COMMISSIONER OF INCOME TAX COMPANIES ZONE, ISLAMABAD/WEALTH TAX VS SHIFA INTERNATIONAL HOSPITAL, ISLAMABAD, 2016 PTD-ISLAMABAD 2419 (2016)

Income Tax Ordinance (XXXI of 1979)---

----Third Sched.---Rules for the Computation of Depreciation Allowance, R.2---Hospital building---Depreciation allowance---Income Tax Appellate Tribunal treated hospital owned by assessee as "plant" thereby entitling it to depreciation when assessee had not pleaded to treat it as such---Validity---Three categories specified under R.2 of Rules for the Computation of Depreciation Allowance given in Third Schedule to Income Tax Ordinance, 1979, had been specified under the title 'Building'---Rate of depreciation in case of a building not otherwise specified was 5% while rate of 10% was attracted in case of a factory, workshop or residential quarters for labour---Building of hospital did not fall within the category of a factory, workshop or residential quarters of labour in order to attract rate of 10%---Assessing officer had correctly applied rate of 5% while Commissioner Inland Revenue (Appeals) and Income Tax Appellate Tribunal misinterpreted R.2 of Rules for the Computation of Depreciation Allowance given in Third Schedule to Income Tax Ordinance, 1979---Reference was answered in negative.

Babar Bilal for Applicant.

Mian Tauqeer Aslam for Respondent.

Date of hearing: 31st May, 2016.

ORDER

ATHAR MINALLAH, J.---Through this Income Tax Reference Application filed under Section 133 of the Income Tax Ordinance, 2001 (hereinafter referred to as the "Ordinance of 2001") the Department has proposed for our consideration the following two questions of law:

i)Whether on the facts and in the circumstances of the case the ITAT had the jurisdiction to characterize the hospital building as plant when the assessee had not pleaded to treat it as such.

ii)Whether on the facts and in the circumstances of the case the ITAT was justified to treat the hospital building owned by the assessee as plant thereby entitling it to depreciation at the rate of 10% notwithstanding the fact that the said rate has been specified only for factory/workshop buildings and labour quarters as per Third Schedule to the Repealed Ordinance.

It is claimed that the questions of law arise out of order dated 28-4-2007 passed by the learned Income Tax Appellate Tribunal Islamabad Bench, Islamabad (hereinafter referred to as the "Tribunal").

2.The facts, in brief, are that the respondent Assessee is incorporated as a public limited company listed on Stock Exchange. The respondent Assessee derives income from owning and operating a hospital named Messrs Shifa International Hospital. The latter filed its return for the assessment Year 2000-2001 declaring an income of Rs. 5.054 million. According to the audited accounts the assessee claimed depreciation at the rate of 10% on the building of the Hospital. The Assessing Officer vide order dated 17-8-2002 allowed depreciation on the building of the Hospital at the rate of 5%. The respondent Assessee filed an appeal before the Commissioner of Income Tax/Wealth Tax (Appeals) Zone-1, Islamabad (hereafter referred to as the "CIR(A"). The appeal was disposed of vide order dated 09-8-2004. The Department assailed the said order before the learned Tribunal. The learned Tribunal affirmed the order of the learned CIR(A), whereby the depreciation was allowed at the rate of 10%.

3.Learned counsel appearing on behalf of the applicant Department has contended that; the rates of depreciation allowance are specified under Rule 2 of the Rules for the Computation of Depreciation Allowance given in the third Schedule of the Ordinance of 1979; the depreciation at the rate of 10% is in respect of factory, workshop or residential quarters for labour, while in case of a building it is at the rate of 5%; the building of the Hospital is not a factory, workshop or residential quarters for labour; the learned Tribunal and the learned CIR(A) have mis-interpreted the categories specified under Rule 2 of the Rules mentioned in the Third Schedule of the Ordinance of 1979.

4.The learned counsel appearing on behalf of the respondent Assessee when confronted with the above could not explain the reasons for treating the building of the Hospital as a factory, workshop or residential quarters for the labour.

5.The learned counsel have been heard and the record perused with their able assistance.

6.The question of law proposed for our consideration essentially relates to the categories specified under Rule 2 of the Third Schedule of the Ordinance of 1979. The three categories have been specified under the title "Building". The rate of depreciation in case of a building not otherwise specified is 5% while the rate of 10% is attracted in case of a factory, workshop or residential quarters for labour. Admittedly the building of the Hospital does not fall within the category of a factory, workshop or residential quarters of labour in order to attract the rate of 10%. The Assessing Officer had correctly applied the rate of 5%. While the learned, CIR(A) and the Tribunal misinterpreted Rule 2 of the Third Schedule of the Ordinance of 1979.

In the light of the above, we answer both the questions in the negative. A copy of this order shall be sent to the learned Tribunal under the seal of this Court.

MH/107/Isl.Order accordingly.