(a) Income Tax Ordinance (XXXI of 1979)---

----S. 107---Interpretation of S.107, Income Tax Ordinance, 1979---Balancing, modernisation and replacement of plant and machinery---Tax credit---Entire amount having been invested by assessee before 30th June, 1988 during the assessment year 1989-90, it would be entitled to the full tax credit claimed-- Credit to the extent which represented the amount invested beyond the period fixed by S.107 would not be available to the assessee---No restriction having been provided on investment on machinery locally purchased under any of the provision of S.107, Income Tax Ordinance, 1979, assessee was entitled to allowance of tax credit claimed on such machinery also.

(b) Income Tax Appellate Tribunal Rules, 1981---

----R.10---Appeal before Tribunal---Each ground of appeal has to be concise and clear under distinct heads---Memorandum of appeal containing vague and non-specific grounds would not be in accordance with law, which could be refused to be entertained.

Muhammad Saeed, D.R. for Appellant.

Muqtada Karim, A.R. for Respondent.

Date of hearing: 18th October, 1993.

JUDGMENT

ASAD ARIF (ACCOUNTANT MEMBER).---These two departmental appeals are directed against the separate orders of the learned CIT(A) recorded by him in Appeal No. CIT(A-1)/723/90, dated 10-10-1990 for the assessment year 1989-90 and Appeal No. CIT (A-1)/1395/199, dated 10-1-1991 for the assessment year 1990-91. Objections are taken to the CIT(A)'s directions to allow tax credit to the assessee under section 107 of the Income Tax Ordinance, 1979 in both the years under appeal and also to the deletion of certain and backs out of P&L expenses.

2. The brief facts of the case are that the assessee, a public limited company engaged in the manufacture and sale of cotton yarns and cloth claimed tax credit under section 107 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) on account of balancing, modernization and replacement of plant and machinery. In the assessment year 1989-90, the claim was for Rs.67,72,164 on the plant and machinery valuing Rs.4,51,47,762 while in the assessment year 1990-91, the claim was for Rs.1,27,71,000 on the value of plant and machinery disclosed at Rs.8,51,40,000. In the assessment year 1989-90, the ITO restricted the claim of the assessee under section 107 of the Ordinance to the extent of Rs.44,13,447 with the following observations:

"The details have been scrutinized with the proofs and documents submitted by them. Certificates of Customs in support of installation of machinery have been produced alongwith supporting documents of imported machinery. Further, necessary certificate from the Managing Director of the assessee has also obtained for the local machinery that all these machinery are meant for B.M.R. All these placed on record.

However, these details and documents submitted reveals that assessee claimed total addition to the tune of Rs.4,51,47,761 which includes cost of imported machinery installed after 30-6-1988 to extent of Rs.1,54,51,779 and an amount of Rs.2,73,000 for the local used second hand machinery. Both the amounts do not quantify for the tax credit under section 107 as per Finance Act, 1989. Thus, the total amount of machinery and its eligibility for tax credit under section 107 is worked out as follows:

3. In the assessment year 1990-91, the ITO disallowed the entire claim with the observation that the "credit is not admissible under the law as Finance Act, 1990 restricts tax credit under section 107 on the investment made for the purpose of machinery installed by 30-6-1989" ..The assessee felt aggrieved by such treatment and filed appeals before the learned CIT(A) where it was urged that as per ITO's own admission, all the investment was made before 30-6-1988 but since installation was made after 30-6-1988, the assessee was not entitled to the concession on machinery installed after 30-6-1988. It was argued before the CIT (A) that clause (1) of section 107 provides only for investment before stipulated date while clause (2) of section 107 provides the installation in which no specific date is provided but the tax concession is tagged on to the period following the date of installation and is restricted to "corresponding income year" without mentioning any financial year corresponding to the date of investment. It was further argued before the CIT (A) that as per subsection (1) of section 107, entitlement to tax credit is dependent on investment in machinery without any correlation to the installation of such machinery while subsection (2) facts the income year in which the credit from tax in relation to the investment made upto 30-6-1988 is to be allowed. It was, therefore, urged that the requirements of law and procedure were met with by the assessee to entitle it to claim the credit in question, therefore, the ITO was not justified to disallow the claim merely on the ground that the machinery was installed after 30th June, 1988.

4. Agreeing with the contention of the assessee, the learned CIT(A) held that on the basis of accepted facts about the B.M.R. investment and installation, the appellant's entitlement to tax credit under section 107 remains unaffected. He, accordingly, directed the ITO to allow the tax credit claimed by the assessee in both the years under appeal. He also directed to allow tax credit in 1989-90 on locally purchased machinery on the ground that there is no restriction on investment in machinery locally purchased under any of the provision of section 107 of the Ordinance. The department has felt dissatisfied by such order of the learned CIT (A) and hence the present appeal.

5. Mr. Muhammad Saeed, the learned D.R. supporting the departmental appeals submits that the respondent was not entitled to tax credit as the machinery was installed after 30th June, 1988. He has contended that the words "for installation" preceding the dates mentioned in subsection (1) of section 107 of the Ordinance clearly suggests that the credit could be allowed only to an assessee who has not only invested any amount in the purchase of plant and machinery but has also installed such machinery before 30th June, 1988.

5. In order to resolve the above controversy and to Judge the correct import of the provision of law, it would be appropriate to refer to sections 107(1), 107(2) and 107(3) which, for ready reference, are reproduced as under:

"107. Tax credit for replacement. balancing and modernisation of machinery or plant.--(1) Where an assessee being a Pakistan company invests any amount in the purchase of plant and machinery for installation at any time between the first day of July, 1976 and the thirtieth day of June, 1988 (or between the first day of July, 1990 and the thirtieth day of June, 1993) in an industrial undertaking set up in Pakistan and owned by it, for the purposes of replacement, balancing or modernisation of the machinery and plant already installed therein, credit at the rate of fifteen per cent of the amount to invested shall be allowed against the tax payable by it in the manner hereinafter provided.

(a).......................

(b).......................

(2) The amount of credit admissible under this section shall be deducted from the tax payable by the assessee in respect of the income year in which the machinery or plant in the purchase of which the amount referred to in subsection (1) is invested is installed.

(3) Where no tax is payable by the assessee in respect of the assessment year relevant to the income year in which such plant or machinery is installed, or where the tax payable is less than the amount of the credit, the amount of the credit, or so much of it as in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the assessee in respect of the following assessment year, and so on, but no such amount shall be carried forward for more than two assessment years so, however, that the deductions made under subsection (2) and this subsection shall not exceed in the aggregate the limit specified in subsection (1)."

6. A plain reading of subsection (1) of section 107 makes it clear that the entitlement to the tax credit is derived from the investment made upto 30th June, 1988 without any correlation to installation of the machinery. The tax credit facility is thus tied to the investment made within the stipulated date. Subsection (1) of section 107 does not envisage installation of plant and machinery by the stipulated date as it is not possible or practical that the plant and machinery on which investment is made by 30th June, 1988 can also be installed by the said date. It is subsection (2) of section 107 which specifies the income year in which the credit is to be allowed on the installation of the machinery because obviously installation of machinery can be made only after the investment has been made in the machinery. Subsection (3) refers to the carry-forward of credit if no tax is payable or the tax payable is less than the amount of the credit in respect of the assessment year relevant to the income year in which such plant and machinery is installed. This being the position, we are unable to accept the contention of the learned D.R. for, if the interpretation as given by the learned D.R. is accepted, then both subsections (2) and (3) of section 107 would become redundant. Thus, when subsection (1) is read with reference to and in the context of subsections (2) and (3) of section 107, the conclusion of the CIT (A) seems to be correct in principle.

7. The perusal of record shows that so far as assessment year 1989-90 is concerned, the entire amount was invested before 30th June, 1988 and, therefore, the assessee will be entitled to the full credit claimed by it. We also agree with the findings of the CIT (A) in regard to allowability of tax credit on locally purchased machinery. The order of the learned CIT (A) for 1989-90 is, therefore, confirmed.

In the assessment year 1990-91 however, the details available on records shows that out of total purchase of machinery declared at Rs.8,51,40,000 on which tax credit was claimed, purchase to the extent of Rs.4,25,26,979 was made beyond the period stipulated by subsection (1) of section 107 and, therefore, the credit to the extent of Rs.63,79,04-6 which represents 15% of the amount invested beyond the period fixed by law will not be available to the assessee. Thus, in the assessment year 1990-91, as against its claim of Rs.1,27,71,000 under section 107 of the Ordinance, the assessee will be entitled to tax credit of Rs.63,51,953 only which is 15% of the amount invested in machinery upto 30-6-1988. For the assessment year 1990-91, therefore, the order of the learned CIT (A) stands amended to the above extent.

Regarding the objection of the department against deletion of certain addbacks out of P&L account it is observed that the grounds of appeal in both the years under appeal are vague and not specific. Rule 10 of the Income Tax Appellate Tribunal Rules, 1981 requires that each ground of appeal should be concise and clear and under distinct head. Since the ground of appeal in this regard is not in accordance with the said Rule 10, therefore, we refuse to entertain this ground.

8. The appeals for both the years are disposed of as above.

M.B.A./35/T.T.

Order accordingly.