I.T.AS. NOS.897/LB OF 1998 AND 2893/LB OF 1997 VS I.T.AS. NOS.897/LB OF 1998 AND 2893/LB OF 1997
2001 P T D (Trib.) 1052
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman, Khawaja Farooq Saeed, Judicial Member and Mahmood Ahmed Malik, Accountant Member
I.T.As. Nos. 897/LB of 1998 and. 2893/LB of 1997, decided on 30/11/1999.
(a) Finance Act (XII of 1991)---
----S.12---Corporate Assets Tax---Levy---Validity---Fixed assets ---Meaning- "Work in progress" being fully covered by the term "fixed assets" as used in S:I2(12)(d), Finance Act, 1991 was chargeable to capital assets, tax under S.12(1) read with S.12(12)(d) of the said Act.
PLD 1986 Quetta 148; 1986 PCr.LJ 2917; AIR 1946 Cal. 217 = 225 Ind. Cas. 130; 1996 PTD (Trib.) 286; 1999 PTD 4028; Black's Law Dictionary, 5th Edn.; Dictionary of Accounting Terms, p.174; Dictionary of Accounting and Finance, p.101 and Derek French, 1985 Edn. ref.
(b) Words and phrases-
------ Fixed assets"---Meanings.
Black's Law Dictionary, 5th Edn.; Dictionary of Accounting Terms, p.174; Dictionary of Accounting and Finance, p.101. and Derek French, 1985 Edn. ref.
Shafqat Mahmood Choban and Shahid Bashir, D.R. for Appellant.
Ahmad Mushir Ali Qadri, F.C.A. for Respondent.
Date of hearing: 2nd September, 1999.
ORDER
KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).---This Full Bench has been constituted to settle the controversy that has arisen because of two split views given by the benches of the ITAT. The contradiction which has been noted by the learned Members recommending for Full Bench is in W.T.A. No. 2201/PB of 1996-97 (assessment year 1993-94), dated 30-6-1997 and I.T.A. No. 1872/LB of 1997. The 'Honourable Division Bench, in the first judgment have held that 'work in progress' is not a part of "fixed assets" while in the other judgment the 'work in progress' has been considered to be a part of the "fixed assets" hence liable to, Corporate Asset Tax.
2. The issue involved, therefore, is as to whether "work in progress" is a part of "fixed assets" or not.
Fatima Enterprises, Multan
3. The learned D. R. has argued that' the first appellate authority was not justified in holding that the value of "Fixed Assets" comprises of land and plant and machinery only. He said that capital work in progress connected to the fixed assets also comes within its definition. He argued that the plant and machinery even if lying on the premises and trot installed was very well a 'fixed asset' and chargeable to Corporation Asset Tax. In his opinion the finding of the first appellate authority that the term 'fixed asset' does not include capital work in progress is incorrect. He brought our attention to para. 6 of the order of the CIT(A) wherein the issue has been disposed of in the following manner:
"4. A plain reading of the provision of para. 2 of the Circular No. 17 of 1991 amply testified that the Assessing Officer has charged corporate asset tax on the assets like work in progress, unallocated expenditure and non-operating fixed assets by encroaching the limits defined by the illustration provided in para. 2. While interpreting fiscal provisions, nothing can be added or construed except what is provided in plain language. The very purpose of giving illustration was to limit the scope of the fixed asset within the mischief of CAT' provisions only and not in the broad-based concept of fixed assets according to accounting standards. I, therefore, find force with the argument of the learned counsel and direct that the corporate asset tax charged on the fixed assets valuing Rs. 30,86,16,152 alongwith the additional tax charged thereon be deleted and the CAT return originally filed on assets worth Rs. 7,13,71,130 representing the value of land, machinery and plant only be accepted." '
5. The above para learned D.R. opined, does not discuss the spirit of legislation in true perspective. In his opinion the judgment given in the case of I.A.C., Range II, Companies Zone, Faisalabad v. Aslam Textile Mills, Faisalabad, has correctly interpreted the law. He, therefore, wanted adoption of the same view.
6. The learned A.R., however, said that "work in progress" by no stretch of imagination can be considered as "fixed asset". In his opinion "fixed assets" would mean one which is attached to the ground and not the one which is kept in the boxes for subsequent installation/ fixation. He said that until a plant is installed it cannot be considered as fixed. He referred to ordinary dictionary meanings where the said fixed asset means:--
make firm or stable
Fasten
Secure
Decide
Specify
He, therefore, urged that the order of the CIT(A) should not be disturbed.
M/s. Zahoor Cotton Mills Ltd., Lahore.
7. Mr. Muhammad Afzal, I.T.P. who was present in the case on the same issue showed his inability to say anything. He requested for adjournment which was disallowed as the Full Bench was constituted to decide the controversy and the decision on important issue was awaited since long. In the grounds of appeal it has been said that the CAT is levied on the value of assets held by the assessee and the vires of the same has been challenged before the Hon'ble High Court; So far as vires of the legislation is concerned, the matter has already been decided by learned higher forums against the assessee besides Tribunal having no power on this issue, the assessee's ground cannot be accepted. The other ground, relates to the cost of operating assets. It is said that the operating assets of the company on September 30, 1991 were Rs. 62,19,655 while the IAC has determined the same at Rs. 18,72,73,176 for the purpose of CAT. The balance amount charged to CAT as per ground is "work in progress" on which it is claimed that the tax is not chargeable. It has further been challenged that the additional tax under section 12(8) has also been charged. This, however, being not the subject-matter of the Full Bench, we do not comment on the same.
8. The assessee point of view remained that a fixed asset would be one which is attached to land and which stands installed. The one which is lying in boxes for subsequent installation as per their claim is-not 'fixed asset'. Reliance is on Black's Law Dictionary wherein word "fixed assets" has been defined as under:---
"Property used in operating a business which will not be consumed or converted into cash or its equivalent during the current accounting period, e.g. machinery, land, building, fixtures, contrasted with liquid assets, e.g. cash, securities."
9. Before we give our finding it will be more appropriate to go through the relevant provision of law. The CAT was levied under section 12 of the Finance Act, 1991. It is a one time levy wherein charge has been created on value of assets held by the company in the following manner:--
"Section 12(1).---There shall be charged a tax, hereinafter referred to as Corporate Assets Tax, in respect of value of assets held by a company on the specified date, in an amount and in the manner :specified hereunder."
10. The value of assets has been defined under subsection 12(d) which reads as follows:---
"Value of assets" means the value of all fixed assets held by the company and shown in its balance-sheet as on the specified date."
The specified date and manner have been explained in Circular No. 17 of C.B.R., dated July 1, 1991. The salient features of the law and procedure were explained in the following manner:---
'It is a one time levy payable by a company as defined in the Companies Ordinance, 1984 (XLVII of 1984) in aspect of the value of fixed assets. held by it on the "specified date". The specified date means the date falling in the period between 30th June, 1991 and 30th June, 1992, for which accounts of the company are closed. However, if a company has paid this tax on assets as on 30th June, 1991, it will not be liable to pay this tax on assets as on 30th June, 1992:
2. Value of assets chargeable to tax.
The tax is payable on the value of fixed assets as shown in the balance-sheet. This is explained by the following illustration:
| ILLUSTRATION |
| Liabilities | Assets |
| Authorised capital Capital subscribed and issued Deposits for shares Loans from Directors Sundry Creditors | 20,000,000 10,000,000 1,000,000 1,000,000 1,000,000 13,000,000 | fixed assets (Land and Machinery) Vehicle Stocks Sundry Debtors Cash and Bank Balance | 900,000 500,000 1,000,0110 1,500,000 100,000 13,000,000 |
| | | |
In this case fixed assets chargeable to tax will be Rs. 9,900,000.
11. The above provisions are self-explanatory and the doubt created is unnecessary. This was said by learned D.R. It was also remarked that the assessee produced certificate from the concerned Assistant Commissioner of Central Excise and Sales Tax who certified that the installation of the Machinery was subsequent to the date of import which is of no help to the assessee.
Before we give our finding it will be more appropriate to dilate upon the method in which such provisions are ought to be interpreted. Section 12(12)(d) of the Finance Act, 1991 has used the word 'means' while defining the words 'value of assets'. This is where a restrictive view is to be assigned as when the Legislature uses the word 'means' it does not want to exhaust the significance of the term defined PLD 1986 Quetta 148, 1986 PCr.LJ 2917 + AIR 1946 Cal. 217 = 225 Ind. Cas. 130 (DB). Since this is a settled principle we refer only one judgment being of Pakistan origin which is reported as 1996 PTD (Trib.) 286 wherein the leaned Tribunal held:--
"The meanings of the expression "turnover" as given in the above Explanation are to be construed narrowly and strictly for two reasons; firstly that the definition starts with the word 'means' and where any definition begins with the word 'means' the meanings are to be confined within the four corners of the words used end secondly, the meanings of the word 'turnover' would involve burden on .the citizen and any provisions which imposes any pecuniary -burden on the citizen is to be construed strictly."
The other established principle of law is that if the meaning of a word is not defined in the Act in which it occurs ordinary dictionary meanings can be adopted. Reference is made to 1999 PTD 4028.
In keeping view above principle we now turn to various dictionary meanings. Firstly the term 'fixed assets' as defined by Black's Law Dictionary. 5th Edition mentioned by us earlier says that these are those assets which are used in operation of business and which cannot be consumed or converted into cash or its equivalent during the current accounting period. The definition refers to the property which is used in an operating business. It does not say 'being used' or 'in use'.
14. The meanings assigned to "fixed assets" in the Dictionaries relating to accounting are as follows:---
"Fixed asset.---Item that has physical substance and a life in excess of one year. It is bought for use in the operation of the business and not intended for resale to customers. Examples are building, machinery, auto arid land. Fixed assets with the exception of land are subject to Depreciation, fixed assets are usually referred to as property, plant and equipment."
(Dictionary of Accounting Terms page 174)
Barrons Business Guide)
"Fixed assets".---An asset held for the purpose of providing a service for the business which owns it. It is usually held, therefore, for a relatively long period, hence the term fixed. Examples of fixed assets are land, buildings, machinery, furniture and equipment. Companies are required by the Companies Act, 1985 to show fixed assets under appropriate headings on their balance-sheets. Fixed assets are normally subject to a charge for depreciation."
(Dictionary of Accounting and Finance, page 101)
(First Indian Reprint, 1994)
Further Derek French, 1985 Edition defines the major type of fixed assets as under:---
"(a)intangible assets-development cost, concessions patents, licences, trade marks and similar rights and assets; good-will; payment on account for intangible assets;
(b)tangible assets-land and building; plant and machinery; fixtures, fittings, tools and equipment ; assets in course of construction and payments on account for tangible assets;
(c)investments-shares in and loans to other companies."
15. "Fixed assets" under the dictionary, therefore, are inclusive of both Intangible and Tangible Assets. In Intangible Assets it includes even concessions and patents and trade marks etc. While tangible assets include tolls and other equipment. Even investments in terms of shares and loans advanced to other companies are covered in the same. Further the Dictionaries referred on behalf of Bar define the term "Fixed Assets" as the assets which have a life more than one year and none of the same have restricted it to the assets which are installed and are functional. The term "Fixed" therefore, means the one which can be kept for the longer period and is not meant for sale as a regular part of business. If, however, it is business of the company to purchase and sell machinery, the assets lying in boxes shall definitely not be called as "Fixed Assets" but, however, no distinction is possible between the "work in progress" and the "work finished" so far as machinery, plant and building is concerned. In fact the Derek French, 1985 Edition categorically includes "assets in course of construction and payment on account for tangible, assets". In view of this unequivocal definition in our humble opinion the controversy was unnecessary. Even in the various Accounting Dictionaries there is no such impression that only the machinery fastened to earth is 'fixed assets'. They say that usually it refers to as property, plant and machinery but it does not say installed or attached or functional.
16. In the above lines we have discussed the 'Fixed Asset' in its true perspective which shows respectful disagreement with our learned brothers at Peshawar. Our brothers while considering the 'work in progress' to be outside the purview of CAT have given following finding:--
"The annexed Note No. 10 would show that fixed assets of the company amounted to Rs. 98,10,345 only. Note No. 11 gives the description of capital work-in-progress which mostly contains advances for buildings and land, plant and machinery, mark-up on loan and cost of material meant for electric installation etc. Note No. 12 denotes unallocated capital expenditure incurred on unfinished works."
17. In above para the learned brothers have held that since the capital work in progress mostly contains advance for building and land etc. It is beyond the charge of CAT. Further the machinery was uninstalled hence it was not to be called as 'Fixed Assets'. We respectfully refer to the definitions mentioned supra which include sale payments or accounts for intangible assets as well as tangible assets. We, therefore, while recording our respectful disagreement with them hold' that -the judgment given in the case of Aslam Textile Mills, Faisalabad vide I.T.A. No. 1872/LB of 1997, dated 26-5-1998 gives the correct view.
18. We have gone through the said case as well. The matter has been discussed and dilated upon properly therein. Incidentally the D.R. before us is the same who had represented the department in the said case. He pointed out that the then A.R. had practically conceded on this issue. In the said case the emphasis of the learned A.R. was that the assessment was time-barred. However, the learned Tribunal found that it was not. Notwithstanding the fact that the learned A.R. had conceded, the learned D. B. decided the issue on merits. It has been held that the definition of value of assets in subsection (12) of section 12 of the Finance Act, 1991, means "The value of all fixed assets held by the company and shown in its balance-sheet on specified date". The "Fixed Assets" having not been defined the dictionary meanings were adopted which we have already discussed.
19. As a result the order of the CIT(A) in the case of Fatima Enterprises is cancelled and of the ITO is hereby restored. Similarly the finding of the CIT(A) in the case- of Zahoor Cotton Mills by that the CIT(A) 'work in progress' is fully covered by the term "Fixed Assets" as used in Capital Asset Tax for the charging tax under section 12(1) read with 12(12)(d), is fully justified. The same is hereby confirmed.
20. Order accordingly.
M.B.A./53/Tax(Trib.) Order accordingly.