I. T. AS. NOS. 372/KB AND 373/KB OF 1982-83, DECIDED ON 24TH SEPTEMBER, 1985. Versus I. T. AS. NOS. 372/KB AND 373/KB OF 1982-83, DECIDED ON 24TH SEPTEMBER, 1985.
ORDER
1. FARHAT ALI KHAN (MEMBER) .-These four appeals are arising out of the consolidated order of the learned Commissioner of Income-tax (Appeals) recorded by him on 12th July, 1982, regarding assessment years 1979-80 and 1980-81. The first two appeals have been filed by the assessee, a company, hereinafter referred to as the appellant, and are regarding its claim amounting to Rs. 3,79,637 and Rs. 1,47,052 as initial depreciation in both the years respectively. Other two appeals have been filed by the department, hereinafter referred to as the respondent, about levy of surcharge in both the assessment years.
2. Mr. A. A., Advocate, the learned counsel for the appellant, referring to rule 5, of III Schedule appended to the Income-tax Ordinance, 1979, argued that appellant was entitled to initial depreciation in the relevant assessment years after the increase in actual cost of asset due to change in exchange rate. The learned counsel argued that words used in aforesaid said rule 5 were "in respect of the year" which did not mean the year in which erection or installation was made. Inviting our attention to rule 8(7)(b) and 8(8) of the aforesaid rules, learned counsel of the appellant argued that the actual cost of an asset acquired was that which the appellant had to pay in the income year in which the asset was acquired. The learned counsel further argued that since the actual cost of asset was that which was to be arrived at after addition caused by exchange rate, it would automatically relate back to the year in which the asset was acquired. Mr. A. A., therefore, argued that the appellant was entitled to claim initial depreciation on the written down value which was arrived at after the addition made due to change in exchange rate irrespective of the year of Erection or installation of such asset. Mr. A. A. the learned Departmental Representative, on the other hand, argued that in the case of the appellant, the initial depreciation should have been claimed either in the year of erection or installation or in the year in which such building, machinery or plant was used for the first time or in the year in which commercial production was commenced, whichever was later. The learned Depart mental Representative further pointed out that in the assessment year 1973-74, the appellant had claimed depreciation on account of devaluation of Pak-rupee under section 10(3)(BB) and same was disallowed and no appeal was filed
3. Turning to departmental appeals regarding levy of surcharge the learned Departmental Representative pointed out that the Appellant declared its income at Rs. 1,06,31,501 and Rs. 1,26,54,043 but it was assessed at Rs. 1,10,23,709 and As. 1,28,08,880 in both the relevant assessment years respectively. The Income-tax Officer calculated tax on the 'assessed income amounting to Rs. 55,11,855 and Rs. 64,04,440 and treating the amount of tax payable as unretained income, levied surcharge amounting to Rs. 4,80,190 and Rs. 51,00,272 in the assessment years 1979-80 and 1980-81 respectively. He also pointed out that the appellant had declared dividend amounting to Rs. 26,51,950 and Rs. 39,40,040 in each year respectively. The Learned Departmental Representative argued that the direction of the learned Commissioner of Income-tax (Appeals) that in view of this Tribunal's decision reported a, 1979 P T D (Trib.) 37 the assessing officer should not levy surcharge on the amount of tax payable, was not correct. He added that the same question had taken by the department to High Court in several reference applications and the department was filing appeal as a matter of principle to safe-guard the interest of Revenue. According to him, both the appeals were filed by department for the same reasons.
4. We have heard both the learned counsel for the appellant as well as the learned Department Representative. Since the argument of learned counsel for the appellant is revolving round the provision of rule 5, rule 8(7)(b) and rule 8(8)(e), it would be advantageous it they are re produced at this stage. Rule 5 reads as under: -
5. "5. Initial depreciation.-(1) Where any building has been newly erected, or any machinery or plant has been installed, in Pakistan at any time between the first day of July, 1976, and the thirtieth day of June 1988 (both dates inclusive), further depreciation allowance in respect of the year of .erection or installation or the year in which such building, machinery or plant is used by the assessee for the first time for the purposes of his business or pro fession or the year in which commercial production is commenced, whichever is the later, shall be allowed at the following rates, namely :-.
6. - - - - - - - - - - - - - - - - - - - - -- - -- - - - - - - - - - - - - - - - - - - - - - - -
7. - - - - - - - - - - - - - - - - - - - - - -- - -- - - - - - - - - - - - - - - - - - - - - - - -
8. Rule 7
9. "7. "Written down value" means- ,
(a) in the case of a ship or any asset to which sub-rule (3) of rule 2 applies,-
(i) for purpose of rule 7, as in sub-clause
(b) and
(ii) for any other purpose, the actual cost thereof to the assessee; and
(b) in the case of other assets (or class of assets).
(i) where the asset (or class of assets) was acquired in the income year, the actual cost thereof to the assessee, and
(ii) where the asset (or class of assets) was acquired before the income year, the actual cost thereof to the assessee as reduced by the aggregate of the allowance for depreciation allowed to him under this Ordinance or the repealed Act in respect of the assessments for earlier years."
10. Rule 8(8)(e)
11. "(e) Where an assessee has acquired any plant or machinery (hereafter referred to as `asset') from a country outside Pakistan installation in Pakistan for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset and before full and final repayment of any foreign loan, there is an increase or reduction in the liability of the assessee as expressed in Pakistan currency for making payment to wards the whole or a part of the moneys borrowed by him from any person directly or indirectly, in any person directly or indirectly, in any foreign currency specifically for the purposes of acquiring the asset (being in either case the liability existing immediately before the date on which change in the rate of exchange takes effect) the amount by which the liability aforesaid is so Increased or reduced during the income year shall be added to, or as the case may be, deducted from the actual cost of the asset and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset."
12. Starting with rule 8(8)(e), it appears that it takes into consideration the actual cost of the asset which is to be arrived at after change in exchange rate. However such cost is available if :-
(1) The assessee has acquired the plant or machinery from abroad for his business etc., and
(2) The cost of such plant or machinery has been paid out of foreign loan, and
(3) Such loan has not been fully and finally paid back before there is change in exchange rate, and
(4) Such change has accrued in between the date of acquisition and full and final re-payment of such loan, and
(5) Such change in exchange rate has resulted in increase or decrease in existing liabilities in Pakistani currency.
13. As such, the appellant had to prove that he had acquired any plant or machinery from abroad and that at the time of change, in exchange rate, full and final re-payment of foreign loan was not effected. But there is no material available on record to establish these facts. As such, this Rule does not appear to be available to the appellant. It is true that the words 'actual cost' to which the addition or from which the deduction is to be made in view of change introduced in the rate of exchange mean and imply the actual cost in the income year in which such plant or machinery was acquired. However, it does not mean, with due respect to learned counsel, that rule 8(7)(b) explains only expression of "actual cost" as used in rule 8(8)(e) and in any case, does not refer to expressions "in respect of years" as used in rule 5.
14. If we analyse rule 5, it appears that initial depreciation can be claimed by an assessee, if he erects any building or installs any machinery or plant in Pakistan, at any time between first day of July, 1976 to 30th day of June, 1988. He can claim initial depreciation either in respect of the year of erection or installation or in respect of a year when it is used for the first time for his business purposes, or in respect of the year in which the commercial production is commenced, whichever comes later, How ever, the most important condition is that such erection or installation or the first use or the commercial production, in any case, should be between the first day of July, 1976 and 30th June, 1988. Since the machinery or plant in the appeal before us was apparently instilled prior to assessment year 1973-74, therefore, rule 5 would not be available to the appellant.
15. In our view, the argument that the words' in respect of the year' does not mean "in the year", is merely of academic nature. Thus, we think that the learned Commissioner of Income-tax (Appeals) reached correct conclusion. As far as direction of learned Commissioner of Income-tax (Appeals) regarding levy of surcharge is concerned we again find no fault in it as he has simply followed our decision, which was in any cane binding on him. As far as this Tribunal is concerned, aforesaid decision has consistently been followed and under the facts and circumstances of these) appeals, we do not see any reasons to depart from it.
16. In view of the discussion made above, we find all the four appeals devoid of any merit and they are rejected accordingly.
17. M. Y. H. Appeals dismissed.