Law: Income Tax Ordinance, 1979

Section: 2,2(2)(20),2(20),22,27,29,29(5),30

(a) Income Tax Ordinance (XXXI of 1979)--Ss. 27, 2(2)(20), 22, 29(5), & 30---Capital gain---Company---Distribution of shares were treated as transfer of capital assets to the shareholders and difference between market value of the share and their cost was treated as capital gain stating that it attracted the provisions of S.27 read with S.29(5) of the Income Tax Ordinance, 1979---Validity---Where a company distributes any assets owned by it by way of dividend--in-specie to its shareholders, it was actually distributing profits among the shareholders, company did not receive any thing from its shareholders and such transaction did not fall within the ambit of S.27 of the Income Tax Ordinance, 1979---If the company sold shares to the shareholders, it would have become liable to charge of income tax on the capital gain---Treating the distribution of dividend-in-specie as sale of shares to shareholders, was totally illegal and amounted to stretching the interpretation of the provisions of section 27 too far---If the interpretation placed by the Taxation Officer on the provisions of S.27 of the Income Tax Ordinance, 1979 is accepted, then the distribution of the bonus share, right shares or even cash dividends to the shareholders by company would also entail charging of capital gain in the hands of the company---No justification was available for setting aside the case for de novo consideration---Order of the First Appellate Authority was vacated and the assessment order was cancelled by the Appellate Tribunal and declared version was directed to be accepted. Messrs Ashiq Ali and others v. Messrs Mst. Zamir Fatima and others PLD 2004 SC 10; Shah Wazir Khan v. Abdul Razzaq PLD 2004 (Pesh.) 109; (1983) 48 Tax 6 (Trib.); 2004 PTD (Trib.) 2300; Sampath Lyengar's Book, "Law of Income Tax", Volume-2, Page 2522 18th Edition); CIT v. R.M. Amin 82 ITR 191 203; CIT v. Madurai Mills Co. Ltd. 89 ITR 51; CIT v. Muhanpdhaibhai Pamabhai 91 ITR 393; Kantilal Majilal v. CIT 41 ITR 275; 278 (SC); Ujjan General Trading Society (P.) Ltd. v. CIT (1968) 67 ITR 315 (MP); CIT v. Central India Industries Ltd. (1971) 82 ITR 555 (SC); Kanga Palkhivala; Kishenchand Chellaram v. CIT 46 ITR…

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