I.T.A. NO.867/KB OF 1991-92, DECIDED ON 24TH JULY, 1998. VS I.T.A. NO.867/KB OF 1991-92, DECIDED ON 24TH JULY, 1998., 1998 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3909 (1998)

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

----Third Sched., Rr.8(8)(a) & 1(1)(1-A) C.B.R. Circular No.26 of 1988, dated 19-12-1988---Interpretation---Binding effect of C.B.R. Circular-- C.B.R. Circular No.26 of 1988 did not contain any legal, valid or authorised interpretation of law having binding effect.

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

----Third Sched., Rr.8(8)(a), 1(1), (1-A)---C.B.R. Circular No.26 of 1988, dated 19-12-1988---Depreciation---Assessee a leasing company---Leased vehicles---Depreciation was claimed on the basis of cost of vehicles-- Assessing Officer allowed depreciation on the restricted value of vehicles in term of R.8(8)(a) of Third Sched. of the Income Tax Ordinance, 1979 treating same as finance lease which was confirmed by the First Appellate Authority---Contention that R.8(8)(a) should not be applied to leasing company on the ground that neither the condition of ownership nor its use had been prescribed for the admissibility of depreciation for the leasing company in Rr.I(I) & 1(1-A) was repelled---Admissibility as well as computation of depreciation was to be governed by the provision contained in R. I of the Third Sched. only---Provisions contained in R. 8(8)(a) were fully applicable to a leasing company.

1997 PTD (Trib.) 1447 distinguished.

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

----Third Sched., R. 7, proviso 2 [omitted by Finance Act (XII of 1991)]- Assessment year 1990-91---Depreciation---Loss on leased assets---Assessing Officer disallowed loss on leased assets on the ground that the assets were part of the assessee's balance-sheet on which depreciation was charged from year to year and the entire class of assets had not been sold and the same was confirmed by the First Appellate Authority---Issue was decided without taking into consideration proviso 2 to R.7 of Third Sched.---Validity-- Income-tax Appellate Tribunal set aside the issue to decide same afresh in the light of proviso 2 to R. 7 of Third Sched. of Income Tax Ordinance, 1979.

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

----Preamble---Amortization of differed cost---No provision existed in the Income Tax Ordinance, 1979 in respect of amortization ---Assessee a leasing company claimed amortization of differed cost in profit and loss account which was also disallowed with other expenses and the same was confirmed by the First Appellate Authority---Appellate Tribunal upheld the finding.

Khalil A. Waggan, C.A. for Appellant.

Misri Ladhani, D.R. for Respondent

Date of hearing: 21st July, 1998.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).---Above appeal at the instance of assessee is directed against the order, dated 1-9-1991 by the learned C.I.T.(A), Zone-II, Karachi in I.T.A. No.1405 of 1991 relating to the assessment year 1990-91.

2. Heard Mr. Khalil Ahmed Waggan, C.A. learned representative for the appellant and Mr. Misri Ladhani, learned representative for the department.

The appellant is a public Limited company carrying on the business of leasing of movable assets. The first objection raised on behalf of the appellant is to the confirmation of Assessing Officers finding, restricting the value of leased vehicles for the purpose of depreciation in terms of Rule 8(8)(a) of the Third Schedule to the Income Tax Ordinance, 1.979. A perusal of the assessment order shows that the appellant company changed its policy in respect of depreciation on leased vehicles. In the assessment years 1987-88, 1988-89 and 1989-90 the appellant had claimed depreciation by calculating the value of leased vehicles in terms of Rule 8(8)(a) of the Third Schedule to the Income Tax Ordinance, 1979, while in the assessment year 1990-91 the depreciation was claimed on the basis of cost of the vehicles. The Assessing Officer confronted appellant on this point and sought explanation as to why the appellant has changed the method of valuation of the vehicles for the purpose of depreciation without any change in the law. The assessee/appellant was further confronted on the point that it was following financing method of accounting and not operating method, therefore, depreciation on cost is not to be allowed and the value of vehicles is to be restricted in accordance with Rule 8(8)(a) of the Third Schedule. The explanation was furnished on behalf of appellant to the effect that under the provisions contained in the Income Tax Ordinance, 1979 all leases are treated as operating leases irrespective of the fact whether a lease is a finance or operating lease and under Third Schedule of the Income Tax Ordinance, 1979, depreciation is allowed to the lessor. It was contended that neither in section 23 nor under Third Schedule to the Income-tax Ordinance any distinction is made between an operating or finance lease. The Assessing Officer observed that - the contention was not correct and there was distinction between an operating lease and a finance lease in terms of section 23(1)(vi)(a) as explained by C.B.R. in Circular No.26 of 1988, dated 19-12-1988. Reliance, was placed in this behalf by the Assessing Officer on the following passage in the above circular:

"A number of companies have started the business of leasing expensive cars. Rule 8(8)(a) placed a restriction on the W.D.V. of motor car by limiting the value to a maximum of Rs.1,75,000 for purpose of depreciation, Car leases are so designed as to overcome this restriction. In the hands of the lessee, the entire amount paid as lease money is deductible whereas the lessor claims that the leased vehicles constitutes a vehicle plying for hire. Whereas the lessee is justified in claiming the amount paid as lease money, the lessor is not so justified unless the lease is an 'operating lease'."

4. The Assessing Officer on the basis of above view held by the C.B.R. formed opinion that the law has prescribed different treatment in case of operating lease and finance lease for the purpose of depreciation. He further held that in the case of operating lease restriction of value as prescribed under Rule 8(8)(a) is not applicable while in the case of finance lease the restriction under Rule 8(8)(a) is squarely applicable. The Assessing Officer further observed as follows:

"The very fact that the assessee company has not claimed full depreciation in respect of leased vehicles, and restricted it in accordance with Rule 8(8)(a) from assessment years 1987-88 to 1989-90, as shown in the chart reproduced in para. 1 of this discussion, clearly shows that the company himself has both recognized and accepted the legal position, thus, its present claim is nothing but an afterthought to gain some financial advantage. "

5. For the foregoing reasons the Assessing Officer allowed depreciation on the restricted value of the vehicles in terms of Rule 8(8)(a) of the Third Schedule to the Income Tax Ordinance, 1979. The learned C.I.T.(A) confirmed the treatment.

6. The appellant still feeling dissatisfied has preferred this second appeal before us. Mr. Khalil Waggan, learned representative for the appellant has stated that the view held by the C.B.R. in Circular No.26 of 1988 on which the Assessing Officer has placed reliance has been upheld by the Tribunal in the judgment reported as 1997 PTD (Trib.) 1447 but he feels that certain important points were neither agitated during the course of arguments nor considered and, therefore, he may be allowed to address arguments on the point of applicability of Rule 8(8)(a) to the appellant. Mr. Khalil Ahmed Waggan was allowed to address arguments and to feel free in raising any plea relevant to the issue under consideration, notwithstanding the earlier judgment of this Tribunal. .

7. The first contention raised by Mr. Khalil Waggan is that the circulars issued by C.B.R. containing interpretation of law have no legal validity as the C.B.R. has no authority to interpret the law. In support of his contention he has placed reliance on the judgment of Hon'ble Supreme Court of Pakistan in the case of Central Insurance Co. v. C.B.R., (1993) 68 Tax 86. The point in issue already stands decided authoritatively by the Hon'ble Supreme Court of Pakistan which has been followed by us in a large number of cases and, therefore, there is no cavil to the proposition canvassed by Mr. Khalil Waggan. It is held that Circular No.26 of 1988 issued by the C.B.R. containing interpretation on the point of law has no binding effect on any income-tax authority. All such circulars can be treated at the most in the nature of guidance to the Income-tax Authorities subordinate to C.B.R. but the Assessing Officers can ignore the same as it has no binding effect. Thus, we asked Mr. Khalil Waggan to address arguments on the point in issue, totally ignoring the interpretation/view contained in the C.B.R. Circular No.26 of 1988.

8 The learned counsel for the appellant has agreed that the point for consideration is whether rule 8(8)(a) of the Third Schedule is applicable to a leasing company.

9. Before proceeding further we would like to make a clarification in respect of our order reported as 1997 PTD (Trib.) 1447 wherein the application of Rule 8(8)(a) of the Third Schedule to a leasing company has been upheld with reference to Circular No.26 of 1988. From the arguments of learned counsel for the appellant it appears that he has gathered impression, that the Tribunal while deciding the above cited case has placed reliance on Circular No.26 of 1988 for upholding the application of Rule 8(8)(a) to a leasing company. This impression is a result of some misunderstanding. We have already observed that the Hon'ble Supreme Court of Pakistan has very clearly held that the C.B.R. has no authority to interpret any provision of law and in any case any such interpretation has no binding effect and that we have followed the dictum in large number of cases. Thus, the question of placing any reliance on the Circular of C.B.R. as authoritative or valid interpretation of law does not arise. The correct position of the order reported as 1997 PTD (Trib.) 1447 which has been authored by one of us (Muhammad Mujibullah Siddiqui) is that the Assessing Officer applied Rule 8(8)(a) to a leasing company by restricting the value of leased vehicles for the purpose of depreciation under Third Schedule and the assessee placed reliance on C.B.R. Circular No.26 of 1988 in support of its contention that Rule -8(8)(a) should not be applied to the leasing company. The assessee placed reliance on C.B.R. Circular No.26 of 1988 which is evident from the observation in para. 10 of the above cited order. Plea on behalf of assessee in the cited case was different from the plea taken by the learned counsel for the appellant in the present case. In the cited case no plea was taken that Rule 8(8)(a) of Third Schedule was not applicable to the leasing company but a plea was taken that by virtue of leasing of vehicle to the lessees the leased vehicles should be treated as vehicle plying for hire and it was pleaded that instruction to this effect was contained in the C.B.R. Circular No.26 of 1988 and, therefore, the Assessing Officer should be directed to give treatment in accordance with C.B.R. Circular No.26 of 1988 and it should be held that when a vehicle is leased out it is to be treated as plying for hire under Circular No.26 of 1988. While examining this plea it was held that the contention was not correct. While deciding the factual and legal pleas canvassed in the cited case it was held that in the C.B.R. Circular No.26 of 1988 it has been stated that if vehicle is ultimately transferred to the assessee or his nominee it shall be treated as vehicle not plying for hire and in such cases the depreciation allowance shall be restricted in accordance with Rule 8(8)(a) of the Third Schedule and that the learned counsel for the assessee in the cited case conceded that on the expiry of lease period the vehicles were transferred in favour of lessee on payment of nominal price and, therefore, in the case of leasing business by the leasing companies, where the asset is ultimately transferred in favour of lessee it was not a case of lease but in fact, it was a case of ordinary sale to the lessee by the lessor. It was ultimately held that the treatment given by the Assessing Officer was already in accordance with the Circular No.26 of 1988 and; therefore, the plea raised on behalf of assessee that direction be issued for giving treatment in accordance with Circular No.26 of 1988 was uncalled for and required no consideration. In the cited case we have nowhere held that Circular No.26 of 1988 contains any legal, valid or authorised interpretation of law having binding effect. In fact, in the cited case we have not-examined at all if according to the provisions contained in the Income-tax Ordinance itself, '', Rule 8(8)(a) of the Third Schedule is applicable to a leasing company or not, for the simple reason that no such objection was raised in this behalf before us and as such we had confined our finding to the pleadings and arguments raised before us on the principle contained in the maxim "secondum allegata et probata" (a party can succeed according to what was alleged and proved). This principle has been approved by Hon'ble Supreme Court of Pakistan in the judgment reported as 1998 SCMR 593, Amir Shah v. Ziarat Gul.

10. After the above clarification we will examine the issue if Rule 8(8)(a) of the Third Schedule is applicable to a leasing company. Mr. Khalil Waggan, learned counsel for the appellant has placed reliance on the provisions contained in Rule 8(8)(a) and sub-rules (1) and (1-A) of Rule 1 of the Third Schedule to the Income-tax Ordinance, section 12(19) and section 23(1) clauses (v) and (vi-a) of the Income Tax Ordinance, 1979. For the sake of convenience the above provisions are reproduced below:

"Rule 1(1), Third Schedule:---

"Allowance for depreciation.---(1) Where in any income year, any building, machinery, plant or furniture owned by an assessee is used for purposes of any business or profession carried on by him, or in any income year commencing on or after the first day of July, 1982, any machinery or plant is given on lease by the assessee, being a scheduled bank, a financial institution or such modaraba or leasing company as is approved by the Central Board of Revenue for purposes of this Schedule, on such conditions as may be specified, an allowance for depreciation shall be made in computing the profits and gains of the business or profession of the assessee in the manner hereinafter provided.

(1-A) The provisions of sub-rule (1) shall in the like manner apply to a building given on lease in any income year commencing on or after the first day of July, 1986, provided that the said building is used by the lessee for the purposes of his business or profession.

Rule 8(8)(a), Third Schedule:---

For the purpose of clause (7).---(a) in the case of road transport vehicles being passenger transport vehicles, not plying for hire, the actual cost to the assessee shall be deemed not to exceed [six hundred thousand rupees.] (The valuation has been increased from time to time through amendments by Finance Acts).

Section 12(19).

Where an assessee, being a scheduled bank, a financial institution, or such modaraba or leasing company as is approved by the Central Board of Revenue for the purposes of the Third Schedule, has leased out, on or after the first day of July, 1985, any asset, whether owned by it or not, to another person, any amount paid or payable by the said person in connection with the lease of the said asset shall be deemed to be the income of the said assessee.

Section 23. Deductions.

(1) In computing the income under the head 'income from business or profession', the following allowances and deductions shall be made, namely:---

------------------------------

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(v) in respect of depreciation of any such building, machinery, plant, furniture or fittings, being the property of the assessee, the allowance admissible under the Third Schedule: except depreciation on assets given on lease shall be allowed against income from lease rentals only.

(vi-a) any sum paid on or after the first day of July, 1985, to a scheduled bank, a financial institution, or such modaraba or leasing company as is approved by the Central Board of Revenue for the purposes of the Third Schedule, by way of lease money in respect of an asset taken on lease by the assessee and used for the purposes of any business or profession carried on by him.

11. As already observed, Mr. Khalil Waggan was allowed to argue on the point if rule 8(8)(a) of the Third Schedule to the Income Tax Ordinance, 1979 is applicable to the Leasing Company on the basis of various provisions contained in the Income Tax Ordinance, 1979, notwithstanding any interpretation/view contained in C.B.R. Circular No.26 of 1988 and the judgment of this Tribunal reported as 1997 PTD (Trib.) 1447. Mr. Khalil Waggan after referring to the various provisions contained in the Income-tax Ordinance and re-produced above submitted that rule 8(8)(a) of the Third Schedule is not applicable to the Leasing Company. His first contention was that in the various provisions relevant to the issue under consideration no distinction has been made in financial lease and operative lease. The learned D.R. has not denied this contention and we are also persuaded to agree with the submission that the law has not made any distinction in financial lease and operative lease for the purpose of granting depreciation to a leasing company. The second contention of Mr. Khalil Waggan was that depreciation is allowed under section 23(1)(v) of the Income Tax Ordinance, 1979, wherein it is provided that the depreciation allowance shall be allowed as admissible under the Third Schedule. The condition of admissibility of depreciation are given in rule ill) and 1(I-A) of the Third Schedule. He has submitted that according to rule 1(1) of the Third Schedule the conditions for admissibility of depreciation in respect of an assessee other than leasing company are that the building, machinery or plant or furniture should be owned by the said assessee and it has been used in that particular income year for purpose of any business or profession carried on by the assessee. In contradistinction to these conditions in the case of a Scheduled Bank, a Financial Institution or such Modaraba or leasing company, as is approved by C.B.R.' for the purposes of Third Schedule neither the condition of ownership, nor its used has been prescribed and the sole condition is that the machinery or plant is given on lease. He has further submitted that under sub-rule (1-A) the depreciation is to be allowed to a building given on lease if the said building is used by the lessee for the purposes of his business or profession, but even this condition is not prescribed for the admissibility of depreciation, if a machinery or plant is given on lease by a leasing company etc. He has further submitted that in section 12(19) also if any asset is leased out by leasing company whether owned by it or not the amount paid or payable in connection with the lease of the asset shall be deemed to be income of the leasing company. He has further submitted that the provisions contained in rule 8(8)(a) of the Third Schedule are to be read with other provisions contained in the Income-tax Ordinance. He has pleaded that a cordial principle of the interpretation of statutes is that in order to ascertain intention of legislature and to interpret a provision of law, all the relevant provisions in the statute ought to be considered as a whole and no particular provision of law is to be considered in isolation. We fully agree with the proposition canvassed by Mr. Khalil Waggan. He has further placed reliance on the following dictum laid down by the Honourable Supreme Court of Pakistan in the case of Mehar Zulfiqar Ali Baboo v. Government of Punjab PLD 1997 SC 11:

"The primary source to ascertain the legislative intent is the language employed in the statute itself. If the legislative intent is clear, plain, unequivocal and capable of only one meaning, it is not permissible to have resort to the materials aliuned i.e. outside the statute involved. In such a case, the Court cannot decline to enforce a provision of statute on the ground that it is harsh, or absurd or contrary to common sense. The Court must give effect to it whatever may be consequences.

However, if the language of a provision of a statute is ambiguous or is capable of having more than one meaning, the Court is to make efforts to ascertain the legislative intent by resorting to the material outside the statute."

12. The principles of the interpretation of statute approved by the Hon'ble Supreme Court of Pakistan provide illuminating guidance for deciding the issue under consideration. On the basis of above contentions Mr. Khalil Waggan submitted that rule 8(8)(a) of the Third Schedule speak's of the use of transport vehicle and the use of transport vehicle in the case of leasing company is not to be considered at all by virtue of the provision contained in sub-rule (1) of the rule 1 of the Third Schedule.

13. On the other hand the learned D.R. has submitted that he agreed with ail the principles of interpretation of statute canvassed by Mr. Khalil Waggan, but he is not able to agree with the conclusions drawn by the learned counsel. He has submitted that the learned counsel has mixed up two issues and thus has inferred wrong conclusions. According to learned D.R. the distinction is to be drawn in the law relating to the admissibility of depreciation under Third Schedule and the valuation of the asset for the purpose of depreciation. He has vehemently argued that admissibility and computation of depreciation are two different and distinct issues. Elaborating his point of view he has submitted that in rule 1 of the Third Schedule the conditions for admissibility have been given but the manner for computing depreciation allowance has been given in the subsequent rules. In support of his contention he has drawn our attention to following expression in sub-rule (1) of rule 1 of the Third Schedule.

"An allowance for depreciation shall be made in computing the profits and gains of the business or profession of the assessee in the manner hereinafter provided. "

14. The learned D.R. has submitted that once depreciation is admissible on any asset under rule 1 of the Third Schedule the computation is governed by the subsequent rules. He has taken us through rules 2 to 8 of the Third Schedule to show that in rule 2 the rate of depreciation is prescribed which is to be worked on the written down value of the asset. Under rule 5 initial depreciation is to be allowed which is again to be worked on the basis of written down value. The limitation has been provided under rule 6 to the effect that the aggregate of the allowance of depreciation shall not exceed the original cost of any asset. Definitions for the purpose of Third Schedule have been given in rule 8. In rule 8(7) the definition of written down value has been given and it is provided that in case of a ship or any other asset to which sub-rule (3) of rule 2 applies, the W.D.V. shall mean the actual cost thereof to the assessee. In this behalf it is further provided in rule 8(8)(a) that for the propose of clause (7) i.e. working out the written down value in the case of road transport vehicle (being passenger transport vehicles) not plying for hire the actual cost to the assessee shall be deemed not to exceed six hundred thousand rupees (this amount has been enhanced from time to time Originally it was., one hundred, thousand rupees. Subsequently it was enhanced to one hundred fifty thousand rupees, then to, one hundred seventy five thousand rupees, and thereafter to two hundred fifty thousand rupees and now it is six hundred thousand rupees). The learned D.R. has submitted that in rule 8(8) of the Third Schedule various formulas have been given for the purposes of clause (7). He has, thus, submitted that it would be incorrect to claim "computation of the depreciation" on the basis of conditions prescribed for the admissibility of depreciation in rule 1. He has contended that the provision relating to admissibility of depreciation and computation of depreciation are quite distinct from each other and have to be read for the purposes for which they have been enacted by the legislature. He has maintained that since there is no ambiguity in law, therefore, notwithstanding any instruction by the C. B. R. the law 'has been correctly applied by the Assessing Officer which is not open to any exception. He has submitted that the Assessing Officer has rightly held that under sub-rule (I) of rule 1 the assessee in the case being a leasing company is entitled to claim the depreciation on the cars leased out by it and has further rightly held that the admissible depreciation is to be computed in accordance with the provisions contained in rules 2 to 8 including rule 8(8)(a) of the Third Schedule to the Income Tax Ordinance, 1979.

15. We have carefully considered the contentions raised by the learned representatives for the parties and provision of law referred to by them. We have examined the relevant provision in the light of principles laid down by the Honourable Supreme Court of Pakistan on which Mr. Khalil Waggan has placed reliance. We find that the provisions of law are very clear and unambiguous, therefore, for interpreting and applying them no assistance is required from any material outside the provision of law. We are persuaded to agree with the contention of learned D.R. as well as Mr. Khalil Waggan learned counsel for the appellant that the depreciation allowance under section 23(1)(v) of the Income Tax Ordinance is to be allowed as admissible under the Third Schedule. We further agree with the views' of both the learned representatives for the parties that the conditions for admissibility of depreciation allowance have been prescribed in rule 1 of the Third Schedule. We are further persuaded to agree with the submission of Mr. Khalil Waggan learned counsel for the appellant that the legislature has provided different conditions for the admissibility of depreciation in the case of ordinary assessees in contradistinction to the schedule bank, financial institution, modarba or leasing company in the case of lease of any machinery or plant. In the case of ordinary assessees two conditions are to be satisfied, first, ownership of an asset and secondly, use thereof for the purpose of any business and profession carried on by such assessee. In the case of leasing of machinery or plant by schedule bank, financial institution, modarba or leasing company as is approved by the Central Board of Revenue for the purpose of Third Schedule the only condition is leasing of the machinery or plant. We further agree with the contentions of Mr. Khalil Waggan that the condition prescribed for admissibility of depreciation in the case of leasing company is distinct and independent and is not in addition to the two conditions prescribed in the case of other assessees. However, we are not persuaded to agree with the submission of Mr. Khalil Waggan that the provisions contained in rule 1 of the Third Schedule are exclusive of the provisions contained in rules 2 to 8 of the Third Schedule. Though Mr. Waggan has not specifically argued that the provision contained in rule 1 of the Third Schedule shall exclude the other provisions contained in rules 2 to 8 of the Third Schedule, but the effect of his arguments is that the admissibility as well as computation of the depreciation is to be governed by the provision contained in rule 1 of the Third Schedule only and the condition prescribed in rule 8(8)(a) is not to be applied in the case of leasing company. Thus, the contention is self-contradictory in terms because no depreciation allowance can be allowed merely by resort to the provision contained in rule 1 of the Third Schedule for the simple reason that the rate of depreciation, extra-depreciation allowance, initial depreciation, limit on the allowance for depreciation and the definitions for the purpose of Third Schedule are contained in rules 2 to 8 of the Third Schedule and all these provisions have been enacted in pursuance of the following provision in rule 1(1) of the Third Schedule:

"On such conditions as may be specified, an allowance for depreciation shall be made in computing the profits and gains of the business or profession of the' assessee in the manner hereinafter provided."

16. After prescribing condition for admissibility of depreciation in rule 1 the legislature has further provided that such admissible depreciation shall be allowed on such conditions as may be specified and shall be computed in the manner hereinafter provided. Thus, the conditions and the manner provided in rules 2 to 8 are the integral part of the scheme for allowing depreciation. While adhering to the proposition of law canvassed by Mr. Khalil Waggan that in interpreting any provision of law it is to be examined in the totality of scheme and entirely of all the relevant provisions and not in isolation, we are of the considered opinion that until and unless any exception is specifically provided in the Third Schedule itself or there is any provision to the contrary, the conditions specified in rules 2 to 8 and the manner provided therein has to be adhered to, for the purpose of computing the admissible depreciation., The Third Schedule is an integral part of main statute i.e. Income Tax Ordinance, 1979 and all the amendments, additions or substitutions are made in the Third Schedule by the legislature itself and not by the C.B.R., in pursuance of its rule making authority, therefore, it cannot be held that a provision contained in Third Schedule is in the nature of subordinate legislation and any provision contained therein is to give way to the other provisions. Now when we revert to rule 8 of the Third Schedule, meaning thereby, that while applying the provisions contained in Third Schedule and computing the admissible depreciation the expressions, word and terms use in the Third Schedule have to be taken according to their definition contained in rule 8 of the Third Schedule. A perusal of rule 2 shows that the rates of depreciation allowance are specified therein which include motor vehicle and the rate of depreciation allowance is prescribed on the basis of written down value Thus, it is necessary to determine the written down value of an asset for working out the rate of depreciation allowance. The written down value is defined in rule 8(7). In rule 8(8) paras. (a) to (h) various provisions have been made for the purpose of clause (7). Rule 8(8)(a) prescribes the condition which is under consideration by us in this appeal. At this juncture we would like to refer to the provision contained in rule 8(8)(b) according to which in computing the actual cost of an asset, the amount of any grant, subsidy, rebate or commission and the value of any assistance (not being in the nature of any loan repayable with or without interest) received by an assessee from Government or any other authority or person and any deduction or allowance admissible under this Ordinance or the repealed Act shall be excluded. In view of this provision the dispute arose between the department and assesses; if a tax credit allowed under section 107 is to be excluded from the cost of an asset for the purpose of determining the value of plant or machinery for the purpose of depreciation, under clause (b) of sub-rule (8) of rule 8 of the Third Schedule. The reason for dispute on this point was that W.D.V. was to be worked out for the purpose of clause (7) of rule 8 and ultimately for allowing depreciation under rule 2 in accordance with the provision contained in rule 8(8). It was no bodies' case at any stage that the provision contained in rule 8(8) of the Third Schedule are not to be considered for the purpose of computing depreciation allowance because the condition of admissibility of depreciation as contained in rule 1 were satisfied. It was ultimately held by this Tribunal vide judgment reported as 1987 PTD (Trib.) 116 that tax credit is not to be excluded from the value of plant or machinery for the propose of depreciation under clause (b) of sub-rule (8) of rule 8 of the Third Schedule. The point in issue was not decided in favour of assessee for the reason that rule 8(8)(b) was not applicable but for the reason that the tax credit admissible under the Income-tax Ordinance was neither a deduction nor an allowance and it was a concession allowed by the Government. Rule 8(8)(b) has been referred just to demonstrate that the provision contained in rule 8(8) have always been made applicable for the purpose of rule 8(7) for working out the written down value. It is established principle of the legislation and interpretation of statute that the legislature has the authority to create any fiction of law and so long, any provision creating any fiction of law is on the statute book it is to be given same treatment as if it exists in reality. There are large number of deeming provisions in the Income-tax Ordinance containing fiction of law and the provision contained in rule 8(8)(a) is one of those provisions. In this provision the- legislature has prescribed the maximum limit of the cost of asset to the assessee in respect of passenger transport vehicle not plying for hire for the purpose of taking W.D.V. on the basis of which depreciation is to be computed. The maximum limit in this behalf has been enhanced from time to time. It started from one hundred thousand rupees and now it is six hundred thousand rupees.

17. For the foregoing reasons it is held that the provisions contained in Third Schedule' to the Income Tax Ordinance, 1979 are very clear on the point under consideration. There is no ambiguity and the provisions are not susceptible to two interpretations. When the provision of law is clear, the language of the provision is to be seen only and no other consideration of hardship or harshness is to be taken into consideration.

18. Mr. Khalil Waggan while referring to Circular No.26 of 1988 issued by the C.B.R., contended that the legislature has not made any distinction in the financial lease and operative lease. We are persuaded to agree with his submission and it is held that while computing depreciation allowance in the case of leasing company etc. in accordance with the provision contained in Third Schedule no distinction is to be made irt financial lease and operative lease. Similar treatment is to he given to both kinds of leases.

19. Mr. Khalil Waggan lastly argued that since in the case of leasing company the road transport vehicle is used by the lessee, therefore, it is not possible to ascertain if it is to be plied for hire or not and thus the provision contained in rule 8(8)(a) should not be applied to a leasing company. We do not find any substance in the contention. The reason being that Mr. Khalil Waggan has admitted that till the transfer of title to the lessee on payment of nominal charges after payment of all the instalments agreed upon between the leasing company and the lessee the ownership of the road transport vehicle remains with the leasing company. The vehicle is got registered with the Excise and Taxation Authority by the leasing company. Thus, when the leasing company gets a road transport vehicle, registered with the Excise and Taxation Authorities it is fully known whether the vehicle is to be plied for hire or not. The vehicles registered for plying for hire are given different registration numbers that the vehicles registered for not plying for hire. The rates of motor vehicle tax in respect of vehicles' not plying for hire and vehicles plying for hire are also different. Thus, there could be no difficulty in knowing whether the vehicle is to be plied for hire or is not to be plied for hire. Mr. Khalil Waggan has not contended that the vehicle is given on lease to the lessee and, therefore, it should be treated to be plying for hire. However, this issue was raised earlier before us and stands decided against the assessee in the judgment reported as 1997 PTD (Trib.) 1447.

20. For the foregoing reasons it is held that the provision contained in rule 8(8)(a) of the Third Schedule are fully applicable to a leasing company. The objection in this behalf is, therefore, repelled. The treatment given by the department in this behalf is hereby upheld.

21. The second objection raised on behalf of the appellant is that the learned C.I.T.(A) was not justified in confirming the action of Income-tax Officer, disallowing loss on sale of leased assets at Rs.47,49,706. A perusal of the assessment order shows that the loss claimed on sale of leased assets amounting to Rs.47,49,706 was disregarded for the reason that the assets were part of the assessee's balance sheet on which the assessee company has been claiming depreciation from year to year and the entire class of assets has not been sold. It was observed that loss on these assets cannot be claimed as a deduction from the income as per Third Schedule because value of assets sold is, to be adjusted for purpose of depreciation and the assessee company has already adjusted its depreciation schedule. The learned C.I.T.(A) confirmed the treatment. Mr. Khalil Waggan, learned counsel for the appellant has submitted that the Assessing Officer as well as learned C.I.T.(A) fell in error by not applying proviso (2) to rule 7 of the Third Schedule which was omitted by Finance Act, 1991. He has submitted that the appeal pertains to the-assessment year 1990-91 and, therefore, the proviso (2) to rule 7 is applicable. The learned D.R. has conceded on this point. With the consent of learned representatives for the parties the issue is set aside with the direction to decide it afresh in the light of proviso (2) to rule 7 of the Third Schedule as it stood before its omission by Finance Act, 1991.

22. The third objection raised on behalf of appellant is to the various disallowances in the profit and loss account under the heads travelling and motor vehicle expenses, communication expenses, office expenses and amortisation of differed costs. Mr. Khalil Waggan has frankly conceded that there is no provision in the Income Tax Ordinance, 1979 in respect of amortisation. So far other disallowances are concerned they are reasonable which are hereby maintained.

23. The last objection is to the disallowance of financial charges at Rs.1,36,452. A perusal of the assessment order shows that the Assessing Officer disallowed financial charges at Rs.1,36,452 for the reason that it pertained to the investment made for earning exempt income. Mr. Khalil Waggan has submitted that the assessee was not confronted on this point and in fact no investment has been made for earning exempt income out of the borrowed capital. The learned D.R. has conceded that the assessee was not confronted on this issue. The finding in this behalf is, therefore, set aside with the direction to decide the issue afresh after confronting the assessee on this point and after examining the material produced if any by the assessee.

24. The appeal stands disposed of as above.

C.M.A./573/Trib.Order accordingly.