Case Details

Citation(s)
2026 SLG 4885 = 2026 SLD 4885 = 2026 SCP
Supreme Court of Pakistan
Civil Appeals No. 854 to 862 of 2011 [On appeal from the orders dated 15.04.2011 and 04.05.2011 of the High Court of Sindh, Karachi passed in I.T.R.A. Nos.158 to 160, 296, 297, 298, 227, 228 and 229 /2010] AND Civil Appeals No.1666 and 1667 of 2013 [On appeal from the order dated 02.05.2013 of the High Court of Sindh, Karachi passed in I.T.R.A. Nos.105 and 110/2012] AND Civil Appeals No. 48 to 50 of 2014 [On appeal from the order dated 05.09.2013 of the High Court of Sindh, Karachi passed in I.T.R.A.Nos.193 to 195/2012] AND Civil Appeals No. 788 and 789 of 2015 [On appeal from the order dated 02.12.2014 of the High Court of Sindh, Karachi passed in I.T.R.A.Nos.78 and 79/2012] AND Civil Appeals No. 938 to 940 of 2017 [On appeal from the order dated 30.08.2016 of the High Court of Sindh, Karachi passed in I.T.R.A.Nos.94 and 192/2012 and I.T.R.A No.42/2013] AND C.M.As.No.8167 and 8168 of 2016 [Against setting aside ex-parte order] AND Civil Appeal No. 484 of 2018 [On appeal from the judgment 18.04.2017 of the High Court of Sindh, Karachi passed in ITRA No.06/2013]
Presented By: Mr. Justice Yahya Afridi, CJ Mr. Justice Muhammad Shafi Siddiqui Mr. Justice Miangul Hassan Aurangzeb
Mr. M. Makhdoom Ali Khan, Sr. ASC. assisted by Mr. Saad Mumtaz Hashmi, ASC. Mr. Yawar Mukhtar, Advocate. Ms. Naila Irshad, Advocate. Mr. Abdullah Sajid, Advocate.

Commissioner Inland Revenue, Karachi [In all cases] … Appellant(s)

VERSUS

M/s EFU General Insurance Limited, Karachi. [In CAs.854 to 856/11] M/s EFU Life Assurance Limited, Karachi. [In CAs.857 to 859/11] M/s Century Insurance Company Limited, Karachi. [In CAs.860 to 862/11] … Respondent(s) Commissioner Inland Revenue, Karachi [In both cases] … Appellant(s) Versus M/s Central Insurance Company Limited, Karachi. [In both cases] … Respondent(s) Commissioner Inland Revenue, Karachi [In all cases] … Appellant(s) Versus M/s Shaheen Insurance Company Limited, Karachi. [In all cases] … Respondent(s) Commissioner Inland Revenue, Karachi. [In both cases] … Appellant(s) Versus M/s Habib Insurance Company Limited, Karachi. [In both cases] … Respondent(s) [In all cases] … Appellant(s) Versus M/s State Life Insurance Corporation Ltd., Karachi. [In CA.938/17] M/s Allianz EFU Health Insurance Limited, Karachi. [In CAs.939 and 940/17] … Respondent(s) The Commissioner Inland Revenue, Companies III, Karachi (then) presently The Commissioner (IR) Zone-III, LTU, PRC, Karachi. … Appellant(s) Versus M/s IGI Insurance Company Limited, Karachi. … Respondent(s)

Law: Income Tax Ordinance, 2001

Section: 99,109,109(2),122(5A),122(9),67

Law: General Clauses Act, 1897

Section: 24A

Summary The Supreme Court dismissed 20 Civil Appeals filed by the Revenue and upheld the decisions of the ATIR and Sindh High Court in favour of insurance companies. It held that the sale and subsequent repurchase of shares in Tax Year 2007 were genuine commercial transactions undertaken principally to reflect the shares’ increased market value in the companies’ accounts and improve liquidity—not to avoid tax. Therefore, the capital gains exemption available under Rule 6A of the Fourth Schedule could not be denied by recharacterising the gains as “appreciation of investment” under Rule 5(b), because the Revenue failed to establish that tax avoidance was the main purpose required by section 109 of the Income Tax Ordinance, 2001. Core points Twenty civil appeals by the Commissioner Inland Revenue were decided together because they involved common legal questions. The dispute concerned insurance companies that sold shares held as “available for sale” and shortly thereafter repurchased them during Tax Year 2007. Under the SECP Insurance Rules, shares classified as “available for sale” had to be shown at the lower of cost or market value. Therefore, where market value exceeded cost, the unrealised increase could not be recorded in the accounts. The insurance companies sold the shares at their increased market value and repurchased them so that the higher value could be reflected in their accounts, balance sheets, asset values, and liquidity position. The Revenue treated these transactions as a tax avoidance scheme under section 109 of the Income Tax Ordinance, 2001. The Taxation Officer recharacterised the capital gains as “appreciation of investment” under Rule 5(b) of the Fourth Schedule and denied the exemption under Rule 6A. The ATIR found that the transactions were genuine; the Revenue had not disputed their genuineness. The ATIR and High Court found that the companies had not credited any notional “appreciation of investment” in their accounts. The shares were recorded at acquisition cost before sale and at the new acquisition cost after repurchase. The Supreme Court held that…
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