ORDER CH. MUHAMMAD ISHAQ JUDICIAL MEMBER. - Cross Appeals in respect of the Assessment Years 1991-92 have been preferred by the Department as well as the Assessee to impugn the Order dated 28.12.1993 passed by the Commissioner of Income Tax (Appeals-II), Faisalabad.
2. We have heard the parties and examined the record.
3. The Revendication its appeal has contested the addition at Rs. 50,000/- as having been wrongly deleted in the MLc. Income Head without any cogent reasons. Reduction of adition in the Head Staff Salaries at Rs. 50,000/- has also been challenged. The deletion of addition at Rs. 17,690/- under the Head Employees Welfare has been challenged. Reduction of addition from Rs. 33,600/- to Rs.20,000/- in the Head Travelling & Conveyance has also been attacked. In the Head Repair & Maintenance, the reduction impugned from Rs. 36,000/- to Rs. 10,000/-. The deletion of the addition at Rs. 48,925/- in the Head Advertisement has also been objected.
4. The appeal of the assessee for the same year, on the other hand, agitates the reduction of the Exemption Claim under Clause-125 of Second Schedule of Income Tax Ordinance, 1979. It is submitted that the company is fully qualified for the exemption as it fulfills all the conditions laid down for the impugned exemption. In respect nr the Profit & Loss Account, the relief allowed in the three Heads by the C.I.T. (Appeals) has been agitated to be too meagre and prayer is made for the deletion of the and-backs in respect of these Heads namely Staff Salaries, Travelling & Conveyance and Repair & Maintenance.
5. The examination of the impugned order shows that the exemption claim under clause-125 was not allowed because according to the learned CIT (Appeals), M/s. Chenab Garments (Pvt. Ltd. Has been formed by splitting up of the JVI/s. Chenab Fabrics (Pvt) Ltd. That it has been re-constituted from the already existing business of machinery and the machinery had been transferred from the existing business, therefore, the case of the appeal is hit by provisions of clause (e) of subsection
(2) of Section 48. A reference to the provisions of clause-125 showed that the exemption under this clause was to apply to the industrial undertakings fulfilling the conditions as laid down therein. It was observed that since the appellant did not fulfil the conditions of a new industrial undertaking as mentioned above, the claim of exemption was rightly refused by the Assessing Officer.
6. For the appreciation of the contentions raised by the respective parties, the examination of law is necessary. Section 48 of the Income Tax Ordinance, 1979 deals with the exemption from tax of newly-established industrial undertakings. The relevant provisions of this section are reproduced below: "(e) that it is not formed by the splitting up or the reconstruction or reconstitution of business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business".
7. This clause clearly envisages the following requirements for qualification of exemption:
(i) There shall be no splitting up of business.
(ii) There shall be no reconstruction of business.
(i.e) There shall be no reconstruction of the business already in existence.
Further qualification is that there should be no transfer to new business of any machinery or plant used in a business already carried on.
8. Applying this provision of law to the proved facts of this case, we can conclude as under: Splitting up of the existing business is not established on the record as the Unit in existences was not doing the stitching work as against the present one. There is no re-construction or reconstitution of business as facts available on the record do not spell out this eventuality. The emphasis has been laid down in the impugned order that machinery was obtained from the existing business. Mere purchase of machinery from a company by another company does not constitute transfer. Moreover the essential requirement in law is that the machinery must have been used by the transferred company. In this case, it is clearly not established on the record that the machinery obtained by the present assessee from the other company was at all used by the seller company. The law does not prohibit the acquisition by whatever method of a new machinery from any specific quarter or penty. The machinery may be obtained from a private company, public company or an individual or it may be obtained from any other source whatsoever. Further, law doesn't fore-see that the machinery shall be imported.
It may be imported or locally-manufactured. It is also not provided that a person having purchased a machinery, kept it and re-stored it to all for a valuable consideration or otherwise and without putting it into use the sale thereof shall infringe the provisions of law. In the instant case, the machinery being new having been obtained by one legal entity from another legal entity without any association or collaboration between the two in terms of business. The oneness of the pudding or other factors of like nature of would have no effect on the transaction. The Law would not treat such a transaction as its infringement nor any violation of the expressed provisions of law shall be jeopardized. As in the instant case, the afore-stated provisions of law are not infringed, the clear exemption as laid down in clause 125 shall have its effect. We may observe that if the law provides an exemption from income to an assessee, it can be withheld on unwarranted grounds.
The learned A.R. Has successfully been able to show that the said exemption under clause-125 applies to the case and the company is duly entitled to it. We, therefore, hold that the observations made in the impugned order in respect of the refusal to allow this exemption, which is the legal right of the assessee, are not commensurate either with the facts or the law applicable to this case.
We, therefore, are not inclined to uphold the impugned Order. The same is, therefore, recalled to this extent. The Assessing Officer is directed to allow the claimed exemption to the Assessee.
9. In respect of these various items of the Profit & Loss Account, we are of the view that the treatment meted out in the impugned order is just and reasonable and, therefore, calls for not interference. The impugned order to his effect is, therefore, uphild and the treatment meted out by the learned C.I.T. (Appeals) in respect of the various items of the Profit & Loss A/c is not interfered with.
10. For the afore-stated reasons, we dismiss the Revenue appeal and allow the appeal of the assessee only to the extent and the manner indicated above.