| Case ID |
0873fc13-b807-4a5f-91e0-5a8f32fb8e83 |
| Body |
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| Case Number |
Civil Appeal No.127-K of 1991 |
| Decision Date |
Apr 26, 1992 |
| Hearing Date |
Mar 09, 1992 |
| Decision |
The Supreme Court upheld the High Court's decision that for the computation of capital gains, the cost of bonus shares should be taken at their face value rather than the average cost of all shares, including bonus shares. The court emphasized that while shareholders do not pay for bonus shares, the value of their original shares decreases upon the issuance of bonus shares, and thus, it is incorrect to deem bonus shares as having no cost. The decision aligns with principles of business accounting and the rationale that bonus shares, although not paid for directly, reflect an investment that should be valued correctly to determine capital gains. |
| Summary |
In the landmark case of Ebrahim Brothers Limited v. Commissioner of Income Tax, Karachi, the Supreme Court of Pakistan addressed a critical issue regarding the computation of capital gains tax in relation to bonus shares. The case arose when Ebrahim Brothers Limited contested the assessment of capital gains, arguing that the cost of bonus shares should be determined at face value rather than the average cost of all shares held. This case underscores the intricate relationship between tax law and corporate finance, particularly in how capital gains are calculated when bonus shares are issued. The ruling clarified that although bonus shares do not require a cash payment from shareholders, they still represent a dilution of value in the existing shares. This decision is significant for tax practitioners and corporate entities, as it sets a precedent for how bonus shares are treated in capital gains calculations across Pakistan. The court's ruling aligns with international practices and reinforces the need for rational methods in tax assessments. The legal principles established in this ruling will have lasting implications for future tax-related disputes involving bonus shares and capital gains. |
| Court |
Supreme Court of Pakistan
|
| Entities Involved |
Commissioner of Income Tax, Karachi,
Ebrahim Brothers Limited
|
| Judges |
AJMAL MIAN,
SAJJAD ALI SHAH,
SALEEM AKHTAR
|
| Lawyers |
Dr. Nasim Ahmad Khan,
Mr. Nasrullah Awan
|
| Petitioners |
Ebrahim Brothers Limited
|
| Respondents |
Commissioner of Income Tax, Karachi
|
| Citations |
1992 SLD 785,
1992 SCMR 1935
|
| Other Citations |
Commissioner of Income Tax v. Dalmia Investment Co. Limited (1964) 10 Taxation 75,
Commissioner of Income Tax Lahore v. Umer Saigal 1973 PTD 450,
1972 PTD (Trib.) 8,
C.I.T. v. Umer Saigal and Mark Collector US Internal Revenue v. Myrtle Macomber 1 US Tax Cases, 1077,
C.I.T. Madras v. Athi V. Hamchandra Chattiar (1964) 52 ITR 96
|
| Laws Involved |
Income Tax Act (XI of 1922),
Income Tax Ordinance (XXXI of 1979)
|
| Sections |
12(g)(2)(ii),
26,
27
|