Dividends in specie

Conditional exemption on payment of tax on dividends in specie by virtue of Cl.(103B) of the Second Schedule to the Income Tax Ordinance, 2001

Retrospective application of such exemption

Scope

Contention of the taxpayer was that Cl.(103B) of Part I of the Second Schedule to the Income Tax Ordinance, which was introduced in the year 2010, applied retrospectively to the tax year 2008; therefore, the taxpayer was not liable to tax on payment of dividends in specie, for the tax year, 2008

Validity

Section 5 of the Income Tax Ordinance, 2001 was the charging section for the imposition of tax on dividends, and Cl. (103B) of Part I of the Second schedule to the Ordinance simply introduced a conditional exemption in the year, 2010 which did not remedy or cure any ambiguity or omission in the law, and on the contrary, provided an exemption from tax for the first time which was not in existence in the year 2008

Labeling said Cl. (103B) Part I of the Second Schedule to the Income Tax Ordinance, 2001 as remedial or curative legislation, was therefore, misconceived and it did not have a retrospective effect and had therefore, had no application to the tax year 2008

Reference was answered, accordingly.

Question before the High Court was whether a company paying dividend in specie to its directors was entitled to deduct tax in terms of S.150 of the Income Tax Ordinance, 2001

Held, that S.150 of the Income Tax Ordinance, 2001 implied that dividend should in such a form that deduction of tax therefrom was possible from the person paying the dividend

In case of dividend in specie, such deduction was not practically possible

Reference was to be made to S.156(2) of the Ordinance which stated that in case prize was not in cash, the person while giving the prize shall collect tax on the fair market value of the prize; which was similar to the case of Brokerage and Commission under S.233(2) of the Income Tax Ordinance, 2001

Therefore, unless S.150 of the Income Tax Ordinance, 2001 separately provided for collection of tax from assessee at the time of deduction of tax, the same section could not be applied to "dividend in specie"

Reference was answered, accordingly.

Conditional exemption on payment of tax on dividends in specie by virtue of Cl.(103B) of the Second Schedule to the Income Tax Ordinance, 2001

Retrospective application of such exemption

Scope

Contention of the taxpayer was that Cl.(103B) of Part I of the Second Schedule to the Income Tax Ordinance, which was introduced in the year 2010, applied retrospectively to the tax year 2008; therefore, the taxpayer was not liable to tax on payments of dividends in specie, for the tax year, 2008

Validity

Section 5 of the Income Tax Ordinance, 2001 was the charging section for the imposition of tax on dividends, and Cl.(103B) of Part I of the Second Schedule to the Ordinance simply introduced a conditional exemption in the year, 2010 which did not remedy or cure any ambiguity or omission in the law, and on the contrary, provided an exemption from tax for the first time which was not in existence in the year 2008

Labelling said Cl. (103B) Part I of the Second Schedule to the Income Tax Ordinance, 2001 as remedial or curative legislation, was therefore, misconceived and it did not have a retrospective effect and therefore, had no application to the tax year 2008

Reference was answered, accordingly.

Question before the High Court was whether a company paying dividend in specie to its directors was entitled to deduct tax in terms of S.150 of the Income Tax Ordinance, 2001

Held, that S.150 of the Income Tax Ordinance, 2001 implied that dividend should in such a form that deduction of tax therefrom was possible from the person paying the dividend

In case of dividend in specie, such deduction was not practically possible

Reference was to be made to S.156(2) of the Ordinance which stated that in case prize was not in cash, the person while giving the prize shall collect tax on the fair market value of the prize; which was similar to the case of Brokerage and Commission under S.233(2) of the income Tax Ordinance, 2001

Therefore, unless S.150 of the Income Tax Ordinance, 2001 separately provided for collection to tax from assessee at the time of deduction of tax, the same section could not be applied to "dividend in specie"

Reference was answered, accordingly.

Question before the High Court was whether a company paying dividend in specie to its directors was entitled to deduct tax in terms of S.150 of the Income Tax Ordinance, 2001

Held, that S.150 of the Income Tax Ordinance, 2001 implied that dividend should in such a form that deduction of tax therefrom was possible from the person paying the dividend

In case of dividend in specie, such deduction was not practically possible

Reference was to be made to S.156(2) of the Ordinance which stated that in case prize was not in cash, the person while giving the prize shall collect tax on the fair market value of the prize; which was similar to the case of Brokerage and Commission under S.233(2) of the income Tax Ordinance, 2001

Therefore, unless S.150 of the Income Tax Ordinance, 2001 separately provided for collection to tax from assessee at the time of deduction of tax, the same section could not be applied to "dividend in specie"

Reference was answered, accordingly.

Conditional exemption on payment of tax on dividends in specie by virtue of Cl.(103B) of the Second Schedule to the Income Tax Ordinance, 2001

Retrospective application of such exemption

Scope

Contention of the taxpayer was that Cl.(103B) of Part I of the Second Schedule to the Income Tax Ordinance, which was introduced in the year 2010, applied retrospectively to the tax year 2008; therefore, the taxpayer was not liable to tax on payments of dividends in specie, for the tax year, 2008

Validity

Section 5 of the Income Tax Ordinance, 2001 was the charging section for the imposition of tax on dividends, and Cl.(103B) of Part I of the Second schedule to the Ordinance simply introduced a conditional exemption in the year, 2010 which did not remedy or cure any ambiguity or omission in the law, and on the contrary, provided an exemption from tax for the first time which was not in existence in the year 2008

Labelling said Cl. (103B) Part I of the Second Schedule to the Income Tax Ordinance, 2001 as remedial or curative legislation, was therefore, misconceived and it did not have a retrospective effect and had therefore, had no application to the tax year 2008

Reference was answered, accordingly.