The Supreme Court of Pakistan has rejected a tax-related appeal involving Emaar DHA Islamabad Ltd, upholding the Federal Board of Revenue’s position on the taxation of income from certain property development agreements.
The case focused on the interpretation of Section 36 of the Income Tax Ordinance, 2001, and whether agreements for the sale of developed property should be treated as long-term contracts for income tax purposes.
According to the FBR’s published summary of significant Supreme Court decisions, the court upheld an earlier judgment of the Islamabad High Court issued on October 4, 2022. The High Court had held that agreements for the sale of developed property fell within the definition of “long-term contracts” under Section 36(3) of the Income Tax Ordinance.
Under this framework, income is calculated using the percentage-of-completion method. This means revenue and associated costs are recognised according to the progress of a development project rather than being deferred until the project is fully completed.
The Supreme Court also examined the tax regime that applied before the introduction of Section 100D through the Finance Act, 2020. The FBR’s case summary states that there was no separate taxation regime specifically applicable to developers before the provision was introduced. As a result, Section 36 applied to the relevant development activities during the earlier tax period.
The taxpayer’s appeal was subsequently dismissed, with the Supreme Court decision favouring the tax department. The FBR has described the ruling as relevant to other property-development tax cases involving the same legal question and indicated that pending matters should be dealt with in accordance with the judgment.
The ruling could have implications for developers and tax professionals dealing with older property development projects, particularly those involving agreements entered into before the introduction of the newer developer-specific tax framework.
The case concerns the income-tax treatment of property developers and does not, by itself, determine the ownership, transfer status, market value or legal validity of any individual property in DHA Islamabad.
