TARIQ SALEEM SHEIKH, J. --- Through this reference application under Section 133(1) of the Income Tax Ordinance, 2001 (the "Ordinance"), the Department has urged that the following question of law arises out of order dated 27.01.2010 passed by the Appellate /Tribunal Inland Revenue..(the "Tribunal") which requires determination by this Court:--- Was the learned Appellate Tribunal Inland Revenue justified to include electric installations in "unspecified machinery" for the purpose of depreciation of Third Schedule?
2. The Respondent is a public company incorporated under the Companies Ordinance, 1984. It derives its income from manufacturing and sale of fertilizers. The Respondent filed its income tax return for the Assessm ent Year 2002-2003 declaring loss of Rs. 264,023,030/- as on 31.12.2002. The Respondent had claimed extra shift depreciation allowance (the "Extra Allowance") on electric installations and fittings in the sum of Rs. 44,949,879/- under Clause-IV of the Table below Rule 2(1) of the Third Schedule to the Repealed Income Tax Ordinance, 1979 (the "Repealed Ordinance").
While completing the assessm ent the Taxation Officer disallowed the said claim and added the said sum to its total income holding that the electric fittings were included in the definition of "furniture" given in Rule 8(3) of the Third Schedule. The Respondent filed an appeal before the CIT (Appeals) which was dismissed. Aggrieved, the Respondent then preferred second appeal before the Tribunal which was accepted vide order dated 27.01.2010. Now the Department has come up in reference before this Court.
3. Section 23 of the Repealed Ordinance enumerates the allowances and deductions that are admissible in computing the income under the head "Income from Business or Profession". Sub- clause (v) of Section 23(1) makes depreciation of any such building, machinery, plant, furniture, which is the property of the assessee, an admissible business expense subject to the Third Schedule which lays down the rules for computation of the said depreciation allowance. Rule 2 sets out the rates of depreciation allowance while Rule 8 constitutes the definition clause, which defines various terms used in the Third Schedule. For our present purposes Rule 3 is also significant. It provides that in the case of machinery and plant, to which the general rate applies an extra depreciation allowance equal to 50% of the allowance computed under Rule 2(1) would be allowed on account of double shift working and 100% of such allowance where there is triple shift working.
The Respondent seeks to avail the benefit of Rule 3.
4. Since the controversy in this case revolves around the question as to whether the Extra Allowance falls within/he ambit of Clause-IV of the Table given in Rule 2(1) of the Third Schedule or is included in "furniture" by a legal fiction in terms of Rule 8(3) of the said Schedule, we reproduce the relevant provisions hereunder for ready reference:-- Rule 2(1) of the Third Schedule
[Rule] 2. Rates of depreciation allowance.-- (1) The allowance under Rule 1 shall be computed at the rates specified in the Table annexed hereto:--- Class of Asset Description Rate percent of the written down value 1 2 3 I...
II...
III Furniture 10 IV Machinery and Plant (not otherwise Specified)10 (General rate)
Rule 8 of the Third Schedule
8. Definitions: For the purpose of this Schedule:---
(1) ......
(2) ......
(3)'furniture' includes fittings
(4) 'Plant' means any ship, aircraft or vehicle registered in Pakistan and includes books (other than books in respect of which allowance has been made under Section 42 of the [Repealed] Ordinance or Section 15-F of the Repealed Act), scientific apparature and surgical equipment used for the purposes of business or profession.
5. The Table given in Rule 2(1) classifies furniture as a class of asset distinct from machinery and plant (otherwise specified). Then, Rule 8(3) by a legal fiction includes fittings within the definition of furniture and Rule 8 gives meaning to "Plant" used in Clause IV of Rule 2(1). T Respondent had claimed the Extra Allowance on account electric installations and fittings. In order to answer t proposed question it is necessary to determine whether the are two distinct items or one.
6. "Installation" may be described A thing installed, in particular a land piece of equipment installed for use: e computer installations.
[New Oxford American Dictionary. "The Edition"] Something installed, as machinery apparatus placed in position or cancelled for use.
[WEBSTER'S unabridged dictionary. "Second Edition"] A large piece of equipment installed use.
[Concise Oxford English Dictionary] On the other hand, the term "fittings" is described as:--- Items, such as a store or shelves, that are fix in a building but can be removed when owner moves.
[New Oxford American Dictionary. "Third Edition"] Anything provided as equipment, parts, supply etc. [WEBSTER'S Unabridged Dictionary. "Second Edition] Pieces of domestic equipment which are fixed to something but which can be removed and taken to another house if necessary.
[Collins English Dictionary] A small part on a piece of equipment or furniture.
[Oxford Advanced Learner's "New 8th Edition" Dictionary] Furnishings or fixtures.
[The American Heritage Dictionary. "Fifth Edition"]
7. From the above dictionary meanings it is evident that electric installations" are equipment while "fittings" when used in conjunction therewith would connote small parts thereon or the attachments that make it work. However, when "fittings" is used independently it would refer to fixtures.
8. Reverting to the case in hand, in our opinion, the word "fittings" used in Rule 8(3) would imply fixtures while "electric installations and fittings" when used conjointly would imply machinery which would attract Clause IV of Rule 2(1). The quantum of the Extra Allowance claimed (i.e. Rs.
44,949,879/-) somewhat supports this view. However, the question remains as to whether the electric installations and fittings in respect of which the Respondent has claimed Extra Allowance includes any fixtures or not which would attract Rule 8(3). This would require a factual inquiry by the Assessing Officer for which this case would need to be remanded.
9. In view of the foregoing, we remand this matter to the Assessing Authority for determination as to which part of the "electric installations and fittings" claimed by the Respondent constitutes fixtures.
The Respondent's claim for Extra Allowance would be calculated accordingly.
10.Office shall send a copy of this judgment to the Tribunal under the Seal of this Court in terms of Section 133(5) of the Ordinance.