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Petitioner: THE BANK OF PUNJAB VS Respondent: ADMINISTRATOR GENERAL, CENTRAL ZAKAT
Court Name: Lahore High Court Judge(s): Khalil-Ur-Rehman Khan Title:THE BANK OF PUNJAB vs ADMINISTRATOR GENERAL, CENTRAL ZAKAT
JUDGMENT
Reported As: K.L.R. 1994 Tax & Custom Cases 86 Result: N/A Judgment JUDGMENT KHALIL-UR-REHMAN KHAN, J.- The Bank of Punjab, a statutory Corporation established under -the Bank of Punjab Act, 1989, filed this petition under Article 199 of the Constitution seeking directions against respondents 1 and 2 to restrain them from treating the petitioner-Bank as Sahib-e-Nisab within the meaning of section 2(xxiii) (b) of Zakat and Ushr Ordinance, 1980, and to exempt the petitioner-Bank from the deduction of Zakat on N.I.T. Units and any other assets and also to direct N.I.T Units Trust to stop deducting Zakat on the N.I.T Units held by the petitioner-Bank. The case of the petitioner-Bank is that 60% of its equity is held by the Punjab Government, other 20% is held by the Autonomous Bodies and Corporations of the Provincial Government banks consultants and staff and the remaining 20% of the equity is owned and held by the general public. The Bank of Punjab Act, 1989, provides that the Government of Punjab shall be a shareholder of the Bank and shall hold at all times not less than 60% of the shares issued by the Bank through the Board of Directors who are Secretaries of the Provincial Government. The petitioner-Bank also acts as Zakat Deduction Agency under the Zakat and Ushr Ordinance, 1980, and as such deducts Zakat from the assets/amounts of its depositors/clients and remits the . Zakat so deducted to the Administrator General, Central Zakat Administration, respondent 1. 2. The petitioner-Bank has made huge investment in N.I.T. Units on which annual dividend is paid at the end of each financial year. The N.I.T. (Units) Trust, respondent 3 is deducting Zakat on the investment made in the said Units. The petitioner-Bank considering this investment not liable to
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compulsory deduction of Zakat, vide its letters dated 12th, 20th February and 17th, March, 1990, represented to respondent 3 that it being a statutory Corporation was not liable to pay Zakat. This request was not accepted as the petitioner was informed that it was not covered under section 2 (xxiii) (b) of the Zakat and Ushr Ordinance being not wholly owned by the Government and that respondent 3 was not in a position to allow exemption from compulsory deduction of Zakat at source on the investment of the Bank on the N.I.T. Units. This led to the filing of the present Constitution petition seeking aforesaid directions against the respondents. 3. Learned counsel for the petitioner argued that liability to pay Zakat of persons as contemplated by the Holy Qur'an is fixed by the Holy Qur'an itself and the power of charging and collecting Zakat from the persons so liable is provided in section 3 read with the Schedule to the Zakat and Ushr Ordinance, 1980 but this Ordinance as per section 1 (3) applies only to those companies or associations of persons, majority of the shares of which is owned by Muslim citizens and as admittedly more than 60% of equity is owned and held by the Provincial Government, the petitioner-Bank does not fall within the purview of the Ordinance and as such question whether the petitioner-Bank qualifies to be treated as 'Sahib-e-Nisab' does not arise. According to the learned counsel the provisions of the Ordinance arc to receive meaning and content in terms of concepts of Zakat prevalent in Fiqh as the Zakat and Ushr Ordinance, as is apparent from its preamble, was promulgated and enforced with a view to implement Islamic precepts relating to Zakat and Ushr, one of the pillars (Arkan) of Islam. It was further asserted that Zakat in Islam is obligation of a Muslim or natural persons and as the majority of the shares of the petitioner-Bank is held by Government of Punjab and other legal entities which are not natural persons, the Ordinance does not apply to it. Learned counsel cited The Progress of Pakistan C. Ltd. v. Registrar, Joint Stock Companies (PLD 1958 Lah. 887 (DB)) wherein it was held that a company is not a citizen. He argued that a statutory Corporation is distinct from a company or enterprise wholly owned by Government and as such omission to mention statutory Corporation in the exclusion clause of section 2 (xxiii) is immaterial and a statutory Corporation of the kind of petitioner-Bank cannot be treated as falling within the category of 'Sahib-e-Nisab'. Learned counsel for the petitioner also contended that investment in N.I.T. Units is made out of the funds lying with the petitioner-Bank; these funds are not net assets of the Bank. He explained that this fund/investment is out of deposits made by depositors and as such constitute liability of the petitioner-Bank. He added that the petitioner-Bank being itself a Zakat Deducting Agency is deducting Zakat from every depositor liable to compulsory deduction of Zakat and depositing the same with the Zakat Administration and deduction of Zakat on these very deposits in the hand of the N.I.T. Respondent amounts to deduction of Zakat twice over the same deposits. The deduction of Zakat by N.I.T., it was urged, is unauthorised and illegal. Lastly it was submitted that the petitioner-Bank is being discriminated as Zakat on N.I.T. Units held by the United Bank Limited is not being deducted by respondent No.3 though it is not wholly owned by the Federal Government. 4. Learned Deputy Attorney-General for Central Zakat Council and Administrator-General. Central Zakat Administration and Mr. Asif Jan, Advocate for N.I.T. Trust in their written statements as well as during arguments urged that though 60% equity of the petitioner-Bank is required to be held by the Government of Punjab under Section 7 of the Bank of Punjab Act, 1989, and these shares are held by the Provincial Government but provisions of sub-section (2) of section 1 and sub-clauses (b) and (c) of clause (xxiii) of section 2 of the Zakat and Ushr Ordinance, 1980, are quite clear and leave no doubt as to the extent of applicability of the Ordinance and treatment of a statutory Corporation or a company etc. With regard to its status as 'Sahib-e-Nisab'. It was urged that the petitioner Bank comes under the purview of section 1(2) of the Ordinance and clearly falls outside
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the purview of sub-clause (b) or (c) of clause (xxiii) of section 2 of the Ordinance and as such the petitioner-Bank was correctly treated as Sahib- e-Nisab and there is neither misinterpretation of section 2(xxiii) of the Ordinance nor any Quranic Injunction has been violated as a juridical person can be made liable to pay Zakat, nor there is any violation of Article 2-A or Article 18 of the Constitution. It was explained that every company or association of persons or body of individuals, whether incorporated or not, is obliged to deduct Zakat on compulsory basis from the Muslim shareholders who are citizens of Pakistan unless exempted under sub-section (3) of section 1 of the Ordinance. The respondents further submitted that no discrimination has been made against the petitioner-Bank in any way and the law has been applied in an absolutely correct and just manner and that a Government, Federal or Provincial, is totally different from a Corporation of any type, statutory or otherwise. It was, however, admitted that nationalised commercial banks have been excluded from the definition of 'Sahib-e-Nisab' in terms of clause (xxiii) of section 2 of the Ordinance because these are owned wholly by the Federal Government which is not the case with the petitioner-Bank as only sixty per cent of its equity is held by the Government of Punjab. The claim of the petitioner-Bank for being exempted from compulsory deduction of Zakat in respect of its assets was thus repudiated. It may also be noted that the preliminary objections taken in the written statement were not urged during the arguments and the same are, therefore, not being noticed. 5. Dr. Riaz-ul-Hassan Gillani, Advocate was requested to assist the Court as amicus curiae. The exposition of Injunctions relating to Zakat as presented by the amicus curiae was that the Holy Qur'an speaks of Salat (Prayer) and Zakat as obligation of believers at least thirty-two times in different verses. He cited Hamilton's Hedaya Book I, Page 1 to explain the obligation of Zakat and the conditions upon which it is incumbent. The statement reads:- "Zakat is an ordinance of God, incumbent upon every person who is free, sane, adult and Mussulman, provided he be possessed in full propriety, of such estate or effects as are termed in the language of the law a Nisab, and that he has been in possession of the same for the space of one complete year, which is denominated Hawlan Hawl. The reason of this obligation is found in the word of God, who has ordained it in the Koran, saying 'Bestow Zakat', The same injunction occurs in the traditions; and it is moreover universally admitted". Reference was also made to Mian Khalid Abdul Rauf v. Federation of Pakistan (PLD 1987 Supreme Court 228) in support of the assertion that Zakat which is one of the pillars (Arkan) of Islam is obligation of individual Muslim believer The observation at page 246 reads:- {{URDU TEXT}} 4s--iT j)iJ Xpfi J->*/*>' &/* - /(Jr'j u I f J H -U2c- Learned counsel submitted that juridical status of association of persons apart, obligation to pay Zakat of the persons constituting the association or legal entity is to be determined in respect of the zakatable assets. According to him, where privately owned and State-owned assets are common or intermingled, the majority ownership will determine the liability and that Zakat is not leviable on assets belonging to the State, Baitul Mai, Schools and Orphanages. In support, reference was made to the following:-
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{{URDU TEXT}} irrj* JsiJf-fJ*/& (Ownership implies that the asset belongs to a Mukallaf " (Ownership implies that the asset belongs to a Mukallaf" {{URDU TEXT MISSING}} Mukallaf. --A person who is liable to comply Injunction of Shariah. {{URDU TEXT MISSING}} (Zakat is not deductible from the following assets) {{URDU TEXT MISSING}} (Assets dedicated in favour of public in general) {{URDU TEXT MISSING}} (e.g. Mosques, refugee camps, Houses for the poor, there is no Zakat in respect thereof, but those assets which have been dedicated in favour of son or heir, these assets are liable to Zakat for the reason that owner of such {{URDU TEXT MISSING}} assets has restricted power of disposal. {{URDU TEXT MISSING}} (This refers to assets which do not vest in any determinable owner but vest in public-at-large, e.g. Assets vesting in Government, assets known as fay ' ' or one fifth of ghanima ' 'as these assets are utilised for the good of citizens.) Dr. Riaz-ul-Hassan Gillani, Advocate further submitted that when calculating the Zakat due on company shares, the fraction of the investment represented by the shareholders share of Zakat fee portion of the company's wealth (buildings machinery, land, etc.) must be deducted by each individual shareholder from his capital investment and Zakat paid only on his/her share of the company's reserve and working capital (i.e. Cash and articles of trade). He added that if Zakat has been paid by any person on the assets, then on the same assets Zakat cannot be deducted again. Reference was made to Fiqh-uz-Zakat, Vol, I, pages 529-531 by Yousaf Alqyzave. Relevant pari reads:- i}cr ir.. Jmj'Jw.j Im? I ? Ji >; o'A _ o 'J"* , us; & w ju a'lfh o ; V-(1)/v J t/(1)* \7K -y fHI CU t;i (Jl 'Cf/ JS uri,bj_j #tbs lij^^ftKeS^alue1 'dfljfrdfa
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#the #tbs s/S'lUj y^(1) (jjA&J.jCf ill^ :/yillc(t"lf'^(i^(1).(1)> I #the {{URDU TEXT}} Translation. (As per the above-noted opinion, if shares of the value of 1000 dinars of a company yield at the end of the year to a person profit of 200 dinars he should pay 30 dinars that is, 2-1/2% on the total value, that is, 1,200 dinars, but if on the net profit of the company, Zakat at the rate of 10% Ushr) is deducted then Zakat stood levied on 1,000 dinars and its profit twice, that is, Zakat is levied once on the owner of the shares in the capacity of a trader by collecting Zakat on his shares and its profit at the rate of 2.50% and second time in the capacity of a person producing goods, so Zakat levied on his profit. In other words on income of company one-tenth (Ushr) is received and in this manner Shariah forbids collection of Zakat on same assets twice in a year. We will have to collect Zakat only one time on either of the situations, that is, take either 2.50% on value of shares and its profit or one-tenth (Ushr) on the income of. The company and in this way deduction of Zakat twice over can be avoided). In support of the above-noted assertion, reference was made to the observation recorded in Sindh High Court case of Galobe Textils Mill v. Habib Bank Limited C. P.D-8590 of 1984 decided by a Division Bench on 28th April, 1986. These are:- "According to Shariah read with the provisions of Zakat Ord., Zakat is payable by a Sahib-e-Nisab after deduction from his zatakable assets, the amounts of debts outstanding against him..... The observation referred to reads: "it is a principle of Shariat that Zakat can only be deducted once and not twice"..... He argued that as per opinions of Islamic Jurists, Zakat is an obligation enjoined on natural persons; and the assets owned by Government institutions are exempt from payment of Zakat and in case an institution is partly owned by Government and partly by non-governmental institutions or individuals Zakat will be payable if the majority of the shares is held by Muslim citizens. As regards legal entities constituted by Muslim citizens Zakat can be levied on net assets that is, assets after deducting value of the fixed assets (i.e. Building, land, machinery) as well as liabilities. Dr. Riaz-ul-Hassan, Advocate was of the view that investment in NIT Units made out of the funds Hying with the Bank cannot be treated as net assets, rather this amount is part of the amount deposited with the petitioner-Bank on which Zakat has already been deducted from the account of every Muslim depositor and as such further deduction of Zakat would amount to deduction of Zakat twice. This is neither permitted by Shariah nor by the Ordinance. It was further submitted that non-exclusion of a statutory Corporation, the majority of the shares of which is owned by Government from the definition of the term "Sahib-e-Nisab" in section 2(xxiii) of the Ordinance is violative of Shariah as well as against the scheme and scope of the Ordinance. He was of the view of that this Court should direct the Legislature to include in the exclusion clause of section 2(xxiii) of the Ordinance, the statutory corporation, majority of the shares of which is owned by Government and not by Muslim citizens. He referred to the observations made in the case of Government of N.- W.F.P, and others. v. Said Kama! Shah and others (PLD 1990 SC 865) and contended that
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enforcement of this definition as it stands would be against the Injunctions of Islam as it omits one of the well-recognized concepts of Shariah. He also referred to Zaheeruddin and others. v. The State and others (1983 SCMR 1718) to emphasize that every manmade law must now conform to the Injunctions of )slam as contained in Qur'an and Sunnah of the Holy Prophet (PBUH) and so the provisions of the Zakat and Ushr Ordinance, 1980 which professes to enforce Injunctions of Islam pertaining to Zakat have to be interpreted in the light of principles enunciated by Muslim Jurists, and if any provision thereof is repugnant to Injunctions of Islam, the same is not to be enforced and implemented. 6. I have given serious consideration to the respective pleas of the parties. The contention that the provisions of the Zakat and Ushr Ordinance, 1980 are to be interpreted in the light of principles enunciated and concepts developed by the Jurists of Islamic jurisprudence may first be dealt with. Since the establishment of Pakistan, trend of the superior judiciary of Pakistan has been to apply the principles of equity, justice and good conscience as propounded by the Muslim philosophers and as understood in the Islamic jurisprudence is situations where there was no statute or custom governing a particular matter. A Division Bench of Lahore High Court in Abdul Ghani and others. v. Mst. Taleh Bibi and another (PLD 1962 Lahore 531) considered the question, "whether after the review of section 2 of Evidence Act, 1872 principles and rules of Muslim Law of Evidence stood revived and would apply to situations where the statutory provisions of Evidence Act were not attracted". Learned Judges after discussion of relevant aspects and case-law including the contrary view expressed by "Allahabad High Court in the case of King v. King (AIR 1945 Allahabad 190) held, "that after the repeal of section, 2 of the Evidence Act, the rules of Muhammadan Law which had been repealed by clause (1) have been revived and are now part of the law of Evidence". A learned Judge of this Court again in the case of Nizam Khan v. Additional District judge and others (PLD 1976 Lahore 930) after tracing the historical background and examining the effect of importation and imposition of British Laws and Rules of Justice, equity and good conscience in the Sub-continent in the background of decided cases observed as under:- "The above weighty observations show that when there is no Qur'anic or Traditional Text of lmja 'or binding Qisas on a question of law, the Courts are to follow the rules of Istihsan and Istislah as understood in Islamic jurisprudence. In other words the rules of equity, good conscience and public policy (Istihsan and Istislah) as contained in Muslim jurisprudence are to be applied to situations not directly covered by the aforementioned sources of Muslim Law. If this is true of one branch of existing law in Pakistan namely Muslim Law that Istihsan and Istislah should be resorted to, it would be a contradiction in approach not to resolve the controversies arising out of other branches of territorial law when they are silent and a vacuum exists |o be filled in by rules of equity, justice and good conscience. In such a situation, it would not be permissible for Courts in Pakistan to apply and import any more the rules of English Law relating to equity, justice and good conscience. In other words, all residuary laws in Pakistan to be applied in fields other than those occupied by existing statutory law has to be Muslim Law and jurisprudence and philosophy underlying the same". The Supreme Court again in the case of Income Tax Commissioner v. M/s. Siemen (PLD 1991 SC 368) reiterated the aforenoted view as under:- "It was held in the case of Haji Nizam Khan by the Lahore High Court and subsequently affirmed in several legal fields, including criminal and fiscal, that so long as the existing statutes are not brought in conformity with Injunctions of Islam (Article 227 of the Constitution), their interpretation
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and enforcement wherein discretionary judicial elements arc involved, only that course would be adopted which is in accord with the Islamic philosophy, its common law and jurisprudence (See also the case of Muhammad Bashir PLD 1982 SC 139 and the case of Mian Aziz A. Sheikh PLD 1989 SC 613". 7. The adoption of Rules of Justice and good conscience as pronounced and understood in the Islamic jurisprudence had the sanction of the Constitution, adopted, promulgated and enforced from time to time in all the three Constitutions as all the Constitutions contemplated that "the Muslims shall be enabled to order their lives in the individual and collective spheres in accordance with the teachings and requirements of Islam as set out in the Holy Qur'an and Sunnah". In the year 1985, the Objectives Resolution was made substantive part of the Constitution by adding Article 2-A in the Constitution of 1973 and the effect of the same has been noticed in the case of Zaheeruddin and others. v, The State and other (1993 SCM R 1718 (supra) by the Supreme Court in the following words: "Every man-made law must now conform to the Injunctions of Islam as contained in Qur'an and Sunnah of Holy Prophet (PBUH)". The effect of aforenoted developments is that now while interpreting the statutory law, if more than one interpretation is possible, the one consistent with the Islamic principles has to be adopted and that interpretation which advances the principles of policy and Islamic provisions in the Constitution is to be adopted by the Court. While interpreting provisions of Zakat and Ushr Ordinance, 1980 the Injunctions of Holy Qur'an and Sunnah will have to be followed. The principles and concepts developed by Muslim jurists will naturally receive due consideration in order to charge and collect Zakat which is one of the fundamental pillars (Arkan) of Islam. The declared object of this Ordinance is that provisions as to Zakat are being enforced in order to comply with the mandate of the Constitution to the effect that the Muslims of Pakistan are to be enabled to order their lives, in the individual and collective spheres in accordance with the tenets of Islam. This is so stated in the Preamble of this Ordinance. Zakat and Salat (prayer) have been mentioned together in Holy Qur'an as obligation of the believers and as such both fall in the category of "acts of worship" and both have to be performed keeping in view the aforesaid distinction. Reference to the injunctions of Qur'an and Sunnah and the concepts developed by Jurists would be necessary for enforcing the provisions of the Zakat and Ushr Ordinance. 1980 as section 2(xv) also refers to Shariah for determining the Zakat able assets. No controversy, as such, can be raised as regards application of Injunctions of Islam as contained in Holy Qur'an and Sunnah in the matter of enforcement of provisions of Zakat and Ushr Ordinance and in interpreting any of the provisions thereof. 8. I, therefore, proceed to examine the respective submissions of the learned counsel for the parties on merits. The Zakat on the investment of petitioner-Bank in the N.(1).T. Units is being charged and collected on compulsory basis for each Zakat year on the plea that a statutory corporation which is not wholly owned directly or indirectly by the Federal Government has not been mentioned in sub- clause (b) of clause (xxiii) of section 2 of the Zakat and Ushr Ordinance, 1980, and as such the petitioner-Bank is being rightly treated as Sahib-e-Nisab and thus KI T. Units Trust is rightly deducting Zakat on the N.(1).T. Units. This clause reads as under:-
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Section 2: (xxiii) 'Sahib-e-Nisab' means a person who owns or possesses assets not less than nisab, but does not include- (a) the Federal Government, a Provincial Government or a local authority; (b) a statutory corporation, a company or other enterprise, owned wholly, directly or indirectly, by the Federal Government, a Provincial Government, a local authority or a corporation owned by the Federal Government or a Provincial Government, either singly or jointly with one or more of the other three; The basic contention on the other hand on behalf of the petitioner-Bank was that the petitioner- Company does not fall within the purview of Zakat and Ushr Ordinance as it is a statutory corporation, the majority shares of which are owned and held by the Provincial Government. Reliance in this connection was placed on subsection (2) of section 1 of the Zakat and Ushr Ordinance, 1980, which reads as under:- 1(2) It extends to the whole of Pakistan, but (as regards payment and recovery of Zakat and Ushr) applies only to Muslim citizens of Pakistan and a company, or other association of persons, or body of individuals, whether incorporated or not, majority of the shares of which is owned or the beneficial ownership of which is held by such citizens. The other definition and the section which are relevant in this context are the definition of the term 'nisab' and section 3 which provides for the charging and collection of Zakat. The term 'nisab' is defined in section 2(xva) as under:- (xva) 'Nisab' in relation lo assets liable to Zakat, except agricultural produce and animals fed free in pastures means 612.32 grams of silver, or cash or gold, or goods for trade, or any assets liable to Zakat under Shariah, the aggregate of which is equal to the value of 612.32 grams of silver, as notified by the Administrator-General for each Zakat year or, in the case of a person whose assets liable to Zakat consist only of gold, 87.48 grams of gold; The relevant part of section 3 reads as under:- 3(1) Subject to the other provisions of this Ordinance, Zakat in respect of assets mentioned in the First Schedule shall be charged and collected, on compulsory basis, for each Zakat year, at the rates and…
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