I.T.A. NO.291/1,13 OF 1988-89 VS I.T.A. NO.291/1,13 OF 1988-89, 1997 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 36 (1995)

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

----First Sched., Part H, Para. A(l)(v)---Super-tax rebate ---Assessee, deriving income from manufacture and sale of the ice cream---Held, assessee being engaged in preserving of an item of food was entitled to the super-tax rebate of 10% under First Sched., Part II, Para. A(l)(v) of the Income Tax Ordinance, 1979.

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

----S.107---Tax credit ---Exclusion---Validity---Assessee, deriving income from manufacture and sale of ice cream---Assessing Officer, held, could not exclude the amount of tax credit from the cost of assets added during the year while working out W. D. V.

1987 PTD (Trib.) 116; I.T.A. Nos. 1804 to 1807/LB of 1985-86; I.T.A. No. 4308/LB of 1986-87; I.T.A. No. 119/LB of 1987-88; 1981 PTD 43; I.T.A. Nos. 778 and 779 of 1990-91; I.T.As. Nos. 790 and 791/LB of 1990-91; 1991 PTD Trib. 404; 1992 PTD 570 and 1983 PTD 49 ref.

Qaiser M. Yahya, D:R. for Appellant.

Iqbal Naeem Pahsa for Respondent.

Date of hearing: 9th February, 1995.

ORDER

In this departmental appeal for the Assessment year 1987-88 an order of C.I.T.(A), Zone-1, Lahore, recorded on 5-5-1988 is assailed on the ground that the Appellate Authority was not justified to allow super-tax rebate of 10% under sub-clause (v) of proviso to paragraph A of Part II of the First Schedule and that the direction not to exclude the amount of tax credit from the total cost of assets while working W.D.V. was improper.

2. The assessee-respondent is a Private Limited Company and derives income from manufacture and sale of Ice Cream. For the Assessment year 1987-88 an income of Rs.42,33,924 was returned. The assessing officer accepted the declared results subject to certain adjustments. In the first place the claim of tax credit under section 107 of the Ordinance at Rs.677,497 on account of addition of plant and machinery during the year under review at Rs.45,16,650 was partly disallowed. Also the super-tax rebate claimed at 10 % in terms of the provisions of First Schedule, Part IA(1)(v) was not accepted for reasons recorded in the earlier Assessment order. Learned first Appellate Authority by way of the impugned order agreed with the submissions made before it that the assessee being engaged in "persevering" of an item of food was entitled to the rebate as claimed. In this regard reliance was placed an order of this Tribunal recorded in respect of earlier years. In case of claimed tax credit under section 107 of the Ordinance reliance was placed on a reported decision of this Tribunal cited as 1987 PTD (Trib.) 116 to hold that the assessing officer could not exclude the amount of tax credit from the cost of assets added during the year while working out their W.D.V. This has grieved the department.

3. Learned D.R. speaking for the revenue repeats the grounds of appeal as stated above. Learned counsel for the respondent, on the other hand, supports the impugned order and contends that both the issues in question having already been decided by this Tribunal in earlier years, no exception can be taken to the relief allowed by the first Appellate Authority during the year under review. In this connection our attention has been invited to-the decision recorded by this Tribunal on 4-1-1988 in I.T.As. Nos. 1804 to 1807/LB of 1985-86 (Assessment years 1981-82 to 1984-85), I.T.A. No. 4308 of LB/1986-87 (Assessment year 1985-86) and I.T.A. No. I19/LB/1987-88 (Assessment year 1986-87) in re: Pakistan Industrial Promoters Limited, Lahore v. I.T.O., Circle 02, Lahore. In these appeals the claim for rebate at a rate of 10% on super-tax allegedly available to the assessee under Paragraph A (1)(v) of Part II of the First Schedule to the Ordinance came up for decision for the first time. It was argued that the appellant was engaged in the manufacture of a food item and that the "hardened ice cream" being an edible and palatable item was entitled to the concession envisaged under the aforesaid provision of the First Schedule to the Ordinance. This Tribunal after hearing .the parties at length recorded its findings in para.5 of the aforesaid order, dated 4-1-1988 which is reproduced for facility of reference:---

"After hearing the arguments from both the sides we are of the view that there cannot be two opinions that to qualify for the rebate available in law it is essential that there should already be in existence an item of food, vegetable, grains, meat (etc.) and these items should then be put to some operation entailing 'processing, freezing', preserving and canning'. True, the various operations are to be judged independently with reference to the items of food (etc.), and not cumulatively. However, the fundamental issue calling for determination is: At what stage does a food item, comes into existence which is called 'ice cream'. The process, as explained to us by the learned counsel, which are listed in the order of the learned C.I.T.(A) also, bring about an savory only after the process of 'freezing, because, hardening at extremely low temperature, results in creating a substance labelled by J.A. Davis are 'hardened ice cream' which clearly is not the edible delicacy i.e. the ice cream, which the consumers relish. In fact, the 'dictionary of dairing' (on which reliance was placed by the learned counsel) unequivocally mentions; 'freezing exercise a vital influence on the texture and that it may 'make or mar' the ice cream'. Therefore, for achieving firmness of texture and flavor of ice cream, it is absolutely essential to put it to the process of 'freezing'. We, therefore, do not subscribe to the theory that ice cream is ready as a food product after the process of hardening and that freezing is a subsequent activity for which concession of rebate in super-tax is available. In forming this view we have immensely benefitted from the reasoning recorded by the learned Judges of the Lahore High Court in a case reported as 1981 PTD 43 in re: Crescent Sugar Mills and Distillery Ltd. However, in the case of the appellant, we notice that after freezing in the factory, the ice cream is transported in freezer-fitted motor vans for delivery at selling points and for a distribution in far off places of far-flung towns. This, in our view, is a distinct and additional activity with the sole purpose to ensure that the food item (= (ice cream) preserves and retains its flavor and does not deteriorate in quality or decompose its texture. It can thus be safely classified as falling under the category of 'preserving' as mentioned in Paragraph A(1)(v) of Part II of the First Schedule. This activity of preserving, we are told, is carried on in the factory also while the product awaits loading for distribution/delivery. It also is pertinent the huge amounts were recovered from clients (and offered for taxation) on account of 'delivery charges', in each year. It is not in controversy that these delivery charges related to transportation in freezer-fitted vans/vehicles. Therefore, in the peculiar circumstances of the appellant we see no hazard to hold that though the appellant is not engaged in the freezing of a food item, we agree that they are clearly carrying on the activity of 'preserving' of an item of food and, therefore, entitled to rebate, as claimed."

Also the issue of calculation of W.D.V. was considered in the light of C.B.R. Circular No. 1(40) IT1/79(Vol.) II, dated 5-2-1983 whereby tax credited under section 107 of the Ordinance was ordered to be excluded. The learned Division Bench rejected the contention of the revenue and, therefore, also the method of calculation adopted by the revenue on the authority of a reported decision cited as 1987 PTD (Trib.) 116 wherein it was held that the tax credit was not synonymous for "allowance or deduction" and, therefore, it was not fair to exclude the amount of tax credit from the cost of assets evaluated for this purpose. Both of these issues again came up for consideration by this Tribunal in cross-appeals re: Pakistan Industrial Promoters Limited, Lahore v. I.T.O., Panel-03 Companies in I.T.As. Nos.778 and 779 of 1990-91 (Assessment years 1988-89 to 1989-90) and departmental appeals I.T.As. Nos. 790 and 791/LB of 1990-91 (Assessment years 1988-89 and 1989-90). These appeals were decided on 29-8-1987. Of them both the departmental appeals agitating against allowing of rebate by the first Appellate Authority and the challenge to method of calculation of W.D.V. were rejected. On the issue of rebate this Tribunal referred to its decision dated 4-1-1988 and also sought support from a reported decision viz. 1981 PTD 43. (Crescent Sugar Mills and Distillery Limited). On the other issue the ratio laid down in the reported decision 1987 PTD (Trib.) 116 was reiterated. Learned counsel for the assessee has also referred to a decision recorded by this Tribunal on 11-10-1994 on I.T.A. No. 5956/LB of 1985-86 (Assessment year 1986-87) in Re: I.T.O., Central Circle, Lahore v. Ellahi Brothers Limited, Lahore. In that case the appellant-company derived income from manufacture of ice cream under the brand name "HECO". The assessing officer in that case-charged income-tax and super-tax at normal rates and did not allow the claimed rebate. Learned first Appellate Authority allowed the plea and directed that the assessee was entitled to a rebate of 10% in super-tax. While dismissing the contention put forth by the department this Tribunal referred to 1991 PTD (Trib.) 404, 1992 PTD 570 and 1983 PTD 49. ,

4. In 1991 PTD (Trib.) 404, a Division Bench of this Tribunal allowed the submission that the assessee deriving income from sale of packed milk, loose milk, butter cream and ghee was engaged in preservation of milk and, therefore, entitled to 10% rebate in super-tax. In 1992 PTD 570 Re: O.I.T. v. National Food Laboratories their lordships of the Supreme Court refused to grant leave to the department in identical circumstances. While dilating upon the meaning of word "food" the Supreme Court found that all items of substance consumed by human beings to maintain their life, body, vitality and strength included in the term. In 1983 PTD 49 Re: Rafhan Maize Products Company Limited v. C.I.T. Karachi their lordships of the Karachi High Court found the assessee to be entitled to rebate in super-tax by finding the assessee to be engaged both in process as well as "manufacture" by converting maize into starch, cattle food, corn oil etc.

5. Learned counsel for the assessee contends and we tend to agree with him that in the case of the assessee this Tribunal has repeatedly expressed its view in no uncertain terms on both of the issues. He is also right in pointing out that the claim of rebate was refused with reference to the course adopted by the assessing officer in earlier years and that this Tribunal disapproved the method since the Assessment years 1981-82 to 1989-90. Learned D.R. has not been able to bring home any distinguishing feature or to challenge that the findings recorded by this Tribunal on appeals filed by the assessee as also cross-appeals by the department in the years 1988-89 to 1989-90 at any rate were not applicable to the facts in the year under review before us now. The first Appellate Authority having followed the orders recorded by this Tribunal in respect of the assessee in the earlier years and also the reported decision in case of calculation of W.D.V., no interference in the year under review is warranted.

6. Therefore, this departmental appeal fails,

M.B.A./223/TAppeal dismissed.