Case No: Civil Appeal Nos. 129 and 130 of 1980
Judge: Badrul Haider Chowdhury,
Court: Appellate Division ,,
Advocate: Syed Ishtiaq Ahmed,A.M. Mahmudur Rahman,,
Citation: 34 DLR (AD) (1982) 342
Case Year: 1982
Appellant: M/s. Everett Orient Lines Inc.
Respondent: Commissioner of Income Tax
Subject: Income Tax, Fiscal Law,
Delivery Date: 1982-3-11
Kemaluddin Hossain, CJ.
Fazle Munim, J.
Badrul Haider Chowdhury, J.
Shahabuddin Ahmed, J.
M/s. Everett Orient Lines Inc. c/o M/s. United Liner Agencies of Bangladesh Ltd.
Commissioner of Income Tax Chittagong Zone, Chittagong
March, 11, 1982
Income Tax Act (XI of 1922)
Section 10 (2)(vi)
The analysis of section 10 (2)(vi) reveals that two types of depreciation are allowed. The sub-clause consists of two portions.; the first portion provides for allowance of the normal depreciation and such allowance available to both residents and non-residents in the basis of user. The second portion provides for allowance of a further sum of depreciation which is popularly called as ‘initial depreciation’ and the rates are prescribed in the statute itself. The claim for additional depreciation which is a part of normal depreciation by the assessee could not be disallowed as these vessels were installed before.……. (11)
Syed Ishtiaq Ahmed, Advocate. Mohammad Hossain, Advocate instructed by S. M. Huq, Advocate-on-Record—For the Appellant.
Mahmudur Rahman, Advocate -instructed by Md. Sajjadul Huq, Advocate-on-Record — For the Respondent.
Civil Appeal Nos. 129 and 130 of 1980
On appeal from the judgment and order dated 23-6-1980 passed by the High Court Division in Application No. 125/72.
These are two certificated appeals under section 66 (a) (2) of the Income Tax Act.
The assessee-appellant is a Company incorporated outside Bangladesh but carries on business in Bangladesh through local Agents. It is Shipping Company and it plies ships from and to ports in Bangladesh. During the assessment year 1968-69 the Assessee Company claimed depreciation on the value of the three ships, namely 'Hugh Everett,' Murray Everett’ and 'Monolo Everett'. The Company claimed additional depreciation apart from the normal depreciation for the third year out of the five years entitlement. The Income-tax officer refused such additional depreciation. Thereafter, the Appellate Assistant Commissioner while disposing of the appeal observed:
Income Tax Officer was directed to revise the assessment order accordingly.
2. Thereafter, the Department preferred appeal before the Appellate Tribunal against the decision of the Appellate Assistant Commissioner in allowing additional depreciation on the three ships. It was contended by the department that the additional depreciation was not allowable because the ships were not installed in Pakistan. The Appellate Tribunal considered that it is immaterial whether the ships were installed or not in Pakistan for the purpose of additional depreciation under Rule 9(2). It was, however, noticed that the vessel 'Monolo Everett' was installed after the first day of July, 1965 and, therefore, that the vessel is not entitled to additional depreciation under Rule 9(2). The Appellate Tribunal, however, upheld the decision of the Appellate Assistant Commissioner insofar as the other two ships are concerned for the additional depreciation. Accordingly, the tribunal sent the case back to the Income Tax Officer for revising the assessment order. Thereafter, the Revenue filed the application under section 66(1) of the Income Tax Act before the High Court Division referring the two questions:
The reference was heard by the Division Bench of the High Court. The learned Judges of the High Court Division without answering the question suo moto entered into discussion as to the vires of rule 9(1) of the Income Tax Rules. The learned Judges considered that the rules 9(2) are in the form of substantive provision. It was observed:
3. Thereafter the learned Judges considered clause VI of sub-section (2) of section 10 of the Income Tax Act and observed that:
In this view of the matter the High Court Division declared that rule 9(2) is ultra vires of section 10(2)(vi) of the Income Tax Act. Thereafter the learned Judges answered the questions referred to in the negative and set aside the decision of the Tribunal confirming the decision of the Appellate Commissioner. Certificate, however, was given under section 66(2)(a) of the Income Tax Act.
4. Syed Ishtiaq Ahmed, the learned Counsel for the assessee canvassed that rule 9(2) had been framed under Rule-making power in section 59(1)(e) and no one has ever doubted or questioned the vires of the Rule itself. The learned Judges, it is contended suo moto, considered the vires of the Rules and declared it as ultra vires. It was neither raised by the Department nor raised by the assessee and it was simply raised by the learned Judges for coming to their decision. Mr. Mahmudur Rahman, Advocate, appearing for the respondent did not support the High Court judgment as to the vires of the Rule. He simply contended that the assessee is not entitled to the benefit of additional depreciation. He further contended that the Finance Act 1961 creates a bar to the benefit of additional depreciation and the appellant is not entitled to such benefit any longer.
5. The appellant claimed initial and additional depreciation as per Income Tax Act Rules. The Income Tax Officer disallowed initial depreciation and additional depreciation by observing that as these ships were not installed in Pakistan no initial or additional depreciation could be allowed. Hence, the claim for additional depreciation was also rejected. Thereafter, the assessee moved the Appellate Assistant Commissioner. The Appellate Assistant Commissioner after considering the appeal of facts and law came to the conclusion that:
Thereafter the Department filed the appeal before the Tribunal. The Tribunal considered that one of the ships namely, Monolo Everett was installed after the first day of July 1965 and, therefore, this ship is not entitled to additional depreciation under rule 9(2). As for the argument of the departmental representative that the assessee is not entitled to additional depreciation, the Tribunal noticed.
"We, however, find that there is nothing in rule 9(2) of the Income Tax Rules, which requires that the ships must be installed in Pakistan to be entitled to additional depreciation unlike initial depreciation which cannot be allowed unless the ships are installed in Pakistan as per amendment made in section 10(2) (vi) by the Finance Act of 1967: It is immaterial whether or not the ships were installed in Pakistan for the purpose of additional depreciation under rule 9(2).
Thus both the Appellate Assistant Commissioner and the Tribunal took the view that the Income Tax Officer was wrong in taking the view regarding the additional depreciation. So far as the quantum of assessment or the method of calculation are concerned there was no controversy. The only question was that of entitlement and the first question was framed in clear language whether the Income Tax Appellate Tribunal has correctly interpreted the provisions of section 10(2)(vi)of the Income Tax Act and rule 9 (old Rule 8) of the Income Tax Rules and justified in allowing additional depreciation in respect of the vessels which did not ply in Pakistani waters during the period it question and which had not been installed in Pakistan and the second question was whether the amendment by the Finance Act of 1967 imposed a bar disallowing the benefit of additional depreciation in respect of the plant machineries which are not installed in Pakistan. The learned Judges instead of proceeding to answer the question took up a point of law which was not agitated by any of the parties nor raised by any quarter.
6. It will be convenient to consider section 10(2) (vi).
Section 10. (2) Subject to the provisions of this Act, such profits or gains shall be computed after making the following allowance, namely;
(vi) in respect of depreciation of such buildings, machinery, plant, or furniture being the property of the assessee, a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed and where the buildings have been newly created, or the machinery or plant not being motor vehicles not plying for hire or machinery or plant entitled to the development allowance under clause (via) and not having previously been used in (taxable territories) has been installed in (taxable territories) after the 31st day of March, 1945 a further sum in respect of the year of erection of installation for the year in which such building, plant or machinery is used by the assessee for the first time for the purpose of his business, professions or vocation or the year in which commercial production is commenced, whichever is the later equivalent -
* * * *
(c) in the case of machinery or plant other than ships, for motor vehicles not plying for hire to twenty-five per cent of the cost thereof to the assessee;
(d) in the case of ships (whose port of registry is in taxable territories), to thirty per cent of the cost thereof to the assessee.
Rule 9 reads as under:
9(1) the allowance under clause (vi) of sub-section (2) of section 10 in respect of depreciation of buildings, machinery, plan or furniture shall be at percentages of the written down value or original cost, as the case may be equal to the number shown in the corresponding entry in the second column of the following statement. (2) In respect of plant and machinery not having been previously used in Pakistan and not being machinery or plant entitled to development allowance under clause (via) of sub-section (2) of section 10 installed on or after the first day of April, 1948. and before the first day of July, 1965, the allowance for each of the five previous years beginning with the year of installation or the year in which commercial production is commenced whichever is the later, shall be twice the amount of the allowance computed in accordance with sub-rule (1).
7. It will be noticed that the clause (vi) provides depreciation ‘to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case to such percentage on the written down value thereof as may be in any case or class of cases be "prescribed". Section 2 clause (10) defines 'prescribes' namely, prescribed by Rules made under this Act. Section 59 which is the rule making power reads as under:
8. It is obvious that the learned Judges have fallen into an error of law in coming to the conclusion that the provisions similar to those contained in rule 9(2) can only be made by a legislative enactment and not by subordinate legislation made by the National Board of Revenue. With respect to the learned Judges, they have clearly misread the enactment and the rule of interpretation. The law itself has given the power to the National Board of Revenue to determine the percentage by prescribed Rules and rule 9 is such a rule. The judgment of the High Court Division is wrong and cannot be sustained on this score alone.
9. The benefit of initial depreciation has been made available to the residents for the purpose of encouraging the local shipping company and also to encourage the shipbuilding industries and with this end in view the benefits of initial depreciation were not made available to the foreign shipping companies by amending section 2(vi) by the Finance Act of 1967.
10. As for the additional depreciation the Tribunal took the correct view. There is nothing in rule 9(2) which requires that the ships must be installed in the taxable territories to be entitled to additional depreciation. Initial depreciation cannot be allowed unless the ships are installed in the taxable territories as per amendment made in section 10(2) (vii) by the Finance Act of 1967. The Tribunal correctly noticed that one of the ships namely, Monolo Everett, was not entitled to the additional depreciation as the same was installed after 1.7.1965.
11. Analysis of section 10(2) (vi) reveals that two types of depreciations are allowed. The sub-clause consists of two portions: the first portion provides for allowance of the normal depreciation and such allowance available to both residents and non-residents on the basis of user. The second portion provides for allowance of a further sum of depreciation which is popularly called as initial depreciation' and the rates are prescribed in the statute itself. The claim for additional depreciation which is a part of normal depreciation by the assessee could not be disallowed as the vessels were installed before 1st July, 1965. The amendment of 1967 was not given retrospective effect and, therefore, it could not extend to the assessment year in question. Moreover, the amendment had no relevancy. The Rule itself says that it must be installed on or after 1st April, 1948 and before the first day of July, 1965. The High Court Division unfortunately by taking into consideration these irrelevant matters have confused the issue at point and fallen into a grave error. So the simple answer is that the allowance of depreciation in respect of new plant machineries including ships installed after 1.4.1948 and before 1.7.1965 at twice the amount of the normal rate of depreciation for a period of 5 years from the year of installation. This was to encourage rapid industrialisation. The benefit of such depreciation was allowed to residents and nonresidents provided they are installed between 1.4.1948 and 30.6.1965. The questions framed do not strictly arise out of the Tribunal, far less the question of vires. That the reasoning adopted by the High Court Division is fallacious is clear when sub-rule (1) of rule 9 is considered. It reads:
12. If the reasoning adopted by the High Court Division is pressed to its logical conclusion then sub-rule (1) becomes ultra vires as it provides for extra special and other types of depreciation in addition to the depreciation as rule 9(2) provides for additional depreciation in respect of assets installed between 1.4.1948 and before 1.7.65 for a period of 5 years from the year of installation. Be it noted that the benefits have been enjoyed over a long period by various assessees to whom the allowances are so allowable. To knock out such beneficial provision on the ground of vires a cogent reason is to be advanced. But in the face of section 59 (1) (e) such inferences could not be drawn. The High Court has departed from all canons of interpretation while considering the vires of rule 9 when the point was neither raised nor debated by any quarter.
In the result, therefore, both the appeals are allowed. The judgement of the High Court Division is set aside and the orders of the Tribunal are restored. There will be no order as to costs.