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I.T.As. Nos. 1329/KB of 1982-83 and I.T.A. No. 359/KB of 1984-85, decided on 17th September, 1980.

---S. 59--Surcharge is not leviable on amount of taxes payable.

(1979) 40 Taxation 47 (Trib.) rel.

---S. 107--C.B.R. Circular Letter No. 1(40) I T I/79 Vol. (2) dated 5-2-1983--- Concession--Purchase of plant and machinery--Installation charges, held, not included in cost of plant and machinery unless such concession was given by Central Board of Revenue.

---Ss. 18, 20, 23, 39, 40 & 107--Income-tax Rules, 1982, Rr. 8(8)(b) & 5 of Third Sched.--C.B.R. Circular Letter No. 1(40) I T 1/79 dated 5-2-1983--Reduction--Tax credit--Income-tax Officer reducing amount of tax credit from cost of machinery for purpose of depreciation calculated under R. 8(8)(b) of Income-tax Rules--Assessment order showing that-,l Income-tax Officer deducted certain amount on account of tax credit from written down value of machinery without giving any reason following Central Board of Revenue Circular dated 5-2-1983--Computing actual cost of an asset for purpose of initial depreciation, tax credit, held, was not to be deducted from value of plant and machinery--Words 'tax credit' not synonym of word 'allowance' or deduction--Tribunal directed Income-tax Officer not to exclude amount of tax credit from cost of an asset as same could not be excluded under R . 8(8)(b) of Third Schedule to Ordinance.

---When legislature uses several words deliberately to convey different meaning they could not be taken to be synonymous of each other.

--S.107--Word 'tax credit' as used in S. 107, held, could not be taken to be synonymous with word allowance or deduction.

Akber G. Merchant, F.C.A. for Appellant.

Muhammad Farid, D.R. for Respondent.

Date of hearing: 3rd September, 1986.

-These cross-appeals are arising out of the order of learned Commissioner of Income-tax (Appeals) Zone II, Karachi, recorded by him on 3rd March. 1983, relating to assessment years, 1980-81, 1981-82 and 1982-85. The first three appeals have been filed by the Department, whereas the second two appeals have been filed by the assessee (hereinafter referred to as "the appellant")The first appeal filed by the appellant is against the original order of learned Commissioner of Income-tax (Appeals), whereas the second appeal arises out of the rectified order of the learned Commissioner of Income-tax (Appeals). Since the common points are involved in all of these, we propose to dispose them of by one consolidated order.

2. In the first departmental appeal the question involved is regarding levy of surcharge only. The brief facts giving rise to it are that the appellant declared its income at Rs.9,27,670 but it was assessed at the same amount and the Income-tax Officer determined the amount of tax amounting to Rs.5,28,653 which he treated as unretained income and levied surcharge amounting to Rs.33,202. The appellant felt aggrieved and went up in appeal, and the learned Commissioner of Income-tax (Appeals) relying upon a decision of this Tribunal reported as (1979) 40-Tax-47 (Trib) directed the Income-tax Officer not to levy surcharge on amount of taxes payable. This time the department felt aggrieved and has come up in appeal.

3. Mr. Muhammad Farid, the learned Departmental Representative submitted before us that the Department had not reconciled itself with the view that surcharge was not leviable on amount of taxes payable, and several Reference Applications were pending in High Court in which the same question required to be adjudicated upon. According to learned Departmental Representative the appeal was filed as a matter of principle and in order to safeguard the revenue interest. Mr. Akber Merchant, the learned authorised representative for the appellant, relying upon the decision of this Tribunal submitted that' it was binding on learned Commissioner of Income-tax (Appeals) and he issued the right direction.

4. It is true that several Reference Applications are pending in High Court and the same question required to be adjudicated upon. However, as far as this Tribunal is concerned it has been consistently following its view propounded in the decision mentioned above and under facts and circumstances of this case we have no reason to deviate from it. The departmental appeal is, therefore, found to be devoid of any merit and is rejected accordingly.

5. The other two appeals filed by the Department relating to assessment years 1981-82 and 1982-83 are regarding the deletion of the disallowances made by the Income-tax Officer. It appears that the appellant claimed in assessment year 1981-82 Rs.68,520, Rs.1,20084, Rs.1,03,450 and Rs.4,00,000 as repairs and maintenance expenses, other expenses, travelling expenses, and sales and survey expenses respectively, and the Income-tax Officer-disallowed Rs.10,000, Rs.20,000 and Rs.30;000 out of the aforesaid claims respectively. In assessment year 1982-83 the appellant claimed Rs.65,027 as travelling expenses and the Income-tax Officer disallowed Rs.13,000. Having been, aggrieved the appellant went up in appeal and it was contended before learned Commissioner of Income-tax (Appeals) that since the assessment was framed under section 59(1), the Income-tax Officer had no power to make any disallowance from expenses claimed in the profit, and loss account without seeking the consent of the appellant. The learned Commissioner of Income-tax (Appeals)' accepted the contention of the appellant and ordered deletion of all the additions made above. This time the Department has come up in appeal. However, Mr. Muhammad Farid; the learned Departmental Representative conceded that the order of learned Commissioner of Income-tax (Appeals) was un-exceptionably sound in view of several circulars issued by the Central Board of Revenue which have been mentioned by learned Commissioner of Income-tax (Appeals) in his order. Mr. Akber Merchant supported the order of learned Commissioner of Income-tax (Appeals). Since Mr. Muhammad Farid, the learned Departmental Representative has not pressed these appeals they stand rejected accordingly.

5-A. Now coming to the other set of appeals filed by the appellant Mr. Akber Merchant firstly submitted that under section 107 before tax credit is allowed, the expenses incurred on installation of a machinery or plant should be included in the cost of the plant or machinery. He argued that section 107 of the Income-tax Ordinance was enacted to encourage the replacement, balancing and modernisation and should, therefore, be construed, liberally. Referring to section 15-GG of the repealed Income-tax Act, the learned authorised representative submitted that such benefit was available under that provision also. Mr. Muhammad Farid, the learned Departmental Representative, on the other hand, argues that the Central Board of Revenue have directed that the old practice of including the installation expenses in the cost of the plant and machinery should not be continued after promulgation of section 107 of the Ordinance. We have heard both the learned Departmental Representative as well as learned authorised representative of the appellant. From bare perusal of section 107 it appears that the legislature has laid emphasis on investment of any amount by an assessee in the purchase of plant and machinery whereas section 15-GG of the repealed Act stressed on installation of any plant or machinery. Since section 15-GG was highlighting the installation of the machinery, the expenses incurred on installation were used to be included in the cost of the machinery for the purpose of tax credit. However, section 107 of the Ordinance is laying emphasis on investment of any amount, therefore, the installation charge would not be included in the cost of the plant or machinery unless this concession is given by Central Board of Revenue. Let us point out that both words "invests" or "instal" as used in sections 107 of the Ordinance and 15-GG of the repealed Act are transitive verb. The word "invest", therefore, would refer to purchasing of the plant or machinery only and not to its installation, though it is the ultimate object of the investment. Similarly, the word "instals" would relate to machinery and plant and not to replacement or modernisation, which is the real purpose of installation. Mr Muhammad Farid, the learned Departmental Representative has invited our attention No.l (40)I.T.I./79 (Vol. 2) dated February 5, 1983,) to Circular Letter which has specifically excluded the expenses incurred on installation of machinery and plant for the purposes of tax credit. We, therefore, see no force in the submission of Mr. Akber Merchant and reject it accordingly. Let us mention here that although the assessment was' framed under section 59(1) and the Income-tax Officer should have accepted the return regarding all the expenses. However, we feel that since Rs.4,728 were not legally admissible expenses, the learned Commissioner of Income-tax (Appeals) was right in directing the income-tax officer to look into the grievance of the appellant. We, therefore, direct the Income-tax Officer to carry out the direction of the learned Commissioner of Income-tax (Appeals) in the light of the discussion made above.

6. The next point argued by Mr. Akber Merchant is that the Income-tax Officer erred in reducing the amount of tax credit from cost of machinery for the purpose of depreciation be calculated under rule 8(8)(b) of the Income-tax Rules. He submitted that tax credit was neither the amount of any grant, subsidy, rebate commission nor any allowance, hence could not have been excluded as required by clause (b) of sub-rule (8) of rule 8 of third Schedule. Mr. Akber Merchant further invited our attention to sections 39 to 40 of the Ordinance) which deal with allowances and sections 18, 20 and 23 which deal with deductions and argued that since tax credit was neither an allowance nor deduction therefore, it should have been allowed. Mr. Muhammad Farid, the learned Departmental Representative, on the other hand, has supported the order of Income-tax Officer. From perusal of the assessment order it appears that the Income-tax Officer has deducted Rs.81,496 which is the amount of tax credit from Rs.5,74,831 which was the written down value of the machinery without giving any reason whatsoever. In other words, his order is what we call in a bald order. However, we think that he, has followed the Central Board of Revenue's Circular No. 1(40) I.T.I./79 (volume-2) dated February 5, 1983, wherein it has been stated that any deduction or allowance admissible under this Ordinance cover tax credit allowed under section 107 as well. The relevant part of the said Circular is as follows:-

"2. Further, depreciation is computed in accordance with the provisions contained in the Third Schedule to the Income-tax Ordinance, 1979. Rule 8(8) (b) of the Third Schedule lays down that 'in computing the actual cost of an asset..:. any deduction or allowance admissible under this Ordinance or the repealed Act shall be excluded. There exists some doubts as to whether tax credit under section 107 is covered in the terms 'deduction or allowance' used in rule 8(8)(b) of the Third Schedule. It is hereby clarified that tax credit under section 107 is hit by the mischief of rule 8(8)(b). Therefore, while computing actual cost of an asset for the purposes of computing depreciation, tax credit is allowed under section 107, if any, would be excluded."

7. However, with due respect, we find aforesaid extract contrary to very well-known principle of interpretation of Statutes, viz., when legislature uses several words deliberately to convey different meaning they cannot be taken to be synonymous of each other. In paragraph (b) of sub-rule (8) of rule 8 of Third Schedule of the Ordinance the words grant, subsidy, rebate or commission and deduction or allowance have been used. If we go through various provisions of the Ordinance, we find that all the words mentioned above have been used in altogether different context. For example, sections 43 and 48 of the Ordinance allow straight deduction but, on the contrary, sections 39, 40, 41. 42, 43, 44, 44-A, 46 and 47 deal with such type of allowances on which rebate is to be computed at the average rate of tax. Similarly, sections 18, 20 and 23 of the Ordinance deal with deductions. As such, the word tax credit as used in section 107 also cannot be taken to be synonymous with word allowance or deduction as it has been used in altogether different context. It is also pertinent to note that rule 5(1)1 of Third Schedule of the Ordinance deals with initial depreciation regarding newly-erected building or that machinery or plant which has been installed in Pakistan at any time between 1st day of July, 1976 and 30th day of June, 1988 and allows initial depreciation. Rule 5 reads as under:------

"5. Initial Depreciation: (1) Where any building has been newly-erected or any machinery or plant has been installed, in Pakistan at any time between the first day of July, 1976, and the thirtieth day of June, 1988 (both dates inclusive), further depreciation allowance in respect of the year of erection or installation of year in which such building, machinery or plant is used by the assessee for the first time for the purposes of his business or profession for the year in which commercial production is commenced, whichever is the later, shall be allowed at the following rates, namely:-

(a) ................. "

If we compare this sub-rule with section 107(1) of the Income-tax Ordinance, we find that it allows tax credit on investment made in purchasing a plant and machinery for installation between the first day of July, 1976 and 30th day of June, 1988. Section 107(1) is reproduced hereinbelow for easy reference:-

"107. Tax credit for replacement, balancing and modernisation of machinery of plant:

(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, 1976 and the thirtieth day for June, 1988 in an industrial undertaking set up in Pakistan and owned by it, for the purposes of replacement, balancing or modernisation of the machinery and plant already installed therein, credit at the rate of fifteen per cent. of the amount so invested shall be allowed against the tax payable by it in the manner hereinafter provided."

Thus, it is clear that section 107(1) and rule 5 of the Third Schedule both are dealing with the plant and machinery purchased and installed during the same period and grant the concession of tax credit as well as initial depreciation. The use of words "further depreciation allowance" which has been underlined by us indicate that the relief of initial depreciation is on top of and in addition to section 107 of the Income-tax Ordinance. It is thus, clear that in computing the actual cost of an asset for the purposes of initial depreciation the tax credit is not to be deducted from the value of the plant or machinery. Let us also mention here that both tax credit and deduction or allowance stand on altogether different footing because the former is deducted from the tax payable either in relevant assessment year or future year or years, as the case may be, whereas the allowances, or deductions are mad; from the total income. Thus, whatever view is taken the word "tax credit" does not appear to be synonym of word allowance or deduction. We, therefore, direct the Income-tax Officer not to exclude the amount of tax credit from the cost of an asset as it cannot be excluded under clause (b) of sub-rule (8) of rule 8 of Third Schedule of the Income-tax Ordinance.

M. Y. H. Order accordingly.

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