I. T. A. NO.970/KB OF 1987-88, DECIDED ON 12TH NOVEMBER, 1995. VS I. T. A. NO.970/KB OF 1987-88, DECIDED ON 12TH NOVEMBER, 1995.
1996 P T D (Trib.) 1134
[Income-tax Appellate Tribunal Pakistan]
Before Hamidullah Malik, Accountant Member
I. T. A. No.970/KB of 1987-88, decided on 12/11/1995.
Income Tax Ordinance (XXXI of 1979)---
----Second Sched. Part I, CI. (116) & S.27---Capital gains---Exemption-- 13urchase of shares by assessee capital gains occur only on the transfer of a capital asset i.e. an asset from which some income could be earned---Exemption from tax as a capital gain under Cl.(116), Part I, Second Sched., Income Tax Ordinance, 1979 is available only to those shares which are purchased as capital asset---If the assessee had purchased the shares for investment purpose, he would have got them registered in his name in the books of the respective companies in order to become entitled to receive dividend ---Assessee would have retained the shares at least till the end of the calendar/financial year in order to become eligible to claim the dividend---Where the assessee purchased and sold the shares to a short span of four months on lot in order to purchase other shares and not z single share was retained till the end of financial/calendar year and most of the shares were sold within two weeks, all these factors, showed that the dealings in shares were not by way of investment which was the intended purpose of Cl,(116), Part I of Second Sched. of the Income Tax Ordinance, 1979 Assessee in fact dealt with the shares as a trading commodity and was as a capital asset and as such the gains of the assessee were in nature of trading profits which were not entitled to exemption under Cl.(116), Second Sched. of the Ordinance.
A. Aziz Memon, D.R. for Appellant.
Muhammad Shahid, I.T.P. for Respondent.
Date of hearing: 12th November, 1995.
ORDER
The appeal at the instance of the department is directed against the order, dated 21-6-1987 passed by C.I.T.(A), Zone-I, Karachi.
2. Relevant facts of the case are that the assessee, an individual, derives income from salary, property, interest etc. Return was filed declaring income of Rs.89,201 and capital gain of Rs.1,80,580 which was claimed to be exempt under clause (116) of the Second Schedule to the Income Tax Ordinance. During assessment proceedings, further details of purchase and sales of shares of public companies were furnished by the assessee as under:--
| S. No. | Name of the Company | No. of Shares | Date of Purchase | Date of Sale | Gain (Rs.) |
| 1. | Fazal Ghee | 3700 | 13-2-84 | 17-3-84 | 43,179 |
| 2. | Ciba Gaiegy | 2900 | 17-3-84 | 28-4-84 | 51,040 |
| 3. | Kohinoor Ind. | 19500 | 13-5-84 | 27-5-84 | 47,580 |
| 4. | Hydri Const. | 9300 | 10-6-84 | 17-6-84 | 38,781 |
| | | 35400 | | | 1 80,580 |
3. The assessing Officer did not accept assessee's claim of exemption on account of Capital Gains in terms of clause (116) of the Second Schedule to the Income Tax Ordinance for the following reasons:--
(a) The shares were sold soon after their purchase and as such were neither registered in the name of the assessee nor shown in the statement of Assets and liabilities.
(b) The period of holding was too small to permit their registration in respective company's books.
(c) Shares were purchased and sold by way of trading and were not held as a capital asset i.e. income yielding asset.
4. The I.T.O., therefore, held that the profits earned by the assessee were in the nature of trading profit and not capital gain. He, therefore, did not allow the claimed exemption and added the gain of Rs.1,80,580 in assessee's declared income. The learned C.I.T.(A) was impressed by the arguments that no period of holding was prescribed for qualifying for exemption under the abovementioned clause. of the Second Schedule and that the only criterion for claim of exemption was that the share should be of a Public Ltd. Company quoted on any Stock Exchange. He, therefore, allowed the claimed exemption.
5. The learned D.R. again stressed the fact that the shares were held for a very short period in which registration in the name of the assessee in the books of respective companies could not take place. That the short duration of the retention, period clearly showed that the purchase of shares was not for investment purpose but for earning of trading profits. The learned A.R. Supported the order of the learned C.I.T.(A).
6. On careful consideration of the contentions of both the sides, I am inclined to agree with the views of the assessing officer for the reason that, it' tile assessee had purchased the shares for investment purpose, she would have got them registered in her name in the books of the respective companies in order to become entitled to receive dividend. Moreover, she would have retained the shares at least till the end of the calendar/financial year in order to become eligible to claim the dividends. In the present case, the assessee purchased and sold 35400 shares in a short span of four months. One lot was sold in order to purchase the other. Not a single share was retained till the end of financial/calendar year. Most of the shares were sold within two weeks. All these factors indicate that the dealings in shares were not by way of investment which was the intended purpose of clause (116) of the Second Schedule to the Income Tax Ordinance.
7. Section 27 of the Ordinance envisages that capital gain occurs only on the transfer of a capital asset i.e. an asset from which some income could be earned. Thus, the exemption from tax as a capital gain under the said clause is available to only those shares which are purchased as a capital asset i.e. for the purpose of earning dividend. - Intention of earning dividend could have been proved by the assessee by holding the shares at least till the end of the calendar/financial year. This characteristic is conspicuous by its absence in the present case. C.I.T.(A)'s view that all gains on the disposal of shares of Public Companies, irrespective of their period of retention, will qualify for exemption as a capital gain under clause (116) of the Second Schedule, is not in accordance with law.
8. 'I, therefore, hold that the shares were dealt with by the assessee as a trading commodity and not as a capital asset and as such the ~ain~ of the assessee were in the nature of trading profits which are not entitled to exemption under the abovementioned provisions of law. Accordingly, I vacate the Order of learned C.I.T.(A) and restore that of the assessing officer.
9. The department's appeal is allowed.
M.B.A./215/Trib.Appeal allowed.