Law: Income Tax Ordinance, 1979

Section: 27

(a) Agreement for Avoidance of Double Taxation between United States of America and Pakistan----Art. II(1)(1),. II para. (ii) & III(1)---Income Tax Ordinance (XXXI of 1979), S. 27---C.B.R. Letter No.2(3)IT-II/77, dated 20-11-1982---Capital gains---Industrial or commercial profit ---Exemption---Assessee was a non­resident company engaged in communication business and allied activities in Pakistan ---Assessee, had over a 'period of five years injected equity capital/share in Pakistan which were subsequently sold resulting in the surplus ---Assessee claimed exemption from taxation in Pakistan under Art. III of the Convention on the ground that profit earned on sale of shares was included in the term "industrial or commercial profit" used in Art. II(1)(1) of the Convention/Tax Treaty---Assessing Officer taxed the surplus/profit as capital gain on the ground that term "industrial or commercial profit" had not been defined in the Tax Treaty, and therefore. by virtue of Art. II(2) of the Tax Treaty, the profit on the sale of such share was taxable in the head "capital gains" under the domestic laws---Validity---Profit earned by assessee from' sale of capital assets had given rise to capital gain different and distinguishable from "Industrial and Commercial Profit" covered by Art. II of the Convention---Law which was prevalent during the assessment year to which the issue pertained would be applicable to the assessee's case and in the absence of express provision in the Treaty or Convention regarding exemption or taxability of any item of-income, the provisions of domestic law would apply---Claim of exemption rejected by the Assessing Officer was confirmed by Appellate Tribunal. Raleigh Investment Company Ltd: v. C.I.T. 1983 PTD 126; Californian Copper Syndicate v. Harris 5 TC 159; (1966) 59 ITR 547 (SC): Forget v. Baxter (1900) AC .467; 1998 PTD (Trib.) 291; I.T.A. No.389/KB of 1997-98; CIT v. Khadija Begum 1965 PTD 540; Maxwell on Interpretation of Statutes; (1956) 59 ITR 547 (SC); Commissioner of Income-tax v. Express Newspapers Limited (1960) 40 ITR 38; CIT v. West Cost Chemicals and Industries Ltd. (1962) 46 ITR 135; Doughty v. Commissioner of Taxes 1927 AC…

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