1. SALEEM AKHTAR, J.--On Department's application under section 66(1) of the Income-tax Act the learned Tribunal., has referred the following question :- .
2. "Whether in the facts and circumstances of the case the Income-tax Tribunal was justified in law in holding that the assessee was entitled to additional depreciation in respect of the 'second hand ship acquired and used?"
3. The respondent is a public limited Company which is engaged in shipping business as carriers. For the assessm ent year 1962.63 that respondent claimed Rs. 5,03,305 as additional depreciation in respect of second hand ships which were acquired and used in the relevant assessment year, but this claim was disallowed by the Income-tax Officer. This order of the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. The respondent challenged in appeal before the Tribunal, which was allowed.
4. The learned counsel for the Department has contended that the provisions of rules 9(1) and 9(2) will not apply to the respondent's case.
5. Mr. Ali Athar has invited our attention to section 10(2) (vi) under which depreciation is allowed.
6. According to learned counsel there is no dispute about the normal depreciation, but the question is whether additional depreciation can be allowed to the respondent under section 10(2) (vi) read with rule 9, sub-rule (2). The learned counsel has contended that as Appendix is a part of the statement, by virtue of rule 9(2) it will apply to the present case. It was further contended that additional, depreciation can he calculated with reference to the corresponding entries in the statement provided under rule 9(1).
7. Under section 10(2) (vi) depreciation on ship is allowed equivalent to such percentage on the original cost as may be prescribed. The word 'prescribed' has been defined as 'prescribed' by rules.
8. Therefore, in order to ascertain the depreciation one has to look to the Rules.
9. Rule 9(1) and (2) reads as follows :- 9(1) The allowance under clause (vi) of subsection (2) of section 10 in respect of depreciation of buildings, machinery, plant or furniture shall be at percentages of the written down value or original cost, as the case may be, equal to the number shown in the corresponding entry in the second column of the following statement.
(2) In respect of plant and machinery not having been previously used in Pakistan and not being machinery or plant entitled to development allowance under clause (vi) (a) of subsection (2) of section 10 installed on or after the first day of April, 1948 and before the first day of July, 1966 the allowance for each the five previous years beginning with the year of installation or the year in which commercial produc--tion is commenced whichever is the later, shall be twice the amount of the allowance computed in accordance with sub-rule (I)."
10. The scheme of the Rule is that it provides a statement classifying the class of assets and the corresponding rate of depreciation against it. Under rule 1 depreciation in respect of assets mentioned in the statement has to be calculated at the rata mentioned therein. In Income Tax Manual, Part II, 1964 Edition in the Statement at Serial No. J class of asset has been mentioned as SHIP which has been further classified under sub-heads and different rates of depreciation have been mentioned. The Ocean-going Vessels have been classified as (a) steamers and motor vessels against which a rate of 5 of depreciation has been mentioned and (b) sail or tug at a rate of 4. It would be proper to reproduce this part of the statement :- J.Ship (N. E. S. A.)-The allowances is to (i) Ocean.be calculated on the
(a) Steamers and5 original cost--------- motor vessels.........The aggregate (See. Appendix)4allowance shall (b) Sail or tug.however, in no case, exceed the cost to the assessee.
11. The Appendix referred under item (1) (a) reads as follows :--
(1) The rate of depreciation allowance on second-hand ocean-going steamers and motor vessels.-In the case of a steamer or motor vessel purchased second-hand the normal allowance will be computed by reference to the actual cost of the steamer or the motor vessel concerned to the new owner and its reasonable expectation of life at the date of purchase..
12. The following scale is to be used to determine the fractional part of the cost of a steamer or motor vessel that is to be allowed year by year as the depreciation allowance for income-tax purposes, except where at the date of purchase the steamer or the motor vessel concerned is more than 24 years old. In such a case the rate of depreciation to beallowed will be decided by the Central Board of Revenue on the facts of each case. .
13. The appendix prescribes the method for calculating depreciation on second-hand ocean-going steamer and motor vessels with reference to their age. This regard it provides a chart for such calculation.
14. Mr. Awan has contended that the method of calculation as provided by the Appendix is not applicable to the respondents. This contention does not seem to have much force. The appendix has been made a part of the statement and in fact it has been incorporated in it. For calculating normal allowance for second-hand vessels a comprehensive chart has been separately provided by adding an appendix to the statement, instead of mentioning it in the statement itself. The appendix is & part of the statement and the normal 17mf allowance on second hand-vessels has to be computed with reference to this appendix.
15. The question arises whether the respondent is entitled to additional depreciation if so at what rate.
16. So far additional depreciation is concerned I it is claimed under rule 9(2) which provides that the rate shall be twice the, amount of allowance computed in accordance with rule 9(1). It therefore follows that for calculating the additional depreciation the formula provided by rule 9(1) will have to be adopted with the difference that depreciation under rule 9(2) will be twice the amount so calculated under rule 9(1). We have already held that Appendix is a part of rule 9(l) and the method of computation of depreciation as provided by appendix shall by virtue of reference made in sub-rule (2) will equally apply to calculation under this sub-rule.- For these reasons earlier we had answered the question in the affirmative.