Dividend Chargeable under Income from Other Source

[fozia]

Under Section 94(3) of Income Tax Ordinance, 2001, a dividend pid by a non-resident company to a resident is person shall be chargeable to tax under the head "Income from Business" or "Income from Other Sources" as the case may be.

For dividend chargeable under Income from Business we can think of dividend received by a banking co (Sec 18(4)), but can be an example of dividend chargeable under Income from Other Sources, as all other dividend falls in presumptive regime.


Fozia

[Ali Akbar]

Salam Fozia
Your question is quite ambigous, i dont know what do you want to know? However, i will explain it keeping in mind the requirments of your question understood by me.
Dividends always fall under the head income from other sources, even if it is recieved by a Brokerage Company or any other company having a business, concerned with investments.
Dividend or any other income recieved by person from foriegn sources/non resident company, it will be treated as a separate head of income called 'Foriegn Source Income'. So if the dividend is recieved from foriegn source or else where/Pakistan Source Income, it will be taxed under Presumtive Tax Regime (PTR) and it will fall under the head income from other sources even if it is recieved by Investment Company because it is expressely provided in Income Tax Ordinance (ITO), 2001 that it will fall under the head income from other sources.
However dividend recieved from nonresident company/foriegn source shall enjoy the previlage of Tax Credit in accordance with the provision of the ITO 2001.
With Regards

[fozia]

I m happy to see that an ambiguous question is well understood.

u r very right in saying that dividends is specifically included in "Income from Other Sources" under Sec 39, but after posting the question i came across a footnote in S.A. Salam that says "Dividend income is taxable on presumptive basis u/s 5 as also mentioned in section 39(5).The specific mention of "dividend" in Sec 39(1) as includable in "income from other sources" is misleading.

My confusion is that when under Sec 5 all dividend income is included under PTR without distinction of the recipient and Sec 4(5) says that such income shall not be included in the computation of taxable income.

Taxable income under Sec 9 is total income – total of deductible allowances.

Income from Other Sources is part of total income.

Keeping in mind all above provisions I cant understand the link between dividend falling under PTR and “Income from Other Sources” falling under normal regime.

As far as chargeability of dividend under “Income from Business” is concerned, it is specifically mentioned in Sec 18(4).




Fozia

[Ali Akbar]

Ok Well. It doesnt mean that classification of any income (dividend) under the head of income (Income from other sources) has no concern with its taxability under Presumtive Tax Regime (PTR). In other words income falling under any of the heads of income can be reclassified in respect of its taxibility e.g under PTR or NTR.

Dividend falling under income from other sources is a separate block of income hence, it shall not be included in the computation of taxable income, in order to derive taxable income chargeable under NTR. So thats why dividend is not included in total income for the purpose of computation of taxable income chargeable under NTR

[Ali Akbar]

Although any new reply to my previous post is not given, but i would like to further elaborate the issue of 'Dividend chargeable under income from other sources'. The purpose of taking much interest in the questions of tax is that, the subject of tax is my favourite subject, although my knowledge is limited to module C's tax, so far.

From your question i concluded that you want to say that if the dividend is chargable under PTR, then why it falls under 'Income from other Sources' & then why it is not included in computation of taxable income.

Income from other sources is the last and residual head of income, means that if income (except exempt income and all other incomes which are specifically included in this head) remains unclassified in other four heads of income, then it shall fall under income from other sources, even if the income is chargeable under PTR. It means that every attempt should be made to fit the income in other four heads of income in order to avail the previlages available to other heads of income (e.g to income from business) like deductions, set off & c/f of losses etc (which are not available normally to income falling under the head income from other sources).

I will come back to your question, you said 'what is the connection b/w PTR and income from other sources'. Now you tell me, if PTR income will not to be included in any of the five heads, then where it should be adjusted?

PTR income is always not included in income from other sources for the purpose of computation of taxable income only, because computation is always made for income chargable under NTR, and PTR income, is self explanatory, already presumed.

I hope, my little knowledge will contribute in solving your problem.



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