Capital Gain

2026 PTD 757 PESHAWAR-HIGH-COURT Judicial Precedent

Ss. 18, 37, 133 & 221ReferenceExpression “mistake apparent from the record”Rectification of mistakesScopeCapital gainSale of immovable property

Commissioner Appeals corrected his earlier order wherein he treated income from sale of plot as capital gain and taxable under S. 37 (3) of Income Tax Ordinance, 2001; resultantly mistake committed by the authorities was rectified

Order passed by Commissioner Appeals was maintained by Appellate Tribunal Inland Revenue

Validity

Provision of S. 221 of Income Tax Ordinance, 2001 uses the broader expression “mistake apparent from the record”

Such choice of wording reflects the Legislative intent to permit rectification of any mistake whether clerical, arithmetical, legal, or factual provided the mistake is apparent from the record

Power to rectify is not confined to narrowly defined categories but extends to any mistakes evident on the face of the record

Any limitation inferred through restrictive interpretation such as confining the scope of S. 221 of Income Tax Ordinance, 2001 to only clerical or arithmetical mistakes would amount to reading into the statute what is not stated

Commissioner Appeals or the Appellate Tribunal were legally empowered to rectify any mistake apparent from the record, including legal or factual errors, while exercising authority under S. 221 of Income Tax Ordinance, 2001

Immovable property under S. 37 (5) of Income Tax Ordinance, 2001 has expressly been excluded from “capital assets”

As immovable property did not fall in the definition of capital gain therefore same was not liable to tax under S. 37 of Income Tax Ordinance, 2001 but was taxable under S. 18 of Income Tax Ordinance, 2001

Earlier order of the Commissioner was erroneous and the result of applying wrong Section of law

This was a mistake discoverable on perusal of the record and same did not require any further analysis, interference or further inquiry and investigation

Commissioner Appeals had rightly invoked his jurisdiction under S. 221 of Income Tax Ordinance, 2001, and had lawful authority for such purpose

High Court declined to interfere in the orders passed by Commissioner Appeals and Appellate Tribunal Inland Revenue

Reference was disposed of accordingly.

2020 PTD 604 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 62 & 135Capital gainTaxable income"Adventure in nature of trade"

Taxpayer sold his property and relocated to another place due to security concerns but tax authorities added capital gain from sale of property as taxable income under adventure in nature of trade

Plea raised by department was that income received was taxable as it was akin to real estate business

Validity

Intention of a person could be traced out from some of his overt acts as well as surrounding circumstances

Assessing authorities were to give a convincing reasoning regarding overt act and its surrounding circumstances specially at a time of purchase of property under which assessee/taxpayer indulged into transaction before declaring the same as an 'adventure in nature of trade'

Reason given by taxpayer for selling both his plots was quite logical and coherent

When a person had decided to severe all his connections from a town, there remained no logic to keep properties there, which were retained by him for some time with intention to use the same for his personal affairs

Ingredient of 'intention of making profit' was missing in the entire episode and as such act of taxpayer did not fall under category of 'adventure in the nature of trade'

High Court set aside order passed by Income Tax Appellate Tribunal as taxpayer had rightly declared amount of capital gain accrued to him due to sale of two plots in his income tax returns and wealth statement as 'exempt' from provisions of Income Tax Ordinance, 1979

Appeal was allowed in circumstances.

2013 PTD 521 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.37, 97, 97A, 75 & 122(5A)Capital gainMerger of companies under the scheme of arrangement duly approved by the High CourtDisposal of assetsAddition made on account of capital gain

Taxpayer contended that merger of wholly owned subsidiary duly approved by the High Court was fully covered under the provisions of S.97 of the Income Tax Ordinance, 2001, resultantly no gain or loss shall be taken to have arisen on disposal of its assets; that First Appellate Authority erred in confirming the action of Assessing Officer not to accept the claim that provisions of S.97A of the Income Tax Ordinance, 2001 squarely applied, whereby, no gain or loss shall be taken to have arisen on disposal of assets under the scheme of arrangement and reconstruction duly approved by the High Court and that First Appellate Authority erred in confirming the action of Assessing Officer, wherein, it had been held that the merger of wholly owned subsidiary under the scheme of arrangement duly approved by the High Court fell under the ambit of disposal of shares in terms of S.75 of the Income Tax Ordinance, 2001

Validity

Merger of two or more companies was essentially a process of corporate reconstruction whereby assets of merging companies were either clubbed or brought together in the surviving or new company, however, proprietary rights of assets remained intact

No financial transaction could be said to have taken place between the merging companies

In the scheme of merger arrangement there did not take place any sale, disposition, exchange or relinquishment or extinguishment of any right on the part of amalgamating companies that gave rise to any income or gain resulting a taxable event

Taxpayer had fulfilled all the conditions laid down in S.97 of the Income Tax Ordinance, 2001

Addition made under S.37 of the Income Tax Ordinance, 2001 and confirmed by the First Appellate Authority was illegal and void ab initio and the same was deleted by the Appellate Tribunal.

1973 PTD 450 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

S. 12(b)(2)(ii)-Capital gains Bonus shares allotted to shareholders- Relateable to capital of company-Face value of such shares is their cost-While working out capital gain, cost of bonus shares to be taken into account.

1972 PTD 94 KERALA-HIGH-COURT-INDIA Judicial Precedent

Income-tax

Capital gains-Assessee taking advances from partner of firm-Assessee unable to repay amounts-Transfer of business to firm-Consideration extinguishing liabilities of assessee Difference between sale price and written down value-Whether assessable as capital gains-Income-tax Act, 1922, S. 12-B. The assessee had taken large advances for the purpose of his business from M, a partner in a firm with which he had entered into an agreement. Due to heavy losses, the assessee was unable to repay the amounts and hence he transferred his business together with the factory, factory premises and all plant, machinery, etc., to the firm. The consideration effectively discharged the amounts due by the assessee to M, the firm and another. The difference between the written down value of the assets sold and the sale consideration included capital gains and, after making certain adjustments, the officer fixed the amount of capital gains at Rs. 53,317 and taxed the same as income. The Appellate Assistant Commissioner dismissed the appeal against the order of the officer but the Appellate Tribunal held that no capital gains arose to the assessee. On a reference:

1969 PTD 554 BOMBAY-HIGH-COURT-INDIA Judicial Precedent

Capital Gain

Company - Offer of new shares to shareholders-Sale of right to apply for new shares-Computation of capital gains-Whether depreciation in value of existing shares or notional value of the right to new shares can be deducted -Indian Income tax Act, 1922, S. 12-B.

1968 PTD 27 BOMBAY-HIGH-COURT-INDIA Judicial Precedent

Ss. 12-B (2)-Capital gains-Sale of shares and managing agency right-Composite consideration for shares and managing agency-Price of shares fixed at much higher rate than market value-Basis of computation of capital gain-Inflated value or market value-"Full value", meaning of.

1965 PTD 191 MADRAS-HIGH-COURT-INDIA Judicial Precedent

Capital Gain

Meaning of “transfer”-Compulsory acquisition whether transfer-Land not used for agricultural purposes at the time of transfer-Whether capital asset-Indian Income-tax Act, 1922, S. 12-B.