Case Notes

Case note: Kassim Textile Mills v. CIR (2025 SCMR 1248) and the carry-forward of minimum tax under section 113(2)(c)

Minimum tax under section 113 is charged on turnover when a company's normal tax is lower, and for years the question was whether the minimum tax paid in a loss year could later be set off against profits. The Supreme Court has now answered that question for the years before the Finance Act, 2021, resolving a split between the Sindh and Lahore High Courts. Anyone looking for the best tax lawyer in Karachi to recover minimum tax from pre-2021 loss years should test the claim against this judgment first, because for most legacy years it closes that route. This note explains what the Court decided, what it left open, and what both taxpayers and the Department should do with pending cases.

The case at a glance

Item	Detail
Case	Kassim Textile Mills (Pvt.) Ltd. v. Commissioner Inland Revenue, Karachi
Citation	2025 SCMR 1248 = 2025 PTD 1230
Court and bench	Supreme Court of Pakistan: Yahya Afridi CJ, Muhammad Shafi Siddiqui J and Miangul Hassan Aurangzeb J
Matters	Civil Appeal No. 743 of 2014 with connected appeals and petitions, including appeals by Dubai Islamic Bank and Engro Polymer and the Department's petition in the Educational Excellence matter (C.P. 10-L of 2017)
Date	2025. Sources differ on the exact date: the FBR's published summary of Supreme Court decisions refers to a judgment dated 20.02.2025, while a published commentary gives 2 May 2025. Check the certified copy before relying on a date.
Provision	Section 113(2)(c), Income Tax Ordinance, 2001, as it stood before the Finance Act, 2021
Result	Taxpayers' appeals from Sindh dismissed; the Department's petitions from Lahore and Islamabad allowed

The provision and how it changed

Section 113(1) requires certain taxpayers, including companies, to pay minimum tax on turnover where the tax they would otherwise pay under the normal regime is lower. Section 113(2)(c) then softens the blow: where the minimum tax paid exceeds the "actual tax payable" under the normal regime, the excess is carried forward and adjusted against the normal tax liability of later years.

The carry-forward has a long and uneven legislative history, which matters because the year in dispute decides which version applies:

• Finance Act, 2004: carry-forward for five years.
• Finance Act, 2008: carry-forward repealed.
• Finance Act, 2009: carry-forward restored, for three years.
• Finance Act, 2011: period extended from three to five years (the precise commencement of this change should be checked for the year in issue).
• Finance Act, 2021: clause (c) substituted, with a new proviso that where tax is paid under subsection (1) "due to the fact that no tax is payable or paid for the year", the entire amount is carried forward, and a further proviso fixing adjustment within the five tax years immediately following.

Before 2021 the clause spoke only of an "excess" over "actual tax payable". It said nothing about a year in which no tax was payable at all. That silence is what the litigation was about.

The question and the conflict below

Companies in a loss year pay minimum tax because their normal tax is nil. When they return to profit, they want to set that minimum tax off against their normal liability. The Department's position was that a nil-tax year produces no "excess" over actual tax payable, so there is nothing to carry forward.

The High Courts divided. The Sindh High Court, in the reference decided below in this very case (reported as 2013 PTD 1420), accepted the Department's reading, and later Sindh benches treated that decision as binding: in C.P. No. D-5264 of 2019 (order of 16.08.2019) a Division Bench dismissed a challenge to a section 122(5A) notice, holding that it was not persuaded to depart from Kassim Textile. The Lahore High Court took the taxpayer-friendly view in the Educational Excellence matter, treating the provision as beneficial. The Supreme Court had granted leave in Kassim Textile's appeal in 2014, so the issue stayed alive in pending assessments for more than a decade.

The arguments on each side were straightforward. Taxpayers said the purpose of the carry-forward was to stop minimum tax becoming a permanent extra charge on businesses that happen to make losses, that a loss-making company is the clearest case for relief, and that the FBR's own Circular No. 17 of 2004 had accepted adjustment. The Department said the clause created a concession that must be confined to its terms, that "excess" presupposes two figures to compare, and that the legislature had shown it knew how to cover nil-tax years when it chose to do so in 2021.

What the Supreme Court held

The paragraph references below are to the reported judgment.

1. Strict construction (paras 13-14, 19). A fiscal provision is read according to its words. A concession in a taxing statute cannot be extended by inference or by appeal to its supposed purpose.
2. "Actual tax payable" means a real liability (para 15). The carry-forward is triggered only where minimum tax exceeds tax actually payable under the normal regime. Where the normal tax is nil, there is no comparison to make and no "excess" in the statutory sense.
3. The 2021 proviso is prospective (paras 16, 18-20). The Finance Act, 2021 created a right that did not exist before. It is not a clarification of the old text and does not reach back to earlier tax years.
4. Circulars cannot override the Ordinance (paras 21-22). FBR Circular No. 17 of 2004, on which taxpayers relied, could not enlarge the statute. A circular binds the Department's officers in some respects, but it cannot confer a benefit the Ordinance does not give.
5. Disposition (para 23). The taxpayers' appeals from Sindh were dismissed and the Department's petitions arising from Lahore and Islamabad were allowed.

The FBR's own summary of the decision records the core holding in similar terms: the carry-forward under section 113(2)(c) is not available to taxpayers with no tax liability under the normal regime, and the 2021 relief applies only after its enactment.

A simple illustration

The figures below are illustrative only and ignore rates; they show how the holding works in practice.

Scenario (year of payment)	Minimum tax paid	Normal tax payable	Amount carried forward
Loss year before the Finance Act, 2021	Rs 1,000,000	Nil	Nothing, on the Kassim Textile reading
Low-profit year before the Finance Act, 2021	Rs 1,000,000	Rs 400,000	Rs 600,000, within the applicable period
Loss year governed by the 2021 proviso	Rs 1,000,000	Nil	Rs 1,000,000, within five tax years

The middle row is where most practical disputes now sit: whether normal tax was genuinely payable, how it was computed, and whether the later adjustment fell inside the permitted window. Officers and taxpayers should also remember that the carried-forward amount is adjusted only against normal tax liability of later years, not against later minimum tax.

What the judgment does not decide: three years or five?

The Court did not decide which carry-forward period applies where the period changed between the year of payment and the year of adjustment. That point remains open and should not be argued as if Kassim Textile settled it either way.

Two reported Lahore High Court decisions held against the Department on this issue, treating the carry-forward available under the law in force when the tax was paid as a vested right that a later amendment could not cut down: Shah Spinning Mills, 2015 PTD 2368, and Olympia Chemicals, 2021 PTD 1512. The opposing argument is that carry-forward is a matter of adjustment governed by the law in force when the adjustment is claimed, and that Kassim Textile's insistence on strict construction leaves little room for implied rights.

The practical difficulty is that the dates matter at two points: when the minimum tax was paid and when it is adjusted. A company that paid minimum tax under one version of the period and seeks to adjust it after the period changed will rely on the Lahore line; an officer will point to the text in force at the time of adjustment.

No reported Sindh High Court decision on the three-year/five-year point has been found. For a Karachi taxpayer the Lahore decisions are persuasive, not binding, and the issue will turn on the facts of the year and the exact statutory text in force at each stage.

Who is affected now

• Legacy nil-tax years (before the Finance Act, 2021): claims to adjust minimum tax paid in nil-tax years are now very difficult to sustain. Credits already taken in returns are exposed to amendment of the deemed assessment, subject to the time limits in section 122 (see our guide to amendment of assessment under section 122).
• Years with some normal tax payable: the judgment turns on the absence of any actual tax payable. Where some normal tax was payable, the main clause still allows the difference between minimum tax and that liability to be carried forward, within the applicable period.
• Post-2021 years: the proviso inserted by the Finance Act, 2021 governs, and minimum tax paid because no tax was payable can be carried forward within the statutory window.
• Other minimum-tax disputes: the reasoning on "actual tax payable" is being argued in other contexts. A 2026 news report describes an Appellate Tribunal Inland Revenue order applying the Kassim Textile interpretation in a bank's minimum-tax case; the order itself has not been reviewed here and its reach is untested in the High Court.

Practical points for taxpayers and the Department

For both sides, the starting point is the computation for each year rather than the label attached to it.

• Rebuild the year-by-year chain. For every year of payment, record turnover, minimum tax, normal tax (nil or positive) and the year of each claimed adjustment. Whether a year was truly nil-tax is often disputed.
• Identify the version of the law. Fix which Finance Act text governed the year of payment and the year of adjustment before arguing the period.
• Do not lead with the period point. Where a credit relates to a nil-tax year before 2021, the Kassim Textile holding disposes of it regardless of whether three or five years applies.
• Check limitation and procedure. A show-cause notice under section 122(9) must be answered on the record (our show-cause notice guide covers the mechanics), and time limits for amendment still apply.
• On reference to the High Court. Where a Tribunal decided a pending case on a reading Kassim Textile has displaced, the question of law may need to be reframed, and a remand may be sought to establish whether any actual tax was payable in the relevant year (see references under section 133).
• For officers. Orders should state the computation for each year and the statutory text applied; a bare reference to the judgment is not a substitute for findings on whether actual tax was payable.

Advice on a particular year depends on the returns, assessment orders and the record before the forum. Our tax and customs practice acts for taxpayers and for the Department.

Common questions

This article is general information about Pakistani law and procedure, not legal advice for any specific matter. If this touches on something you're currently facing, get in touch and we'll advise on your facts directly.