1982 PLP I(Trib (PTD)

GHULAM MURTAZA KHAN (MEMBER).‑In these four cross‑appeals, against the A. A. C's. order, pertaining to the charge years 1977‑78 and 1978‑79, the assesses‑appellant's grievance is that the declared trading results should have been accepted and alternatively it contends that the additions maintained, were excessive. The Department, on the other hand, has objected to the reduction allowed in the additions made to the trading accounts in both the years. In the charge year 1978‑79, additional objections have been taken against the acceptance of milk‑powder account and the allowance of depreciation on revalued cost of machinery etc. In view of common objections involved in both the years, all the appeals are being disposed of by the combined order. 3. . . . . . . . . . 4. . . . . . . . . . 5. . . . . . . . . . 6. . . . . . . . . . 7. . . . . . . . . .

8. We now take up the Departmental appeals. In view of the facts discussed and the findings given by us in the assesses‑appellant's appeal relating to the relevant charge years, the Departmental appeal fail being without merit in respect of silk cloth and powder‑milk etc. The only other grievance of the Department in the, charge year 1978‑79 relates to the claim of depreciation allowed by the learned A. A. C. on the enhanced value of machinery on account of fluctuation in the rate of exchange. The relevant facts relating to this issue are that the Income‑tax Officer in his order observed that, as per books of accounts the assessee has claimed a sum of Rs. 6,225 on account of difference due to devaluation of German currency in respect of machinery imported from Germany Since this item represents the cost of fixed assets the same is of capital nature and is disallowed as inadmissible. On appeal, the learned A.A. C. upheld the and back as made by the Income‑tax Officer but she observed that since in the assessment order, it is mentioned that it represents the cost of fixed asset and hence it was treated as capital expense, the Income‑tax Officer have allowed depreciation in the same. Since the Income‑tax Officer had not done it, he was directed to do it now. The Department, therefore, feels aggrieved with this part of the order of the learned A. A. C. The learned D. R. submitted that the amount in question could not legally be added to the cost of the machinery for the purpose of allowing depreciation thereon. The learned A. R., of the assessee‑respondent, on the other hand, pleaded that the valuation of the asset in question stood changed owing to devaluation of German currency. The machinery in question was purchased by taking loans from I. D. B. P. and since the amount of loan was still outstanding therefore, the assessee's liability increased by Rs. 66,000 owing to the fluctuation in the rate of currency. This amount, according to the appellant's Representative was claimed in the profit and loss account as an expense which the Income‑tax Officer disallowed treating it to be of capital nature. He, therefore, emphasised that the amount in question should have been added to the originally recorded value of the plaint and machinery in question and, consequently, the depreciation be allowed at the enhanced value thereof. In short, the learned counsel's contention is that since the assessee had raised loans from I. D. B. P. for purchase of the machinery, the book value of the machinery purchased from these loans had to be revalued consequent upon the change in the exchange rate and hence the learned A. A. C. has rightly directed the Income‑tax Officer to allow depreciation on the enhanced value of the machine.

9. We have given our earnest consideration to the submission made by the parties' Representatives and we are of the view that the order of the learned A. A. C. is not sustainable. The relevant provisions of law are contained in section 10(2)(vi) and section 10(5) of the repealed Income‑tax Act, 1922. By virtue of clause (vi) of subsection (2) an allowance in respect of machinery etc. is to be allowed in case of ships other than the ships ordinarily playing on in land waters, to such percentage on the original case thereof to the assessee as may be prescribed and in any other case such percentage of the written down value thereof as may, in any case or class of cases be prescribed. Now in the instant case, the assessee was entitled to claim depreciation on the machinery purchased by it raising loans from I. D. B. P. and hence the depreciation for the year under appeal was admissible to such percentage of the written down value thereof as prescribed. The expression "written down value", as per subsection (5) o section 10 means : (a) in the case of assets acquired in the previous year, the actual cost to the assessee : and (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation allowed t him under the Act. In the instant case, therefore, the depreciation is t be allowed on written down value as per clause (b) alone, since admitted the assets were acquired before the previous year and depreciation had been allowed thereon. The learned counsel for the appellant could not draw out attention to any provision of law on the basis whereof the amount in question could be added to the original value of the assets (which was taken) to be its actual cost to the assessee) for the purpose of allowing depreciation. The allowance as already stated, is admissible on the written down value which in the instant case, means the actual cost to the assessee less all depreciation allowed to it under the Act. In this view of the matter the learned A. A. C. acted improperly in directing the Income‑tax Officer to allow depreciation on the machinery in question after adding the amount o exchange fluctuation to the value of assets. It is not forcible and legal to do so without a specific legislative provision. It would be appropriate to it is pointed out here that when Legislature intended to give this additional benefit to the assessee, it specifically provided for it in section 23 (1) (v) and rule 8(8)(el of the Third Schedule of the Income‑tax Ordinance, 1979, which for the sake of convenience, are reproduced hereunder :‑ "Section 23(1).‑In computing the income under the head `income from business or profession', the following allowances and deductions shall be made, namely (i) . . . . . . . . . . (ii) . . . . . . . . . . (iii) . . . . . . . . . . (iv) . . . . . . . . . . (v) in respect of depreciation of any such buildings, machinery, plant, fixtures or fittings, being the property of assessee, the allowance admissible under the Third Schedule (rules for computation of depreciation allowance) ; rule 8, sub‑rule (7). 7. "WDV" means :‑ (a) in the case of a ship, aircraft or any other asset to which sub‑rule (3) of rule 2 applies, the original cost thereof to the assessee ; and (b) in the case of other assets :‑‑ (i) where the asset was acquired in the income year, the actual cost thereof to the assessee ; (ii) where the asset was acquired before the income year the actual cost thereof to the assessee as reduced by the aggregate of the allowance for depreciation allowed to him under this Ordinance or the repealed Act in respect of assessment year for earlier years.

8. For the purposes of sub‑rule (7). (a) . . . . . . . . . . (b) . . . . . . . . . . (c) . . . . . . . . . . (d) . . . . . . . . . . (e) Where the assessee has acquired any plant or machinery (hereunder referred to as `asset') from a country outside Pakistan for installation in Pakistan for the purpose of his business or profession and, in consequence of a change in the of exchange at any time after the rate acquisition of such asset and before full final repayment of any foreign loss, there is an increase or reduction in the liability of the assessee as expressed in Pakistan currency for making payment towards the whole or a part of the moneys borrowed by him from any person directly or indirectly in any foreign currency specifically for the purposes of acquiring the assets (being in either case the liability existing immediately before the date on which change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during the income years, shall be added to, or, as the case may be, deducted from the actual cost of the assets and the amount arrived at after such addition or deduction, shall be taken to be the actual cost of the assets ; (f) . . . . . . . . . . (g) . . . . . . . . . . (h) . . . . . . . . . . Since there is no such provision in the repealed Income‑tax Act, 1922 the assessee's claim is unsustainable and has consequently been wrongly entertained and allowed by the first appellate authority. The assessee may revalue the cost of machinery consequent upon the change in the rate of exchange and as per the terms and conditions of the loan obtained from the I. D. B. P. for the purpose of its accounts but it would not have any effect on the admissibility of depreciation which would, at any rate, be allowed on the basis of written down value.

10. In the result, the four appeals are disposed of as indicated above. Appeals disposed of.