1981 PTD 37

I. T. A. NO. 404/KB OF 1979-80, DECIDED ON 27TH JULY 1980. Versus I. T. A. NO. 404/KB OF 1979-80, DECIDED ON 27TH JULY 1980.

Citation1981 PTD 37

CourtIncome Tax Appellate Tribunal

ORDER

A. A. ZUBERI (MEMBER).‑ This appeal has been tiled at the instance of a company which is a manufacturer and vendor of packing material, is running a Paper Board Mill and has a corrugating plant. The appeal assails order-dated 15‑9‑1979 passed by the learned Appellate Assistant Commissioner, A‑Range, Karachi in respect of assessment year 1973‑74. The following issues came up for adjudication:

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4. Tax paid in Tanzania.‑The learned counsel explained that the Appellant performed some management consultancy work in Tanzania. The earning of Rs. 5,92,513 were taxed in Tanzania and a sum of Rs. 85,947 was paid. This income earned in Tanzania was, admitted included in the Income declared in Pakistan but due to unabsorbed depreciation the assessment resulted in a carried‑forward loss. The assessing officer, did not give any benefit for the tax paid in Tanzania thus denying to the Appellant benefit under section 49‑D of the Income‑tax Act. The learned counsel pleaded that the provision of subsection (1) of section 49 were clear that if a Pakistan 'resident' proves that in respect of income which is offered by him for taxation in Pakistan, tax had been paid in a country which had no agreement for the avoidance of double taxation with Pakistan, he would be entitled to deduction from the Pakistan tax, a sum equal to the tax calculated on such doubly taxed income. The method of calculating the tax to be refunded is also prescribed in the same section and, therefore, full effect should have been given because the Appellant was to be charged at the Pakis tan rate of tax in the other country whichever is the ~ lower to this case. As Pakistan tax was low, the appellant became entitled to refund of entire tax paid in Tanzania. The Departmental Reresentative, when called upon, submit ted that no income had been assessed and only the unabsorbed depreciation was determined to be carried forward, thus no tax was paid in Pakistan. According to the Departmental Representative the provisions of section 49‑D could come into operation only when there was double taxation i.e. the tax is paid in Pakistan over and above the tax in the other country. In the present case, there was no tax payable in Pakistan and tax was paid only in Tanzania. Therefore, the income earned in Tanzania was not doubly taxed, hence no adjustment could be I made or refund allowed.

Before we adjudicate upon the matter, it would be advantageous to reproduce the relevant provision of taw:

"49‑D. If any person, who is resident in Pakistan in any year proves that, in respect of any income which has accrued or arisen to him during that year without Pakistan ‑and which is not deemed to have accrued or arisen in Pakistan he has paid, in any country with which there is no reciprocal arrangement for relief of the avoidance of double taxation, income‑by deduction or otherwise, ‑ under the law in force in that country, he shall be entitled to the deduction from the Pakistan income tax payable by him of a sum equal to the on such doubbly taxed income at the Pakistan rate of tax or the rate of tax of the said country, whichever, is the lower. (Underlining'" is ours)."

It is manifest from the above that for the application of this section some conditions need be satisfied viz. (1) the resident income which has accrued or arisen without Pakistan, (2) the resident has paid tax in any country with which there is no reciprocal arrangements for relief or the avoidance of double‑taxation; (3) the resident's income is doubly taxed by way of tax in Pakistan and tax in the other country. In the present case while the first two conditions are fulfilled, the 3rd is missing inasmuch as there is no income‑tax payable in Pakistan and hence the income earned has not been doubly‑taxed. Moreover, in explanation (ii) to section 49‑D the 'Pakistan rate of tax' has been defined to mean the rate determined by dividing the amount of Pakistan income by the Total Income. In the present case the Total Income is a minus figure and the amount of Pakistan income‑tax is N. I. L. thus no working in possible to determine the Pakistan rate of tax because while the numenator is Zero', denomenator in a negative figure. Again explanation (i) defined 'Pakistan income‑tax' to mean income‑tax and super‑tax charged in accordance with the provisions of the Income‑tax Act which must mean after giving effect to the provisions of section 10 (2) (vi) (b) and section 24 also. In the present case there no tax has been charged, thus when no Pakistan tax is payable the provision of section 49‑D' do not come into operation at all., In this view of the matter we UPHOLD the treatment by the two officers below and refuse to interfere.

5. Special Depreciation.---- ‑The Appellant made a claim for depreciation under clause (va) of subsection (2) of section 10 at Rs. 11,17,121. The assessing officer refused the same for, according to him, the Appellant did not fulfil the conditions laid down for allowance of this deprecation. The appeal before the learned Appellate Assistant Commissioner failed who held that special depreciation was admissible in the 'specified year which stood defined as the year immediately following the year in which the industrial undertaking was set up. The appellant's undertaking was in operation since 1969‑70 and therefore, the learned Appellate Assistant Commissioner confirmed the treatment offered by the assessing officer. The learned counsel not argued that "industrial undertaking" was a term which was not defined anywhere in the Act except in section 15BB where the expression covered the installation as also the extension of existing in dustrial units provided these were capable of independent production and were identifiable. Judged on this basis, the Authorised Representative went on the addition made by the Appellant in the year 1971 qualified for special depreciation in 1972 (i.e. the present year) and the same should have been allowed. The Departmental Repres entative on his turn contended that clause (va) was added to subsection (2) of section 10 vide Finance Ordinance, 1969 and was made effective from Ist July 1970. But the Appellant's undertaking was of much earlier date and did not qualify for this concession. According to the Departmental Repres entative the intention behind the grant of special depreciation was to give incentive to industrial undertaking to make expansion by way of new installa tion and not to replace machinery or simply making additions or alterations. These, therefore, did not qualify for the concession.

6. After hearing arguments from both the sides, we attempted to scrutinise the legal position arid found that the term `machinery' has been defined in the explanation to clause (v‑a) of section 10(2). It contemplates that the machinery should not have been previously used in Pakistan and must be installed undertaking which was set up in Pakistan between the Ist day of July, 1970 and the 30th June 1980 by a person belonging to such classes as are specified in the official Gazette by the Central Board of Revenue. The Appellant's undertaking was admittedly not set up between the dates mentioned in the Explanation and, therefore, they could not be entitled to the benefit of special depreciation prescribed in clause (v‑a). The learned counsel for the Appellant attempted to place an interpretation whereby the dates mentioned in the enactment were to refer to the installation of new machinery and not with respect to the "setting up" of the industrial undertaking. We do not feel pursuaded to accept this interpretation and are clearly of the opinion that the enactment is not capable of any other interpretation than "Machinery means any machinery which is used in an industrial undertaking set up in Pakistan between 1‑7‑1979 and 30‑6‑1980 by a person belonging to such class of person as the Central Board of Revenue may specify in this behalf."

We therefore see no error in the treatment offered by the two officers below and maintain the same.

CONCLUSION

For the reasons recorded hereinabove, the appeal fails and is hereby dismissed,

Appeal dismissed.