I.T. AS. NOS. 1100/KB AND 707/KB OF 1997-98, DECIDED ON 30TH JULY, 1998. VS I.T. AS. NOS. 1100/KB AND 707/KB OF 1997-98, DECIDED ON 30TH JULY, 1998.
1999 P T D (Trib.) 1346
[Income-tax Appellate Tribunal Pakistan]
Before S. M. Sibtain, Accountant Member and Tahseen Ahmed Bhatti, Judicial Member
LT. As. Nos. 1100/KB and 707/KB of 1997-98, decided on 30/07/1998.
Income Tax Ordinance (XXXI of 1979)---
----S.23(1)(v)---Depreciation allowance on leased assets---Method for calculation of unabsorbed depreciation ---Assessee a Banking Company derived income under the head "business and profession" and included income from lease rentals against assets leased out by it---Assessing Officer restricted the depreciation allowance of leased assets up to the net income from lease rentals after making all deductions and allowances under S.23, Income Tax Ordinance, 1979 except depreciation allowance---Validity---First Appellate Authority directed the Assessing Officer that the allowance for depreciation in respect of leased assets should be allowed against assessee's business income for the year but the depreciation allowed would not exceed from that portion of assessee's gross business income which comprised gross income from lease rentals---Finding of First Appellate Authority was confirmed by the income Tax Appellate Tribunal.
PLD 1960 SC (Pak.) 168 ref.
Amjad Jamshed, D. R. and Chaman Lal, DCIT for Appellant. Fatehali W. Vallani, Abdul Mateen and Miss Dhaleh Akbar for Respondent.
Date of hearing: 22nd April, 1998.
ORDER
S. M. SIBTAIN (ACCOUNTANT MEMBER). ---These two appeals are instituted at the instance of the Department against orders recorded by the learned CIT(A) in I.T.A. No.358/A-VI, dated 22-9-1997 (1994-95 under section 132) and in I.T.A. No.289/VI in respect of assessment order for assessment year 1995-96, on 8-7-1997.
2. The objection taken, on behalf of the Department, in I.T.A. No. 1100/KB of 1997-98 (Assessment year 1994-95 under section 132) is to the finding of the learned CIT(A), dated 22-9-1997, that depreciation on leased assets is to be allowed to the extent of lease rental receipts and I.T.A. No.707/KB of 1997-98 (Assessment year 1995-96 under section 62) objection is taken to the order of the learned CIT(A), dated 8-7-1997, on the following ground:
"That the learned CIT(A) was not justified in allowing assessee's application under section 156 and thereby setting aside the issue of restriction of Tax depreciation on leased assets, which issue was initially confirmed in the original 1st Appeal order, dated 24-6-1997, bearing I.T.A. No.239/A-VI, dated 24-6-1997, because the assessee had normal Banking Business (as well), with common Management and common pool of fund. Hence, of necessity first of all, income from lease rental was to be determined, for allowing tax depreciation there against as per section 23(1)(v) of the Income Tax Ordinance, 1979 as amended vide Finance Act, 1994. "
3. The appeal memo for the assessment year 1995-96 has been received by the Registrar on 4-10-1997 while it is required to be filed by 29-9-1997 in accordance with law. The learned C.I.T. has submitted an application requesting condonation of delay which, according to him, is caused due to rush of work on account of last date of filing of returns of income falling on 30-9-1997 and subsequent preparation of reports on the data complied from such reports required by the C.B.R. We find that these are valid reasons for delay which is hereby condoned.
4. We have heard the learned Representatives of the Department as well as the learned counsels of the respondent. The finding of the learned CIT(A), impugned in these two appeals, is being reproduced hereunder for convenience of reference:
"I have considered the A.R.'s argument and have gone through the appellate order for the assessment 1995-96. The contentions of the A.R. appear to be correct in view of the fact that in assessment 1994-95 I have clearly after considering all the material and contentions raised by the department had set aside the order to be reconsidered with the following findings:
The disallowance of depreciation on leased assets by restricting it to the net income from lease rental, is set aside with the direction to the D.C.I.T. to reframe the order after allowing the appellant a proper opportunity and considering the clarification issued by the C.B.R.'s vide Circular 6 of 1994.
Following the decisions given by me in assessment 1994-95 on this issue, I recall the following paragraph from page 2 of the Appellate Order Nd.289/VI, dated June 24, 1997:
After considering the aforesaid submissions of the learned A.R.; I am of the opinion that the action taken by the assessing officer in restricting the depreciation allowance income from leased assets was in accordance with law. The provisions of section 23(1)(v) are quite clear and unambiguous in that restriction is not up to lease rentals but up to 'income from lease rentals only'. Consequently any inference to loose phraseology employed in the C.B.R. Circular not being in accordance with the provisions of the ordinance and hence not binding upon the assessing officers, is irrelevant. On this issue I define no interfere.
The aforesaid paragraph should now be read as follows:
The disallowance of depreciation on leased assets is being set-side as in the assessment year 1994-95 with the direction to the D.C. I.T. to reframe the order after allowing the appellant proper opportunity and considering the clarification issue by the C.B.R's. Circular 6 of 1994."
5. Briefly the facts are that the assessee is a banking company incorporated outside Pakistan and during the assessment year, has carried on the business of banking in Pakistan. It has a banking licence under the Banking Companies Ordinance and is a scheduled bank. Its income is chargeable under the head "income from business or profession" and comprises business income under section 22 of the Income Tax Ordinance, 1979. This business income arises from the assessee's business which it carries on as a scheduled bank and includes income arising paid or payable to the assessee for assets leased out by it. An allowance of depreciation is admissible under the Third Schedule on the value of such leased assets.
6. The issue in this case relates to the rider regarding depreciation on l9ased assets introduced in section 23(1)(v) by the Finance Act, 1994.
7. The learned CIT(Appeals) has held that, in computing the assessee's income from business and in order to give effect to the rider, the allowance for depreciation in respect of leased assets should be allowed against the assessee's business income for the year but so that the depreciation allowed does not exceed that portion of the assessee's gross business income which comprises gross income from lease rentals. The learned D.C.I.T. does not accept this ruling and insists that the depreciation allowance for leased assets should not excess the assessee's not income from lease rentals arrived at after making all deductions and allowances under section 23 from the gross income from lease rentals except the allowance for depreciation.
8. The method employed by the learned D.C.I.T. and the method employed by the respondent in the assessment year 1994-95 is being reproduced hereunder for the sake of clear understanding of the impugned issue:
As per Assessment order Depreciation on Leased Assets???????????????????????? 142,833,990 Less: Net Rental income Lease Rentals?????????????????????????????????????? ?? 139,870,900 Less: Proportionate Expenses Total Expenses as pr P/ L???????? x Lease Rental Total income as per P/L 423,238,916??? X 139,870,900??????????????????????? =? 95,967,223????????????????????????? 43,903,677 616,864,865 Unabsorbed depreciation to be carried forward???????????????????????? 98,930,313 As Per Return of Income Depreciation on Leased Assets ??????????????????????????????????????????????????????????? 142,833,990 Gross Rental Receipts????? ???????????????????????????????????????????????????????????????????? 139,870,900 ?????????????????????????????????????????????????????????????????????????????????? ???????????????????????? __________ Unabsorbed depreciation to be carried forward???????????????????????? 2,963,090 |
9. The relevant provision of law as stipulated in clause (v) of subsection (1) of section 23 of the Ordinance is also being reproduced hereunder and the rider added therein by Finance Act, 1994 is being underline.
Section 23(1) so far as relevant and its clause (v) read as follows:---
"In computing the income under the head 'income from business or profession', the following allowances and deductions shall be made namely:---
(v) in respect of depreciation of any 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.
10. The view canvassed on behalf of the respondent before the learned CIT(A) as well as before us is that the word "income" as used in the rider supra, in the context of lease rentals, means the gross lease rental and not the sum arrived at after deducting, from such gross rentals, the expenses incurred, other than the depreciation, to earn such rentals.
11. It is submitted by Mr. Fateh ali Villiani, the learned counsel of the respondent, that the incomes referred to in the preamble of section 22 are so chargeable only after making certain allowances and deductions as stated in section 23(1). Similarly, in the preamble of section 23(1), in the phrase "in computing the income", the word "income" means gross income and the allowances and deductions specified therein are required to be made against this gross income for computing the income which is chargeable to tax in accordance with section 22 under the head "income from business on profession. " According to him the income from which depreciation on leased assets must be deducted is also gross income from lease rentals. Reliance has been placed by him, in support of his contention, on the rule of construction anticulated by the Honourable Supreme Court of Pakistan in the case of Muhammad Rashid v. The State, reported in PLD 1960 SC (Pak.) 168 at 17-D: Wherein it is observed:
"This is in accord with the general principle of construction of statutes that a term which occurs more than once in the same Act must be given the same meaning throughout the Act, unless a special definition of the term or the requirement of a context leads to the contrary conclusion. "
12. He has further elaborated his view, placing reliance upon several other decisions articulating principles of interpretation of statutes.
13. We have considered the foregoing facts as well as the relevant provisions of law as laid down under subsection (19) of section 12, section 22, section 23 with specific reference to the rider added to C.(v) (supra), section 34, section 35, and sub-rule (i) of Rule 1 of the Third Schedule to the Income Tax Ordinance, 1979, keeping in view the submissions made by the learned representatives of the two sides.
14. We find that there is no dispute between the learned assessing officer and the assessee over the admissibility of allowances and deductions, including the allowance for depreciation, to be made under clauses (i) to (xx) of subsection (1) of section 23 to compute the income from business including the income from lease rentals. The only issue sought to be resolved is the determination/computation of the amount of allowance for depreciation that shall remain unabsorbed against the income from lease rentals and shall be allowed, as per rider supra, against income from lease rentals only.
15. It transpires on consideration of the facts supra that respondent's income both from banking as well as leasing of assets is chargeable to tax and both operations are controlled and managed jointly requiring or prorating of operational expenses. The only exception provided in law for computing income from lease rentals, in cases of assessees who have income from business operations other than leasing business as well or have income under other heads also during the year, is that the allowance for depreciation to be made on any machinery or plant given on lease by such assessee shall be allowed against its income from lease rentals only. It shall neither be set off against income from either any other business or under any other head during the year nor against income from any other business in any succeeding year.
16. Thus, the only method to compute/determine the amount of allowance for depreciation that may remain unabsorbed against income from lease rentals is to adjust the amount of such allowance for depreciation first against the amount of lease rentals received by the assessee and then any other allowance or deduction provided under other clauses of subsection (1) of section 23 alongwith income from any other business so 8 that any excess of admissible allowance for depreciation over the income from lease rentals is carried forward under section 35 to be adjusted against the income from lease rentals of the subsequent year or years as the case may be.
17. Accordingly, we confirm the impugned orders of the learned CIT(A) and dismiss the appeals.
C.M.A./17/Trib. ????????????????????????????????????????????????????????????????????????????????? Appeals dismissed.