VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1206 (2008)

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

----S.62---Assessment on production of accounts, evidence etc.---Estimation of receipts after rejecting the declared receipts---First Appellate Authority observed that notices were issued twice and books of account were also checked---Nothing was detected by the Assessing Officer even in second scrutiny of account---No specific defects having been pointed out by the Assessing Authority, the directions made by the First Appellate Authority to accept the' declared version was legally justified.

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

----Third Sched. R.2---Rate of depreciation allowance---Hospital building---Allowing depreciation @ 10% by the First Appellate Authority by declaring the hospital building to be a factory building---Validity---Equipment/machinery used in hospital could not be equated with the machinery which was used in a factory with the objective of manufacturing/making production of various kinds---If using machinery equipments by any establishment was allowed to be treated as factory building, every house-hold where different kinds of machinery were used i.e. computer electric gadget even generators, might fall within the ambit of definition of factory building---If the hospital building was to be declared factory building then the industrial law attracted to the factories would have to be applied to the hospital as well---First Appellate Authority erred in law while declaring the hospital building to be "factory building"---Depreciation allowed @ 10% was not sustainable in the eye of law---Order of First Appellate Authority was vacated by the Appellate Tribunal while that of Assessing Officer allowing depreciation @ 5% was restored.

Ghazanfar Hussain, D.R. for Appellant.

Qamar Rashid, A.C.A. for Respondent.

ORDER

The captioned two appeals pertaining to the assessment years 2001-02 and 2002-03 have been preferred at the instance of the revenue, calling in question two separate orders, dated 12-4-2005 and 25-6-2005 passed by the learned C.I.T. (A), Zone-I, Lahore. The department has objected to the findings recorded by the learned first appellate authority whereby he directed to accept the declared version as well as allowing depreciation of building @ 10%. Relief allowed to the assessee under different heads of P&L account has also been contested.

2. The facts relevant for disposal of present appeal are that the assessee is a private limited company, deriving income from running a hospital under the, name and style of Doctors Hospital, Lahore. Return for both the assessment years under appeal were filed declaring loss of Rs.5,74,01,669 and Rs.7,05,97,942. Since the assessee declared loss, the case of the assessee did not qualify under S.A.S., hence the same was taken out of the ambit of S.A.S. and the assessment was framed under normal law. Requisite statutory notices pointing out various defects and discrepancies were duly issued. The Assessing Officer was not satisfied with the reply furnished by the learned A.R. of the assessee which led to the rejection of the declared version. The Income Tax Inspector was also deputed to verify the claim of assessee as well as to ascertain the true picture with regard to the affairs of the assessee company. On the basis of Inspector's report as well as deficiencies found in the books of account produced by the company, results declared by the assessee were discarded and receipts were estimated under different heads while add-backs were also made out of P&L account for the reasons that the same were un-vouched and unverifiable.

3. Appeal filed by the assessee was accepted by the learned first appellate authority who vide orders, dated 12-4-2005 and 25-6-2005 directed to accept the declared version of the assessee, relief was also allowed with regard to add-back made under different heads of P&L account. Stance of the assessee on the issue of depreciation allowance on the building was also accepted whereby the hospital building having been treated as factory building, the depreciation was allowed @ 10% instead of 5% allowed by the Assessing Officer. The department is in further appeal assailing the same.

4. The learned D.R. has strenuously argued the case and contended that hospital in question being run by the assessee company is one of the most expensive hospital at .Lahore. It was argued that the Assessing Officer rightly excluded the case from the ambit of S.A.S. for both the assessment years under appeal because company declared huge losses: It was further stated that the assessing authority passed a detailed assessment order while taking each and every aspect of the case into account. The learned D.R. submitted that the assessee company was duly confronted through statutory notices regarding the defects and deficiencies obtained on the record. It was also pointed out that the Assessing Officer while rejecting the learned A.R's. pleas, confirmed the same through report furnished by the Income Tax Inspector. The learned D.R. also highlighted pages 9, 10, 11 and 12 whereby Inspector's report was inserted.

5. Commenting upon the issue of allowing of depreciation @ 10% by declaring the hospital building as a factory building, the learned D.R. averred that use of machinery/medical equipments necessary to provide services to the patients, does not make it a factory which is established with the object of the making production/manufacturing and also the fact that many other industrial laws are also attracted to such establishments. The learned D.R. summed up that the learned first appellate authority erred in law while allowing depreciation @ 10% by declaring the hospital building to be a factory building. Besides, the learned C.I.T. (A) was also not justified in making direction to accept the declared version of the assessee.

6. The learned A.R. has also opposed the arguments advanced by the learned D.R. It was submitted that impugned judgment passed by the learned C.I.T. (A) was as per law and facts of the case. It was contended that rejection of books of account by the Assessing Officer, was based on conjectures and misconception. It was highlighted that defects pointed out by the Assessing Officer were totally irrelevant and bore no relation with the rejection of books of account. It was further stated that explanation tendered by the assessee was totally ignored. The learned A.R. also pleaded that the report submitted by the Income Tax Inspector was misconstrued and wrongly .appreciated. It was entreated by the learned A.R. that the acceptance of the declared version by the learned appellate authority was quite in consonance with the law and facts of the case.

7. We have heard the learned counsel for both the parties and have also gone through the relevant orders. On the issues of directions with regard to acceptance of declared version of the assessee, we do not see any merit in the arguments addressed by the learned D.R. Perusal of the assessment order shows that only few discrepancies were detected with regard to issuance of vouchers and their subsequent recording in the respective books. It is pertinent to refer to the observations made by the learned C.I.T. (A) that notices under section 62 were issued twice and books of account were also checked. However, nothing was detected by the Assessing Officer even in the second scrutiny of account. It is also worth noting that Income Tax Inspector report estimated receipts of Angiography/Mammography/Physiotherapy at Rs.5,00,000 but the Assessing Officer estimated the same at Rs.38.6 million rejecting the declared receipts of Rs.22.8 million. In this view of the fact, we are of the considered view that no specific defects could be pointed out by the assessing authority, therefore, the directions made by the learned first appellate authority to accept the declared version was legally justified.

8. However, on the issue of allowing depreciation @ 10% by declaring the hospital building to be a factory building is beyond comprehension. We do not find ourselves in agreement with the learned fist appellate authority on this issue. Obviously, the equipment/machinery which is used in hospital could not be equated with the machinery which is used in a factory with the objective of manufacturing/making production of various kinds. For the sake of convenience, dictionary meaning of two words, "Factory" and "Hospital" are being reproduced as below:---

"Factory":---a building or buildings in which things are manufactured.

"Hospital":---an institution providing medical, surgical, or psychiatric testing and treatment for people who are ill, injured, pregnant, etc. on an inpatient, outpatient, or emergency care basis often involved with public health programs, research, medical education, etc.

At this stage we would like to observe that if using machinery equipment by any establishment was allowed to be treated as factory building, very house-hold in Pakistan where different kind of machinery is used i.e. computer, electric gadget even generators, might fall within the ambit of definition of factory building. Additionally, we are also in conformity with the arguments advanced by the learned D.R. that if hospital building is to be declared factory building then the industrial law attracted to the factories would have to be applied to the hospital as well.

9. In the light of our foregoing discussion we tend to observe that the learned first appellate authority erred in law while declaring the hospital building to be factory building, hence depreciation allowed @ 10% is not sustainable in the eye of law. Therefore, order of the learned C.I.T. (A) on the issue of the depreciation is vacated while that of the Assessing Officer allowing depreciation @ 5% is restored.

10. It is ordered accordingly.

C.M.A./37/Tax(Trib.)Order accordingly.