1989 PLP (Trib (PTD)

Rs.41,956

4. We have heard Mr. Yousuf Sharih, learned D.R. for the department and Mr. E.U. Khawaja, learned counsel for the assessee (hereinafter referred to as the appellant).

5. The learned D.R. has objected to the direction of learned C.I.T. (A) for following the judgment of this Tribunal reported as 1988 P T D (Trib.) 155 contending that the ratio of above ruling is not attracted to the facts of the case under consideration. On the other hand Mr. E.U. Khawaja, learned counsel for the' appellant has urged that the objection taken by the department is misconceived and uncalled for. Elaborating his contention Mr. Khawaja has submitted that the working of surcharge by the Income-tax Officer shows that he has already followed the ratio laid down in the judgment reported as 1988 P T D (Trib.) 155 and, therefore, direction given by the C.I.T. (A) was uncalled for and the appeal preferred by the department is consequently misconceived. We have perused the working of surcharge by the Income-tax Officer with the assistance of learned representatives for the parties. The entire working of surcharge is defective as the calculation is incorrect and while working out the retained income the Income-tax Officer has failed to notice that the tax paid under Section 53 and various clauses of Section 50 are not to be treated as retained income. We have held time and again while explaining the retained income that only that portion of the tax liability is to be treated as retained income for which provision has been made by the assessee. Thus, the tax deducted at source or the tax-paid in advance is not to be treated as retained income, because such amount already goes out if the coffers of the assessee and remains lying in Government treasury, for appropriation towards the tax liability. Likewise in the case of non-resident companies the amount remitted to the Head office is not to be treated as retained income and this aspect of the case has not been examined at all by the Income-tax Officer. The finding of the Income-tax Officer relating to the surcharge is, therefore, set aside with the direction to examine the issue afresh and while working out the surcharge it should be kept in mind that remittances to the Head office, tax paid under section 53 and tax paid under section 50 are not to be treated as retained income. The tax paid under section 54 alongwith the return arid the tax paid after the-completion of assessment are to be treated as retained income.

6. Reverting to the grievance at the instance of assessee, the learned counsel for the appellant has drawn out attention to the finding of learned Income-tax Officer which is re-produced below". "Deduct Head Office Expenses. Expenses under this head have been claimed by the assessee-Company at Rs.30,62,

812. Details furnished by the assessee, Company show that this claim covers the following expenses as well: Professional charges. $8655 Advertising sale promotion and public relation. $ 6252 Depreciation and Amertization $1140 $ 16047 Expenditure under section 24(c) in the nature of Head Office expenditure is admissible only to the extent to which it constituted executive and general administration expenditure incurred by the assessee out side Pakistan for the purposes of the business organization. Since none of the above-mentioned 3 items can be termed as executive and general administration expenditure in any respect; expenditure on this account is disallowed being inadmissible. At the exchange rate applied by the assessee-Company for working out this claim, the amount of this disallowance works out at $ 16047 = Rs.1,57,

946. Claim under this head shall therefore be restricted to Rs.29,04,126."

7. The learned C.I.T. (A) after re-producing the finding of Income-tax Officer confirmed the same observing that it is quite in conformity with the .law. Mr. E.U. Khawaja, learned counsel for the appellant has assailed the findings of learned two officers below and has contended that the Income-tax Officer disallowed expenses under the three heads enumerated above holding that none of them can be termed as executive and general administrative expenses without giving any definition of administrative expenses in his mind. The learned counsel has invited our attention to the definition of administrative expense in the `Dictionary for Accountants by Eric L. Kohler, Fourth Edition, which reads as under:- "Administrative expense.--A classification of expense incurred in the general direction of an enterprise as a whole, as contrasted with expense of a more specific function, such as manufacturing or selling, but not including income deductions. Items included under this head vary with the nature of the business but usually include salaries of top officers, rent, and other general office expenses. Typical are the following: Salaries--Officers and executives Salaries--general office employees Travel expense Legal and Auditing Office-building maintenance Depreciation--furniture and fixtures-Stationery and Office supplies. Telephone and telegraph. Postage Light and Water. Taxes other than income Insurance on lives of officers Subscriptions and dues. Donations Revenue stamps."

8. The above definition includes legal and auditing expenses in the administrative expense and according to Mr. Khawaja the professional charges claimed were on account of legal fees. He has submitted that likewise, expenses claimed for advertising, sale promotion and public relation, depreciation and amortization are included in -the administrative expense. The learned D.R. is not able to controvert the contention raised by the learned counsel for the appellant. We are, therefore, inclined to agree with the contention of Mr.' Khawaja that the expenses incurred on legal fee are included in general administrative expenses, however, it is to be ascertained whether the professional charges claimed were incurred on account of legal fee or not. Likewise the other expenses claimed are also to be examined from the point of view if they relate to the business o: assessee in Pakistan or not. The findings of the learned two officers below regarding the Head office expenses are, therefore, set aside with the direction that this issue may be re-examined and while working out the expenses they should be allowed on pro rata basis exclusively with reference to genera; administrative expenses of the Head office relating to the assessee's business in Pakistan after adjusting the same by excluding such expenses if any as are not admissible under the. Pakistan law and that such expenses do not include any expenses, which have already been separately charged to the Pakistan account. Nature of professional fee should be examined and if it has been incurred on legal fee and the other conditions enumerated above are satisfied the same may be allowed and likewise the other expenses may also be examined and in doing so the Income-tax Officer may examine the details already filed by the appellant and in case it is found that some more details or explanations are necessary and could be reasonably filed by the appellant then the same may also be called for.

9. The appellant claimed initial depreciation at Rs.22,03,711 which included initial depreciation on addition to buildings to the following extent:- Building Class Rs. 27,

940. Building Class II Rs. 14,

016. The Income Tax Officer disallowed the initial depreciation on the above two items at Rs.41,956 for the reason that under Rule 5 of the Third Schedule initial depreciation is admissible on newly erected building only and is not admissible on additions made to the existing buildings. The learned C.I.T. (A) confirmed the Finding of the Income Tax Officer observing that the construction raised by the appellant can be considered as of fashion etc., and as such the Income Tax Officer rightly disallowed the initial depreciation. Mr. E.U. Khawaja, learned counsel for the appellant has contended that initial depreciation on the erection of building and installation of plant and machinery tinder Rule 5 of Third Schedule extends to the additions made to the buildings from time to time, and plant and machinery installed subsequently.

10. We find substance in the contention of learned counsel for the appellant. So far the installation of machinery or plant is concerned, the Central Board of Revenue has accepted this principle vide Circular No.22 of 1957, dated October 2, 1957 which reads as under:- "The expression "instal" in its ordinary dictionary meaning is wide enough to cover initial, installation as well as subsequent installations. The Board is, therefore of the view that initial and additional depreciation allowances are admissible not only to new units of industry but also to new installations or erections in an existing unit of industry. Petty replacement and renewal which fall under repairs cannot obviously be eligible either for normal depreciation allowances or for the initial and additional depreciation allowances."

11. Since the C.B.R. has accepted the principle that the subsequent installation shall be covered by the initial installation, therefore, on the same analogy, we are of the opinion that the subsequent erection of part of building shall be deemed to be newly erected building for the purpose of initial depreciation. We are fortified in our views with ruling of Bombay High Court in the case of C.I.T. v. London Hotel (1968) I T R 68, wherein it has been hold that building includes a portion of building for the purpose of section 10 (2) (vii) of the Indian Income Tax Act, 1922. We do not find any reason for disallowing the initial depreciation on the newly erection portion or part of building or new additions to a building when initial depreciation is admissible on newly erected building. We are unable to subscribe to the view that the intention of legislature was to allow the initial depreciation on a completed building only and not to any part of it or any addition to it. Normally where the whole is mentioned the part n would be included in it and, therefore, we held that the word 'building' used in Rule 5 of the Third Schedule includes part of the building or addition to the building subject to the condition that it should not be in nature of repair or decoration or of fashion. The finding of the learned two Officers below is, therefore, set aside and the Income-tax Officer is directed to examine the issue afresh in the light of above observation.

12. As a result of above findings both the appeals-are disposed of in the manner as indicated above. M.B.A/561/T Order accordingly.