1989 PLP 1016 (PTD)

SALEEM AKHTAR, J.--The respondents enjoyed tax holiday under section 15-BB of the Income Tax Act during assessment year 1969-70 ending 301h September, 1968. As the depreciation amounting to Rs.4,81,796 could not be absorbed during that period, the respondents claimed adjustment during assessment year 1970-71. The Income Tax Officer rejected this claim but it was allowed by the Appellate Assistant Commissioner in appeal. The Department challenged this order before the Tribunal but it was maintained. The applicant sled application under Section 66 (1) but it was rejected as there were no substance in it. The applicant then filed application under Section 66 (2) for consideration of the following question:-- "Whether, on the facts and in the circumstances of the case, the unabsorbed appreciation of the tax holiday period can be adjusted income of the assessee after the expiry of the period of tax holiday. There is no dispute that unabsorbed deprecation claimed by the respondent to be adjusted had accumulated during the tax holiday period. Mr. K. Salahuddin, the learned counsel for the applicant, contended that in the busmen loss computed during the year 1970-71 the unabsorbed depreciation could not be carried forward and no adjustment can be allowed. Section 15-BB (4A) (c) provides as follows: "The profits and gains of an industrial undertaking to which this subsection applies shall be computed in accordance with the provisions of section 10: Provided that, nothing contained in-- . (i) clause (iv) of subsection (2) of section 10, in so far as it relates to the further sum referred to therein; (ii) paragraph. (a) of the proviso to that clause, or (iii) clause (vii) of that subsection shall apply to such profits and gains derived by the undertaking in respect of the period specified in clause (a); Provided further that such profits and gains shah be computed separately from other income, profits and gains of the assessee if any, and where the assessee sustains a loss of profits from 'such undertaking it shall be carried forward and set off against the profits and gains of the said undertaking for the following year and where it cannot be whole so set off, the amount of the loss not so set off shall be carried forward to the next year and so on, but no loss shall be carried forward beyond the period for which the income, profits and gains of the undertaking are exempt under this subsection The entire claim of the respondents revolves round the interpretation of this provision. It clearly lays down that the industrial undertaking which enjoys tax holidays as provided by section 15-BB shall for the purposes of computation of its profit and gain be governed by section 10 except those provisi6ns applicability of which has beets excluded. Section 10(2) of the income Tax Act provides the method of computation of profit and gain find also the allowances to which an assessee is entitled while making such computation. However certain provisions of section 10 have not been made applicable as specified in proviso to section 15 BB (4A)(c) reproduced above. Section 40(2)(vi) provides for depreciation which can be claimed and method of us calculation. It also provides for depreciation, which is normally allowed and such further or additional depreciation, which can be claimed on fulfillment officiating specified conditions. Section' 15-BB (4A)(c) restricts the applicability of section 10(2) (vi) to the extent of only normal depreciation and not to the further additional depreciation. Paragraph `a' of tile t proviso to clause (vi) of subsection (2) of section 10 which relates to further depreciation in respect of building has also not been made applicable. Applicability of clause (vii) of subsection (2) of section 10, which is hot relevant for the present controversy, has also been excluded. For the `purposes of the present caste suffice to say that the respondents are entitled to claim normal depreciation while computing their profits and gains. Now the question arises whether they are entitled to carry forward the unabsorbed amount of depreciation after the expiry of tax holiday period. The method of computation of gain of a Company enjoying tax holiday is provided in section 15-BB (4A) (c). It clearly provides the provision of section 10 which are inapplicable to such a company. It is silent about the inapplicability of other provisions of the Income Tax Act. This demonstrates the intention of the legislature that where it intended to exclude the applicability of any provision it has specifically been mentioned. The right to carry forward to unabsorbed depreciation to the following year is conferred by section 10 (2) (vi) proviso (b) of the Act. The applicability of this provision has not been excluded, therefore; the respondent could validly press for this relief. Mr. Iqbal. Naim Pasha, the learned counsel for the respondent has referred to Commissioner of Income-Tax v. Karachi Electric Supply Corporation Ltd. 1985 P T D'395 where while considering section 10 (2) (vi) and Section 24 (2) it was observed as follows: "It appears to us from the words used in the proviso (b) to section 24 (2) that depreciation allowance is treated differently from the carved forward losses and is not regarded as being of the same category as the carried forward losses. The main provisions 6f section 24 (2) deal with the carried forward losses. Then the proviso says that where there are not only-carried forward losses but also depreciation allowance, which is carried forward, priority will be given to the carried forward losses and not to the depreciation 'allowance. The language used in the proviso appears to us to indicate 'that section 24 (2) is a.pr6vision which deals with carried forward losses while carried forward depreciation does not come within section 24 (2), but flows through ' an entirely different channel which is provided under section 10 (2) (vi), proviso (b). The subject of depreciation allowance has been dealt with m section 10 (2) (vi). The provision putting it to be'- carried forward and the consequence of its being carried forward is also contained in section 10 (2) (vi) proviso (b). It is only because both the carried forward losses under section 24.(2) as well as carried forward depreciation allowance under section 10 (2) (vi) proviso (b) are capable of being adjusted against the profits and gains of business of the year to which they are carried forward that a provision has been made fixing the order in which they will be absorbed. The, fixing of the priority also does not appear to be without purpose. The carried forward losses are, under section 24 (2) capable of 'being adjusted up to a maximum 6f six years. The depreciation allowance, which is permitted to be carried forward is, however, allowed to be carried forward without any time limit until it is totally absorbed. It may be remembered that the concept of carry forward loss does not stand m vacuum. It involves the notion of set off the loss against the profits of a subsequent year. It presupposes the permissibility and possibility of the carry forward loss being absorbed or set off against the profit and gains if any of the subsequent year, set off implies that the tax is exemptible and the assessee wants to adjust the loss against profit for reduce tax demand." The concept of carrying forward the loss and the depreciation allowance are completely different from each other. The former is covered by section 24 (2) while the latter is governed by section 10 (2) .(vi) proviso (b). The order in, which they are to be absorbed is fixed by Section 24-(2): Considering the provisions of law we answer the question in the affirmative. M.BA./C-111/K Reference answered in affirmative.