Law: Income Tax Act, 1922

Section: 15BB,66(1),2(6C),4(3)(xv),16(2),9(2)Prov iso(B),15(3)17(2),55,56,49(b),18(5)

Income-tax Act, 1922---Sections 2(6A), 2(6C), 15BB --Dividends -Dividend declared out of company's profits exempt under Sec. 15BB -Whether exempt in the hands of shareholder of the company -Held yes -- JUDGMENT {The judgment of the court was delivered by MUSHTAQ HUSSAIN J.}---The assessee, who is a shareholder of Sh. Fazal Rehman and Sons Ltd., Multan, declared dividends amounting to Rs. 31,878 out of the profits of the Company. The Company enjoyed a tax-holiday under Section 15BB of the Income-tax Act. The Income-tax Officer, however, assessed this income to tax. The assessee successfully appealed to the Appellate Assistant Commissioner and the appeal of the Commissioner of Income-tax against this order was dismissed by the Income-tax Appellate Tribunal. The Commissioner of Income-tax has, therefore, referred the following questions to us for opinion 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 hands of the shareholder of the Company." 2. Section 15BB of the Income-tax Act runs as follows:- "Sec. 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 Act 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......" It is, of course, admitted that this section is appllicable to the Company, dividends from which are sought to be taxed in the hands of the assessee. It is not disputed that the income of the Company is exempt from the payment of tax, but it has been stressed that the moment the income of the Company passes from its hands into the hands of the shareholders in the shape of dividends, the same becomes taxable so far as the recipient shareholder is concerned. Sheikh Abdul Haq has likened the case to…

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