COMMISSIONER OF INCOME TAX VS SANAULLAH WOOLLEN MILLS LTD., 2010 PTD-KARACHI-HIGH-COURT-SINDH 278 (2009)

Income Tax Ordinance (XXXI of 1979)---

----S.23 & Third Sched., Rr.1, 3---Extra depreciation allowance for multiple shift working---Computation of---Principles stated.

Extra depreciation - allowance shall be proportionate to the number of days during which double or triple shift worked. The claim for double or triple shift working has to be worked out according to the actual working of the shift in which such plant and machinery are used. The scope of sub-rules (2) and (3) of rule 1 of third schedule, Income Tax Ordinance, 1979 is of the restrictive nature and provides that depreciation allowance shall be only allowance for the period for which the building, machinery, plant or furniture is used for the purposes of business and profession.

Aqeel Qureshi holding brief on behalf of Jawaid Farooqui for Appellant.

Nemo for Respondent.

JUDGMENT

ARSHAD SIRAJ MEMON, J.---This Income Tax Appeal arises out of the order passed by Income Tax Appellate Tribunal in I.T.A. No.2347/KB-91 assessment year, 1990-1991 dated 6-6-1998. By order of this Court dated 4-4-2006, the following questions had been admitted for regular hearing:--

"Whether on the facts and in the circumstances of this case the learned Income Tax Appellate Tribunal was justified in holding that the triple shift allowance is to be allowed for the whole year, irrespective of number of days for which the machinery is used for production purposes or put to operation, when the law clearly put restriction and it was a condition allowance?"

"Whether on the facts and in the circumstances of this case the learned Income Tax Appellate Tribunal has correctly applied the provisions of rule 3 of the Third Schedule to the Income Tax Ordinance, 1979 that the depreciation is to be allowed for whole year and not on the basis of number of days for which the machinery worked triple shift?"

Mr. Aqeel Qureshi, learned counsel holding brief on behalf of Mr. Jawaid Farooqui, Advocate for the appellant argued the case on behalf of the appellant whereas, despite the notice having been served to the respondent and service of which was held good, nobody has appeared for the respondent.

2. The brief facts of the case are that the respondent is a Private Limited Company which was engaged in the process of manufacturing and selling of knitting cotton yarn as well as it was also engaged in trading of machinery. During the year -under consideration the respondent installed machinery being Looms and Hydro-Extractor and claimed triple Shift Allowance under rule 3 of Third Schedule to the Income Tax Ordinance, 1979. It also claimed Triple Shift Allowance of Rs.2.16,344 on another machinery. At the assessment stage the Income Tax Officer while framing assessment under section 62 pointed out that the first machinery i.e. Looms and Hydro-Extractor as per letter of the respondent was used for half of the year, therefore, he restricted the claim of Triple Shift Allowance by 50% of the original claim. In respect of other machinery it was noted by the Income Tax Officer that same was installed on 31-3-1990, therefore, he restricted the Triple Shift Allowance to 90 days of operation of such machinery. Thus, the amount claimed over and above was added back to the income of the respondent. Being aggrieved against the such action, the respondent preferred appeal before the Commissioner of Income Tax (Appeals) and argued that the action of the Income Tax Officer was not in accordance with law more particularly reliance was placed on Circular No.14 of 1979 issued by the Central Board of Revenue and on an earlier decision of the Income Tax Appellate Tribunal dated 12-4-1978. The Commissioner of Income Tax (Appeals) deleted the said addition and agreed with the respondent's argument.

4. The Income Tax Officer/Department preferred appeal before learned Income Tax Appellate Tribunal in Appeal I.T.A. No.2347/KB of 1991 dated 6-6-1998. The Income Tax Appellate Tribunal also on the basis of its earlier order upheld the order of Commissioner of Income Tax (Appeals) and directed the Income Tax Officer to allow full Tipple Shift Allowance as claimed by the assessee.

5. Learned counsel for the appellant submitted that the decision by the learned Income Tax Appellate Tribunal is not in consonance with the provisions of rule 3 of the Income Tax Ordinance, 1979. As already observed in the earlier part of this judgment that there is no representation on behalf of the respondent despite the service being held good.

6. We have examined the contention of the learned counsel appearing for the appellant and have minutely examined the facts of the case and provisions of law. We may observe that in the present case, both the appellant authorities have decided the issue of claim of triple shift allowance on altogether different and wrong tangent. Reference to Circular No.14 of 1979 was firstly out of context and secondly reliance on an earlier decision of the Tribunal was not proper, as the same was decided with reference to provisions of Repealed Income Tax Act, 1922. The assessment in question in this case is assessment year, 1990-1991, which is governed by Income Tax Ordinance, 1979 and assessment has to be framed under the provisions of Income Tax Ordinance, 1979.

7. In order to ascertain the correct legal position, we examined the relevant provisions of the Third Schedule which prescribes the rules for the Computation of Depreciation Allowance under the Income Tax Ordinance, 1979. For convenience and ready reference, relevant rules of the Third Schedule to the Income Tax Ordinance, 1979 are being reproduced which are attracted for the year under consideration:--

The Third Schedule

(See Section 23)

RULES FOR THE COMPUTATION OF DEPRECIATION ALLOWANCE

(1) Allowance for depreciation.---(1) Where, in any income year, any building, machinery, plant or furniture owned by an assessee is used for the purposes of any business or profession carried on by him, or in any income year commencing on or after the first day of July, 1982, any machinery or plant is given on lease by the assessees, being a scheduled Bank, a financial institution or such Modaraba or leasing company as is approved by the Central Board of Revenue for the purposes of this schedule, on such conditions as may be specified, an allowance for depreciation shall be made in computing the profits and gains of the business or the profession of the assessee in the manner hereinafter provided. 1-A The provisions of sub-rule (1) shall in the like manner apply to a building given on lease in any income year commencing on or after the first day of July, 1986 provided that the said building is used by the lessee for the purposes of his business or profession.

(2) Where any such building, machinery, plant or furniture is not wholly used for the purposes of the business or profession, the allowance under sub-rule (1) shall be restricted to the fair proportional part of the amount which would be admissible if such building, machinery, plant or furniture were wholly so used.

(3) No allowance under this rule shall be made unless:---

(a) at the time of filing a return of total income such particulars as may be prescribed and such further information or documents as the Income Tax Officer may require, are furnished; and

(b) such building, machinery, plant or furniture has been so used during the income year.

(4) No allowance under this rule shall be made in respect of a machine referred to in clause (xx) of subsection (1) of section 23.

2. Rates of depreciation allowance:

3. Extra depreciation allowance for multiple shift working:

(1) In the case of machinery and plant, to which the general rate applies, an extra depreciation allowance, equal to fifty per cent of the allowance computed under sub-rule (1) of rule 2 shall be allowed on account of double shift working and hundred per cent, of such allowance on account of triple shift working.

(2) The extra depreciation allowance under sub-rule (1) shall be proportionate to the number of days during which the double or triple .shifts are worked and for the purpose of computing this allowance, the normal days throughout the year shall be taken as three hundred.

(3) The provisions of sub-rules (2) and (3) of rule 1 shall, so far as may be, apply to this rule as they apply to the said rule.

8. Perusal of the rules as contained in Third Schedule will show that under rule 1, the allowance for depreciation is computed on the basis of rates provided in rule 2 in case where in any income year, any building, machinery, plant or furniture owned by an assessee is used for the purposes of any business or profession carried on by him. It may be stated that such allowance is also available on any machinery or plant given on lease by an assessee being a .schedule Bank, a financial institution or Modarba or leasing company duly approved by the CBR for the purposes of Third Schedule. The allowance in respect of lease of machinery or plant was allowed on or after Ist July, 1982.

9. Under sub-rule (IA) of rule 1, the allowance for depreciation was also extended in like manner as afore-said to a building given on lease in any income year commencing on or after the 1st day of July, 1986 provided that the said building is used by the lessee for the purposes of his business or profession.

10. Under sub-rule (2) of rule I, it has been stipulated that where any such building, machinery, plant or furniture is not wholly used for the-purposes of the business or profession, the allowance under sub-rule (1) shall be restricted to the fair proportional part of the amount which would be admissible if such building, machinery, plant or furniture were wholly so used.

11. Under sub-rule (3), it has been stipulated that no allowance under sub-rule (1) shall be made unless at the time of filing of return of total income, such particulars as may be prescribed and such information or document as the Assessing Officer may require are furnished and that such building, machinery, plant or furniture has been so used' during the income year.

12. Sub-rule (4) bars depreciation allowance in respect of machinery with permanent sealed memory system used for recording, printing cash sales.

13. As observed above, rule 2 prescribes the rate of depreciation, whereas rule 3 which is relevant rule for the purpose of deciding this Income Tax Appeal relates to extra depreciation allowance for multiple shift working. Perusal of the rule 3 shows that it stipulates that in case of machinery and plant to which the general rate under rule 2 applies, an extra depreciation allowance equal to fifty per cent of the allowance computed under sub-rule (1) of rule 2 shall be allowed on account of double shift working, and hundred per cent of such allowance on account of triple shift working. Sub rule (2) of rule 3 stipulates that extra depreciation allowance under sub-rule (1) shall be proportionate to the number of days during which the double or triple shifts' worked and for such purposes of computing, the afore-said allowance, the normal working days throughout the year shall be taken as three hundred. Sub-rule (3) provides that sub-rules (2) and (3) of rule 1 shall so far as may be applied to rule 3 as they apply to rule 1.

14. Reverting back to the facts of the present case, it appears that while adjudicating the issue the sub-rules (2) and (3) of rule 3 said rule escaped the attention of learned Tribunal. Under sub, rule (2) of rule 3 it has been provided that extra depreciation allowance shall be proportionate to the number of days during which double or triple shift worked. This clearly stipulates that the claim of double or triple shift working has to be worked out according to the actual working of the shift in which such plant and machinery are used. Further it may also be pointed out that the scope of sub-rules (2) and (3) of rule 1 is of restrictive nature and provides that depreciation allowance shall be only allowable for the period for which the building, machinery, plant or furniture is used for the purposes of business and profession.

15. In view of the above matter, in our considered opinion the Income Tax Officer rightly restricted the' triple shift allowance in respect of looms and hydro extractor to the extent of 50% on the strength of installation certificate and was also correct in law in restricting the triple shift allowance to 90 days.

16. In view of the above discussions, we answer both the questions in negative in favour of the appellant and against the respondent.

17. A copy of this judgment under seal of this Court and with the signature of the Registrar of this Court be sent to Appellate Tribunal for passing an appropriate order in conformity with this judgment.

S.A.K./C-25/KAnswer in negativ