1980 PLP 322 (PTD)
MESSRS PAKISTAN INDUSTRIAL, CREDIT AND INVESTMENT CORPORATION LTD. Versus COMMISSIONER OF INCOME‑TAX (EAST), KARACHI
| Citation | 1980 PLP 322 (PTD) |
| Forum / Court | Karachi High Court |
| Bench Members | Fakhruddin G. Ebrahim and B. G. N. Kazi, JJ |
| Parties | MESSRS PAKISTAN INDUSTRIAL, CREDIT AND INVESTMENT CORPORATION LTD. Versus COMMISSIONER OF INCOME‑TAX (EAST), KARACHI |
Q1: What are the key laws and sections cited in 1980 PLP 322 (PTD)?
This judgment primarily cites: statutory provisions as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 1980 PLP 322 (PTD)?
The case was heard and decided by the Karachi High Court bench comprising: Fakhruddin G. Ebrahim and B. G. N. Kazi, JJ.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 1980 PLP 322 (PTD) (MESSRS PAKISTAN INDUSTRIAL, CREDIT AND INVESTMENT CORPORATION LTD. Versus COMMISSIONER OF INCOME‑TAX (EAST), KARACHI). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Representation
- Mansoor Ahmed Khan for Respondents.
- Dates of hearing: 22nd August; 5th and 12th September 1979.
Headnotes / Summary
(a) Income‑tax Act (XI of 1922)‑ --S. 10 read with Ss. 2(4) & 4(3Kvls)‑‑‑Business‑Income‑Profits and gains‑Whether or not a transaction is in line of assessee's trade‑Answer to question cannot be promised on a single criterion‑Buying and selling shares speculatively in order to make gain‑Held, "business" and profits therefrom a revenue receipt‑Burden on Revenue to show that gain made was a revenue receipt‑Purchase of shares and securities as investment and at times sold and further purchases made to argument investment --Does not amount to trading in shares notwithstanding memorandum that it may deal in shares. Whether or not a transaction or transactions are in the line of assessee's trade is not capable of an easy answer. The answer to be given cannot be promised on a single criterion. In each case regard must be had to the character and circumstance of the transaction. If what is purchased is something which is itself an ordinary investment, such as shares, a potential source of revenue, the transaction, in the absence of evidence to the contrary, will not be in the line of business. On the other hand buying and selling shares speculatively in order to make gain, the shares will become stock‑in -trade and dealing in such investments, a business, making the profits a revenue receipt. Such dealing would amount to commercial disposal of shares. The latter will be profit income and the former accretion to capital. It may also be added that if the purpose is investment, the fact that in varying the investment, sale of shares results in profits will not make such profit revenue income unless it is shown that variation amounts to dealing in investments. It is a case of numerous purchases and sales and the sales being within a short time of the purchase, the conclusion may be that it was a case of trading for then the inference would be that the purchases were made with the sole object of turning it over and selling it at a profit. If on the other hand there are a few sales although a number of purchases and when sales are made at long intervals after the purchases, the con clusion more appropriately will be investment, notwithstanding the fact that there was no intention of holding over the shares purchased anal the purchase was in expectation of being able to sell it off at profit when the shares appreciate in value. The burden will be on the Revenue to show that gain made is a revenue receipt for it is the Revenue which must net the assessee within the taxing provisions of the statute. If the facts are equivocal the benefit must go to the assessee. The Memorandum gives scope of the activities of a company. It authorises the company to embark upon one or several businesses. It tells us the object or objects for which a company has come into existence. But whether or not a specified activity becomes business of the company depends upon its working. On entering upon an activity the Company will be in that business. A subsidiary activity may be so connected with its main business as to‑ become in line of business of the company. A company may be authorised to deal in shares and securities. If, therefore, the Company buys and sells shares it may amount to carrying on the business in shares and securities. But if the Company is also authorised to invest in shares and securities and therefore, act as an investment holding company in addition to investment dealing company, it will have to be shown that its activity amounted to dealing commercially in shares before profit made therefrom is made taxable. If shares and securities were purchased as investments al times sold and further purchases made to augment the invest ment it will, notwithstanding the, memorandum that it may deal in shares, will not amount to trading in shares. If on the other hand buying and selling of shares is incidental to the business which is carried on by a Company‑‑much as a bank selling shares to raise money to pay its depositors, it will be kale in line of business. California Copper Syndicate v. Harris (1904) 5 Tax Cas. 159 ref. (b) Income‑tax Act (XI of 1922)‑ --S. 66(1)‑Reference‑Question of law‑Whether Tribunal justified on evidence in determining profit as assessable to tax‑Held, High Court possesses jurisdiction to entertain such question of law. (c) Income‑tax Act (XI of 1922)‑ ‑‑ S. 10 read with S. 2(4)‑Business‑Profits‑objects of company enabling it to deal in shares and to invest in shares‑‑No evidence to show that company was actually trading in shares‑Profits made by company on sale of shares‑Held, not taxable. Sardar Indra Singh & Sons v. Commissioner of Income‑tax (1951) 24 I T R 416; Commissioner of Inland of Inland Revenue v. Scottish Automobile & General Insurance Co. Ltd. (1929) 16 Tax Cas. 381 and Dunn Trust Ltd. v. Williams (1950) 31 Tax Case. 477 ref. Ali Athar for Applicants.
Judgment & Decree
228,42,005 U. K. Securities 43,60,639 1965‑66 1966‑67 Rs. Rs. Sale of shares 13,81,074 Sale of shares 10,45,350 Profit on sale of shares 4,74,482 Profit on sale of shares 2,09,189 Sale of securities 99,53,111 Sale of securities 49,79000 Profit on sale of securities 15,611 Profit on sale of securities. 4,750 Purchase of shares 1,01,27,309 Sale of N. I. T. 7,63,975 Purchase of securities 66,32,750 Profit on sate of N. I. T. 38,975 Purchase of shares 87,94,295 HOLDINGS: Purchase of shares 43,98,549 Shares 2,71,63,486 Securities 1,95,37,250 HOLDINGS: Shares 351,21,620 Securities 182,36,549
8. It will thus be seen that in each year the shares old represented not more than 15% of the total shares purchased in each year. This fact alone is decisive for the conclusion that PICIC was acquiring shares for investment year after year represented change in h, investment made. This is not a picture of a person dealing or trading in shares. What makes the difference is the intent with which the shares were purchased by PICIC and the Revenue has not been able to show that the interest was speculative which would make the difference. It is not the case of Revenue either that changes in investment made by PICIC were necessary for the purpose of carrying on its appointed business or a step in that direction and, therefore 'r‑c sales were conducted in carrying on its business. 9, Mr. Mansoor Ahmed Khan, the learned counsel for the Revenue firstly contended that the whether a transaction is in the line assessee s business is a question of fact and there will be therefore, no occasion for this Court to proceed to answer it under section 66(l) of the Income‑tax Act, 1922. Secondly, it was contended that even a single transaction of sale if effected in pursuance of the object for which the assessee was formed and incorporated would amount to a sale in line of business making the gain a revenue receipt. The first contention need no detain us for we have the jurisdiction to entertain the question of law which is whether the Tribunal was justified on the evidence in determining the profit as assessable to tax. Coming to the object for which PICIC has been formed, Mr. Mansoor Ahmed Khan invited our attention to the following objects enumerated in the Memorandum of Association of the P I C I C:‑ "The objects for which the company is established are:‑‑
1. To carry on the business of assisting industrial enterprises within the private sector of industry in Pakistan in general by‑ (iv) creating, expanding and stimulating investment in share and security markets; (d) making funds available for re‑investment by causing the transfer of shares and securities, and by revolving investments, as rapidly as prudent; 2. (i) To buy underwrite, invest in and acquire and hold shares, stocks, debentures, debenture stock, bonds, obligations and securities issued or guaranteed by any company or body, corporate or unincorporated, or by a person or association.
18. To carry on the business of an investment company and to buy, underwrite invest in and acquire and hold shares, stocks, debentures, debenture stock, bonds, obligations and securities issued or guaranteed by any company constituted or carrying on business in Pakistan and debentures, debenture stock, bounds, obligations and securities issued or guaranteed by any Government, State, Dominion, Sovereign, Ruler, Commissioners, Public Body or Authority, Supreme Municipal, Local or otherwise firm or person and to deal with and turn to account the same provided always that no investment imposing unlimited liability or the company shall be made."
10. Now as I see it, the Memorandum gives scope of the activities of a company. It authorises the company to embark upon one or severs businesses. It tells us the object or objects for which a company has come into existence. But whether or not a. specified activity becomes business of the company depends upon its working. On entering upon an activity the Company will be in that business. A subsidiary activity may be connected with its main business as to become in line of business of the Company. A company may be authorised to deal in shares and securities. If, therefore, the Company buys and sells hares it may amount to carrying on the business in shares and securities. But if the Company is authorised to invest in shares and securities and therefore, act as an investment in addition to investment dealing company, it will have to be shown that its activity amounted to dealing commercially in share before profit made therefrom is made taxable. If shares and securities were purchased as investment and at time sold and further purchases made to augment the investment it will, notwithstanding the memorandum that it may deal in shares, will not amount to trading in shares. If on the other hand buying and selling of shares is incidental to the business which is carried on by a Company‑much as a bank selling shares to raise money to pay its depositors, it will be sale in line of business.
11. The Supreme Court of India in the case of Sardar Indra Singh Sons v. Commissioner of Income‑tax (1951) 24 I T R 416 observed as follows:‑ "Before it can be held that a profit arises from a transaction which forms part of a company s business it must be shown that the company was not only entitled to enter that transaction under its Memorandum of Association but the transaction was part of the business which it cirri; on or was an essential or normal step in conducting its business. The objects stated in the Memorandum of Association are not con clusive. Essential features of the business actually carried on by the Company must be regarded and distinguished from what may be called incidental acts of administration."
12. In the case of the Commissioner of Inland Revenue v. Scottish Automobile & General Insurance Co. Ltd. (1929) 16 Tax Cas.
381. Lord President observed:‑ the question is not whether the company might possibly have traded as an investment company, but whether it was in fact trading as such, and whether this particular transaction was part of that trading."
13. In the Dunn Trust Ltd, v. Williams (1950) 31 Tax Cas. 477, shares were purchased by a money‑lending company from its Managing Director which wire later sold at a profit after the company had commenced dealing in shares and the profit was held not assessable to, tax notwithstanding the fact that 0ne of the objects of the company was - "to issue on commission, subscribe for, take, acquire and hold, sell, exchange and deal in shares, stocks bonds, obligations or securities of any government authority or company."
14. It must, therefore, follow that it is not sufficient for the Revenue to rest its case on one of the objects of the PICIC which enables it, to deal in shares for it is also the object of the company to invest in shares and in the absence of evidence that PICIC was actually trading in shares, the profits made on sale of shares will not by taxable.
15. Our answer to the question referred to us is, therefore, in the negative.
16. The applicants will also be entitled to costs:‑ Reference answered in the negative.