I.T.A. No.1296/KB of 2003, decided on 2nd November, 2004. VS I.T.A. No.1296/KB of 2003, decided on 2nd November, 2004.
2006 P T D (Trib.) 1356
[Income-tax Appellate Tribunal Pakistan]
Before S. Hasan Imam, Judicial Member and Shaheen Iqbal, Accountant Member
I.T.A. No.1296/KB of 2003, decided on 02/11/2004.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.107-AA---Tax credit for investment---Assessee claimed tax credit for investment on plant and machinery---Assessing Officer noted that cost of plant and machinery purchased prior to July, 2000 was also included in the claim for tax credit for investment---Assessing Officer, after deducting amount of purchases prior to July, 2000, allowed tax credit for investment at 10% of the balance amount---Assessee contended that time limit provided in S.107AA of the Income Tax Ordinance, 1979 related to installation period viz. between 1st July, 2000 to 30th June, 2002 and not to period of investment---Such fact had nothing to do with the purchase of machinery---Machinery, if purchased before June, 2000 to July, 2002 (time limit) even then the assessee shall be entitled to tax credit under S.107AA of the Income Tax Ordinance, 1979, if it was installed within the prescribed period viz. between 1st July, 2000 to 30th June, 2002---Validity---Period of installation of machinery was immaterial and left to the assessee to install at any time---Contrary to this for earlier period the tax credit investment in purchase of machinery had been made mandatory within the period prescribed under S.107AA of the Income Tax Ordinance, 1979---Words "where no tax payable in respect of assessment year relevant to the income year in which such plant or machinery was installed" were very much clear to hold that installation period was not restricted but it was investment, for which a specific period had been provided under S. 107AA of the Income Tax Ordinance, 1979---First Appellate Authority was not justified to allow tax credit as the plant and machinery had been purchased prior to stipulated period viz. between 1st July, 2000 to 30th June, 2002.
I.T.A. No. 242/KB of 1981-82 and 1986 PTD 105 ref
1986 PTD (Trib.) 105 and 1993 PTD (Trib.) 695 irrelevant.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 107-AA & 107---Tax credit for investment---Key terms in Ss.107 & 107AA of the Income Tax Ordinance, 1979 are "an amount invested in purchase of plant and machinery" and the time period for installation, are left open to facilitate the assessee to claim credit in the year the machinery is installed and also to carry it forward, if the whole claim is not adjusted against the tax demand in that particular year.
PLD 1977 SC 164 and PLD 1988 SC 534 rel.
Gohar Ali, D.R. for Appellant.
Salman Pasha for Respondent.
Date of hearing: 20th July, 2004.
ORDER
The Department through an appeal captioned above has challenged the verdict of the learned CIT(A) recorded vide order dated 23-4-2003. Deleting the disallowance of tax credit under section 107AA, on the ground that plant and machinery has been purchased prior to 1st July, 2000, whereas no credit of investment is available for the period and because installation certificate required under law has not been produced.
2. The facts leading to present appeal as narrated in the assessment order are that, assessee claimed tax credit for investment under section 107AA of the Income Tax Ordinance, 1979 (Repealed) on plant and machinery at Rs 66,081,079. The assessing officer on perusal of the records, noted that cost of plant and machinery purchased prior to July, 2000 was also included in the claim for tax credit for investment under section 107AA, whereas in his view, no credit of this investment was available for this period hence after deducting the amount of purchases prior to July 2000, he allowed tax credit for investment under section 107AA at 10% of the balance amount, which worked-out at Rs.15,289,550 out of total claim of Rs.66,081,079.
3. The details showing LCs opened and payments made are as under:-
30th June, 2000??????????????????????????????????? Rs. 50,791,510 (not allowed)
July, 2000 to September, 2000Rs. 15,289,560 (allowed)
4. As against the order of the assessing officer disallowing the credit for investment made before 30th June, 2000 at Rs. 50,791,510, the learned CIT(A), directed that tax credit of Rs. 66,08,107 be allowed as a whole as against the amount allowed at Rs. 15,28,956. The ratio of the order of the learned CIT(A) is hereunder:-
"Section 107AA requires that where an assessee being a Pakistani Company invests any amount in the purchase of plant and machinery for installation at any time between July, 2000 and June, 2002 is entitled 10% tax credit under section 107AA.
The crucial word is "Installation" for which dates have been specified, the legislature has stated that invest any amount for installation, the word "and" has not been used to indicate dates for simultaneous of purchase and installation."
5. Heard the learned representatives of the two parties. The learned D.R. argued that the assessee has claimed tax credit under section 107AA of the Income Tax Ordinance, 1979 at 10% on investment on plant and machinery amounting to Rs.66,08,107. The evidence of investment indicates that major investment in plant and machinery has been made prior to June, 2000 and investment during this period does not qualify for admissibility of tax credit under section 107AA, hence credit under section 107AA for the investment made before 30th June, 2000 at Rs. 50,791,510 cannot be allowed, whereas credit for an amount of Rs.15, 289,560 invested during the period from July, 2000 to September 2002 has already been allowed.
6. The learned D.R. further stressed that the record in this respect is crystal clear, as from the details filed by the assessee itself. It is very much apparent that the aforesaid additions made are in respect of plant and machinery purchased prior to cut off date as stipulated under the law, hence the impugned investment does not qualify for the benefit of tax credit at the rate of 10% of investment made under section 107AA of the Income Tax Ordinance, 1979.
7. The learned counsel for the assessee on the other hand while vehemently opposing the version of D.R. argued that the assessee an industrial undertaking , invested an amount for purchase of plant and machinery for installation within the accounting year ended on 30th September, 2002 whereby fulfilled the following conditions hereunder laid down in section 107AA, enabling assessee to claim credit of 10%:--
(a) It should be Pakistani company
(b) Invest any amount in purchase of plant and machinery for installation at any time between 1st July, 2000 to 30th June, 2002.
8. It is added that the time limit provided in section 107AA relates to installation period viz. between 1st July, 2000 to 30th June, 2002 and not to period of investment, hence it has nothing to do with the purchase of machinery, as such, if machinery is purchased before June, 2000 to July, 2002 (time limit) even then the assessee shall be entitled to tax credit under section 107AA, if it is installed within the prescribed period viz. between July, 2000 to June, 2002. In this context the learned Counsel for the assessee placed reliance on I.T.A. No. 242/KB of 1981-82, and 1986 PTD (Trib.) 105.
9. The argument of learned A.R. of the respondent is to the effect that a simple reading of subsections of section 107AA if read together with section 107A would make it clear that machinery purchased shall have no significance till it is installed as time limit relates to period of installation and as assessee has installed entire machinery within this period, hence it is entitled for, tax credit under section 107AA on production of installation certificates. In these circumstances, the learned A.R. has tried to suggest that emphasis is only on the installation of machinery within the prescribed period and the word "investment" has no significance with respect to the period specified in section 107AA, as such irrespective of the date of investment, credit will be allowed in case machinery is installed during the period between 1st July, 2000 and June, 2002.
10. We are however, not in agreement with the learned counsel for the assessee for the sole reason that section 107AA is itself clear to show that the tax credit is available where a company "invest any amount in the purchase of plant and machinery for installation" within the period stipulated therein. It is worthwhile mentioning that explanation to section 107AA added through the Finance Ordinance, 2000 also inter alia uses the same terminology to that of section 107 i.e. where any assessee "invest any amount in the purchase of plant and machinery for installation" within a specified time limit, it would be entitled to tax credit. Key terms in sections 107 and 107AA are "an amount invested in purchase of plant and machinery" and the time period for installation, are left open to facilitate the assessee to claim credit in the year the machinery is installed and also carry it forward, if the whole claim is not adjusted against the tax demand in that particular year. In these circumstances, we are not in a position to go beyond the clear terms of section 107AA. In this context reliance is placed upon a case of Bank of Bahawalpur v. Chief Settlement Commissioner, PLD 1977 Supreme Court 164 and Iftikhar Ahmed v. President National Bank of Pakistan, PLD 1988 SC 534. The ratio of the orders is:
"Where a term or phrase has been defined or assigned a definite meaning or definition in a section of statute then the same meaning/definition is to be assigned to that word or phrase, whenever it reoccurs in other section or provision of the statute, where it is in consonance and fits in with the subject and context or, the latter section or the provision."
11. The aforementioned observations fully apply in the present case as section 107AA deals with the availability of tax credit within a prescribed time pertaining to investment in plant and machinery. The issue would be more clear by mentioning that section 107AA has been enacted through the Finance Ordinance, 2000. The Budget Speech dated 17-6-2000 in this context also deals with the objective behind the introduction of section 107AA which is reproduced as below:-
"86. Encouragement of new investment and modernization of existing plant and equipment is critical for rapid industrial development. Under the investment policy a liberal first year allowance ranging from 40% to 80% is available to new industries. We are moving another step forward and introducing a provision for tax credit equal to 10% of investment in plant and machinery for new investments and investments for BMR made during two year starting from 1st July, 2000. This tax credit would be in lieu of the first year allowance, at the option of the taxpayer."
12. The contents of the Budget Speech are self-explanatory and leave no doubt, and are crystal clear to show that the intention behind the introduction of new section 107AA is to encourage the new investments for purposes of modernization of plants and equipments so as to encourage "Rapid Industrial Development". In fact it is another favourable step forward with a view to introduce a provision to provide incentive by way of tax credit, where investment in plant and machinery is made.
13. Subsection (3) of section 107 AA also goes to prove that the time period specified in section 107AA is in respect of investment. Subsection (3) provides that in case no tax is payable in respect of assessment year relevant to the income year in which such plant or machinery is installed or tax payable is less than the amount of credit, or so much on it, as in cases thereof shall be carried forward and deducted from the tax payable in the immediate following assessment year which means that period of installation of machinery is immaterial and left to the assessee to install at any time. Contrary to this for earlier the tax credit investment in purchase of the machinery has been made mandatory within the period prescribed under section 107AA. The words "where no tax payable in respect of assessment year relevant to the income year in which such plant or machinery is installed" are very much clear to hold that installation period is not restricted but it is investment, for which a specific period has been provided under section 107AA.
14. The cases relied upon by the assessee narrate the ratio here-under: --
1986 PTD (Trib.) 105.
"The requirement of installation of plant before admissibility of tax credit clearly indicates that total cost of plant upto the installation stage has to be considered as amount invested in the purchase of plant and machinery within the income year in which it is purchased.
Machinery purchased has no significance till it is installed. The appellants have purchased and installed machinery within the stipulated period prescribed in section 107AA. "
1993 PTD Tax 685:--
(A) Section 107: Tax credit thus can only be available to the assessee in the year in which machinery is installed and not in any other year ?
(B) In other words tax credit can only be available to the assessee in the year in which machinery is installed and not in any other year.
(C) However, subsection (3) of section 107 indicated that if excess credit cannot be adjusted against the income it can be carried forward in the next year but credit can only be allowed in the year in which the machinery is installed.
(D) In this case, the machinery to the extent. of Rs.39,780 was installed in the assessment year 1978-79 and the assessee did not prefer any claim.
15. The orders relied upon by the assessee and ratio reported above too are also not relevant. The reported judgment viz. 1986 PTD (Trib.) 105 is quite irrelevant. In that case assessee claimed tax credit on installation of plant after 1-7-1978 whereas the Income Tax officer disallowed the claim for the reason that machinery was purchased before 1-7-1978, hence the learned CIT(A) was justified in the reported case in allowing the claim. Income Tax Appellate Tribunal, therefore, rightly observed that Income Tax Officer blew hot and cold in the same breath while disallowing the depreciation for the reason that plant had not gone into production before 1st July, 1978 and then disallowed the tax credit because it was installed before that date. In the circumstances, the case law reported above, also cannot be relied upon being not relevant.
Judgment reported as 1993 PTD (Trib.) 695 is also not relevant as the verdict in this appeal pertains to (i) amount of tax credit under section 107 shall be deducted from the tax payable by the assessee in respect of income year in which the machinery or plant, in the purchase of which the amount referred invested is installed, (ii) tax credit can only be available in the year in which machinery is installed, (iii) excess credit if cannot be adjusted against the income, it can be carried forward in the next year, (iv) credit can only be allowed in the year in which the machinery is installed.
16. In the circumstances supra, no reliance can be placed on the above two judgments. We are also of the considered opinion, for the reasons recorded above, that the learned CIT(A) is not justified to allow tax credit under section 107AA at Rs.50,791,510 as the plant and machinery for this amount has been purchased prior to stipulated date viz. 1st July, 2000 to June, 2002.
17. Appeal accordingly allowed.
C.M.A./540/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal allowed.