Law: Income Tax Ordinance, 1979

Section: FirstSched

INCOME TAX ORDINANCE, 1979 (XXXI OF 1979)----First Schedule--Part IV---The assessee is an insurance company, the tax on capital gain arising on sale of shares is 25%.--The department has taken objection to the order directing to apply concessional tax rate of 25% on capital gain on sale of shares. The assessee is an insurance company. The department has not challenged the verdict of the CIT(A) regarding disallowance of claim on exemption from tax to capital gains on sale of shares. The appeal has been preferred being aggrieved and dissatisfied from the order directing to charge tax at the concessional rate of 25% as against standard rate of 43%. The learned D.R. has argued that reliance cannot be placed on decision reported as (1998) 77 Tax 66 (Trib) as the case law is on dividend income whereas the assessee has earned capital income, Record reveals that assessee has charged tax on capital gain on sale of shares of Habib Insurance held by the company for more than 3 years at the rate 43% applicable to business income instead of rate applicable to capital gain. The action of ACIT appears to be contrary to the provisions of the Part-IV of First Schedule wherein the lower rate of 25% is provided. The case law reported in a case of M/s. EFU General Insurance Ltd. and others Vs. Federation of Pakistan and others (Supreme Court of Pakistan) is applicable in the present case. The I.T.A.T's decision referred to is also based on the Supreme Court Judgment. The ratio of the order is sufficient to direct to tax capital gain arising on sale of shares at 25%. The order of the learned CIT(A) in the circumstances does not warrant interference. Fourth Schedule--Rule 5----Provision for diminution in the value of investment is a provision for expenditure and is inadmissible under Rule 5(a).--Rule 5(a) provides exclusion of an expenditure or allowance or any reserve or provision for any expenditure; Whereas Rule 5(b) is nothing to do with the provision. It simply referred to amount either written off or taken to reserve to meet depreciation. Assessment order reveals that assessee has made provision for diminution in the value of investment and since it is a provision for…

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