THE THIRD SCHEDULE
(See Section 23)
RULES FOR THE COMPUTATION OF DEPRECIATION ALLOWANCE
for depreciation.-1. Allowances
(1) Where, in any income year, any building, machinery, plant or furniture owned by an assessee is used for purposes of any business or profession carried on by him, or in any income year commencing on or after the first day of July, 1982, any machinery or plant is given on lease by the assessee, being a scheduled bank, a financial institution or such modaraba or leasing company as is approved by the Central Board of Revenue for purposes of this Schedule, on such conditions as may be specified, an allowance for depreciation shall be made in computing the profits and gains of the business or profession of the assessee in the manner hereinafter provided.
(1A) The provisions of sub-rule (1) shall in the like manner apply to a building given on lease in any income year commencing on or after the first day of July, 1986, provided that the said building is used by the lessee for the purposes of his business or profession.
(2) Where any such building, machinery, plant or furniture is not wholly used for the purposes of the business or profession, the allowance under sub-rule (1) shall be restricted to the fair proportional part of the amount which would be admissible if such building, machinery, plant or furniture were wholly so used.
(3) No allowance under this rule shall be made unless-
(a) at the time of filing a return of total income such particulars as may be prescribed and such further information or documents as the Deputy Commissioner may require, are furnished; and
(b) such building, machinery, plant or furniture has been so used during the income year.
(3A) Where any building, furniture, machinery or plant is used for the purposes of business or profession during any income year for which the income from such business or profession is exempt from tax, depreciation admissible under sub-rule (1) shall be deemed to have been allowed in respect of the said income year and after expiration of the exemption period written down value of such assets shall be determined in accordance with sub-clause (ii) of clause (b) of sub-rule (7) of rule 8.
(4) No allowance under this rule shall be made in respect of a machine referred to in clause (xx) of sub-section (1) of section 23.
2. Rates of depreciation allowance.-
(1) The allowance under rule 1 shall be computed at the rates specified in the Table annexed hereto-
TABLE
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Class of asset |
Description |
Rate per cent of the written down value |
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1 |
2 |
3 |
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BUILDING |
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I. |
Building (not otherwise specified) |
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II. |
Factory or workshop (excluding godowns and Offices) |
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IIA. |
Residential quarters for labour |
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FURNITURE |
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III. |
Furniture |
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MACHINERY AND PLANT |
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IV. |
Machinery and plant (not otherwise specified) |
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IVA. |
Technical or professional books |
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IVAA. |
Personal computer hardware; |
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V. |
Ships |
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(i) New |
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(ii) Second hand Age at the time of purchase: |
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(a) not more than ten years |
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(b) more than ten years |
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VI. |
Batteries, X-Ray and electrotherapeutic apparatus and accessories |
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VIA |
Laboratory equipment used in educational institution |
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VII. |
Machinery used in the production and exhibition of cinematograph films. |
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VIII. |
Motor-vehicles, all sorts |
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IX. |
Aircraft, aeroengines and aerial photographic apparatus. |
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X |
Moulds used in the manufacture of glass or concrete pipes |
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XI. |
Below ground installations in mineral oil concerns the income of which is liable to be computed in accordance with the rules contained in Part I of the Fifth Schedule. |
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XII. |
Below ground installation, including but not limited to the cost of drilling, casing, cementing, logging and testing of wells, in offshore mineral oil concerns the income of which is liable to be computed in accordance with the rules contained in Part I of the Fifth Schedule. |
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XIII. |
Offshore platforms and production installations in mineral oil concern the income of which is liable to be computed in accordance with the rules contained in Part I of the Fifth Schedule. |
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3. Extra depreciation allowance for multiple shift working.
(1) In the case of machinery and plant, to which the general rate applies, an extra depreciation allowance, equal to fifty per cent of the allowance computed under sub-rule (1) of rule 2 shall be allowed on account of double shift working and hundred percent of such allowance on account of triple shift working.
(2) The extra depreciation allowance under sub-rule (1) shall be proportionate to the number of days during which the double or triple shifts are worked, and, for the purpose of computing this allowance, the normal working days throughout the year shall be taken as three hundred.
(3) The provisions of sub-rules (2) and (3) of rule 1 shall, so far as may be, apply to this rule as they apply to the said rule.
4. Depreciation not to be allowed in cases where the cost of renewal or replacement is allowed.-
(1) Notwithstanding anything contained in this Ordinance, no allowance under rule 1 or rule 3 shall be made in the case of any asset falling under the description "Machinery and Plant" the normal useful life of which does not exceed one year; but the cost of renewal or replacement thereof shall be allowed as a revenue expenditure.
5. Initial depreciation.-
(1) Where any building has been newly erected, or any machinery or plant has been installed, in Pakistan at any time between the first day of July, 1976, and the thirtieth day of June, 2000 (both dates inclusive), further depreciation allowance in respect of the year of erection or installation or the year in which such building, machinery or plant is used by the assessee for the first time for the purposes of his business or profession or the year in which commercial production is commenced, whichever is the later, shall be allowed at the following rates, namely:-
Rates
(a)
in the case of residential building for industrial labour the erection of which is begun and completed between the first day of July, 1979 and the thirtieth day of June, 2000 (both dates inclusive).
Twenty five percent of the written down value.
Explanation.- The expression 'residential building for industrial labour' means building constructed for use as dwelling houses by workmen and other persons, employed on monthly wages not exceeding one thousand rupees in an industrial undertaking which fulfils the conditions specified in clauses (a), (d) and (e) of subsection (2) of section 48 or any other industrial undertaking which is approved by the Central Board of Revenue for the purposes of this rule.
(aa)
in the case of a building given on lease by the assessee, being a scheduled bank, a financial institution or such modaraba or leasing company as is approved by the Central Board of Revenue for purposes of this Schedule, on or after the first day of July, 1986, if the said building is used by the lessee for purposes of his business or profession.
Ten percent of the written down value.
(aaa)
in the case of a building owned and used by an educational institution
25 percent of the written down value.
(b)
in the case of other building.
Ten percent of the written down value.
(c)
in the case of machinery or plant (other than X-Ray and electrotherapeutic apparatus and accessories, or ships or motor vehicles not plying for hire).
Twenty five percent of the written down value :
Provided that in addition to the initial depreciation allowance admissible under this clause to an industrial undertaking, an additional allowance of initial depreciation, shall be admissible for the next year (following the first year of admissibility of such allowance), which:
(a) is set up after the 30 June, 1995; and
(b) manufactures engineering goods.
Explanation.- As used in this clause, "industrial undertaking" has the same meaning as in the First Schedule.
(cc)
in the case of machinery or plant (other than ships or motor vehicles not plying for hire), given on lease by the assessee, being a scheduled bank, a financial institution, or such modaraba or leasing company as is approved by the Central Board of Revenue for purposes of this Schedule, on or after the first day of July, 1982.
Forty percent of written down value and in respect of any assessment year commencing on or after the first day of July, 1989, twenty five percent of the written down value.
(ccc)
in the case of X-Ray and electrotherapeutic apparatus and accessories.
Forty percent of the written down value and in respect of any assessment year commencing on or after the first day of July, 1989, twenty five percent of the written down value.
(d)
in the case of ships whose port of registry is in Pakistan.
Thirty percent of the written down value.
(e)
in the case of library books owned and used by an educational institution
25 percent of the written down value.
(2) Nothing contained in sub-rule (1) shall apply in the case of –
(a) any road transport vehicle not plying for hire;
(b) any machinery or plant which has previously been used in Pakistan;
(ba) any plant, machinery, equipment and industrial buildings to which rules 5A, 5B and, 5C apply;
(c) any building, plant or machinery owned or used by an industrial
and
(d) a machine referred to in clause (xx) of sub-section (1) of section 23.
(3) The provisions of sub-rules (2) and (3) of rule 1 shall, so far as may be, apply to this rule as they apply to the said rule.
5A. First Year Allowance.-
Where any machinery, plant and equipment , other than machinery, plant and equipment entitled to first year allowance under rule 5AA, is installed by any industrial undertaking set up in Pakistan on or after the twenty-first day of November, 1997, and owned and managed by a company formed after the said date, exclusively for operating the said industrial undertaking, further depreciation by way of First Year Allowance in respect of the year of installation or the year in which such machinery, plant or equipment is used by the assessee for the first time for the purposes of his business or profession or the year in which commercial production is commenced, whichever is the later, shall be allowed at the rates specified in the table below:-
TABLE
Categories of Industries
Rates
A.
Industries for the manufacture of leather (value added), textiles (value added), footwear, surgical and sports goods, carpets, electronics, soft, stuffed and battery operated toys, frozen concentrated citrus juices, seafood industry (farming, catching, processing and preservation of fish, shrimp and other marine products), mining and value added mineral processing.
Eighty percent of the written down value.
B.
Industries for the manufacture of process control equipment or system, power and pneumatic tools, powder metallurgical industry and manufacture of alloys and stainless steel, information technology equipment, solar technology equipment and solar cell industry, aerospace industry, defence production, hermetical sealing technology, mineral oil refining and hydrocracking and other value added petroleum products' production industries.
Eighty percent of the written down value.
C(i)
Industries for the manufacture of plants, machinery and equipment including mining or mineral processing, agricultural and earthmoving machinery, valves and controls for fluids and gas, high pressure or temperature piping and fittings, specialized pumps for chemical or petroleum industry, elevators or escalators, locomotives, ship building, turbines, seamless high pressure gas cylinders.
Sixty five percent of the written down value.
C(ii)
Industries for the manufacture of rubber and textile chemicals, dyes, pigments, specialized paints or coatings, basic manufacture of pesticides; pharmaceutical raw materials, manufacture of basic chemicals; fire-fighting foam, petrochemicals and their down stream products (including fibers), safety (auto) glass, float glass, chloro-alkali, fertilizers, pulp and paper (integrated unit).
Sixty five percent of the written down value
C(iii)
Industries for the development and production of fibre-optic communication equipment, treatment and disposal of toxic and hazardous and industrial wastes, sewerage, effluent and solid waste management, water supply, laboratory, chemical or industrial ware, optical goods and equipment, Xray and photographic films, manufacture of biomedical and medical diagnostic equipment or devices, research and development and tourism, hotels and tourism related projects, housing and construction, infrastructure and agriculture projects.
Sixty five percent of the written down value.
D.
Industries for the production of quality and hybrid seeds, edible oil extraction or refining, livestock or poultry feed, integrated poultry, livestock complex including the facility for processing and packing, milk processing and, milk products or dairy products, fruits, vegetables and flowers-grading, packing or processing etc., agro-based value-added products, by-products and chemicals (e.g. cotton, sugar cane, rice, corn-based like cattle feed, or technical testing facilities cellulose and its products, industrial alcohol, glycerine, fructose, furfural, xylose, etc.).
Sixty five percent of the written down value.
E.
Other industries including service, (Word and Comma "infrastructure," omitted by Finance Ordinance, 2001) social and agricultural sector other than the agriculture projects specified in entry C (iii), other than transport industry.
Forty percent of the written down value.
Entry F omitted which reads as follows:
F.
Transport industry. One hundred per cent of the written down value.
5AA. Where any machinery, plant and equipment (other than motor vehicles not plying for hire and ships not being fishing trawlers) is given on lease for the first time on, or after, the first day of July, 2000, by an assessee being an investment bank or a modaraba or a leasing company, further depreciation by way of First Year Allowance equal to thirty per cent of the written down value shall be allowed to such assessee in respect of the year in which such machinery, plant or equipment (other than motor vehicles not plying for hire and ships not being fishing trawlers) is given on lease for the first time on, or after, the first day of July, 2000:
Provided that no allowance shall be admissible under this rule where such allowance has been availed previously under this rule or rules 5, 5A or 5B in respect of aforesaid asset.
Explanation.- For the purposes of this rule the expression "investment bank" means a company incorporated under the Companies Ordinance, 1984 (XLVII of 1984), which has been granted a license by the Federal Government to operate as an investment bank.
5B. Re-investment Allowance.-
Where any expenditure or investment is made by an industrial undertaking on or after the twenty-first day of November, 1997, for the purposes of balancing, modernization and replacement (BMR) and expansion of the machinery and plant, other than machinery, plant and equipment entitled to a First Year Allowance under rule 5A or rule 5AA, already installed therein, further depreciation allowance equal to forty per cent of the written down value shall be allowed in respect of the year in which such machinery, plant or equipment is used by the assessee for the first time for the purposes of his business or profession or the year in which commercial production is commenced, whichever is the later.
5C. Industrial Building Allowance.-
Where any industrial sheds or structures are erected by an industrial undertaking referred to in rule 5A, a further depreciation allowance shall be allowed equal to twenty per cent of the written down value in respect of the year of erection of such structures.
6. Limitation as to allowance for depreciation.-
The aggregate of the allowance for depreciation allowed under this Ordinance and the repealed Act shall not exceed the original cost of any asset as the case may be.
7. Disposal of assets and treatment of resultant gains or losses.-
Notwithstanding anything contained in this Ordinance or the repealed Act, where, in any income year,-
(a) any asset is disposed of by an assessee, no allowance under rules 1, 3, 4, 5, 5A, 5AA, 5B or 5C (Word and figure "or 5" substituted by Words, Figures and Commas ", 5, 5A, 5AA, 5B or 5C" by Finance Ordinance, 2001) shall be made in respect thereof in that year;
(b) any asset is disposed of by an assessee,-
(i) if the sale proceeds thereof exceed the written down value, the excess shall be deemed to be the income of the assessee of that year chargeable under the head "Income from business or profession"; and
(ii) if the sale proceeds are less than the written down value, the deficit shall be deemed to be an expenditure deductible from the profits and gains of the business or profession of that year;
and the business or profession for the purposes of which the said asset was used before its disposal, shall be deemed to be carried on by the assessee during that year and all the provisions of this Ordinance shall apply accordingly :
8. Definitions.-
For the purpose of this Schedule,-
(2) "fair market value" has the same meaning as in sub-section (3) of section 29;
(3) "furniture " includes fittings;
(4) "plant" means any ship, aircraft or vehicle registered in Pakistan and includes books (other than books in respect of which an allowance has been made under section 42 of this Ordinance or section 15F of the repealed Act), scientific apparatus and surgical equipment used for the purposes of business or profession;
(5) "sale proceeds" means-
(a) where the asset is actually sold, the sale price thereof or the fair market value, whichever is the higher;
(b) where the asset is transferred by way of exchange, the fair market value of the asset acquired through such transfer;
(c) where the asset is transferred otherwise than by sale or exchange, the consideration for such transfer;
(d) where an asset is discarded, demolished, destroyed or lost, the scrap value, or the amount realised by the disposal thereof together with any insurance, compensation or salvage money received or receivable in respect thereof;
(e) where the asset is compulsorily acquired under any law for the time being in force in Pakistan, the compensation paid therefore;
(f) where the asset ceases to be used by the assessee for purposes of his business or profession, the fair market value thereof at the time of such cessation;
(g) where the asset, other than an asset to which sub-clause (h) or sub-clause (i) or sub-clause (j) applies, is exported or transferred outside Pakistan, the original cost thereof, or the fair market value at the time of export, whichever is the higher,
(h) where an asset, after having been used in Pakistan in the execution of a contract entered into by the assessee before the first day of July, 1979, is exported or transferred outside Pakistan, the original cost thereof less all depreciation allowed excepting the sum allowed in pursuance of rule 5;
(i) where an asset, not being an asset to which sub-clause (j) applies, after having been used in Pakistan in the execution of a contract entered into by the assessee on or after the first day of July, 1979, is exported or transferred outside Pakistan the original cost thereof; and
(j) where an asset, after having been used in Pakistan in the execution of a contract for exploration and production of petroleum (such contract having been entered into by the assessee on or after the first day of July, 1981), is exported or transferred outside Pakistan, the original cost thereof less all depreciation allowed excepting the sum allowed in pursuance of rule 5,
and in each such case, the asset shall, for purposes of rule 7, be deemed to have been disposed of by the assessee ;
Provided that in the case of a building the term "sale proceeds" shall mean an amount equal to the lower of the following, namely:-
(a) original cost, and
(b) sale price or fair market value, whichever is higher:
Provided further that, where the actual cost of a road transport vehicle is, in accordance with sub-clause (a) of clause (8), taken to be seven hundred and fifty thousand (Words "six hundred thousand" substituted by "seven hundred and fifty thousand" by Finance Ordinance, 2001) rupees, the sale proceeds thereof shall be taken to be a sum which bears to the amount for which the said vehicle is sold together with any insurance, salvage or compensation money received or receivable or, as the case may be, scrap value in respect thereof the same proportion as the said sum of seven hundred and fifty thousand (Words "six hundred thousand" substituted by "seven hundred and fifty thousand" by Finance Ordinance, 2001) rupees bears to the actual cost of the said vehicle to the assessee had the said sub-clause not been applicable to such vehicle :
Provided also that in case of an asset leased by a scheduled bank, a financial institution or any modaraba or leasing company which is approved by the Central Board of Revenue the term "sale proceeds" shall mean the residual value received by such leasing company on maturity of lease agreement with the first lessee, subject to the condition that the residual value plus the amount realized during the currency of the agreement towards cost of the asset is not less than the original cost to the lessor.
Explanation. - The expression 'sold', as used in the second proviso includes a transfer by way of exchange or otherwise or a compulsory acquisition under any law for the time being in force;
(6) "ship" includes a steamer, motor vessel, sail, tug, boat, iron or steel float for cargo, wooden cargo boat, motor launch and speed boat;
(7) "written down value" means-
(a) in the case of a ship or any asset to which sub-rule (3) of rule 2 applies,-
(i) for purpose of rule 7, as in sub-clause (b), and
(ii) for any other purpose,
the actual 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; and
(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 the assessments for earlier years.
(8) For the purposes of clause (7),-
(a) in the case of road transport vehicles, being passenger transport vehicles, not plying for hire, the actual cost to the assessee shall be deemed not to exceed seven hundred and fifty thousand (Words "six hundred thousand" substituted by "seven hundred and fifty thousand" by Finance Ordinance, 2001) rupees;
(b) in computing the actual cost of an asset, the amount of any grant, subsidy, rebate or commission and the value of any assistance (not being in the nature of any loan repayable with or without interest) received by an assessee from Government or any other authority or person and any deduction or allowance admissible under this Ordinance or the repealed Act shall be excluded;
(c) where, before the date of acquisition by the assessee, any such asset had at any time been used by any person for the purposes of his business or profession, the actual cost to the assessee shall, except in any case where sub-clause (d) applies, be deemed not to exceed the fair market value thereof;
(d) where any assessee has succeeded another person in business or profession, the written down value of an asset shall be computed as if no succession had taken place;
(e) where an assessee has acquired any plant or machinery (hereafter referred to as 'asset') from a country outside Pakistan for installation in Pakistan for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset and before full and final repayment of any foreign loan, 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 asset (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 year shall be added to, or, as the case may be, deducted from the actual cost of the asset and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset;
(f) where the whole or any part of the liability aforesaid is met, not by the assessee, but, directly or indirectly, by any other person or authority, the liability so met shall not be taken into account for the purposes of sub-clause (e);
(g) where the assessee has entered into a contract with an authorised dealer for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this sub-clause shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein; and
(h) for the purposes of making an assessment for the year beginning on the first day of July, 1979, the written down value of such asset shall be increased or reduced by the amount by which the liability aforesaid was so increased or reduced during any income year for the assessment year beginning on the first day of July, 1975 or the first day of July, 1976, the first day of July, 1977 or the first day of July, 1978
Explanation. -As used in this clause,-
(a) "rate of exchange" means the rate of exchange determined or recognised by the Federal Government for the conversion of Pakistan currency into foreign currency or foreign currency into Pakistan currency; and
(b) "authorised dealer", "foreign currency" and "Pakistan currency" have the same meaning as in the Foreign Exchange Regulation Act, 1947 (VII of 1947).
(8) The provisions of clauses (5) and (7) shall, so far as may be, apply to a class of assets as they apply to an asset.