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Petitioner: DAWOOI) FOUNDATION VS Respondent: DIRECTOR-GENERAL, EXCISE & TAXATION, SIN D, JUDGMENT
Court Name: Sindh High Court Judge(s): I. Mehmood, Z. A. Channa Title:DAWOOI) FOUNDATION vs DIRECTOR-GENERAL, EXCISE & TAXATION, SIN D,
JUDGMENT
Reported As: PLD 1977 Karachi 120 Result: Petition allowed Judgment JUDGMENT ' Z. A. CHANNA , J.-These two constitutional petitions are directed against certain orders passed, and demand notice for tax issued, under the Sind Urban Immovable Property Tax Act, 1958. Hereinafter referred to as the Act, in respect of a multi-storied building known as Dawood Centre. The petitioner in both the petitions is Dawood Foundation, an educational and charitable trust registered under the Societies Registration Act, 1860, which owns Dawood Centre. Petition No, 398 of 1911 seeks to impugn the orders of the Director, Excise & Taxation, Karachi, and the Director-General, Excise & Taxation, respondents Nos 1 and 2 herein, rejecting the request for a certificate under proviso (I) to section 4 (f) of the Act exempting Dawood Centre from payment of property tax for the years 1967-68 and 1968-69, while Petition No, 900 of 1975 calls in question the validity of a demand notice fer payment of Betterment Tax amounting to Rs, 28,066.75 for the year 1975-76 in respect of the said Centre. It may be mentioned here that Betterment Tax is being imposed in consequence of an amendment made in tl e Act by Sind Finance Act, 1973, This tax ;s to be levied at the rate of ten paisa per square foot cf covered area in the case of plots for commercial purposes and at the rate of five paisa per square foot of covered area in the case of plots meant for industrial purposes. However, the provisions in the Act for exemption of tax apply equally to tax on the annual value of buildings and lands, hereinafter referred to as the property tax, as well as to Betterment tax. Since the two petitions involve common questions, they have been heard together and are being decidea by this judgment.
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2. The facts which have led to the filing of these two petitions, briefly stated, are that the petitioner, which owns certain other properties in addition to the Dawood Centre, applied to the Provincial Excise & Taxation authorities for exemption of tax under the Act. Exemption from tax was granted in respect of the other properties of the petitioner, which are being used exclusively for educational purposes, but the question of exemption in respect of Dawood Centre, which is a twelve-storeyed air-conditioned building, of which four floors are being occupied by the Dawood Group of Industries while other accommodation therein is let out on rent, was deferred until the gross annual rating value, hereinafter referred for sake of brevity as G.A.R.V., of the Centre was finally determined and the credit of the total income (including air-conditioning and lift charges) from the Dawood Centre to the Foundation was correctly ascertained. The G.A.R.V. For the Dawood Centre, for the period 1968-73, was finally determined by the Additional Commissioner, Karachi, by an order claw! 23-11-1968. By this order, the air-conditioning and service charges were excluded in computing the G.A.R.V. Thereafter, respondent No, 2, by his order dated 2-5-1969, rejected the request for exempting the Dawood Centre from payment of the property tax, in the interests of Government revenue, on the grounds (1) that since the DiAs'ood Foundation had striven to show that the rental income from the Centre was less than half of the total charge received from the tenants, it was not possible to say that the entire income from the Centre would be spent 'exclusively' on public charity or education ; (2) that a big portion of the Centre was being occupied by the Dawood Group of Industries, and (3) that no expansion in the charitable or education activities of the Foundation was indicated following the big increase in its income from the Centre. The Additional Commissioner, on appeal, however, remanded the matter to respondent No 2, with the direction to decide the question of exemption under the relevant provisions of law and not in the interest of Government revenue. 3. Resnondent No, 2, on remand, again held that the Dawood Centre did not qualify for exemption from the property tax. He came to this conclusion on the basis that whereas the income from the Centre, after deducting the total expenditure thereon of Rs, 7,67,589, was Rs 14,89,589.46, the expenditure on scholarships, etc. By the Dawood Foundation was only Rs, 12,67,857, and hence the whole of the net income from the Centre had not been utilized for charitable purposes, as required by section 4 (f )(1) of the Act. He rejected the contention raised on behalf of the petitioner that air- conditioning and service charges be excluded in determining the income/rent from the Centre, but at the same time, while determining the net income/rent derived from the Centre, allowed the expenditure incurred on providing these facilities as also the other expenditure on the maintenance and running of the Centre. 4. The petitioner filed a revision application against the aforesaid order, but the same was dismissed by respondent No, 1, by his order dated 13-5-1971. It is against this order, and the order of respondent No, 2 which it confirmed, that the petitioner has filed Petition No, 398/71. Subsequently, upon receipt of a demand notice for payment of Betterment Tax in respect of Dawood Centre, the petitioner filed Petition No, 900/75, to question the said demand. 5. Mr. Nasim Fareoqi, the learned counsel for the petitioner, has assailed the orders of respondents Nos. 1 and 2, and the demand notice for the payment of Betterment 'fax, on the twin grounds- (a) that the petitioner is validly entitled to exemption from both the property tax as well as the Betterment Tax under proviso (i) to clause ( f) of section 4 of the Act and that the respondents have wrongly interpreted and misconstrued the law ; and (b) that in computing the rent derived from the Dawood Centre, the respondents have wrongly and against the provisions of the law, included air-conditioning and service charges. 6. The learned Advocate-General, who appeared for the respondents, on the other hand contended-
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(i) that the air-conditioning and service charges have in the circumstances of the case, been rightly includeti by the respondents in the rent derived by the petitioner from Dawood Centre ; 111) that the inclusidn of 4tich 'char, in the circumstances of the case, does not render the orders of the respondents without lawful authority; and (iii) that, in the circumstances of the case, the petitioner, is not entitled to exemption from payment of either property tax or Betterment Tax on Dawood Centre. 7. Since the claim of the petitioner for exemption of the two taxes is founded upon the provisions of action 4 (f ), proviso (1), it is necessary to examine the said provisions and determine how far they support the petitioner's claim. They read as follows : "4. The tax shall not be loveable in respect of the following properties, namely : (f) buildings and lands or portions thereof used exclusively for public worship or public charity, including mosques, churches, dhararnsalas, gurdwaras, hospitals, dispensaries, orphanages, alms houses, drinking water fountains, infirmaries for the treatment and care of animals and public burial or burning grounds or other places for the disposal of the dead : ' Provided that the following buildings and lands or portions thereof shall not be deerced to be used exclusively for public worship or public charity within the meaning of this section, namely : (1) buildings in or land on which any trade or business is carried on unless the rent derived from such buildings is applied exclusively to religious purposes or such public charitable institutions as may be prescribed." 8. It will he seen that whereas the substantive provisions of clause (f ) contemplate exemption from tax of the whole of a building or land, or portions thereof, proviso (i) to the said clause provides for the exemption of an entire building or land and not portions thereof. This distinction is important, for in order that any building or land should qualify for exemption from tax under proviso (i), it must be established chat the rent derived from the whole building or land is used for the purposes specified in the said proviso. If rent derived from a part of a building or land is applied for the said purposes, such part will not qualify for exemption under the proviso. 9. Since both the property Tax and the Betterment tax are paid yearly, in order that the Dawood Centre should qualify for exemption from the payment of the said taxes in respect of any assessm ent year, it must be shown (a) what was the rent derived from the Centre during that year, (b) that tile whole of such rent was applied, and (c) that it was applied exclusively to the purposes specified in the proviso, namely religious purposes or such charitable institutions as may be prescribed. Since it is not the case of the petitioner that any lent derived from the Dawood Centre was applied to religious purposes, it has to be shown that it was applied to prescribed public charitable institutions. Before considering whether the above conditions have been fulfilled in respect of the Dawood Centre, it is necessary to know what is meant by the expressions and word (i) "rent derived", (ii) "applied" and tali) "public charitable institutions as may be prescribed", as used in section 4 (f )(i) of the Act. 10. It was contended by Mr. Nasim Farooqi that the expression "rent derived" means the net rent received, after deductions of all expenses, and exclusive of air-conditioning and service charges, which do not form a component part of rent. The learned counsel urged that since the word "rent" appeared both in the proviso to section 4 ( f ) as well as in section ), it has to be given the same meaning in both the sections. He farther contended that as the A national Commissioner, for the purposes of determining the gross annual rent of Dawood Centre, had excluied and service charges (levied for providing lifts), such charges must be excluded while determining the "rent derived" from the Centre under section 4 (f ). Now, in the first place, what has to be ascertained under the proviso to section 4 (f) is the "rent derived", while under section 5 it is the annual value which has to be ascertained. The annual value has to be ascertained by estimating the gross annual rent at which the building or land concerned might reasonanly be expected to be let
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together with appurtenances and furniture, if any, after making certain allowances. As such, whereas "rent derived" would be the net amount received as rent by the landlord, the annual value is to be based on an estimate of the gross annual rent at which a building or land may be expected to be let. Furthermore, even if we agree with the learned counsel for tne petitioner that the word 'rent" in section 4 I f) and in section 5 has to be given the same meaning, this does not mean that because the Additional Commissioner, in estimating the annual value of Dawood Centre, has excluded air-conditioning and service charges, the said charges must also be excluded in ascertaining the rent derived from Dawood Centre. The question still remains whether air-conditioning and service charges properly form components of the rent of Dawood Centre, and, whether the learned Additional Commissioner rightly excluded such charges from the G.A.R.V. Of the Centre. The learned Additional Commissioner has given no reasons in support of his view that air-conditioning and service charges are to he excluded in determining the G.A.R. V. Of Dawood Centre and has simply followed the precedent case of the National Bank of Pakistan. 11. In support of his view that air-conditioning and service charges are not components of rent, Mr. Nasim Farooqi referred us to the definition of `rent' in Stroud's Judicial Dictionary, Haisbury's Laws of England, Third Edition, Vol. p. 537 and Corpus Jung Secundum, Vol. S2, p h03, and also relied upon the decision reported in PLD 1962 Kar. 293. Tne learned Advocate General, on the other nand, pointed out that the same authority which had excluded air-conditioning and service charges for the purposes of determining the G.A.R.V. Of Dawood Centre, had included these charges for ascertaining the rent derived from tee Centre for the purposes of section 4 f ). He further relied upon an unreported D. B. Decision of this Court in Constitutional Petition No, 524 of 1972, wherein it has been held that "if there is any machinery installed which is essential for maintaining the functional capability of the building then the value of that machinery would not be required to be excluded." ' In that case it was held that the value of the lift installed in the building is not to be excluded in determining the G.A.R.V. Of the building. The learned Advocate-General also referred to certain English authorities to show that air-conditioning and service charges can properly form a component of rent. 12. The word "rent" has been defined in Stroud's Judicial Dictionary, Third Edition, as : " 'Rent' be in diverse manners, that is rent service, rent charge, and rent premises. ' Probably, it may be said that the primary meaning of 'rent' is the sum certain, in gross, which a tenant pays his landlord for the right of occupying the demised premises. So an annual sum to be paid in lieu of premium for the goodwill of the business carried on the premises, and which is payable in addition to a reserved rent of the premises, is not 'rent' within the Landlord and Tenant Act, 1709.. . ' The words 'rent' and 'annual value' are often used indiscriminately (per Cleasby, B., Sheffield Waterworks Co. v. Bennett 41 L J Ex. 240). In that case a waterworks company were empowered to charge each house supplied, according to its 'rent' per annum, which was held to mean the money payment made by the tenant, less tenant's rates payable by the landlord." 13. According to Corpus Juris Secundum, Vol. 52 : "The term 'rent' usually implies the elements of periodicity and certainty; it is applicable to compensation for the use of lands and tenements corporeal, and is something, not necessarily money, which a tenant renders out of the profits of the land which he enjoys." ' The distinction between 'rent' and other charges have been treated thus in the said volume : "The term 'rent' will not be extended to include all payments which by the terms of a lease the tenant is bound to make, and it does not include the obligation to perform collateral contracts or covenants. Thus the term 'rent' has been distinguished from the costs of alterations and
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improvements or repairs. It has further been distinguished from the payment of insurance, of a service charge, and of the value of the use and occupation. ' A distinction has been made between what is called 'ordinary rent' namely, the compensation for the ordinary use of land and that which arises from a use, not ordinary, but proceeding from the corpus of the land, although it has been said that no suitable terminology has been devised to distinguish the latter from ordinary rent." 14. In Halsbury's Laws of England, Third Edition, Vol. 3, pp. 536 and 537, the nature of rent is dealt thus "Rent, that is, rent-service, is the recompense paid to the landlord for the exclusive possession of corporeal hereditaments. The modern conception of rent is a payment which a tenant is bound by his contract to make to his landlord for the use of the property let." 15. In the Karachi case, reported as Dr. Peshoton v. Peerozshaw (1), Qadeeruddin, J., while dealing with the question of rent under the Karachi Rent Restriction Act, 1953, observed as follows : "Now, the term 'rent' is not defined in any of the statutes of rent (1) PLD 1962 Kar. 293 restriction that were and the one which is now applicable to Karachi. It is a generic term, and its meaning can be gathered from section 105 of the Transfer of Property Act, 1862 to be a price paid or promised, or money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions by the lessee to the landlord." 16. It will be seen that none of the authorities cited by Mr. Nasim Farooqi specifically deal with the question whether in the case of an air-conditioned building, provided with lifts, the air-conditioning and service charges for lifts ate to be deemed to be a proper component for rent. The English authorities cited by the learned Advocate-General, however, appear to be more pertinent to the point in issue. 17. The first of the English authorities cited by the learned Advocate-General is the case of Property Holding Company Ltd. v. Clark (1). In that case, by an agreement, dated June 2, 1934, the landlord's predecessorsin-title let a fiat in London to a former tenant for a rent of 110 a year, and an additional payment of 30 a year, in consideration of which additional payment the landlords covenanted to provide for the use of the tenant, a gas cooker and certain other articles, which would normally be the tanant's fixtures or fittings, and for the furnishing, lightning, etc., of those parts of the building the use of which the tenant bad in common with the tenants of other flats in the building. The question that arose in that case was whether the additional payment of 30 a year was also included in rent. The conclusion arrived at in that case was that the additional amount of 30 was included in rent and the contention that a covenant to pay cannot 'be a covenant to pay rent unless the payment is called "rent" in the lease or agreement was repelled. In that case Evershed, L. J., expressed himself as fellows on the question as to what constitutes rent : "Prima facie the rent is the monetary compensation payable by the tenant in consideration for the grant, however it be described or allocated. Alternatively, it may be described as (Scott, L. J., has described it) as the contractual monetary obligation the payment of which is the condition of the right to enjoy the property granted. According to either test the sum of 30 a year in the present case was, in my judgment, part of the rent. The subject-matter here granted was the exclusive right to possession of a particular fiat, partly furnished, and the right to enjoy certain other amenities in connection with the flat." 18. The above decision was followed in the case of Alliance Property Co. v. Shaffer (2). In that case a fiat was let on a yearly tenancy at a rent of 175, but contemporaneously with the lease the parties executed a deed, described in the endorsement as a supplemental agreement, under which the tenant and any person in whom the lease at any time might be vested covenanted to pay an additional 40 a year in consideration of decorative and other works carried out by the landlords and a further 60 a year towards the cost of the management of the building in which the fiat was situated, the second agreement to run concurrently with the lease and to determine with it. It was
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held that the extra payment of 100 per annum was part of the monetary compensation payable by the tenant in consideration (1) (1948) 1 All E R 165 (2) (1949) I All E L R 312 ' of what had been granted to him by the landlord under the two documents taken together, and, therefore, formed part of the rent. In that case Lord Denning pointed out that the practice of the Courts was to determine the standard rent of flats let before September 1, 1939, by reference to the total amount payable at September 1, 1939, for the physical hereditament and the services that go with it, such as central heating, hot water, lift and so forth. 19. The last case cited by the learned Advocate-General is Sidney Trading Co. Ltd. v. Finsbury B. C. (I). This was a case in which the landlords, as a condition of the grant of the tenancy of a flat, required the payment of a premium of 41. In that case, Lord Goddard, C. J., referred to the observations of Evershed, L. J.. In the case of Property Holding Co. Ltd , and-to the decision in the case of Alliance Property Company Ltd., and expressed himself thus : "It seems to me on the authority of the two cases which I have mentioned that it matters not whether the payment is for rates, for service, or for the use of furniture. If there is a sum of money which the tenant .Agrees to pay as a consideration for the tenancy, it is for this purpose a rent." ' Although, in the three cases from the British Jurisdiction cited by the learned Advocate-General, the question of rent was considered in regard to the provisions of the English Increase of Rent and Mortgage Interest (Restriction) Act, the decisions are a useful guide as to what payments are to be included in rent. 21. In the light of the various authorities noticed above and keeping in view the provisions of section 105 of the Transfer of Property Act, we would construe "rent" for the purposes of the Act to mean any moneys or consideration payable periodically or on stated occasions by or on behalf of the A tenant to his landlord for the use and occupation of the property comprised in his tenancy, including any facilities teat necessarily go with the tenancy, whether separate charges for such facilities are made or levied or are included in the rent deed or agreement. 22. In regard to the Dawood Centre, since it is centrally air-conditioned and also provided with lifts, accommodation therein can only be let as air-conditioned and within the facility of lifts. Air- conditioning and use of lifts would, therefore, be deemed to be an integral part of a tenancy in the Centre. In the circumstances, it is immaterial whether the air.Conditioning and service charges in the Centre were being shown separately from what was considered as the rent proper or the thaw charges were consolidated. We are, therefore, of the opinion that rent in the case of Dawood Centre, includes air-conditioning and service charges. 23. It next falls to be considered what is the connotation of the term 'derive'. In Comraissioners of Taxation v. Kirk (2), their Lordships of the Privy Council, while considering the question of income partly derived from the extraction of ore from the soil of New South Wales Colony, observed : "Their Lordships attach no special meaning to the word 'derived', which they treat as synonymous with arising or accruing." 24. Since a building or land can qualify for exemption from payment of tax under proviso (i) to section 4 (f) of the Act only if the whole of the (1) (1952) 1 All E L R 460 (2) (1900) A C rent derived from such building or rent is applied exclusively for the purpose specified in the said proviso, it would be unreasonable to construe the expression "rent derived" as meaning the gross rent received from the building or land, but we would take it to mean that the actual amount of rent received from the building or land minus the taxes payable thereon as also the actual expenses incurred thereon by the landlord on its maintenance and providing the necessary services or facilities that go with the tenancy. This is precisely what has been done in the instant case by the Taxing Authorities. They have taken the total rent received by the petitioner from
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Dawood Centre and deducted therefrom various expenditures on the Centre. From the two orders of respondents Nos. 1 and 2, it appears that the rental income from the Dawood Centre for the year 196849 was Rs, 19,87,375, including the air-conditioning and service charges amounting to Rs, 11,93,624.60. To this amount was added a sum of Rs, 2,69,821.64, which is said to be the excess provision made for K. M. C. And property taxes. -The total amount thus worked out was Rs, 22,57,196.64. From this amount' the following expenditure was deducted : {{TABLE TEXT}} Expenditure on maintenance 1 Rs, building maintenance 1,43,369.37 water charges 3,150.00 electric charges 45,731.26 miscellaneous expenditure on Centre 996.62 Administration expenses 94,297.45 Property and Municipal taxes 3,75,489.80 Total expenditure 7,67,589.80 {{TABLE TEXT}} 25. Since the net income, after deducting the above expenditure from the total income of Rs, 22,57,196.64. Works out to Rs, 14,89,597.46, whereas the petitioner during the year 1968-69 had incurred a total expenditure on scholarships, etc., of Rs, 12,67,g57.59, it was held by the Taxing Authorities that the petitioner had failed to show that it had applied the rent derived from the Dawood Centre exclusively upon public charitable institutions, as required by proviso (I) to section 4 (f) of the Act. 26. We have been at some pains to ascertain how the amount of Rs, 2,69,821.64, which is said to be the excess provision made for K. M. C. And property tax within limit, was arrived at and how this amount could be added to the rent derived from the Dawood…
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