Section 124 of the Income Tax Ordinance 2001: Understanding Appeal Effect and Assessments Giving Effect to an Order

By Ch. Muhammad Saeed, Advocate High Court

Learn how Section 124 of the Income Tax Ordinance 2001 works: appeal effect, time limits, direct relief, recovery and orders from appellate forums.

Primary Keyword: appeal effect; assessment giving effect to an order; Commissioner Inland Revenue (Appeals); Appellate Tribunal Inland Revenue; Lahore High Court; Supreme Court; Section 124(1) limitation; Section 124(2) limitation; direct relief; recovery proceedings; Section 124(4A); remand back

Introduction

When an order is issued by the Commissioner Inland Revenue (Appeals), the Appellate Tribunal, the High Court or the Supreme Court, the matter does not end there. A further and very important stage follows: giving “appeal effect” to that order. This stage is governed by Section 124 of the Income Tax Ordinance 2001, which deals with assessments made to give effect to an order.

This topic matters to taxpayers, tax lawyers, accountants and students alike, because Section 124 sets time limits, explains how relief reaches the taxpayer, and says when recovery may proceed. This article walks through Section 124 sub-section by sub-section, based on the research and explanation shared by Ch. Muhammad Saeed, Advocate High Court.

What Is Section 124?

Section 124 covers assessments that are made to give effect to an order, referred to as “appeal effect.” It runs from sub-section (1) to sub-section (7). Each sub-section addresses a different situation, from time limits to recovery of tax to orders that come from outside the ordinary income tax appeal route.

Which Orders Does Section 124 Cover?

Section 124 applies to the following four types of orders:

Commissioner Inland Revenue (Appeals): an order under Section 129, sub-section 1.
Appellate Tribunal Inland Revenue: an order under Section 132.
High Court: an order on a reference application. In the speaker’s context, this is the Honourable Lahore High Court.
Supreme Court: an order issued in accordance with the Constitution of Pakistan.

The assessment made to give effect to any of these orders is covered by Section 124.

Section 124(1): Two-Year Limitation for Appeal Effect

Under sub-section (1), where the Commissioner (Appeals), the Tribunal, the Lahore High Court or the Supreme Court has given a finding or direction in its order that must be acted upon, the assessing officer must give appeal effect. The assessing officer is usually an Assistant Commissioner or Deputy Commissioner of the FBR.

The time limit for this is two years, and the limitation is mandatory. If the assessing officer does not follow it, the assessment made will have no effect. As a result, even if some tax is calculated, the taxpayer will not have to pay it.

How the Limitation Is Counted

The speaker gives this example. Suppose today is 13 June 2026 and an order is received from one of the above authorities. The financial year closes on 30 June 2026. Two years are counted from that date, so the assessing officer can give appeal effect at the latest by 30 June 2028.

If the officer gives appeal effect on 1 July 2028 under Section 124(1) and creates, say, a tax liability of 50 crore, the taxpayer can simply argue that this violates the mandatory limitation in sub-section (1). The liability then falls on this single ground. The speaker states that Supreme Court judgments are available which hold that this limitation is mandatory, not directory.

A Noted Anomaly: The 2 Crore Reference

The speaker points out an anomaly. At present, the Commissioner (Appeals) can hear cases of any amount of liability under the Income Tax Ordinance. However, Section 124(1) speaks of following the Commissioner (Appeals)’s finding and direction in orders where the tax liability is 2 crore or less.

In the speaker’s understanding, if the liability exceeds 2 crore and the Commissioner (Appeals) has given a finding or direction, there is no provision stating that appeal effect will be given. He says his office’s understanding is that nothing is written on this. According to him, the anomaly arose when Section 126 was inserted and later removed: consequential amendments were made when it was inserted, but no consequential changes were made when it was removed. He states that such changes should be made.

Section 124(2): One-Year Limitation for a Fresh Order

There is a clear difference between sub-sections (1) and (2).

Sub-section (2) applies when the Tribunal, the Lahore High Court or the Supreme Court issues an order stating that the earlier order, against which the appeal was filed, has been set aside, and directs the Assistant Commissioner, Deputy Commissioner or Commissioner (Appeals) to pass a new order.

Here the limitation is one year: the order must be issued within one year. This limitation is also mandatory, and it is calculated in the same way as described above, except that “1” replaces “2.” Using the same example, the time for giving appeal effect would be 2027, not 2028. If the liability were created on 1 July 2027, it would not stand.

Section 124(3): Remanded Proceedings Continue From Where They Stood

Sub-section (3) is procedural. When an order is remanded back, proceedings begin from the point to which inquiry and similar work had already been completed. They do not restart from zero. The work already done is carried forward, and the process continues from there.

Direct Relief: Two Months to Give Appeal Effect

The speaker highlights a point that is especially beneficial for taxpayers: direct relief.

Suppose the department created a tax demand and the forum has held that the tax is not payable at all. This is direct relief for the taxpayer. In such a case, the assessment giving effect to the order must be passed within two months, and this is mandatory.

These two months do not run from the date of the order. They start from the time the order is served on the taxpayer and the officer comes to know that direct relief has been granted.

In practice, the taxpayer writes an application, attaches the order, and informs the Assistant Commissioner or Deputy Commissioner that the forum has passed an order eliminating the demand raised, that direct relief has been obtained, and requests appeal effect within two months.

A Practical Note on Timing

The speaker adds a practical caution. A representative who wants to protect the taxpayer should not rush to file the application immediately. The Commissioner or Deputy Commissioner may file an appeal or a reference against the order, or approach the Supreme Court. It is therefore advisable to wait and check whether the department’s time limit for filing has passed, so that the taxpayer can be protected. Each case should be assessed on its own facts. The speaker does not comment further on this point.

Section 124(4A): Recovery Without Appeal Effect

Section 124(4A) is described as a fairly strict provision. If a decision results in some tax becoming payable, the Assistant Commissioner or Deputy Commissioner does not need to give appeal effect and may proceed to recovery immediately. In other words, once the order confirms the taxpayer’s liability, recovery can be made without first giving appeal effect.

The speaker calls this somewhat harsh and contrasts it with the reverse situation. If the taxpayer has obtained direct relief, or the matter concerned a refund that has been allowed, the department will not pay the refund without appeal effect. It will first say that appeal effect will be given and only then refund. But where tax payable is confirmed, Section 124(4A) allows recovery without appeal effect.

Section 124(4B): Partly Confirmed Items

Section 124(4B) applies where an order confirms some items of tax and not others. For the items that have been confirmed, an appeal effect order will be issued and recovery proceedings will then follow. The speaker lists these as:

a notice under Section 137,
then a notice under Section 138,
and then bank attachment under Section 140.

By contrast, under Section 124(4A) the department proceeds directly.

Section 124(5): Orders Covering More Than One Year or Taxpayer

Sometimes an order involves two tax years, for example tax year 2025 and tax year 2026. The speaker’s example: a taxpayer declared income of 14 crore in one year and 13 crore in the other. During proceedings it emerged that the income did not belong to the year in which it was declared but to the other year. Income, in effect, moved from one year to the other. In such a case, appeal effect can be taken for both years.

The same applies where a taxpayer is an individual under Section 80 and is also a member of an AOP, and income is shifted between the individual and the AOP. If an assessment gives income to someone to whom it belonged, appeal effect is given there as well.

Section 124(6): Appeal Effect Under Section 124 Regardless of Other Provisions

Section 124(6) provides that, regardless of what is written elsewhere, for example that appeal effect cannot be given, such a provision will not take effect. In the speaker’s explanation, the sub-section means that whenever an order is issued, appeal effect will be given under Section 124.

Section 124(7): Orders From Outside the Ordinary Appeal Route

A case does not always follow the usual path: return filed, deemed assessment order, amended assessment order, appeal under Section 127, decision under Section 129, appeal under Section 131 and decision under Section 132. A case may instead proceed in another way, such as a writ petition, so that it arrives under the Constitution without passing through the Income Tax Ordinance.

If an order comes from that route, it too will be given appeal effect in accordance with Section 124(7).

Frequently Asked Questions

Question: Which orders are given effect under Section 124? Answer: Orders of the Commissioner Inland Revenue (Appeals) under Section 129, sub-section 1; the Appellate Tribunal Inland Revenue under Section 132; the High Court on a reference application (the Lahore High Court in the speaker’s context); and the Supreme Court in accordance with the Constitution of Pakistan.

Question: What is the time limit for giving appeal effect under Section 124(1)? Answer: Two years. The limitation is mandatory. If the assessing officer does not comply, the assessment has no effect and the taxpayer will not pay the tax calculated.

Question: How is the two-year limit counted? Answer: In the speaker’s example, an order received on 13 June 2026 has its two years counted from the close of the financial year on 30 June 2026, giving a last date of 30 June 2028.

Question: What is the time limit under Section 124(2)? Answer: One year. It applies where the Tribunal, Lahore High Court or Supreme Court sets aside the earlier order and directs the Assistant Commissioner, Deputy Commissioner or Commissioner (Appeals) to pass a new order. This limitation is also mandatory.

Question: What happens when an order is remanded back? Answer: Under Section 124(3), proceedings continue from the point reached by the earlier inquiry and work. They do not restart from zero.

Question: How long does the officer have to give appeal effect where the taxpayer has received direct relief? Answer: Two months, which is mandatory. The period starts from when the order is served on the taxpayer and the officer comes to know of the direct relief, not from the date of the order.

Question: Can recovery be made without giving appeal effect? Answer: Yes. Under Section 124(4A), if a decision results in tax becoming payable, the Assistant Commissioner or Deputy Commissioner does not need to give appeal effect and may proceed to recovery immediately.

Question: What happens when an order confirms only some items of tax? Answer: Under Section 124(4B), an appeal effect order is issued for the confirmed items, followed by recovery proceedings: a notice under Section 137, then Section 138, and then bank attachment under Section 140.

Conclusion

Section 124 covers assessments made to give effect to orders of the Commissioner (Appeals), the Tribunal, the High Court or the Supreme Court. Sub-section (1) carries a mandatory two-year limitation for giving appeal effect, and sub-section (2) a mandatory one-year limitation for passing a new order after an earlier one is set aside. Where a taxpayer obtains direct relief, the officer must give appeal effect within two months, and where tax payable is confirmed, recovery can proceed even without appeal effect. The remaining sub-sections deal with remanded proceedings, orders covering more than one year or taxpayer, and orders arriving through routes such as a writ petition.

This article is for general information and is based on the speaker’s explanation. It is not legal advice.

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About the Author

Ch. Muhammad Saeed, Advocate High Court Senior Member, High Court Bar Association Lahore Phone: 0341-1259762 Email: msaeedadv86@gmail.com