This and connected reference application bearing PTR No.157 of 2011 are directed against consolidated order dated 12.04.2011, of Appellate Tribunal Inland Revenue, whereby department's appeal was dismissed.
2. Matter pertains to Tax years 2004 and 2005.
Reference applications raise common questions of law, hence, decided through common judgment.
3. Following question of law is proposed for determination: "Whether the learned Tribunal was justified to ignore the provisions of section 239(15) of the Income Tax Ordinance, 2001, which lay down, that the requirements of investment and installation have to be fulfilled up to 30.06.2002, for claiming of tax credit under section 107 AA of the repealed Ordinance?"
4. Primarily the dispute calls for interpretation of Section 107 AA of erstwhile Income Tax Ordinance, 1979 (Repealed Ordinance) and effect of promulgation of sub section (15) of Section 239 of the Income Tax Ordinance, 2001 (Ordinance, 2001).
5. Precisely, the case of the department, advocated by learned counsel, is that in terms of section 107 AA of Repealed Ordinance tax credit was only claimable provided the plant and machinery, acquired upon investing funds, was installed before the 30th day of June 2002. Adds that legislative intent was reaffirmed through sub-section (15) of section 239 of Ordinance 2001. And since the taxpayer had not installed the machinery till cut-off date, therefore, no credit could be claimed for the Tax years 2004 and 2005.
6. On the contrary, learned counsel for the taxpayer submits that admissibility of tax credit was subject to the requirement of investing funds for acquisition of plant and machinery, before 30th June 2002, and not to ensure the installation of the machinery. Adds that question of installation of machinery have had relevance for the purposes of income year, in which adjustment of tax credit against the tax payable was claimed and allowable.
7. Before dilating upon the controversy, it is expedient to reproduce the Section 107 AA of Repealed Ordinance and sub-section (15) of Section 239 of the Ordinance, 2001, for convenience, "Section 107 AA: (1) Where an assessee being a Pakistani company invests any amount in the purchase of plant and machinery for installation, at any time between the first day of July, 2000 and the 30th day of June, 2002, in an industrial undertaking set up in Pakistan and owned by it, credit equal to ten percent of the amount so invested shall be allowed against the tax payable by it in the manner hereinafter provided.
(2) The amount of the 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 sub-section (1) is invested, is installed.
(3) Where no tax is payable by the assessee in respect of the assessment year relevant to the income year in which such plant or machinery is installed, or where the tax payable is less than the amount of the credit, or so much of it, as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the assessee in respect of the immediately following assessment year only".
"Section 239(15) Section 107AA of the repealed Ordinance shall continue to apply until the 30th day of June 2002.
8. Textual reading of Section 107AA unequivocally suggests the "requirement of investing any amount(s), in the purchase of plant and machinery for installation, at any time, between the first day of July 2000 and 30th June 2002, in an industrial undertaking, set-up in Pakistan and owned by the assessee". It is evident that condition precedent for being eligible for the tax credit was investment made within the timelines prescribed and entitlement for the adjustment, for a particular income year, was dependent upon installation of plant and machinery. The expression 'for installation' limits the purpose of investment - ensuring that plant and machinery was installed and not be offered for sale or lease. There is difference between being eligible and claim entitlement in respect thereof. Sub-section (15) of section 239 had not altered the situation to the disadvantage of the taxpayer - nor could said provision of law be construed to take away eligibility to tax credit accrued, upon investment before 30th June 2002. Sub-section (15) of section 239 actually supported section 107 AA of the Repealed Ordinance by affirming cut-off date of 30.06.2002. Sub-sections (2) and (3) of Section 107 AA of Repealed Ordinance provides timing and mechanism for claiming tax credit - which have nothing to contribute for the purposes of determining eligibility for tax credit.
9. We have examined the order by the Appellate Tribunal, which has rightly interpreted the section 107 AA, in the context of sub-section (15) of section 239 of the Ordinance 2001. CIT (Appeals) had aptly determined timing of adjustment, appreciating factum of installation of machinery.
10. In these circumstances, question is answered in the negative - investment has had to be made before 30th June 2002 and not the installation. These reference applications are decided against the department.
11. Office shall send a copy of this order under seal of the Court to the learned Appellate Tribunal, Inland Revenue as per Section 133(5) of the Income Tax Ordinance, 2001.