THE COMMISSIONER OF INCOMETAX LAHORE, ZONE LAHORE vs NASIR A. SHEIKH
This matter concerns a petition for leave to appeal against a judgment of the Lahore High Court regarding the calculation of taxable dividend income under the Income-tax Act. The core legal question was whether statutory exemptions on dividend income, specifically the 10% exemption, should be deducted from the gross dividend receipts before or after calculating deductible expenses, such as interest. The Income-tax Appellate Tribunal and the High Court both held that the legislative intent behind placing the exemption in section 4(3) was to exclude a specified portion of dividend income from the total income calculation entirely. Consequently, the statutory rebate must be applied to the gross dividend receipts first, with deductible expenses applied only to the remaining amount. The Supreme Court of Pakistan upheld this interpretation, noting that it had previously affirmed this exact legal position in the case of Muhammadi Steamship Co. Ltd. v. Commissioner of Income-tax. Finding no merit in the petitioner's argument to deviate from established precedent, the Supreme Court dismissed the petition for leave to appeal.
- Should statutory exemptions on dividend income be deducted from gross dividend receipts before or after calculating deductible expenses?
- Does the placement of an exemption in section 4(3) of the Income-tax Act indicate an intention to exclude that portion of income from 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. ' 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 assessment 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 shouuld first be excluded from the gross dividend recepts 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 deductable 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 deductable 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 (1).
6. ' We do not consider this case to be a fit one for grant of leave to appeal, which is, accordingly, dismissed hereby.