beasts or for ever beast that goes through the town, or over a bridge or ferry belonging to it. ‘Toll‐traverse’ means, toll taken for every beast driven across a man's land. He may prescribe and distrain for its via regia.”

14.In Halsbury’s Laws of England, (4th Edition, page 96, para 138) dealing with ‘tolls at common law’ it is stated that “the common law recognizes two classes of tolls payable under a grant or presumed grant from the Crown in respect of the passage of a highway or bridge, namely tolls traverse and tolls thorough. A toll traverse is a toll taken in respect of the original ownership of the land crossed by the public (even if now perhaps served from it), the land having been at the date of the grant the grantee's private property, and having been then dedicated by him to the public in consideration of the toll to be taken. It is further stated therein that a toll thorough is independent of any ownership of the soil by the original grantee, the consideration necessary to support it being usually the liability to repair the particular highway or bridge.” Dealing with ‘tolls under statue’ at page 97, para 139 it is stated that “highway and bridge tolls may be payable under statute. In the case of any independent statutory undertaking engaged in the maintenance of a bridge, the power to revise the amount of the tolls may be in the undertakers’ discretion, or the tolls may only be subject to a requirement that they are to be reasonable in amount.”

15.The Supreme Court of India in the case of State of U.P. and Ors. v. Devi Dayal Singh and Ors. (AIR 2000 SC 961) elaborated the meaning of the term “toll” as under:

7.The concept of “toll” is derived from English jurisprudence. Shorn of connotation which are historically

irrelevant in this country, a ‘toll’ may be defined as a sum of money taken in respect of a benefit arising out of the temporary use of land. It implies some consideration moving to the public either in the form of a liberty, privilege or service. In other words, for the valid imposition of a toll, there must be a corresponding benefit. (see in this Hammerton v. Earl of Dysari (1916‐18) AC 57‐58 ;...

8.The public benefit envisaged under Section 2 of the Tools Act, 1851 is the making or repairing of any road or bridge at the expense of the State Government. For the advantage obtained by the public by the construction of the road and bridges, the State Government is entitled to reimburse itself for providing the service.

16.As established by the foregoing array of lexicographical and legal authorities, words and phrases which have acquired a particular meaning in trade, commerce, and public administration must ordinarily be understood in that same sense unless the statutory context compels a contrary interpretation. Reference may be made to M/S Asbestos Cement Industries Ltd. v. Lahore Municipal Corporation (1994 SCMR 262) & M/s. Pirani Engineering v. Federal Board of Revenue and 2 Others (2010 PTCL 242 SC). In its ordinary, natural, and legal sense, a “toll” or “toll tax” is a precise exaction demanded in consideration for the right to pass through, cross, or use public transport infrastructure such as roads, highways, bridges, causeways, or tunnels. The essential legal characteristics of a toll are its direct nexus with the use of public passage infrastructure and its payment by travelers or vehicle operators for traversing such facility.

17.The Department’s attempt to expand the expression “toll tax” under Section 236A(3) to comprehend all varieties of municipal levies, advertisement license fees, and mineral excise duties is legally untenable. The mere fact that the right to collect these municipal revenues was awarded through public auction or tender does not alter the underlying legal character of the revenue itself. While all such public auction contracts fall within the generic withholding requirement of Section 236A(1), only those contracts which specifically relate to the lease of the right to collect highway/road “tolls” are subjected to the restrictive Final Tax Regime under Section

236A(3).

18.This conclusion finds support in the well‐settled principles governing the interpretation of fiscal statutes. It is a cardinal canon of tax jurisprudence that where a provision in a taxing statute is susceptible of two reasonable interpretations, that construction which is favorable to the taxpayer/assessee must be adopted. Reference may be made to M/S Pakistan Television Corporation Vs, Commissioner Inland Revenue (2017 SCMR 1136); B.P. Biscuit Factory Ltd. Vs. Wealth Tax Officer (1996 SCMR 470); Commissioner of Agricultural Income‐tax, East Bengal v. B.W.M. Abdur Rahman, Manager, Taki Bara Taraf Wards Estate (1973 SCMR 445); & CIT vs. Naga Hills Tea Co. Ltd (AIR 1973 SC 2524). However, a sharp legal distinction exists between general charging provisions and statutory clauses that create exemptions, concessions, or special tax regimes such as the Final Tax Regime. Rules regarding exemptions or restrictive tax regimes under a fiscal enactment must be strictly established and rigidly construed. Grants of special tax exceptions are given a strict interpretation against the assertions of the taxpayer and in favor of the taxing power, for the fundamental reason that the burdens of taxation must be distributed equally and fairly among all members of society.

19.Under Section 236A(3), subjecting an income stream to the Final Tax Regime operates as a statutory exception or restrictive regime that removes the taxpayer from the Normal Tax Regime (NTR) where general business deductions and refund adjustments are available. When such a restrictive or exempting clause is susceptible to interpretation, it must be confined strictly to its plain textual terms and cannot be extended by loose implication, analogy, or administrative convenience. Reference may be made to Collector of Custom FBR and another v. Messrs Fitter Pakistan (Pvt) Ltd (2020 SCMR 1157); Oxford University Press v. Commissioner of Income Tax, Companies Zone‐I, Karachi and others (2019 SCMR 235); Pakistan Machine Tool Factory (Pvt) Ltd, Karachi v. Commissioner of Sales, Central, Zone‐B, Karachi (2006 SCMR 1577); & Messrs Bisvil Spinners Ltd v. Superintendent Central Excise and Land Customs Circle Sheikhupura

and another (PLD 1988 SC 370). Consequently, the restriction imposed under sub‐section (3) of Section 236A declaring tax collected on the lease of the right to collect tolls to be final tax is strictly applicable only to the lease relating to actual road or highway toll collection (such as the D.I. Khan – Chashma Highway Section). In respect of all other outsourced revenue collection awards (advertisement fees, publicity taxes, and mineral excise duties), the respondent remains governed by the Normal Tax Regime under Section 236A(1) and (2), fully entitled to claim refund and adjustment under Section 170 of the Ordinance.

20.In view of the detailed reasoning set out above, the Question of Law proposed by the Department is answered in the NEGATIVE that is, against the Department/Petitioner and in favor of the Taxpayer/Respondent. A copy of this judgment be transmitted to the worthy Appellate Tribunal Inland Revenue, Peshawar Bench, in terms of Section 133(10) of the Income Tax Ordinance, 2001.

JUDGE

JUDGE

Date of hearing & announcement Of judgment...............16.09.2026

Date of preparation & signing Judgment....................24.09.2026

Nawab Shah CS (DB) Hon’ble Mr. Justice Arshad Ali & Justice Babar Sattar