COMMISSIONER OF INCOME TAX And Others vs Mst. SURRIYA FAROOQ And Other
This matter concerns appeals filed by the Commissioner of Income Tax against a High Court judgment regarding the taxability of dividend income received by shareholders from a company enjoying a tax holiday. The core legal question was whether dividend income distributed out of profits from an industrial undertaking, which itself is exempt from tax under Section 15BB of the Income-tax Act, remains exempt from tax in the hands of the individual shareholders. The Income Tax Department contended that once the exempt income was distributed as dividends, it became taxable for the recipients. The Supreme Court, upholding the High Court's decision, ruled against the Department. Relying on the precedent established in Commissioner of Income-tax, Punjab, NWFP and Bahawalpur versus Mst. E.V. Miller (PLD 1959 SC 219), the Court held that the exemption granted to the company's profits under the statute extends to the dividends distributed to shareholders. Consequently, the Court dismissed the appeals, affirming that such dividend income is not taxable in the hands of the shareholders, thereby maintaining the principle that the tax-exempt nature of the source income persists upon distribution.
- Is dividend income distributed from the profits of an industrial undertaking exempt under Section 15BB of the Income-tax Act taxable in the hands of the shareholders?
- Does the tax exemption granted to a company's profits under Section 15BB of the Income-tax Act extend to the dividends received by its shareholders?
- Section 15BB, Income-tax Act 1922
- Section 66(1), Income-tax Act 1922
S.A. NUSRAT, J.-- This judgment will dispose of the above mentioned appeals which arise out of a common judgment of the learned High Court and involve a common question of law.
2. The brief facts of the case are that the respondents were, at the relevant time, shareholders of the company, Sh. Fazal Rehman and Sons Limited, Multan. The company enjoyed tax-holiday under section 15BB of the Income-tax Act. The respondents in each of the appeals declared dividend income amounting to Rs.4,31,878 having been distributed out of the profits of the company. The Income-tax Officer, however, brought this income to tax in the hands of the respondents. The respondents successfully appealed to the Appellate Assistant Commissioner and the appeal of the Commissioner of Income-tax against this order was dismissed by the learned Income-tax Appellate Tribunal. The Commissioner of Income-tax, in the circumstances, referred the following question of law arising out of the order of the Tribunal for decision to the High Court under section 66 (1) of the Income-tax Act.
"Whether on the facts and in the circumstances of 'the case, the Tribunal was justified in holding that income from dividend declared out of the Company's profits exempt under section 15BB of the Income-tax Act is also exempt from tax in the hands of the share-holder of the Company."
The above question was answered by the learned High Court in the affirmative thus deciding the reference against the appellant.
3. Leave to appeal was granted to examine the question with regard to the interpretation of section 15BB of the Income-tax Act relating to the tax-holiday granted to certain Industries.
4.Section 15BB of the Income-tax Act reads as follows:- "Section 15BB: Subject to the provisions of this Act, the income, profits and gains of an industrial undertaking set up in Pakistan between the 1st day of April. 1959 and the 30th day of June, 1965 (both days inclusive) shall be exempt from Income-tax and super-tax payable under this Act for a period of four years beginning with the month in which the undertaking is set up or the commercial production is commenced, whichever is the later.
5. There is no dispute that the income of the company was exempt from payment of tax but it was contended on behalf of the Department that moment the income of the company was distributed as dividend and fell into the hands of the share-holders, the same become taxable so far as the recipient share-holders were concerned.
6. We heard the learned counsel and have gone through the impugned judgment of the learned High Court. In deciding the reference the learned High Court has relied on the decision of this Court in the case of the Commissioner of Income-tax, Punjab, NWFP and Bahawalpur versus Mst. E.V.
Miller PLD 1959 SC 219. The judgment in our view was rightly followed by the learned High Court and the learned counsel for the appellant was unable to show that there was anything wrong in the finding of the learned High Court that the whole matter was clinched by the ratio of the said judgment. In the circumstances the matter does not require any further consideration and these appeals are, therefore, dismissed with cost.
Cited by 2 cases
- Messrs NASIR MUGHIS LTD., LAHORE vs INCOME-TAX OFFICER, COMPANIES 1991 PTD 874
- SERVICE INDUSTRY LTD. vs COMMISSIONER OF INCOME TAX, LAHORE . K.L.R. 1992 Tax & Custom 21