' NAIMUDDIN, J.-This is an application under section 66(2) of the Income-tax Act, 1922, filed by the Commissioner of Income-tax (Central Zone), Karachi referring the following question of law said to arise out of the order, dated 17-12-1974, passed by the Income-tax Appellate Tribunal :- "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-company was entitled to super-tax rebate of 15 per cent?"
2. The facts giving rise to the application are that an application under section 66(1) of the Act was made to the Tribunal to refer the question to the High Court but the Tribunal refused to refer the question holding that in view of clear provisions of the Finance Act, 1969, and in the absence of any bar shown to them standing in the way of -the assessee-respondent for claiming that benefit allowed by law, the question posed by the applicant did not find any merits. The Tribunal further held that answer to the question posed was self-evident as the language of the relevant provisions left no manner of doubt as to the interpretation that has been put to them by the Tribunal. In this regard the Tribunal relied on Lungla (Sylhet) Tea Co. Ltd., Sylhet v. Commissioner of Income-tax, Dacca Circle, Dacca (1) and C ommissioner of Income-tax, Punjab, Himachal Pardesh and Jamu & Kashmir v. Chander Bhan Harbhajan Lal (2), wherein it was ruled that only a question of law that has some substance can be referred under Section 66 of the Act to the-High Court F but not every question of law.
3. The facts giving rise to this question are that the respondent-company for the assessment year 1969-70, claimed super-tax rebate at 15 per cent on the dividends paid out of capital gains to the extent of Rs, 24,00,000 under proviso (ii) to sub-para. (1) of Paragraph (A) of Part It of the IV Schedule of the Finance Ordinance, 1970. This claim was not accepted by the Income-tax Officer for the reason that the dividends had been declared out of capital gains part of which were accumulated gains of earlier years and for the further reason that the rebate on super-tax is not allowable_on dividends paid out of capital gains because the gains were chargeable only to income-tax in accordance with the provisions of section 17(5) of the Act and Part II of the IV Schedule did not apply to them.
4. On appeal the Tribunal allowed rebate for the reasons given in paragraph 8 of their decision inITAS-AAC No, 412/A of 1968-69, decided on 13-2-1973, which we may reproduce herein below : "A perusal of the above-noted relevant provisions of law makes it absolutely clear that by virtue of section 9 of the Finance Act, ,968 the rate of super-tax in the case of companies has been clearly specified in Part II of the Fourth Schedule and proviso (ii) to sub-para. (1) of Paragraph (A) of the part in question reproduce above, makes it imperative to allow a rebate of 15% in the case of companies to which the said proviso has been made applicable. Moreover a reference to section 55(1) of the Income-tax Act, 1922 further makes it clear that the super-tax shall be charged at the rate of rates to be prescribed for any year by the Central Act, which in the instant case allows a rebate of 15% on so much of the income of the company as has been distributed as dividends to its shareholders Thus, the rebate at the said rate ought to have been allowed to the extent of the full amount {{FOOT NOTE}}
(1) 1970SCMR 872 (2) (1966) 60 I T R 188 {{FOOT NOTE}} of dividend distributed by the appellant and the Income-tax Officer was not jus,ified in excluding any portion of the said amount for the reason assigned by him. We would, therefore, allow the relief as prayed for."
5. We have heard Mr. A. A. Dareshni learned counsel for the applicant and Mr. Iqbal Naeem Pasha learned counsel for the respondent.
6. Now, before we examine the question, we may quote the relevant provisions of Part II of IV Schedule.
"Part II. Rates of Super-tax. A. In the case of a Company-
(1) .................................
' Provided that -
(a) ..............
(b) 011114811011.11.........
(ii) a rebate of 15 per cent shall be allowed, in the case of every Company to which sub-clause (a) of clause (i) applies but sub-clause (b) of clause (I) does not apply on so much (underlined for emphasis) of the income of such a Company of the relevant year (underlined for emph4sis) as has been distributed as dividend to its shareholders (including dividends on preference shares); assessee any income exempted from tax under the provisions of subsection (2) of section 14), the income-tax payable by the assessee shall be an amount bearing to the total amount of the income-tax which would have been payable on the total income had no part of it been exempted the same proportion as the unexempted portion of the total income bears to the total income".
7. Now, from the above provisions it will be seen a rebate is to be allowed on so much income of such company of the relevant year as has been distributed as dividend to its shareholders. The income is defined in section 2 (6-C) of the Act which reads as follows : A6-C) "income" includes anything included in "dividend" as defined in clause (6-A) perquisites (whether convertible into money or not) which, under subsection (1) of section 7, are due or are paid to an assessee in lieu of, or in addition to, any salary or wages and anything which under Explanation 2 to subsection (1) of the said section 7 is a profit received in lieu of salary for the purposes of that subsection the values of any benefit or perquisite, whether convertible into money or not arising from business of the exercise of a profession and any sum deemed to be profits under clause (vii) of subsection (2) of section 10, any sum chargeable to tax under subsection (6) of section 12 and any capital gain chargeable according to the provisions of section 12-B and, in the case of a company having its regstered office in Pakistan, the amount representing the face value of any bonus shares or the amount of any bonus declared, issued or paid to its shareholders with a view to increasing the paid-up capital, and the profits of any business of insurance carried on by a mutual insurance association- computed in accordance with rule 9 in the First Schedule, and in the hands of a purchaser? The difference between the market value and the purchase price of any assets, excluding scrips and stock-in-trade, sold by a company to the purchaser."
8. It is clear from the above provision that any capital gain chargeablel to tax according to the provisions of section 12(B) of the Act is to be included in the income of the relevant year and if any part of such income of the Company falling under sub-clause (a) of clause (1) of the proviso to sub-para (1) paragraph (A) of Part II, Schedule IV is distributed by it, would be entitled to rebate of 15 per cent on the amount of super-tax payable by it.
9. The Income-tax Officer however, in refusing to allow rebate gave two reasons one was that the dividends declared were out of capital gains part of which was accumulated gains of earlier years and the second was that the gains were chargeable only to income-tax in accordance with the provisions of section 17(5) of the Act and Part 11 of the IV Schedule.
10. Now, so far as the first reasoning is concerned it appears that it has substance for rebate is allowable on so much income of such a Company of the relevant year as has been distributed as dividends to the shareholders, therefore, if any part of the income distributed as dividends is out of capital gains accumulated in earlier years then that would not be entitled to rebate as the same was not income of that year.
11. Sc, far as second reasoning is concerned that the capital gains are chargeable to income-tax in accordance with the provisions of section 17(5) of the Act and Part II of IV Schedule thereof, the Income-tax Officer was manifestly in error for section 17(5) of the Act does not contain charging provisions. They Oiler alia, provide the quantum at which the income-tax and the super-tax is to be paid and they at the relevant time read as follows "(5).-Where the total income of an assessee includes any income chargeable under the head "Capital Gains (hereinafter referred to as the said income), the tax including super-tax payable by him on his total income shall be-
(a) where the said income has arisen as a result of disposal by the assessee of his capital assets after not more than twelve months from the date of their acquisition by him-income-tax and super-tax payable on the total income (including the said income) ;
(b) Where the said income consists of capital gains which have arisen on account of the disposal by the assessee of his capital assets after twelve months from the date of their acquisition by him or any capital gains to which the first proviso to subsection (1) of section 12-B applies -
(1) in the case of a Company or a firm registered under section 26-A (including a firm treated as a registered firm under clause (b) of subsection (5) of section 23)-
(1) income-tax and super-tax payable on the total income as reduced by the said income had such reduced income been the total income, plus
(2) income-tax at the rate of (twenty-five) per cent on the whole amount of the said income ;
(ii) in the case of other assessee income-tax payable on-
(1) the total income, as reduced by the said income had such reduced income been the total income, plus
(2) the amount of the said income as reduced by (0 an amount equal to (sixty) per cent of the amount of the said income, or
(ii) five thousand rupees, whichever is the greater."
12. Accordingly, our answer to the question would be that the Tribunal was justified in holding that the assessee-Company was entitled to rebate at 15 per cent on such amount of its Capital gains of the relevant year as had been distributed as dividends to its shareholders but not on the amount of capital gains accumulated in earlier years and distributed as dividends to the shareholders in the subsequent year.
13. The question in I. T. R. No 27 of 1976, is same as in this case. Therefore, our answer will also be same.