Income-tax Act (XI of 1922)---

----Ss. 2(4-A) [as amended by Finance Ordinance (XXI of 1972), Ss.10 & 12-B]-- -Capital asset---Definition---Stock in trade not a capital asset----If a gain arose on the sale of assets, same was to be taken as income under S.12-B of the Act---Any income yielded by the capital assets, however, would continue to be income and not a `gain from the sale, exchange or transfer of capital asset'---Dividend income of the assessee who was an investment company, had to be assessed under S.10 of the Act.

Feroz Shah, D.R. for Appellant.

K. Salahuddin for Respondent.

ORDER

A.A. ZUBERI (ACCOUNTANT MEMBER).--- These five appeals have been filed at the instance of Department to impugn the learned Appellate Assistant Commissioner--- Range---Consolidated order dated 16-10-1978 relating to assessment years 1973-74 to 1977-78.

The discussion before us revealed that the assessee acts as an Investment Company. There was dispute whether the income was to be assessed under section 10 or under section 12 of the Act, and the matter went as high as the High Court of West Pakistan (Karachi Bench) whose decision was accepted by both the parties holding: `the income of the assessee as an Investment Company was to be assessed under section 10 of the Income Tax Act'. As a result of this decision, assessments were finalised up to assessment year 1971-72. In 1972-73 the assessee themselves placed their income under section 12 which position the assessing officer accepted. From this year up to 1976-77 always assessment were made under section 12. When Return for 1977-78 was filed the assessee reverted to the old position to declare income under section 10. The appeals were filed before the learned Appellate Assistant Commissioner who accepted the argument that even if an assessee wrongly declares income under a different head, it is duty of the assessing officer to make an assessment placing the income under the correct head. The learned Appellate Assistant Commissioner further held that as the High Court had already decided, in the cases of this very assessee, that their dividend income should be assessed under section 10 (not under section 12) the correct course would be to place the Assessee's income under section 10 for the years 1973-74 to 1977-78. The Department feels aggrieved by this decision of the learned Appellate Assistant Commissioner. According to the Department the decision of the learned Appellate Assistant Commissioner is not correct because after amendment of section 2 (4-A) (1) by Finance Ordinance 1972, the ratio of the High Court decision is no longer applicable, for the law on which, that finding rested no longer stood on the Statute Book. According to Departmental Representative the learned Appellate Assistant Commissioner was misled to order for adhering to the decision of the High Court, completely overlooking the change brought about by the amendment introduced in 1972. The counsel for the Assessee on his turn submitted that, the amendment by, Finance Ordinance, 1972 was made in the definition of `capital asset' as contained in section 2(4-A) of the Act and was to be applicable only to those assessees who were dealers in Stock and Shares and the income was being assessed under section 12-B, because it is on in such business sphere stock and shares are treated as stock-in-trade. The present assessee, on the other hand, is not a dealer of shares and hence stocks and shares held by them are not stock- in-trade but represent their capital assets, on which income earned as dividend is offered for taxation. Therefore, the correct allocation would be to treat the income as pertaining to section 10 of the Income-tax Act.

After giving our anxious considerations to the arguments of the two sides and after careful perusal of the relevant provisions of the Act, we are of the view that as per definition of `capital asset' contained to section 2(4-A), stock-in-trade is to be excluded from it. Therefore, if a gain arises on the sales of assets, it is to be taken as income under section 12-B, but any income yielded by the capital assets will continue to be income and not a gain from the sale, exchange or transfer of capital asset. Therefore, as far as the dividend is concerned, no material change on their taxability was occasioned by the amendment of section 2(4-A) by the Finance Ordinance, 1972. In this view of the matter we have no hesitation in confirming the order of the learned Appellate Assistant Commissioner to the effect that dividend income of the assessee, who is an investment company, should be assessed under section 10 of the Income Tax Act, as already held by the Honourable High Court.

All the five appeals fail in consequence.

M.BA./2124/T Appeals dismissed.