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Petitioner: State Bank of Pakistan VS Respondent: Federation of Pakistan and four others
Court Name: Lahore High Court Judge(s): Jawad Hassan Title: State Bank of Pakistan vs Federation of Pakistan and four others Case No.: Writ Petition No.1026 of 2018 Date of Judgment:2022-09-26 Reported As: 2022 LHC 7273 Result: Petition Allowed
JUDGMENT
JUDGMENT "As Justice Oliver Wendell Holmes put it: "We do not inquire what the legislature meant; we ask only what the statute means."[1] (Justice Antonin Scalia, Judge, US Supreme Court) JAWAD HASSAN, J. The Petitioner/State Bank of Pakistan (the "SBP") has filed this Writ of Prohibition and Certiorari under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (the "Constitution") to declare the act of Respondents No.1 to 4, including the issuance of notices/challan (by Respondent No.2) to the "SBP" and passing of order dated 26.02.2018 (by Respondent No.4), as illegal and without lawful authority. I. CONTEXT 2. In this petition, the Petitioner has assailed the levy of property tax by the Respondent/Chaklala Cantonment Board, Rawalpindi (the "Cantonment Board") and has sought exemption under Section 99(2)(f) of the Cantonment Act, 1924 (the "Cantonment Act") by challenging the imposition of property tax in 2014 as it has been continuously requesting the Respondents to treat the property of the "SBP" as property of the Federal Government in a number of letters corresponded between the "SBP" and the Respondents. The Respondents have alleged that the Petitioner is a Corporation and has been paying the property tax since 1962, therefore, the "SBP" or its properties situated within the Cantonment Area are not liable to be exempted under the Act. The Petitioner has challenged levy of property tax under the instant writ petition in 2018 with the prayer that the properties of the "SBP" be declared properties of the Federal Government and be exempted from levy of property tax by virtue of Article 165 of the "Constitution" read with Section 99(2)(f) of the "Cantonment Act".
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II. PETITIONER'S SUBMISSIONS 3. Mr. Salman Ajaib, Advocate submitted that the "SBP" is a Corporation constituted under the State Bank of Pakistan Act, 1956 (the "SBP Act") and performing sovereign functions of the Federal Government, therefore, it is entitled to property tax exemption on the touchstone of rationale rendered by the Hon'ble Supreme Court of Pakistan in the judgment reported as "UNION COUNCIL, ALI WAHAN, SUKKAR Versus Associated Cement (Pvt.) Limited" (1993 SCMR 468). He further submitted that even though the "SBP" is a Corporation, it is not a commercial entity, like National Bank of Pakistan or any other commercial/scheduled bank or financial institution; and by granting property tax exemption to the "SBP", no discrimination will be caused to any entity. He explained that over the years, there have been many amendments in the functions of "SBP" which justify its claim for grant of exemption from payment of property tax under Section 99(2)(f) of the "Cantonment Act". He next clarified that there are certain businesses which the "SBP" cannot transact and those are mentioned in the "SBP" Act. In this regard, he specifically referred to Section 20 of the SBP Act, which states that the "SBP" shall not engage in any commercial or trade activity. He also referred to the provisions of Section 21 of the SBP Act, which empowers the "SBP" to carry out government business and no other bank in Pakistan is authorized to carry out the functions which the "SBP" is authorized under the law. 4. Mr. Salman Ajaib, Advocate contended that the "SBP", by virtue of its powers and functions, is wholly owned by the Federal Government and performs functions on behalf of the Federal Government and is also mentioned in the Fourth Schedule, Part I, Federal Legislative List at Item No.28 of Constitution and these functions have been given to the "SBP" through an amendment made in the SBP Act as well as other applicable laws. He also argued that the "SBP" has been given authority to issue Bank Notes and then denominations and form of the said Bank Notes [see Sections 24 and 27 of the SBP Act] which is essentially the function of the Federal Government. He submitted that as per Article 74 of the Constitution, a Bill pertaining to amendment in the Constitution or functions of the "SBP" can only be introduced by or with consent of the Federal Government. He stated that the "SBP" is mentioned at serial No.11(i) [Central Banking, State Bank of Pakistan] under heading No.12 (Finance Division) in Schedule II of the Federal Rules of Business, 1973 [as amended up to 27th May 2021] (the "Federal Rules") whereas other functions, which the "SBP" by law is authorized to perform, are also separately mentioned in the Federal Rules at serial No.8 and 10 under the heading of Finance Division. The attention of the Court was also drawn to the provisions of Article 98 of the Constitution, which provide that on recommendation of the Federal Government, the Parliament may, by law, confer functions upon officers or authorities subordinate to the Federal Government and such delegation of functions is apparent in the SBP Act. 5. Mr. Raza Mohsin Qazilbash, Director Legal, SBP made it clear that the functions, which the "SBP" performs, are functions which have been conferred on it by the SBP Act and other applicable laws for the purpose mentioned therein. He added that neither the "SBP" nor the SBP-Banking Services Corporation is carrying out any commercial business which other public or private entities are performing and the kind of services provided by them, are exclusive functions of the Federal Government and right to change the nature of business which the Petitioner can transact, is in the exclusive domain of the Federal Government, therefore, if exemption is granted or extended to the SPB from property tax, no discrimination (in terms of Article 25 of the Constitution) will be caused to any public or private entity and for the reasons/grounds stated above, this Court has to lift the veil of incorporation in order to determine the exact nature of control and management of the Petitioner Organization and its functions in respect thereto. In support of his arguments, he relied on the judgments reported as "SINDH REVENUE BOARD through Chairman Government of Sindh and another Versus THE CIVIL AVIATION AUTHORITY OF PAKISTAN through Airport Manager" (2017 SCMR 1344), "WATER AND POWER DEVELOPMENT AUTHORITY through Director Services and
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Estates Versus EXCISE AND TAXATION DEPARTMENT, Government of the Punjab through Director General and 4 others" (2017 CLC 716), "EXPO Lahore (Private) Limited Versus EXCISE AND TAXATION DEPARTMENT, Government of the Punjab and others" (2018 CLC 1602) and "ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD through its Registrar Versus MINISTRY OF INTERIOR, Government of Pakistan through its Secretary and 2 others" (2010 YLR 1339). III. RESPONDENTS' SUBMISSIONS 6. Mr. Waqar-ul-Haq Sheikh, ASC submitted that the Petitioner has not availed the alternate remedy provided to it under the law, before approaching this Court in terms of the judgment reported as "STATE BANK OF PAKISTAN Versus THE DIRECTOR, MILITARY LANDS AND CANTONMENTS, Rawalpindi and others" (PLD 1990 SC 827), therefore, writ is not maintainable, being pre-mature. He further submitted that the "SBP" is a Corporation, hence, is not entitled to property tax exemption. Ch. Muhammad Yaqoob, ASC next contended that the Petitioner has estopped by its own conduct to claim exemption because payment of tax has already been made by its other office and moreover, the "SBP" has already moved to the Federal Government for grant of exemption under Section 99A of the "Cantonment Act". Reliance is placed on the judgments reported as "MUHAMMAD ZAMAN and others Versus GOVERNMENT OF PAKISTAN through Secretary, Finance Division (Regulation Wing), Islamabad and others" (2017 SCMR 571) and "NATIONAL BANK OF PAKISTAN Versus EXECUTIVE DISTRICT OFFICER (Revenue), Multan and another" (2015 CLC 1618). 7. Arguments heard. Record perused. IV. MOOT POINTS 8. From divergent stance of the parties, the following moot points are framed: a. Whether the SBP is entitled to exemption from payment of property tax under Section 99(2)(f) of the Cantonment Act? b. Whether SBP, by paying the property tax in previous years, is estopped by its own conduct to claim such exemption? c. Whether the SBP should have availed the appropriate remedy before knocking the door of this Court? V. DETERMINATION OF THE COURT Moot Point (a) (Whether the SBP is entitled to exemption from property tax) 9. At the outset, it may be significant to note here that the premises are occupied by the SBP- Banking Service Corporation, which is a wholly owned subsidiary of "SBP" and functions under the SBP Banking Service Corporation Ordinance, 2001 (the "SBP Ordinance"). The SBP-Banking Service Corporation (the "SBP Corporation") is transacting any business which the "SBP" delegates and its primary functions is to assist the "SBP" in performing its obligation under the SBP Act and other applicable laws in line with the "SBP Ordinance". From bare reading of Section 5 of the "SBP Ordinance", it would be clear that except for the functions mentioned in Section 5(2), all other functions of the "SBP" can be performed by the "SBP Corporation". The functions of the "SBP" mentioned in the SBP Act [from Section 17 and onwards] are the functions which can also be delegated to the "SBP Corporation". Therefore, it is appropriate to note that the "SBP Corporation" performs only those functions which are delegated by the "SBP" and the "SBP Corporation" is fully owned by the "SBP". (i) Exemption of Property Tax 10. To better understand this moot point, it would be advantageous to first discuss the imposition of property tax by the Cantonment Board. The Cantonment Board, established under Section 11 of the "Cantonment Act", is authorized under Section 60 of the "Cantonment Act" that it may, with the previous sanction of the Federal Government, impose in any cantonment any tax which, under any enactment for the time being in force, may be imposed in any municipality in the Province wherein
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such cantonment is situated. On the other hand, Section 99(2)(f) of the "Cantonment Act" provides for exemption of certain buildings and lands from any tax on property and reads as under: "99. Exemption in the case of buildings. (2) The following buildings and lands shall be exempt from any tax on property other than a tax imposed to cover the cost of specific services rendered by the Board, namely: (a) ------------------ (b) ------------------ (c) ------------------ (d) ------------------ (e) ----------------- -; and (f) any buildings or lands, used or acquired for the public service or for any public purpose, which are the property of the Government, or in the occupation of the Federal or any Provincial Government." 11. Accordingly, any building or land (a) which is used or acquired for the public service or for any public purpose and (b) which is property of the Government or in the occupation of the Federal or any Provincial Government, is by law exempt from any tax on property other than a tax imposed to cover the cost of specific services rendered by the Cantonment Board. For the first condition, it is significant to define what is meant by public service or public purpose. Since the "Cantonment Act" is silent about the definition of these terminologies, guidance can be sought from the dictionary meaning of these words. As per Black's Law Dictionary 9th Edition, "public service" means "(a) a service provided or facilitated by the government for the general public's convenience and benefit; (b) government employment, work performed for or on behalf of the government; and (c) broadly, any work that serves the public good, including government work and public-interest law." (ii) Legal Anthropology of State Bank of Pakistan 12. For the purpose of second condition and to understand whether the subject property is in occupation of the Federal Government, it is essential to discuss the history of "SBP". It is to be noted that the State Bank of Pakistan Order 1948 (the "SBP Order") was issued by the first Governor General of Pakistan on 12th May of 1948 to take over functions of the Reserve Bank of India. At the time of opening ceremony of the "SBP", Quaid-e-Azam Muhammad Ali Jinnah said: "The opening of the State Bank of Pakistan symbolizes the sovereignty of our State in the financial sphere." The Preamble of the SBP Order reads as follows: "Whereas in accordance with the provisions of the Pakistan (Monetary System and Reserve Bank) Order, 1947 as amended by the Pakistan Monetary System and Reserve Bank (Amendment) Order 1948, the Reserve Bank of India constituted by the Reserve Bank of India Act, 1934 (II of 1934), shall cease to operate as Pakistan's currency authority and central bank after the thirteenth day of June, 1948. And whereas it is necessary to provide for the constitution of State Bank to regulate the issue of bank notes and the keeping of reserves, with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage." Section 3(1) of the SBP Order provides that as soon as possible steps shall be taken to establish, in accordance with the provisions of this Order, a bank to be called "State Bank of Pakistan", for the purposes of taking over, as from first day of July 1948, the management of the currency from the Reserve Bank of India and carrying on the business of Central Banking. Further, its Section 3(3) narrates that the Bank shall be a body corporate by the name of "State Bank of Pakistan". Moreover, Section 5 of SBP Order provides that fifty one percent of share capital shall vest in the Central Government and remaining was to be offered for the public subscription.
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13. However, there had been numerous amendments in the legislation under which the "SBP" is functioning. After the SBP Order, the SBP Act was introduced on 19th April, 1956 which till-date remained the principal legislation defining the functions being performed by the "SBP". The SBP Act retained the concept of private shareholding and has gone under many amendments over the period of time to accommodate the ever-evolving pace of Pakistani economy. The preambles of the SBP Act and the subsequent amendment made in it in 2022 are reproduced below: i. Preamble of the SBP Act "Whereas it is necessary to provide for the constitution of a State Bank of Pakistan to regulate the monetary and credit system of Pakistan and to foster its growth in the best national interests with a view to securing monetary stability and fuller utilization of the country's productive resources." ii. Amendment in the preamble brought in by State Bank of Pakistan (Amendment) Act, 2022 "Whereas it is necessary to provide for the constitution of State Bank to achieve domestic price stability by way of regulating the monetary and credit system of Pakistan and, without prejudice to said primary objective, contribute to the stability of the financial system of Pakistan and supporting the general economic policies of the Federal Government to foster development and fuller utilization of the country's productive resources" 14. It is to be noted that Sections 4B and 4C have been inserted in the SBP Act vide State Bank of Pakistan (Amendment), Act, 2022, which describe the primary objectives and functions of the "SBP" respectively, and are reproduced as follows: "4B. Objectives. -- (1) The primary objective of the Bank shall be to achieve and maintain domestic price stability. (2) Without prejudice to the Bank's primary objective, the Bank shall contribute to the stability of the financial system of Pakistan. (3) Subject to sub-sections (1) and (2), the Bank shall support the Government's general economic policies with a view to contributing to fostering the development and fuller utilization of Pakistan's productive resources. 4C. Functions of the Bank-- The functions of the Bank to achieve the objectives set forth in section 4B and as further described in this Act, shall be to -- (a) determine and implement monetary policy; (b) formulate and implement the exchange rate policy; (c) carry out and disseminate research relevant to Bank's objectives and functions; (d) hold and manage all international reserves of Pakistan; (e) issue and manage the currency of Pakistan, including regulating their denominations; (f) collect and produce statistics relevant to the Bank's objectives and functions; (g) operate and exercise oversight over payment systems; (h) license, regulate and supervise scheduled banks and financial institutions that fall under the domain of the Bank as further specified in this Act or any other Act; (i) resolve scheduled banks and other financial institutions that fall under the domain of the Bank as further specified in this Act or any other Act; (j) adopt and implement macro-prudential policy measures for scheduled banks and financial institutions that fall under the domain of the Bank; (k) act as the banker, financial adviser and fiscal agent to the Government, and its agencies, on the mutually agreed terms and conditions; (l) promote financial inclusion in Pakistan; (m) develop financial market infrastructures; (n) participate in international councils and organizations, including multilateral, international financial institutions,
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(o) cooperate with domestic and foreign public entities, concerning matters related to its objectives and functions; and (p) carry out any ancillary activities incidental to the exercise of its objectives under this Act." Section 4B explains that primary objective of the "SBP" is to achieve and maintain domestic price stability while Sub-Section (2) of this Section provides that without prejudice to the SBP's primary objective, the "SBP" shall contribute to the stability of the financial system of Pakistan. Sub-Section (3) of Section 4B of the SBP Act states that subject to forgoing sub-sections, the "SBP" shall support the Government's general economic policies with a view to contributing to fostering the development and fuller utilization of Pakistan's productive resources. Similarly, functions of the "SBP" have been fully described in (newly inserted) Section 4C of the SBP Act, and its Sub-Section (h) provides for regulating the scheduled banks and financial institutions; Sub-Section (i) narrates the resolution of the scheduled banks; and Sub-Section (j) allows the "SBP" to adopt and implement macro-prudential policy measures for scheduled banks and financial institution. Further, Section 37 of the SBP Act empowers the "SBP" to declare any bank a scheduled bank which is carrying on business of banking in Pakistan. 15. In the case titled as STATE BANK OF PAKISTAN through Chief Manager, Peshawar Versus FEDERATION OF PAKISTAN through Secretary, Ministry of Defense, Rawalpindi and 5 others" (PLD 2022 Peshawar 46), the Division Bench of the Peshawar High Court has dealt with a question that whether the property which is ostensibly owned by the "SBP" in the record of the Cantonment Board vest in the Federal Government and thus, is exempted from payment of property tax in terms of Article 165 of the Constitution and Section 99(f) of the "Cantonment Act". It has been elaborated that Article 173(2) of the Constitution deals with the acquisition and power of the Federal as well as Provincial Government to acquire property and to make contract etc., and it is the authority of the Federal Government to deal with any property owned by the Federation. The concept of Federal Government, extent of the executive authority of the Federation and conferment of functions of Federation on subordinate authority is provided in Articles 90, 97 and 98 of the Constitution. Accordingly, the concept that the Federal Government may work through institutions thus find its geneses from Articles 90, 97, 98 of the Constitution. The case of "SINDH REVENUE BOARD through Chairman Government of Sindh and another Versus THE CIVIL AVIATION AUTHORITY OF PAKISTAN through Airport Manager" (2017 SCMR 1344) has also been relied upon in which the Apex Court has held that the Federation exercises executive authority in respect of subject which could be legislated by the federal legislature (Article 97 of the Constitution) and the Federal Government executive authority could be conferred on authorities subordinate to the Federal Government (Article 98 of the Constitution) like Civil Aviation Authority of Pakistan. It has been admitted that Article 165 of this Constitution grants exemption to the Federal Government in respect of its property or income from taxation under any Act of the Provincial Assembly and there is plethora of case law on the jurisprudence around Article 165 of the Constitution and the claim of exemption in terms thereof by various corporations and industries of the Federal Government wherein they have claimed their properties to be the properties of the Federal Government and thus entitled to the grant of exemption in terms of Article 165 of the Constitution. On the touch stone of the immunity to the State institution under Article 165 of the Constitution was elaborately laid down by the Apex Court in the case of "CENTRAL BOARD OF REVENUE and another Versus S.I.T.E." (PLD 1985 Supreme Court 97), wherein the Apex Court has held that since Sindh Industrial Trading Estate was an extension of the Provincial Government and its income was also that of the Government, therefore, it was exempted from payment of income tax by virtue of Article 165 of the Constitution. Probably in this background to undo the aforesaid declaration of the Apex Court, Article 165-A was inserted in the Constitution. The exception created through Article 165-A of the constitution after the SITE judgment referred above, it appears that only the State established
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instrumentality is liable to pay all the taxes on its income whereas the exemption provided by Article 165 of the Constitution to the Federal as well as Provincial Government from payment of property tax shall also be available to its instrumentalities in view of the law laid down by the Apex court in SITE Judgment. It has been held in the case of STATE BANK OF PAKISTAN (PLD 2022 Peshawar 46) (supra) as follows: "16. The issue in question has arisen owing to the fact that the petitioner organization is a body corporate having perpetual succession and a common seal, and can sue and be sued in its own name, thus, it is not clearly spelt out whether the petitioner organization is in fact Federal Government or otherwise. However, as stated above, there is a rich jurisprudence which has been developed by the Supreme Court of Pakistan regarding the relation of Article 165 of the Constitution with Government instrumentalities and corporation. The superior Court(s) have often adopted the doctrine of lifting the veil of incorporation to ascertain the true nature of the Government instrumentalities and corporation to examine the applicability of Article 165 of the Constitution. 19. It can, therefore, be seen from the aforesaid judgments that for the Court(s) to make use of the doctrine of lifting the veil of incorporation, there must exist justifiable reasons to ascertain the real ownership and control of a corporation for the purpose of Article 165 of the Constitution. Moreover, a corporation or instrumentality of the Federal Government having a monopoly in the area of its operation being solely performing sovereign functions of the state, will be deemed a department of the Government and hence entitled to the exemption under Article 165 of the Constitution from payment of property tax. Similarly, the Court(s) would resort to the doctrine of lifting the veil of incorporation in the cases where a corporation whose entire shareholding is owned by Federal Government whereas a corporation which is not wholly owned by the Federal Government and part of the shareholding vests in other entities and persons as well, will not be extended the benefit of Article 165 of the Constitution. The Court(s) have extended the benefit of Article 165 of the Constitution to property owned directly by the Federal Government but the said benefit has also been extended to properties owned by the Federal Government through its instrumentalities and body corporates, however, a Government Corporation conducting commercial activities in the normal course of business and competing with similar entities has not been given the benefit of Article 165 for seeking exemption from property tax. It must, however, be noted that The Associated Cement case (supra), has set the tone for future jurisprudence, therefore, principles laid down in it must be considered carefully in respect of the applicability of the exemption under Article 165…
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