Law: Income Tax Ordinance, 1979

Section: Second Schedule,2(12)

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. 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…

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