W.T.A. NO.622/1_13 OF 1995 VS W.T.A. NO.622/1_13 OF 1995
1997 P T D (Trib.) 180
[Income-tax Appellate Tribunal Pakistan]
Before Hamidullah Malik Accountant Member and Muhammad Mujibullah
Siddiqui, Judicial Member
I.T.A. No. 970/KB of 1987-88, decided on 25/09/1996.
Income Tax Ordinance (XXXI of 1979)---
----S.2(12) & Second Sched., Part 1, Cl. (116)---Capital asset---Stock of shares---Exception---Stock of shares, being a "capital asset", any income earned as a result of purchase and sale of shares must automatically fall in the category of capital gains and would be entitled to exemption from tax if it fulfils the other conditions as laid down in Cl. (116), Part I, Second Sched. of the Income Tax Ordinance, 1979.
The definition of "capital assets" as contained in subsection (12) of section 2 of the Income Tax Ordinance, 1979 is in fact, the most appropriate provision of law for determining the taxability/exemption of income from dealings in shares.
Unlike the stock-in-trade of other commodities, the stock-in-trade of shares will always constitute a "capital asset". Hence any income earned as a result of purchase and sale of shares must automatically fall in the category of "capital gain". In other words, any income earned from dealings in shares, whether as investment or as a trading commodity will be treated as income from "capital gains" and would thus be entitled to exemption from tax if it fulfilled the other conditions as laid down in clause (116) of the Second Schedule to the Income Tax Ordinance.
1996 P T D (Trib.) 1134 rectified.
Rehan Hasan Naqvi for Applicant.
Shaheen Niazi, D.R. for Respondent.
Date of hearing: 25th September, 1996.
ORDER
The petitioner through this application seeks rectification of a mistake in Tribunal's order, dated 12-11-1995 in ITA No. 970/KB of 1987-88 for Assessment year 1984-85 reported as 1996 PTD (Trib.) 1134.
2. Relevant facts of the case are that the assessee, an individual, declared gains of Rs.1,80,580 from dealings in shares of Public Limited Companies and claimed to be exempt from tax under clause (116) of the Second Schedule to the Income Tax Ordinance which reads as under:---
"(116) Capital gains.--Any income chargeable under the head "Capital Gains" being income from the sale of Modaraba certificates or any instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984), listed on any Stock Exchange in Pakistan or shares of a public company (as defined in the First Schedule), derived by an assessee in respect of any assessment year ending on or before the thirtieth day of June, 1996. "
3. The I.T.O. treated these gains as revenue income and hence did not allow the claimed exemption. The CIT(A) held that the claim was covered by the above-noted clause of the Second Schedule and thus allowed the exemption. The, department agitated the matter before the Tribunal which held that the shares were dealt in by the assessee as a trading commodity and not as "Capital Asset" and as such the gains of the assessee were in the nature of trading profits which were not entitled to exemption under the above noted clause of the Second Schedule. Consequently, the appeal of the department was accepted.
4. The petitioner, in his application under consideration, has pointed out that the relevant provision of law i.e. section 2(12) of the Income Tax Ordinance defining the term "Capital Assets" had not been considered by the Tribunal while deciding the appeal. The learned A.R. contended that section 2(12) of the Ordinance was the most pertinent provision of law for the purpose of determining the assessee's claim of exemption of income from its dealings in shares. He, therefore, prayed for the rectification of this apparent mistake. The learned D.R. could not controvert the contention of the learned A.R.
5. We have considered the plea of the representative of the appellant and find it to be legally well-founded. The definition of "Capital Assets" as contained in subsection (12) of section 2 of the Ordinance, set out below for ready reference, is in fact, the most appropriate provision of law for determining the taxability/exemption of income from dealings in shares.
"Section 2(12). "Capital assets" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include---
(i)any stock-in-trade (not being stocks and shares), consumable stores or raw materials held for the purposes of this business or profession:
(ii)............................
(iii)............................
6. The above definition clearly states that, unlike the stock-in-trade of other commodities, the stock-in-trade of shares will always constitute a "capital asset". Hence any income earned as a result of purchase and sale of shares must automatically fall in the category of "capital gain". In other f words, any income earned from dealings in shares, whether as investment or as a trading commodity will be treated as income from "capital gains" and would thus be entitled to exemption from tax if it fulfilled the other conditions as laid down in clause (116) of the Second Schedule to the Income Tax Ordinance. This provision of law, unfortunately, could not be considered at the time of original decision of appeal due to lack of proper assistance from the representatives of both the parties. The relevant law is so explicit that it leaves absolutely no room for any controvers, unfortunately, this provision of law escaped the notice of the Tribunal at the time of original decision which resulted in the occurrence of an apparent mistake in the original order, dated 12-11-1989. We hereby rectify the said mistake by amending the said order by holding that the assessee's gains on shares arc entitled to exemption from tax under clause (116) of the Second Schedule to the Income Tax Ordinance.
7. Consequently, we dismiss the departmental appeal.
M.B.A./270/T Appeal dismissed