Messrs ANNOOR TEXTILE MILLS LTD. VS COMMISSIONER OF INCOME-TAX, 2005 PTD-KARACHI-HIGH-COURT-SINDH 2513 (2005)

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

----S. 107---Interpretation of S.107, Income Tax Ordinance, 1979---Tax credit---Benefit of tax credit provided under S.107, Income Tax Ordinance, 1979 is only available- to the assessee over the amount invested by him for the purpose of plant and machinery and not over the expenses incurred by him for its installation---Principles.

1987 PTD (Trib.) 116; Central Insurance Co. and others v. Central Board of Revenue, Islamabad and others (1993) 68 Tax 86 (SC Pak); Challapalli Sugars Ltd. v. Commissioner of Income-tax, A.P. (1975) 98 ITR 167 (SC India); Commissioner of Income-tax (Central) Calcutta v. Standard Vacuum Refining Co. of India Limited (1966) 61 ITR 799 and CIBA of India Ltd. v. Commissioner of Income-tax 1994 PTD 237 ref.

(b) Interpretation of statutes---

----Each provision of law is to be given its simple literal meaning and no word used by the legislature is to be deemed redundant.

Iqbal Salman Pasha for Applicant.

Nasrullah Awan for Respondent.

Date of hearing: 10^th August, 2005.

JUDGMENT

ANWAR ZAHEER JAMALI, J.---By this reference made by the Income Tax Appellate Tribunal Karachi, at the instance of the applicant Messrs Annoor Textile Mills Ltd. following question of law has been referred for the opinion "of this Court in terms of section 136(1) of the Income Tax Ordinance, 1979:---

"Whether Income Tax Appellate Tribunal was justified in holding that the installation charges are not included in the tax credit envisaged under section 107 of the Income Tax Ordinance, 1979?"

2. The relevant facts of the case are that in respect of assessment case of the applicant for the assessment year 1984-85, the Assessing Officer, while dealing with the claim of applicant for tax credit under section 107 of the Income Tax Ordinance, 1979, (hereinafter referred to as the Ordinance of 1979), for installation of machinery amounting to Rs.8,74,943, disallowed their claim for the sum of Rs.85,024 incurred as expenditure on installation of the machinery, and consequently the tax credit of 15% over this amount was not extended to the applicant. In the appeal preferred against such order, the Appellate Assistant Commissioner of Income-tax (Appeals) Karachi, maintained such order of the Assessing Officer with the following observations:---

"The other objections, which pertain to the 1984-85 assessment year, relate against non-allowance of tax credit under section 107 as well as against deduction of erection charges from the value of machinery. Perusal of the order shows that the I.T.O. deducted the amount of tax credit from the original cost of the machinery, and worked out the depreciation allowance on the balance amount. The treatment being in accordance with the provisions of section 107 calls for no interference. The other ground regarding exclusion of erection charges must also fail in view of the provisions of section 107, read with the C.B.R. Circular dated 5-2-1983 which provides that tax credit under the said section is available only on the amount invested in the purchase of plant and machinery and that cost of installation, etc. is to be excluded."

3. The applicant, being aggrieved by the concurrent findings of the two forums against them, preferred an appeal before the Income Tax Appellate Tribunal, Karachi (I.T.A.T.) where again the plea of the applicant for grant of tax credit under section 107 of the Ordinance of 1979, on installation charges of the machinery, was disallowed. Relevant observations of the Tribunal contained in its order dated 8-2-1990 read as under:---

"As far as installation expenses are concerned we confirm the finding of the learned CIT(A) that tax credit under section 107 is not to be allowed on installation expenses because they are not "investment" in 'purchasing' new machinery. Tax credit under section 107 is available on the investment made in purchasing new machinery. Our finding on the interpretation of rule 8(8)(b) of the Third Schedule and admissibility of tax credit under section 107 on installation expenses is in keeping with various decisions on these issues including the case reported as 1987 PTD 116 (Trib.)"

4. The applicant thereafter made reference application before the ITAT suggesting therein several questions to be referred to this Court for its opinion, However, the ITAT has made reference of only one question, as reproduced above, and the request of applicant as regards other questions, was declined. It seems that no further reference application under section 136(2) of the Ordinance of 1979, was made by the applicant.

5. Mr. Iqbal Salman Pasha, learned counsel for applicant, has read before us the relevant provisions of section 107 of the Ordinance of 1979 as well as the Circular dated 5-2-1983 issued by the Central Board of Revenue, Government of Pakistan, in this regard and contended that interpretation of section 107 of the Ordinance of 1979, concurrently made under the hierarchy of the Ordinance of 1979, is unwarranted by law, as not only the amount spent/invested by the applicant/assessee in the purchase of plant and machinery for installation during the relevant period was qualified for grant of tax credit of 15% but the additional amount spent/invested by the applicant/assessee for installation of such plant and machinery, being part and parcel of amount invested in the process of purchase of plant and machinery was also qualified for such tax credit. Making reference to the Circular dated 15-2-1983 learned counsel vehemently contended that it will be only the language of the relevant provision of law, which will form basis for determining the entitlement of tax credit to the applicant/assessee, therefore, the circular elucidating/advancing the interpretation of section 107 of the Ordinance of 1979, contrary to the plea of the applicant/assessee; is of no consequence. To fortify his submissions with specific reference to the rules of interpretation, learned counsel placed reliance on the following cases:---

(1) Central Insurance Co. and others v. Central Board of Revenue, Islamabad and others (1993) 68 Tax 86 (SC Pak).

(2) Challapalli Sugars Ltd. v. Commissioner of Income-tax, A.P. (1975) 98 ITR 167 (SC India).

(3) Commissioner of Income-tax (Central) Calcutta v. Standard Vacuum Refining Co. of India Limited (1966) 61 ITR 799.

(4) CIBA of India Ltd. v. Commissioner of Income-tax 1994 PTD 237.

6. In reply to the above contentions of Mr. Iqbal Salman Pasha, Mr. Nasrullah Awan strongly contended that the interpretation of section 107 of the Ordinance of 1979, concurrently advanced by the Assessing Officer, the appellate Court and the Tribunal, is based on sound judicial principles of interpretation of statute, therefore, such view may be approved and the question of law referred for the opinion of this Court, may be answered in the affirmative. Making further reference to the circular dated 15-2-1983 learned counsel submitted that such circular has neither added nor subtracted anything from the language of section 107 of the Ordinance of 1979 but has only given guideline to the subordinate officers of the Income Tax Department for its correct application. He further contended that even if such circular is kept out of consideration: still from the bare reading of section 107 of the Ordinance of 1979, no other view than the one, followed upto the level of Tribunal, would be justified.

7. In the context of submissions made by the learned counsel before us, we have carefully perused the material placed on record. Before we proceed to examine the respective contentions of the learned counsel it will be advantageous to reproduce hereunder section 107 of the Ordinance of 1979, which reads thus:

"107. Tax credit for replacement, balancing and modernization of machinery or plant.---(1) Where an assessee being a Pakistani company invests any amount in the purchase of the 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, (1991), in an industrial undertaking set up in Pakistan and owned by it, for the purpose of the replacement, balancing or modernization of the machinery and plant already installed therein, credit at the rate of fifteen per cent of the amount so invested shall be allowed against the tax payable by it in the manner hereinafter provided.

Explanation.---As used in this subsection,--

(a) "amount", in case of the plant and machinery acquired on lease, means the amount expended by the lessor in the purchase of the said plant and machinery; and

(b) "purchase of plant and machinery" includes acquisition of plant and machinery on lease from a scheduled bank, a financial institution or a leasing company on such terms and conditions as may be approved by the Central Board of Revenue."

(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.

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8. A bare reading of the above provision of the Ordinance of 1979, in our view, makes it abundantly clear that the benefit of tax credit A provided under this section is only available to the assessee over the amount invested by him for the purchase of plant and machinery and not over the expenses incurred by him for its installation.

9. It is fundamental principle of interpretation of statutes that each provision of law is to be given its simple literal meaning, as evident from its language, and no word used by the legislature is to be deemed redundant. In the present case, the phraseology of section 107 of the Ordinance of 1979 does not bear out the intent attributed to it by the learned counsel Mr. Pasha. If law makers had any intention to also allow tax credit over the expenses incurred by the assessee in the installation of plant and machinery, qualifying for tax credit under section 107, then such intention would have been easily indicated by using some other suitable words or phrases. But nothing to this effect is spelt out from the language of this section.

10. There is no cavil to the proposition of law propounded in the cases cited by Mr. Pasha, but in view of the fact that the language of section 107 of the Ordinance of 1979, clearly demonstrates the intention of law makers that the amount spent on the installation of plant and machinery would not form part of the amount invested on the purchase of plant and machinery, qualifying for tax credit under section 107 of the Ordinance of 1979, same are of no help to the case of the applicant.

11. For the foregoing reasons, the question referred for opinion of this Court, is answered in the affirmative. A copy of this judgment under the seal of the Court and the signature of the Registrar, shall be sent to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.

M.B.A./A-237/KReference answered in the affirmative.