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Petitioner: State Bank Of Pakistan through Chief Manager, Peshawar VS Respondent: Federation Of
Court Name: Peshawar High Court Judge(s): Muhammad Nasir Mehfooz, Syed Arshad Ali Title:State Bank Of Pakistan through Chief Manager, Peshawar vs Federation Of
JUDGMENT
Reported As: PLD 2022 Peshawar 46 Result: Petition allowed Judgment JUDGMENT SYED ARSHAD ALI, J.--- The petitioner , seeks the Constitutional jurisdiction of this Court, praying that:- i. "Appropriate writ may kindle be issued declaring all unauthorized acts of the respondents Nos.1 to 5 including the notices/challans issued by respondent No. 4 to the petitioner organization and recovery proceedings initiated by respondent No.5 being illegal, without lawful authority and have no legal ef fect ii. The respondents may graciously be restrained from taking any further steps contrary to law with reference to issuing notices, imposing/collecting any sort of tax including property tax from the petitioner organization in respect of its properties or properties of its subsidiary being the property in occupation of the Federal Government for public purposes/service situated within the limits of cantonment throughout Pakistan. The respondent No.2 may graciously be also directed to refrain its sub-ordinate institutes/corporation/bodies throughout Pakistan from harassing the officials of the petitioner organization and issuing any notices/challans with reference to property tax and/or initiating an recovery proceedings against any property of the petitioner organization situated within limits of the cantonment throughout Pakistan. iii. The respondents may be directed not to illegally withhold the approval of building plan for a construction of Learning Resource Center and allied facilities being a separate and distinct matter from the matter of property tax. iv. Any other relief this Honourable Court deems appropriate may also be awarded. 2. Brief, but essential, facts of the case are that the State Bank of Pakistan has been constituted under The State Bank of Pakistan Act, 1956 (Act No. XXIII of 1956). Section 3 (2) of The State Bank of Pakistan Act, 1956 ("Act of 1956 ") envisages that the State Bank shall be a body corporate having perpetual succession and a common seal, and shall by the said name sue and be sued. Similarly , SBP- Banking Services Corporation, a wholly owned subsidiary of the State Bank of Pakistan, has been established under the SBP- Banking Services Corporation
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Ordinance, 2001. The petitioner has challenged the jurisdiction and the authority of Respondents Nos.1 to 5 in levying of property tax on the petitioner . 3. It is the case of the present petitioner that the petitioner organization being a creation of the Act, 1956 has been created for the purpose and objective of creating a central bank responsible for regulating and monitoring fiscal and monetary policy of the country and, as such, the functions being performed by the petitioner organization and/or its subsidiary are of a nature that no other organization can perform rather they fall within the domain of the Federal Government. Therefore, the refusal of the respondents whereby they have refused to extend the property tax exemption available under section 99 (2) (f) of the Cantonment Act 1924 ("Act 1924 ") to the petitioner organization is unlawful and beyond the mandate of law. The petitioner organization also seeks to its aid the provisions of Article 165 of the Constitution and thereby claims exemption under the said Article in respect of the tax which is sought to be imposed and demanded by the respondents. 4. Respondents in their comments have denied the assertions of the petitioner organization and stated that the petitioner organization is not entitled for exemption from property tax as provided under the section 99(2)(f) of the Act, 1924 as the petitioner organization is an autonomous body corporate and is not a department of the Federal Government and is a juristic person liable to pay tax. Moreover , the respondents also contended in their comments that State Bank Quetta and State Bank Hyderabad are paying tax to their respective Cantonment Boards without any reservations. 5. Arguments heard and record of the case was perused with the able assistance of the learned counsel for the parties. 6. Before proceeding any further it would be pertinent to dilate upon the Authority of Cantonment Board ("CB") to impose and collect taxes more particularly the property tax. The Cantonment Board(s), established under Section 11 of the Act, 1924 have been empowered under section 60 of the Act, 1924 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 such cantonment is situated. Similarly , Section 99 (2) of the Act, 1924 provides for exemption of certain buildings and lands from any tax on property other than a tax imposed to cover the cost of specific services rendered by the Board. The provisions of Section 99 (2) (f) of the Act, 1924 is reproduced for ease of reference:- 99. Exemption in the case of buildings.- (1) When, in pursuance of section 98, a Board has fixed a special rate for the cleansing of any factory , hotel, club or group of buildings or lands, such premises shall be exempted from the payment of any conservancy or scavenging tax imposed in the cantonment. (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).... (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. 7. However , we note that tax on immoveable property has always remained a provincial subject even prior to the creation of Pakistan whereas, the law relating to establishment of the Cantonment in various part of the country is a Federal subject. In this regard, we may refer to Entry No. 2 according to which, it rails within the federal legislative list under Article 70(4) of the Constitution whereas entry No. 50 excludes the power of Federation to tax immovable property . Thus the essential question whether the powers conferred upon the Cantonment Boards established under section 11 of the Act, 1924 to levy taxes under section 60 of the Act, 1924 is intra vires, does not require brainstorming because the Apex Court in the case of Pakistan through the Secretary , Ministry of Defence v. Province of Punjab and others (PLD 1975 SC 37) has laid this issue at rest. The Apex Court after analysing
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various provision of the Cantonment Act has laid that, section 60 gives the Cantonment Boards the power to 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 such cantonment is situated with the previous sanction of the Central Government. The Cantonment Boards, like other Municipal Authorities under other Municipal Acts, have been given the power to levy a rate on the annual value of buildings as well as octrois, terminal taxes, tolls, etc. It was further observed that the tax sought to be levied by the Urban Immovable Property Tax Act is a tax on the annual value of buildings and lands in a rating area spec ified by the Government by a notification. Taxes on lands and buildings come within item 75 of the Fifth Schedule to the Constitution of 1956, and with regard to these, the Provincial Legislatures had by reason of the provisions of clause (31) of Article 106 of the said Constitution exclusive power to make laws for the provinces or any part thereof. The taxation was accordingly validly imposed by a competent Legislature in the proper exercise of its powers. Thus the authority of the Cantonment Board to impose levy and collect property tax has been affirmed by the apex Court in Pakistan through the Secretary , Ministry of Defence's case (PLD 1975 SC 37). 8. To further expand on the matter a perusal of the West Pakistan Urban Immovab le Property Tax Act, 1958 ("Act, 1958") becomes all the more necessary . Section 2(i) of the Act, 1958 defines (i) "urban area" as:- '(i) "Urban area" means an area within the boundaries of a Municipal Corporation, Municipal Committee, Cantonment Board, Small Town Committee, or other authority (not being a District Board) legally entitled to, or entrusted by Government with the control or management of a municipal or a local fund.' While Section 3 of the Act, 1958 states that the Government may by notification specify urban areas where tax shall be levied under the Act, 1958, nowever , section 3- A of the Act, 1958 provid es that out of the tax collected under the Act, 1958 from within the limits of a Cantonment Board, the Provincial Government shall, after retaining five percent, thereto as collection charge s, pay fifty percent of the balance to such Cantonment Board. A further look at entry No. 50 of the Part-1 of the Fourth Schedule of the Constitution would reveal that while it is the domain of the Federal legislature to legislate on matters pertaining to taxes on the capital value of the assets, but the same does not include taxes on immovable property . Thus, the subject of taxation on immoveable property is a purely provincial subject with the provincial legislature being the competent body on legislate on the subject matter . However , upon the perusal of the afore-said provisions coupled with the provisions of Article 165 it emerges that though it is only the Federal Legislature that has the power to legislate in respect of Cantonment Area(s), but in respect of collection of property tax a mechanism has been provided in section 3-A of the Act, 1958 and as such the Cantonment Board is empowered to collect such property tax. 9. Vide Presidential Order No. 13 of 1979, the then competent authority CMLA had promulgated the Cantonment (Urban Immoveable Property Tax and Entertainments Duty) Order , 1979 ("Order "). Under Section 3 of the Order , the immoveable property tax leviable under the West Pakistan Urban Immoveab le Property Tax Act, 1958 had ceased to be leviable in the cantonment and the Cantonment Board has been given the power and mandate to collect the said tax. However , this Order was issued during the time when the Constitution was under eclipse and on the restoration of Constitution and in view of entry No.50 of the Part-1 of the Fourth Schedule of the Constitution, which was later amended through 18th constitutional amendment, the Parliament has no power to impose any tax on immoveable property . Thus, this Order has to be read down as it cannot stand with the explicit mandate of the Constitution. 10. Moving on to the essential question before this Court that since the petition er is performing the sovereign function of the State therefore, the property which is ostensibly owned by the petitioner organization in the record of the cantonment Board vest in the Federal Government and thus, is exempt from payment of property tax in terms of Article 165 of the Constitution and section 99(f) of the Act, 1924 both granting exemption to the property of the Federal Government from taxation. 11. 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. For ease reference Article 173 is reproduced as under:- "173. (1) The executive authority of the Federation of a Province shall extend, subject to any Act of the appropriate Legislature, to the grant, sale, disposition or mortgage of any property vested in, and to the purchase or acquisition
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of property on behalf of, the Federal Government or, as the case may be, the Provincial Government, and to the making of contracts. (2) All property acquired for the purposes of the Federation or of a Province shall vest in the Federal Government or, as the case may be, in the Provincial Government. (3) All contracts made in the exercise of the executive authority of the Federa tion or of a Province shall be expressed to be made in the name of the President or, as the case may be, the Governor of the Province, and all such contracts and all assurances of property made in the exercise of that authority shall be executed on behalf of the President or Governor by such persons and in such manner as he may direct or authorize. (4) Neither the President, nor the Governor of a Province, shall be personally liable in respect of any contract or assurance made or executed in the exercise of the executive authority of the Federation or, as the case may be, the Province, nor shall any person making or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof. (5) Transfer of land by the Federal Government or a Provincial Government shall be regulated by law ". Therefore, any property owned by the Federation, it is the authority of the Federal Government to deal with the same. 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. The said Articles of the Constitution are reproduced as under:- "90 (1) Subject to the Constitution, the executive authority of the Federation shall be exercised in the name of the President by the Federal Government, consisting of the Prime Minister and the Federal Ministers, which shall act through the Prime Minister , who shall be the chief executive of the Federation. (2) In the performance of his functions under the Constitution, the Prime Minister may act either directly or through the Federal Ministers. 97. Subject to the Constitution, the executive authority of the Federation shall extend to the matters with respect to which [Majlis-e-Shoora (Parliament)] has power to make laws, including exercise of rights, authority and jurisdiction in and in relation to areas outside Pakistan: Provided that the said authority shall not, save as expressly provided in the Constitution or in any law made by [Majlis-e-Shoora (Parliament)], extend in any Province to a matter with respect to which the Provincial Assembly has also power to make laws. 98. On the recommendation of the Federal Government, [Majlis-e-Shoora (Parliament)] may by law confer functions upon officers or authorities subordinate to the Federal Government". 12. The concept that the Federal Government may work through institutions thus find its geneses from Articles 90, 97, 98 of the Constitution. In the case of Sindh Revenue Board through Chairman Government of Sindh and another v. The Civil Aviation Authority of Pakistan through Airport Manager (2017. SCMR 1344) , 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. 13. Regarding the exemption of the property owned by the Federation or the Provinces from payment of property tax, its legislative history has been elaborately elucidated by the Apex Court in Pakistan through the Secretary , Ministry of Defence's case (PLD 1975 SC 37) , which is reproduced as under: - Under the Government of India Act of 1935, taxes on lands and buildings came within item 42 of the Provincial Legislative List in the Seventh Schedule, with regard to which the Provincial Legislatures had, under section 100, exclusive power to make laws for the Province or any part thereof. The only exemption granted under section 154 of the Government of India Act, 1935, was in these terms: - "Property vested in His Majesty for purposes of the Government of the Federation shall, save in so far as any Federal law may otherwise provide, be exempt from all taxes imposed by , or by any authority within, a Province." This exemption was continued under the 1956 Constitution by clause (2) of Article 1 12 which provided:
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"Property vested in the Federal Government shall, save in so far as an Act of Parliament may otherwise provide, be exempt front all taxes imposed by , or by any authority within, a Province." Similar exemption was given to the property of the Central Government by Article 137 of the 1962 Constitution . In the Interim Constitution of 1972 , taxes on lands and buildings continued to be a subject in the Provincial Legislative List within the exclusive competence of the Provincial Legislature but Article 167 exempted the property of the Federal Government from Ovation under any Provincial Law . In the Constitution of 1973 , however , taxes on lands and buildings are not enumerated in either of the two lists given in the Fourth Schedule and, therefore, by reason of the provisions of clause (c) of Article 142, the Provincial Assembly has exclusive power to make laws with respect to any matter not enumerated in either of the lists. Article 165 of this Constitution, however , repeats the exemption granted to the Federal Government in respect of its property or income from taxation under any Act of the Provincial Assembly . The position, therefore, that emerges is that, under all the Constitutional provisions, the property of the Central Government is exempted from taxation, and it is the Federal Legislature which has the power to legislate, in respect of a cantonment area but with regard to certain matters only . 14. Admittedly , 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 property of these corporation and industries. 15. 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 anothe r v. S.I.T.E. (PLD 1985 Supreme Court 97), wherein the Apex Court has held that since Sind 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 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. For ease reference Articles 165 and 165-A of the Constitution reads as under:- 165 Exemption of certain public property from taxation. (1) The Federal Government shall not, in respect of its property or income, be liable to taxation under any Ad of Provincial Assembly and, subject to clause (2), a Provincial Government shall not, in respect of its property or income, be liable to taxation under Act of [Majlis-e-Shoora (Parliament)] or under Act of the Provincial Assembly of any other Province. (2) If a trade or business of any kind is carried on by or on behalf of the Govern ment of a Province outside that Province, that Government may, in respect of any property used in connection with that trade or business or any income arising from that trade or business, be taxed under Act of [Majlis-e-Shoora (Parliament)] or under Act of the Provincial Assembly of the Province in which that trade or business is carried on. (3) Nothing in this Article shall prevent the imposition of fees for services rendered. 165A Power of Majlis-e-Shoora (Parliament) to impose tax on the income of certain corporations, etc. (1) Majlis-e-Shoora (Parliament) has, and shall be deemed always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly , by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income. (2) All orders made, proceedings taken and acts done by any authority or person, which were made, taken or done, or purported to have been made, taken or done, before the commencement of the Constitution (Amendment) Order 1985, in exercise of the powers derived from any law referred to in clause (1), or in execution of any orders made by any authority in the exercise or purported exercise of powers as aforesaid, shall, notwithstanding any judgment of any court or tribunal, including the Supreme Court and a High Court, be deemed to be and always to have been validly made, taken or done and-shall not be called in question in any court, including the Supreme Court and a High Court, on any ground whatsoever .
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(3) Every judgment or order of any court or tribunal, including the Supreme Court and a High Court, which is repugnant to the provisions of clause (1) or clause (2) shall be, and shall be deemed always to have been, void and of no effect whatso-ever . The exception created through Article 165-A of the constitution after the SITE judgment referred above, it appears that only the State established 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. 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 Governme nt 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. 17. The Apex Court in the case of Union Council, Ali Wahan, Sukkur v. Associated Cement (Pvt). Ltd. [1993 SCMR 468], has elucidated the various aspect and interpretation of Articles 165, 165-A of the Constitution viza-viz the judgment in the SITE case. The question for consideration in the aforesaid judgment before the Hon'ble Supreme Court was whether if the veil of incorporation is not lifted with regard to the Company , Article 165 of the Constitution could be made attracted to it. The Hon'ble Supreme Court held that the device of lifting the veil of incorporation cannot be pressed into service as a matter of course in every case, but there should be some justifiable reason which may warrant the lifting the veil of incorporation and that no hard and fast rule can be laid down to limit the cases in which the veil of incorporation can be lifted, thus, the lifting the veil of incorporation will entirely depend on particular facts of the cases and the principles which have been laid down by the decided cases for lifting the veil of incorporation will have to be read with particular reference to the facts of those cases. In the said judgment, his Lordship Saleem Akhtar , J. in his separate note has concluded the matter as following:-- "The sum and substance of the views of various authors is that no hard and fast rule can be laid to limit the cases in which veil of incorporation can be lifted. Some definite instances as stated above have attained universal acceptance but it would not be safe to limit them to these given cases alone. In view of the broad spectrum in which the commerce, business and industry are developing creating new situations, novel commercial relationships and innovative dealings unknown in the past, the piercing of the veil of incorporation will entirely depend on particular facts of each case. In the same manner in my humble view all cases which lay down the principles for lifting the veil have to be read with particular reference to the facts of that case. In Karachi Development Authority (K.D.A) v . Central Board of Revenue and another (C.A. No.284 of 1987) the observations quoted in the judgment of my learned brother reflect a particular situation and background. K.D.A was manufacturing pre-stressed cement pipes for its own use. It denied its liability to pay…
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