COMMISSIONER OF INCOME TAX, LAHORE ZONE LAHORE vs NASIR A. SHEIKH
This matter originated as a tax dispute concerning the computation of dividend income for the assessment year 1967-68. The core legal question was whether statutory exemptions under Section 4(3)(xv) of the Income Tax Act should be deducted from the gross dividend income before or after accounting for deductible expenses, such as interest. The Income Tax Officer had denied the exemption because the respondent had incurred a net loss, but the Income Tax Appellate Tribunal ruled that the statutory exemption must be excluded from gross dividend receipts before applying other provisions to determine net income. The Lahore High Court affirmed this interpretation. Upon review, the Supreme Court of Pakistan dismissed the petition for leave to appeal, noting that the High Court's interpretation aligned with established precedent. The Court upheld the principle that statutory exemptions provided under the Income Tax Act are intended to exclude specific portions of income from the total income calculation entirely, requiring that such exemptions be applied to gross receipts prior to the calculation of net income or loss.
- Should statutory exemptions on dividend income be applied to gross dividend receipts before or after calculating deductible expenses?
- Does the statutory exemption under Section 4(3)(xv) of the Income Tax Act exclude a portion of dividend income from the total income calculation entirely?
- Section 4(3)(xv), Income Tax Act 1922
- Section 12, Income Tax Act 1922
- Section 66(1), Income Tax Act 1922
ORDER
1. The Order of the Court was passed by Nasim Hasan Shah, J.].- The respondent is a Director of the Colony Group of Companies having several sources of income including property, dividend etc. The Income Tax Officer took into account the total amount of dividend received by the respondent without allowing statutory exemptions under Section 4(3) (xv) of the Income Tax Act as there was a net loss and no income from dividend during the relevant assessm ent year 1967-68.
2. Aggrieved by the Income Tax Officer's order, the assessee-respondent filed an appeal before the Income Tax Appellate Tribunal, Lahore, which accepted the appeal on the following observations:- "The issue centres round the interpretation of Section 4(3)(xv) of the Income Tax Act. The precise issue come up for consideration before a Bench of the Tribunal of which I was a member in the case reported as (1972) 25 Taxation (Trib.) 21 and it was held that by placing the exemption in Section 4(3) the intention of the Legislature appeared to be to exclude a specified portion of the dividend income from total income itself and as such from all consideration for purposes of Income Tax Act. It was thus ruled that part of dividend income which is statutorily exempt should first be excluded from the gross dividend receipts and only thereafter the provisions of Section 12 be applied to work out the net dividend income. Following this decision the Income Tax Officer is directed to first allow the statutory rebate on the dividend income and thereafter compute the net loss."
3. The Commissioner of Income tax (petitioner herein) then referred the following question of law in the High Court, Lahore, under Section 66(1) of Income Tax Act: "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that statutory exemption of 10% of dividend should be first allowed from the gross dividend before allowing the deductible expenses like interest etc."
4. The Division Bench of the Lahore High Court by its judgment dated 5th November, 1976 answered the question in the affirmative upholding the view expressed by the Appellate Tribunal. This petition is directed against the said order.
5. Sh. Abdul Haque, learned counsel for the petitioner, has submitted that the view of the High Court, that the statutory exemptions are to be allowed from the gross amount of dividend before allowing the deductible interest etc., is not correct. However we find that this Court has taken the same view as that expressed by the High Court in Muhammadi Steamship Co. Ltd. V. Commissioner of Income Tax [PLD 1966 SC 828].
6. We do not consider this case to be a fit one for grant of leave to appeal, which is, accordingly, dismissed hereby. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.