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THE THIRD SCHEDULE
(See Section 23)
RULES FOR THE COMPUTATION OF DEPRECIATION ALLOWANCE

1. Allowances for depreciation.-(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:-

[(2) &(3) ]

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 per cent 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) Notwiths-tanding 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:-

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.

(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 undertaking to which clause (118B) of the Second Schedule applies; 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.

TABLE

5B. Re-investment Allowance:-- Where any expenditure or investment is make by an industrial undertaking on or after the twenty-first day of November, 1997, for the purposes of balancing, modernisation and replacement (BMR) and expansion of the machinery and plant 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 , other than machinery, plant and equipment entitled to aFirst Year Allowance under rule 5A or rule 5AA,or equipment is used by 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, or , 5, 5A, 5AA, 5B or 5C 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; [ ]

[ (c) ]

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,-

[ (1) ]

(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 therefor;

(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, 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 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 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 dated 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).

(9) 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.

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