Case Summary & Legal Holding

This judicial decision was delivered by the SUPREME-COURT. The matter involves proceedings between PAKISTAN STOCK EXCHANGE LIMITED and COMMISSIONER INLAND REVENUE ZONE-VI, KARACHIHonorable Justice Munib AkhtarAbdul Ghaffar Khan,Munawar Ali Memon, officially reported as 2026 SCMR 373. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.

Full Judgment Text & Judicial Ruling

2026 S C M R 373 [Supreme Court of Pakistan] Present: Munib Akhtar, Ayesha A. Malik and Aqeel Ahmed Abbasi, JJ PAKISTAN STOCK EXCHANGE LIMITED ---Petitioner Versus COMMISSIONER INLAND REVENUE ZONE-VI, KARACHI ---Respondent C.P.L.As. Nos. 985-K, 986-K, 987-K, 988-K, 989-K, 990-K of 2023 and 628-K of 2024, decided on 24th October, 2025. (Against judgment/order dated 08.05.2023 and 06.05.2024 passed by the High Court of Sindh, Karachi in Income Tax Cases Nos. 633 to 638 of 2001 and Income Tax Reference Application No. 220 of 2008, respectively). (a) Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Second Sched., Pt.1, Cl. 93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl. 59---Constitution of Pakistan, Art.185(3)---Income tax exemptions---Scope and preconditions---Essential elements and components---Charitable purpose---Meaning, extent and application---Pakistan Stock Exchange Limited filed seven connected civil petitions arising from income tax assessments for tax years 1993-94 to 1998-99 under the Income Tax Ordinance, 1979, and tax year 2003 under the Income Tax Ordinance, 2001, in which the appellate tribunal had earlier allowed exemption on income from house property under clause (93) of the Second Schedule (1979 Ordinance) and clause (59) (2001 Ordinance), but the High Court later reversed those findings---Core issue before the Supreme Court was whether the petitioner was legally entitled to income-tax exemption by establishing that its income was derived from house property held under legal obligation for charitable purposes and was actually applied or finally set apart for such charitable application ?---Held: Insofar as the first element for exemption from tax was concerned, it appeared to be clear that the income in question was derived from house property ---Therefore it was appropriate to move on to the second element , which had been the principal point of dispute between the parties---This itself could be regarded as having two sub-components : (i) the income must be held under trust or other legal obligations , which must (ii) be wholly, or in part only, for charitable purposes (it being common ground that no religious purposes were involved in the case)---It was not enough for the petitioner simply to show that the sub-clause was a charitable purpose as the exemption clause required that the sources of income or the income be held under some legal obligation , either wholly or in part, for a charitable purpose ---Sub-clause (2) could be regarded as a charitable purpose within the meaning of the definition clause---Therefore, while disagreeing with the High Court, Supreme Court concluded that the petitioner s situation, in the facts and circumstances of the case, came within the definition clause---An examination of the order of the tribunal showed that there was no affirmative and actual finding of fact that the income in question was either actually applied or finally set aside for purposes of achieving the objects set out in sub-clause (2)---The entire discussion related to a matter of law, i.e., whether the sub-clause in question could be regarded as a charitable purpose ---A finding in favor of the petitioner was recorded in this regard, but that was not enough---The tribunal also had to apply its mind as to whether the third element of the exemption clause existed during the periods in question and absent any such finding the benefit of the exemption clause could not be extended to the petitioner---In our view, while the finding of the tribunal might have sufficed for purposes of the second element of the exemption clause, it was wholly deficient for the third element ---The reasoning appeared simply to amount to this: that because the second element was found to exist therefore the third was equally found to (or must) exist---But, the tribunal failed to appreciate that while the determination of the second element was a question of law (or perhaps a mixed question of law and fact) the third element was a separate requirement, which was only a question of fact---The existence of the one could not, and did not, inevitably, as seemed to have been concluded by the tribunal, lead to the other---To conclude that the one existed did not show or mean that the other did as well---The positive obligation that lay on the petitioner in this regard was not discharged---And since the tribunal was the last finder of fact the exercise in relation to the third element could not be carried out by either the High Court (which in any case decided against the petitioner) or the Supreme Court---This deficiency was fatal for the petitioner s case---Even when the exemption clause was viewed in its totality the last portion thereof had to be clearly established, at the latest, by or before the final forum designated to determine questions of fact---This was patently not the situation at hand---Petitioner had failed to make out a case for entitlement to the exemption clause---Leave to appeal was refused and the petitions were dismissed, in circumstances. Cotman v. Brougham [1918] AC 514, [1918-19] All ER Rep 265, [1918] UKHL 358; Re Introductions Ltd. [1968] 2 All ER 1221; [1969] 1 All ER 887; Anglo Overseas Agencies Ltd. v. Green and another [1960] 3 All ER 244 and Commissioner of Income Tax v. Merchant Navy Club 2004 PTD 1304 ref. Commissioner of Income Tax v. Muhammad Abdur Rauf Khan PLD 1963 SC 209; Hamdard Dawakhana v. Commissioner of Income Tax PLD 1980 SC 84 and Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457 rel. (b) Interpretation of statutes--- ----Fiscal statute---Exemption clause---Application and interpretation---Firstly, the onus lies on the taxpayer to show that his case comes within the exemption---Secondly, if two reasonable interpretations are possible the one against the taxpayer will be adopted---But, thirdly, if the taxpayer s case comes fairly within the scope of the exemption then he cannot be denied the benefit of the same on the basis of any supposed intention to the contrary of the legislature or authority granting it. Oxford University Press v. Commissioner of Income Tax 2019 SCMR 235 rel. (c) Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Second Sched. Pt.1, Cl.93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl.59---Income tax---Exemption---Essential elements / components---The exemption clause can be said to contain three elements ---The income for which exemption is sought (i) must be from investments in securities of the Federal Government and house property ; (ii) either the said sources of income or the income itself must be held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes ; and (iii) the income must be actually applied or finally set apart for application thereto . Abdul Ghaffar Khan, Advocate-on-Record for Petitioner (in all cases via video-link, Karachi). Munawar Ali Memon, Advocate Supreme Court, Mrs. Abida Parveen Channar, Advocate-on-Record, M. Masood, Additional Commissioner, (via video-link, Karachi) and Dr. Ishtiaq, D.G. (Law) for Respondents. Date of hearing: 21st April, 2025. JUDGMENT MUNIB AKHTAR, J.---These leave petitions, seven in number and filed by the same petitioner, arise in relation to income tax law. Six arise under the Income Tax Ordinance, 1979 ( 1979 Ordinance ) and one under the Income Tax Ordinance, 2001 ( 2001 Ordinance ). However, the same question of law is presented, i.e., whether the petitioner was entitled to a certain exemption from tax on its income. As regards the petitions relating to the 1979 Ordinance the assessment years are, sequentially, from 1993-94 to 1998-99. The petition arising under the 2001 Ordinance relates to the tax year 2003. 2. The entitlement to exemption that is the common question raised is essentially cast in the same terms under both statutes. Under the 1979 Ordinance this was clause (93) of Part I of the Second Schedule. Under the 2001 Ordinance it was clause (59) of Part I of the Second Schedule thereto. It will be convenient to set out both clauses (as presently relevant) in tabular form:

1979 Ordinance

2001 Ordinance

(93) Any income which is derived from investments in securities of the Federal Government and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto.

(59) Any income which is derived from investments in securities of the Federal Government, profit on debt from financial institutions, grant received from Federal Government or Provincial Government or District Government, foreign grants and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto:

It is common ground (and we so proceed) that in the facts and circumstances of the case the two exemption clauses are the same. We will therefore consider the respective submissions of the parties with reference to clause (93) of the 1979 Ordinance, which is herein after referred to as the exemption clause . Both statutes also carry identical definitions of charitable purposes , in the respective clauses of their second sections, being in the following terms: charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility; This is herein after referred to as the definition clause . Finally, (since the case law relates to that statute) we may note that the Income Tax Act, 1922 ( 1922 Act ) included provisions similar to the above in its section 4(3)(i), which will be set out later. 3. The learned Appellate Tribunal found in favor of the petitioner in respect of all the assessment years under the 1979 Ordinance by means of a common order dated 26.07.2000. After a detailed consideration, inter alia, of the relevant authorities it was concluded that the petitioner s case did, as claimed, fall under clause (93). The case under the 2001 Ordinance was likewise decided in the petitioner s favor by order dated 31.07.2007, where reliance was simply placed on the earlier order. That decision is herein after referred to as the order of the Tribunal . 4. The Commissioner (herein after referred to as the Department ) filed tax references in the High Court which were decided in its favor, in relation to the 1979 Ordinance, by means of the impugned judgment dated 08.05.2023. In respect of the tax year 2003 the learned High Court simply followed this decision in the impugned order dated 06.05.2024. Thus, the principal decision, herein after referred to as the impugned decision , is the former. 5. Before us learned counsel for the petitioner submitted that the correct conclusion had been arrived at in the order of the Tribunal and that the learned High Court had erred materially in reversing the same by means of the impugned decision. Learned counsel for the Department took the contrary approach, supporting the acceptance of the tax references by the High Court. Learned counsel also submitted written submissions in support of their respective positions. 6. Briefly put, the learned High Court concluded that the exemption clause did not apply because the definition clause (and in particular the last portion thereof) had no application in the facts and circumstances of the case. Thus it was observed in para 10 of the impugned decision as follows: Primarily, from the specified portions of that building/property the individuals are looking after their own monetary interests and revenue component, so generated, either as a commission in trade of securities or as license fee for operating from a particular portion of that property or rent for occupying the cubical/portions, as in the case of Banks operating on payment of consideration, in no way termed to be an activity to keep the respondent under the umbrella of charitable activity or an act towards advancement of any other object of general public utility. 7. We have considered the respective submissions of the parties, the case law referred to and the record. We begin by recalling that the principles in relation to exemptions are clear. As set out in Oxford University Press v. Commissioner of Income Tax 2019 SCMR 235 (para 9) they are as follows:

Firstly, the onus lies on the taxpayer to show that his case comes within the exemption. Secondly, if two reasonable interpretations are possible the one against the taxpayer will be adopted. But, thirdly, if the taxpayer s case comes fairly within the scope of the exemption then he cannot be denied the benefit of the same on the basis of any supposed intention to the contrary of the legislature or authority granting it. It is in the light of these principles that the petitions fall to be decided. Before proceeding further, we may note that sometimes there may be a certain tension between the first and third aspects of the principles noted above. This may arise especially where the exemption clause comprises of more than one element . Ordinarily, and the referent here would be the first aspect, it will be for the claimant to show that each element is established in the facts and circumstances of the case. Nonetheless, and the referent here would be the third aspect, the question of whether the exemption claimed is indeed applicable is to be decided on examining the clause as a whole and in its totality. In other words, it should be kept in mind when analyzing the exemption that it is not pulled apart into its components and broken up into underlying elements in a manner such that the integrity or unity of the whole is lost. The wood should not be missed for the trees. This caution is relevant for present purposes because, as will be seen in a moment, the exemption clause with which we are here concerned does comprise of more than one component . 8. Viewed analytically, the exemption clause can be said to contain three elements . The income for which exemption is sought (i) must be from investments in securities of the Federal Government and house property ; (ii) either the said sources of income or the income itself must be held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes ; and (iii) the income must be actually applied or finally set apart for application thereto . 9. Insofar as the first element is concerned, it appears to be clear that the income in question was derived from house property . We can therefore move on to the second element , which has been the principal point of dispute between the parties. This itself can be regarded as having two subcomponents : (i) the income must be held under trust or other legal obligations , which must (ii) be wholly, or in part only, for charitable purposes (it being common ground that no religious purposes are involved here). The discussion must therefore begin by considering these aspects of the exemption clause. 10. We start by noting that no claim is made by the petitioner that the sources of income in question or the income so derived were held in trust. Therefore the first question that needs to be addressed is whether they or the income derived from them was under any legal obligations , either in whole or in part only, which could be regarded as charitable purposes . Now, the petitioner is (or at any rate was during the periods involved) organized as an entity registered under the companies legislation as a company limited by guarantee. As is well known, every company is required by law to have a memorandum of association, which must contain what is known as the objects clause, which sets out the objects for which the company is set up. It became a practice, right from the dawn of the modern era of company law (which of course dates back now to around 150 years if not more) for companies to set out long lists of what were the objects for which they were organized. These lists were sub-clauses of the objects clause, typically running into many (which could be up to several dozen) such paragraphs. The reason why this was done was because of the ultra vires doctrine, which stipulated that an object carried out by a company not set out in its objects clause (or any act or thing done not reasonably incidental thereto) was void. The strictness of this doctrine and the severely adverse consequences that followed if it became applicable was the driver behind companies setting out, in paragraph after paragraph, what it was that the company could do. But this led to objections that the true objects of the company (i.e., those for which it was really set up) got lost and disappeared in a morass that had little, if anything, to do with the position actually on the ground. Partly in response to this, the courts sought to interpret the sub-clauses of the objects clause as comprising of only a few (and sometimes only one) true object(s) (usually being the first few paragraphs of the clause) for which the company in question was brought into existence. The remaining sub-clauses were regarded simply as powers conferred on the company to achieve the true object(s). If therefore a matter fell outside the true object so ascertained the ultra vires doctrine could still apply. This is usually referred to as the main objects rule. This in turn led to companies incorporating a paragraph of the following nature (containing some or all of the elements herein stated) at the end of the objects clause: The objects set forth in any sub-clause of this clause shall not, except when the context expressly so requires, be in anywise limited or restricted by reference to or inference from the terms of any other sub-clause or by the name of the company. None of such sub-clauses or the objects therein specified or the powers thereby conferred shall be deemed subsidiary or auxiliary merely to the objects mentioned in the first sub-clause of this clause, but the company shall have full power to exercise all or any of the powers conferred by any part of this clause in any part of the world, and notwithstanding that the business, undertaking, property, or acts proposed to be transacted, acquired, dealt with, or performed do not fall within the objects of the first sub-clause of this clause. As will be seen, the purpose of this paragraph was to make each sub-clause of the objects clause independent of the others, with each being on its own a separate and distinct object for which the company was set up or in which the company could engage. This gave the company s acts and activities the widest canvass possible, as long as the action or activity in question could be found in any of the several paragraphs contained in the objects clause. And that was indeed the case more often than not. 11. The lawfulness of a paragraph such as the foregoing rounding off the objects clause came to be considered by the House of Lords in Cotman v. Brougham [1918] AC 514, [1918-19] All ER Rep 265, [1918] UKHL 358. (The paragraph set out herein above is indeed taken from the decision (see at pg. 517)). Not without some reluctance (see, e.g., the comments of Lord Wrenbury at pp. 522-3), their Lordships accepted the validity of the clause. In his concurring speech, Lord Parker explained the position as follows (pp. 520-1; emphasis supplied):

The question whether or not a transaction is ultra vires is a question of law between the company and a third party. The truth is that the statement of a company's objects in its memorandum is intended to serve a double purpose. In the first place it gives protection to subscribers, who learn from it the purposes to which their money can be applied. In the second place, it gives protection to persons who deal with the company and who can infer from it the extent of the company's powers. The narrower the objects expressed in the memorandum the less is the subscribers' risk, but the wider such objects the greater is the security of those who transact business with the company. Moreover, experience soon showed that persons who transact business with companies do not like having to depend on inference when the validity of a proposed transaction is in question. Even a power to borrow money could not always be safely inferred, much less such a power as that of underwriting shares in another company. Thus arose the practice of specifying powers as objects a practice rendered possible by the fact that there is no statutory limit on the number of objects which may be specified. But even thus a person proposing to deal with a company could not be absolutely safe, for powers specified as objects might be read as ancillary to and exerciseable only for the purpose of attaining what might be held to be the company's main or paramount object, and on this construction no one could be quite certain whether the Court would not hold any proposed transaction to be ultra vires. At any rate all the surrounding circumstances would require investigation. Fresh clauses were framed to meet this difficulty, and the result is the modern memorandum of association with its multifarious list of objects and powers specified as objects, and its clauses designed to prevent any specified object being read as ancillary to some other object. For the purpose of determining whether a company's substratum be gone it may be necessary to distinguish between power and object, and to determine what is the main or paramount object of the company, but I do not think this is necessary where a transaction is impeached as ultra vires. A person who deals with a company is entitled to assume that a company can do everything which it is expressly authorised to do by its memorandum of association, and need not investigate the equities between the company and its shareholders. 12. The result of Cotman v. Brougham has been that a paragraph of the nature therein contained will be given due effect and allow for each of the sub-paragraphs of the objects clause to be read independently of, and separately from, each other. Such a clause need not be an exact replica of what was validated by the decision; it suffices for it to substantially contain the essence thereof, howsoever worded. Otherwise of course, the interpretation of the objects clause would be subject to the main objects rule, already set out above. But it should be kept in mind that even where the memorandum contains a Cotman v. Brougham clause it has been held that some paragraphs of the objects clause are simply impossible of being construed except as a power, having no conceivable independent or separate existence in and of themselves. Thus, a paragraph stating that the company may borrow money has been held only to be a power and not an object in and of itself. In Re Introductions Ltd. [1968] 2 All ER 1221 the power to borrow money was sub-clause (N) of the objects clause, which concluded with the following words: It is hereby expressly declared that each of the preceding sub-clauses shall be construed independently of and shall be in no way limited by reference to any other sub-clause and that the objects set out in each sub-clause are independent objects of the company . This was regarded as a Cotman v. Brougham clause but it was nonetheless held at pg. 1227 as follows (emphasis supplied): The question is, in my judgment, whether it is legitimate to interpret sub-cl. (N) in conjunction with the concluding paragraph of the objects clause in that way. Now to borrow money, by itself, without intending to use the money for any purpose, would be a senseless operation . Borrowing is only a sensible activity if it is associated with some use to which the borrowed money is proposed and intended to be put, and if one were to treat sub-cl. (N) as conferring on the plaintiff company the power to do something in isolation from any other activities at all as its sole activity, sub-cl. (N) becomes an irrational clause. Although one does not find, in this sub-clause of the memorandum, any words expressly referring to any other businesses or activities of the plaintiff company, the very nature of the transaction contemplated by sub-Cl. (N) infers, I think, that the company must have in view purposes to which the money shall be applied. That is to say, that the power to borrow or raise money is a power to borrow or raise money for the purposes of the plaintiff company Moreover, notwithstanding the provision in the concluding paragraph of the objects clause that sub-cl. (N) is to be treated as an independent object of the plaintiff company I think that, on the true construction of that sub-clause, it is apparent that it is one of the sub-clauses which falls into the category of sub-clauses which relate to matters incapable of being read as independent objects in the sense that they authorise the plaintiff company to undertake some activity as its sole activity. The judgment…

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