Law: Income Tax Act, 1922

Section: 6BB

Income tax Act (XI of 1922)---S.6 BB "Free reserve" Definition introduced by Finance Act, 1968 without retrospective effect . Un-appropriated profits of assessee for assessment year 1967 68 i.e. prior to introduction of statutory definition of "free reserve" Held, do not amount to "free reserve" and cannot be subjected to super tax for assessment year 1967 68: Commissioner of Income tax v. Lyallpur Cotton Mills P L D 1960 S C 48 rel. JUDGMENT NASIR ASLAM ZAHID, J. This is an application by the applicant/assesses, Pakistan Gum Industries Limited, under section 66(1) of the Income tax, 1922. Two questions were referred in this application for our opinion. However, with the consent of both the learned counsel, we have reframed the questions, which is as follows : Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that un-appropriated profits of the assessee for the assessment year 1967 68 were "free reserve" and as such liable to super tax ? 2. In this case the Income tax Officer, who made the assessment for 1967 68 in respect of the applicant/assesses, treated un appropriated profits of the assessee for the yea:. in question as free reserve, which was then subjected to super tax. The applicant filed an appeal, which was dismissed by the Appellate Assistant Commissioner. A further appeal was filed before the Income tax Appellate Tribunal which was also dismissed by their order dated 26 7 197I. The applicant/assesses then filed the present application. 3. We have heard Mr. Ali Athar, Advocate for the applicant and Mr. Nasrullah Awan, Advocate, who represented the Respondent, Commissioner of Income tax (East), Karachi. The point for our determination is whether during the assessment year in question i.e. 1967 68, un-appropriated profits of the assessee could be treated as "free reserve" and then subjected to Super tax. Finance Act, 1967, made provisions for levy of income tax on free reserves but did not define the term "free reserve." However, by Finance Act, 1968, a new clause 6 BB was added after clause 6 B in section 2 of the Income tax Act, 1922 and "free reserve" was defined therein as follows : "(6 BB) free…

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