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Petitioner: Pakistan Telecommunication Company Limited VS Respondent: Department Of Excise And Taxation
Court Name: Sindh High Court Judge(s): Munib Akhtar, Muhammad Ather Saeed Title:Pakistan Telecommunication Company Limited vs Department Of Excise
And Taxation Case No.: Constitution Petition No. 604 of 2009 Date of Judgment:2011-06-13 Reported As:PLD 2012 Sindh 412, PLJ 2012 Tax Cases (Kar.) 70, 2012 PTD 1522, 2012 P.C.T.L.R. 276 Result: Order accordingly Judgment ORDER MUNIB AKHTAR, J. - This petition arises under the Sindh Urban Immovable Property Tax Act, 1958 ("the 1958 Act" or "the Act"). The petitioner is the well-known telecommunications company, which in years gone by was the only supplier of such services in the country, and even today is the largest such provider, and the only provider of such services through landlines. The petitioner owns properties up and down the province, many of which are in Karachi division. The question that requires determination is whether the property tax payable under the Act in respect of the properties in Karachi is to be paid, as contended by the petitioner, at rates applicable to industrial properties, or, as contended by the Province, at the rates that apply to commercial properties. 2. Learned counsel for the petitioner submitted that property tax under the 1958 Act was payable in Karachi division in terms of Section 5A thereof. That section (which is considered in detail below) provides that the annual value of a property may be determined on the basis of valuation tables issued by the Provincial Government, It appears that in respect of Karachi, this power has been exercised from time to time, and as presently relevant, in terms of a Notification No. SO(TAXES)JE&T/310/2001. PL11 issued on 20.06.2001 ("the notification"). Learned counsel submitted that in terms of the notification, properties had been divided into residential, commercial and industrial categories, and property tax was payable as per the rates notified for each category. The rates specified for commercial properties are substantially higher than those for industrial properties. The primary basis on which the petitioner contends that its properties are liable to tax as industrial properties is that the telecommunications sector has been declared an industry by
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Federal Government by means a Notification dated 20.04.2004 ("the federal notification"). This contention formed the core of learned counsel's submissions. Learned counsel submitted that since the petitioner was part of the telecom "industry", any property owned by it ought to be taxed as an "industrial" property. Learned counsel submitted that the term "industrial" had a wide and comprehensive meaning, and that the activities of the petitioner were fully within the ambit thereof, In other words, according to him, the petitioner was carrying on "industrial activities" on its properties, which were liable; to tax accordingly, In this regard, he placed reliance on a decision of the Lahore High Court, involving the petitioner itself, and reported as Pakistan Telecommunication Company Ltd. v. Government of Punjab and others 2009 PTD 1602. Learned counsel also sought to distinguish a decision of the Supreme Court reported as Tures Hotel, Islamabad and others v. Capital Development Authority and others 2006 SCM R 1738, a case on which reliance was placed by the respondents. 3. Learned AAG opposed the petition. He submitted that the fact that the telecom sector had been declared to be an "industry" by the Federal Government was not relevant. Even if the petitioner was part of an "industry" for federal purposes pursuant to some policy of the Federal Government, that could not affect the position under the 1958 Act, which was a provincial law and thus fell within the provincial domain. He submitted that this very point, in the context of the notification itself, had already been considered and repelled by a Division Bench of this Court in Arabian Sea Enterprises Ltd. v. Government of Sindh and others 2007 CLC 1215, and an appeal taken against that decision to the Supreme Court had also proved unsuccessful, In its leave refusing order, the Supreme Court had referred to its earlier decision in the Tures Hotel case (supra). Learned AAG submitted that the properties in question had been declared as commercial properties, and were therefore rightly being valued as such under the notification, and taxed accordingly. He further contended that the petitioner had availed the statutory remedies of appeal and revision provided by the 1958 Act, and the orders of the appellate and revisional authorities did not suffer from any legal or other infirmity as would require interference by the Court. Finally, learned AAG submitted that the vires of Section 5A and the valuation table notified in terms thereof had also been considered and upheld by a Division Bench of this Court in Karachi Properties Investment Co. (Pvt.) Ltd. v. Government of Sindh and others 2006 CLC 1372. He prayed that the petition be dismissed. 4. We have heard learned counsel for the parties, gone through the record with their assistance, ,and considered the case-law relied on by them. Before embarking on an analysis of the 1958 Act, one point mu^t be mentioned. The 1958 Act was enacted by the erstwhile Province of West Pakistan. When that province was broken up into its constituent parts, i.e., the four Provinces that we have today, the 1958 Act passed on to each province as part of the laws inherited from West Pakistan. Thereafter, each province has made many amendments to the Act as applicable therein. Unfortunately, law books do not always faithfully reflect the state of the law as applicable in the different provinces, and in most instances, the reader is left to make his way, as best he can, through a sometimes bewildering hotchpots of different amendments and substitutions in respect of each province, without any certainty or clarity as to what the state of the law is. We have therefore chosen to use the version of the 1958 Act as available (as a link) at the official website of the Excise and Taxation Department of the Government of Sindh (http://www.Sindh.Qov.Pk/dpt/Excise%20&%20Taxation/IMM OVABLE%20PROPERTY%20TAX%20%2023-02-Q9. Pdf). Unfortunately, even this version is not free from various typographical errors, some of which are fairly egregious, but these can at least be sorted out without too much difficulty. This version shows the state of the 1958 Act as on 23.02.2009. The present petition was filed on 09.04.2009, and there is nothing in the Sindh Finance Acts of 2009 and 2010 as is relevant for present purposes. Nonetheless, and we say this with some regret, since it reflects on the ability of the Provincial Government to make up-to-date and accurate versions of
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the laws of Sindh available, there is still some residual doubt as to the accuracy of the text that we have used. (We would draw attention to the situation in the Punjab, in respect of the laws of which an excellent website is available: http://www.Punjablaws.Gov.Pk.) Subject to the foregoing caveat, we turn to an examination of the various provisions of the 1958 Act, and the submissions of learned counsel in terms thereof. 5. We start with the charging provision, which is contained in Section 3(2):- "The tax shall be charged, levied and collected at the rate of twenty percent of the annual value of the lands and buildings." It will be seen that the charging provision requires two things: (a) lands and buildings, and (b) the annual value thereof. At first sight, this may seem a somewhat strange way of putting it: would not lands and buildings in every case have an annual value? In fact, the answer to this question may not. Necessarily always be in the affirmative, In any case, we are in the realm of fiscal statutes, and the charging provision must be carefully examined if the nature and scope of the levy is to be properly appreciated. Although the word "land" is defined in Section 2(da) of the Act, the term "annual value" is not defined (and "building" likewise remains undefined). Section 5 lays down the manner for ascertaining the "annual value", and as presently relevant, provides as follows:- "5. Annual value:-- The annual value of any land or building shall be ascertained by estimating the gross annual rent at which such land or building ... Might reasonably be expected to be let from year to year..." This is what may be called the normal method for determining the "annual value": the "annual value" is the "gross annual rent" at which the property may "reasonably" be "expected to be let from year to year". Section 5A, 0n the other hand, provides as follow:- "5A. Valuation Tables to ascertain annual value.-- Notwithstanding the provisions of Section 5 the annual value may be determined on the basis of the valuation tables as may be notified by or under the authority of government for various locations." Thus, Section 5A overrides Section 5 by way of a non-obstante clause, and provides an alternative method of determining the "annual value", namely, on the basis of "valuation tables" notified by the Government for "various locations". Now the Act does not define "valuation tables", nor does it itself provide any direct guidance or clue as to how such tables are to be formed, established or determined. The question as to what are the correct legal principles applicable to the proper interpretation and application of a notification under section 5A lies at the heart of this petition. 6. As noted above, the main plank of the petitioner's case is that the Federal Government has notified the telecom sector as an "industry", and the learned AAG has sought to demolish this mainstay by referring to the Arabian Sea Enterprises case. That decision (whereby a number of conjoined petitions were disposed off) involved the application of the notification to hotels. One ground taken by the petitioners was that their Sector had been declared to be an "industry" by a circular issued by the Federation, and for that reason, property tax was payable by hotels at the rates applicable to industrial properties, and not commercial properties. After considering the matter at some length (see pp. 1221-1224), the learned Division Bench was pleased to repel the petitioners' contention, It was observed as follows:- "It may be true that in order to promote tourism the Federal Government has provided certain concessions to the tourism including hotels etc. To attract investors. However, such concessions or the change of status was only for the purposes of providing specified concessions and incentives and it cannot be said that it has changed the status of the property even for the purposes of assessm ent of property tax." (pg. 1224) The petitioner's case on this point is not different from that of the petitioners in the Arabian Sea Enterprises case, and the foregoing observations apply equally to the federal notification relied on
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by the petitioner. The distinction between federal law (and federal purposes) on the one hand, and provincial law (and provincial purposes) is clear. As presently relevant, the Federation cannot alter the applicability of a provincial law by issuing a notification or circular, nor indeed, does it appear that the federal notification relied on by the petitioner is intended to have any such effect. We are in full agreement with the observations of the learned Division Bench noted above (which are, in any case, binding on us), and therefore, we likewise repel the contention that simply on account of the federal notification in relation to the telecom sector, the properties of the petitioner under the 1958 Act are to be taxed as industrial properties. - 7. There is another point in this context that requires to be noted, and that is the distinction between the two words, "industry" and "industrial". "Industry" is a noun, and "industrial" is an adjective. Every that an "industry" (or a member thereof) does not necessarily "industrial". To take a simple example (and one which we put to learned counsel for the petitioner at the hearing): suppose that the petitioner were to purchase a residential property, to be used as a residence for its area general manager. Would such a property be liable to property tax as an "industrial" property simply because it is owned and used by the petitioner, a member of the telecom "industry"? The answer to this question is obviously negative. The submission made on the basis of the federal notification to obliterate the distinction between "industry" and "industrial", which in our view, is real and substantial in the present context. We therefore, find no merit in the main submission made by learned counsel for the petitioner. However, the matter does not end here, since in our view, the important (and indeed, crucial) question, namely the proper legal basis of interpreting and applying a notification under Section 5A, still remains to be addressed. 8. Before turning to address this question, two other aspects must first be considered. One relates to the Arabian Sea Enterprises case. For reasons that will presently become clear, it is necessary to note also the other grounds on which the learned Division Bench was pleased to dismiss the hotels' petitions. The learned Division Bench observed that earlier, the hotels had themselves declared their properties as "commercial" during some general survey that had been carried out under the Act. In this context, it was also noted that at least in some of the cases, the hotels had, after the issuance of the notification, sought to have their properties reclassified as "industrial", and for this purpose had taken recourse to statutory remedies under the Act, However, while those remedies were still being availed, the petitions had also been filed. The learned Division Bench held (relying on Al-Akram Builders (Pvt.) Ltd. v. Income Tax Appellate Tribunal 1993 SCM R 29) that this was impermissible, and that the petitions of the hotels concerned were liable to be dismissed on this ground as well. Secondly, reference must also be made to the decision of the Supreme Court in Tures Hotel, Islamabad and others v. Capital Development Authority and others 2006 SCM R 1738, which was relied on by learned AAG, but which learned counsel for the petitioner sought to distinguish, In this regard, learned counsel for the petitioner submitted that the Tures Hotel case arose under the Capital Development Authority Ordinance, 1960 ("1960 Ordinance"). That law (which is a federal law applicable to Islamabad) itself allowed for the levy of property tax, and in terms thereof, and for purposes of levying property tax, the Islamabad Capital Territory (Imposition of Taxes) Rules, 1981 and certain regulations had been promulgated. Learned counsel submitted that in the scheme envisaged under the 1960 Ordinance, properties in Islamabad were classified in the three familiar categories of residential, commercial and industrial, but (crucially for present purposes) hotels were expressly placed in the commercial category, It was on this basis that the Supreme Court held that hotels in Islamabad were to be classified as commercial properties, and brought to tax accordingly. We find force in the submissions made by learned counsel for the petitioner. The question raised in this petition did not arise before the Supreme Court, and therefore, with respect, the reliance that learned AAG sought to place on the Tures Hotel case is misconceived. We may however, note that it was also argued before the Supreme Court that since
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hotels had been declared to be an industry by the Federal Government, their properties were liable to be taxed accordingly. This submission was repelled by the Supreme Court (at pg. 1743), and it was? Observed as under:-- "On the other hand it is also evident that no statutory enactment has been made in the C.D.A. Rules whereby hotels/motels situated in the jurisdiction of C.D.A, have been included in the term "industry", "industrial" or "institution", as such appellants cannot claim such relief. The appellants were allotted commercial plots for the construction of hotels. The orders or notifications issued by Federal Government under other laws declaring business of hotel as industry would not affect the nature of building or use of plot as defined in the Regulation No. 3 of C.D.A." Thus, even in the context of a federal law relating to property tax, a notification or circular issued by the Federal Government granting the status of "industry" to a particular sector has been held to be ineffective, It is true that, as pointed out by learned AAG, when an appeal was taken to the Supreme Court from the decision of this Court in the Arabian Sea Enterprises case, the Supreme Court, while refusing leave to appeal, referred to the Tures Hotel case. (The (unreported) leave refusing order is Beach Luxury Hotel (Pvt) Ltd. v. Province of Sindh and others, CP 393-K/2007, dated 21.06.2007.) However, in our view, the reference was in a somewhat different context, being related to the issue of discrimination, a question that was not raised before us by learned counsel for the petitioner in his submissions, It is to be noted further that leave to appeal was refused also on the ground that had found favour with the learned Division Bench, namely that there was an alternate efficacious remedy "already available and already availed". 9. We now turn to the notification, and a consideration of what are, in our view, the correct legal principles applicable to its proper interpretation and application. As noted above, the 1958 Act itself does not provide any direct guidance in this regard. That however, does not mean that the Provincial Government' has ah untrammeled discretion in the exercise of powers under Section 5A. There is, in law, no such thing as an unfettered discretion. Even if statutory powers are conferred in ostensibly unconstrained terms, the exercise of such powers must be in a structured and regulated manner. The scope and extent of the powers conferred, and the proper exercise thereof, must be determined, inter alia, by examining the scheme and policy of the relevant statute. Now the purpose for .Which powers have been conferred by Section 5A is to determine the "annual value" of properties, and the objective of this determination is to levy the tax under the Act. As noted above, "annual value" is one of the two elements (the other being "lands and buildings") that together constitute the charging provision of the Act. Thus, in interpreting and applying the notification, the well-known principles applicable to the charging provisions of fiscal statutes will have to kept in mind, and applied as appropriate. 10. When the notification is examined, the first thing to be noticed is that while it divides properties into the three categories of residential, commercial and industrial, it does not, except in certain cases not presently relevant, provide for a specific and detailed description of what sorts of properties fall into the different categories. This may be contrasted with the position in the regulation considered by the Supreme Court in the Tures Hotel case (see at pg. 1743), where detailed descriptions were given of commercial and business plots on the one hand, and industrial plots on the other. This lack of description was also noted in the Arabian Sea Enterprises case (at pg. 1222): "However, neither the said Notification nor the schedule (Valuation table) annexed thereto specifies the kind of properties to be assessed under each head except the properties falling under the head of 'concessionary specified commercial properties." There are, in our view, at least three possible ways in which a particular property, which is not expressly provided for therein, can be categorized under the notification:- (a) on the basis of how the property has been declared and/or classified, e.g., on the basis of some
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survey under the Act, or in terms of some town planning regulation, as applicable, or in terms of the lease relating to the property; (b) on the basis of how the property is, in fact, being used; or (c) on the basis of some combination of (a) and (b). It would seem that the learned Division Bench in the Arabian Sea Enterprises case may have applied apply (a) above (see pg. 1224). However, it did not make any definite determination on this point since, as noted above, it dismissed the petitions on the ground that statutory remedies were being availed in respect of the proper classification under the notification, In our view, the point is therefore open, In the present case, the petitioner has already availed the statutory remedies. On a consideration of the notification as a whole, in the light of the factors mentioned in para 9 above, we are of the view that if a property is declared or classified in one category, but is in fact being used in a manner that could bring it in another category, then, unless specific provision to the contrary is made in the notification itself, the property should be placed in that category which imposes the least burden on the taxpayer. Thus, e.g., if the property was earlier declared or classified as commercial, but is in fact being used in a manner that could bring it in the industrial category, then for purposes of the notification, it should be classified in the category that imposes the least burden on the owner of the property (who is the taxpayer under the Act: see Section 3(5)). The reason why this is so is two-fold. Firstly, the notification itself indicates that the' determination of the "annual value" can be in terms of usage. For example, it is provided as follows:- "Properties built for residential purposes, if being used for commercial purpose, whether self- occupied or rented shall be assessed at prescribed commercial rates of that zone the reference to "properties built for residential purposes" can only mean that the properties were intended to be used for residential purposes, but are in fact being put to commercial use. Rates for commercial properties are of course,, substantially higher than those for residential properties. Thus, where the intent is to determine the "annual value" on the higher side, express provision has been made in the notification, It would seem therefore that the meaning of the expressions "residential", "commercial" and "industrial" properties, as used in the notification, cannot be limited only to properties which may have been declared or classified as such (possibility (a) above). These expressions could also mean properties being used in a manner, or for purposes that come within the descriptive categories of "residential", "commercial" and "industrial", as the case may be (possibility (b) above), In our view, the proper application of the notification requires a combination of (a) and (b) {i.e., possibility (c) above), and the reason why this is so brings us to the second point. The "annual value" is part of the charging provision of a fiscal statute. Its determination is therefore subject to the fundamental rule of interpretation that where the relevant statutory language is unclear or ambiguous, or no express provision has been made, and two reasonable interpretations are possible, then that interpretation shall be preferred which reduces the burden on the taxpayer. There is an ambiguity in the notification. The precise meanings of the expressions "residential", "commercial" and "industrial" properties are not clear. Two reasonable interpretations are possible, In our view therefore, the foregoing apply in all cases for which the notification does not make any express provision. The case of the petitioner falls precisely in this category. As noted above, there is no general express description of "commercial" and/or "industrial" properties. The petitioner's properties do not come within any of the cases expressly provided for. If therefore, its properties were earlier classified or declared as "commercial", but are in fact being put to a use that could bring them within the "industrial" category, then for purposes of the notification, the properties must be placed in that category which imposes the least tax burden, It would seem that that would invariably be the "industrial" category. 11. The next question that therefore requires consideration is as to what is meant by "industrial" properties in the context of the notification, and with reference to the petitioner. As noted above, for
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this purpose learned counsel for the petitioner placed reliance on the decision of the Lahore High Court reported as Pakistan Telecommunication Company Ltd. v. Government of Punjab and others 2009 PTD 1602. We have carefully considered the views expressed in that case. After considering the correct meaning of "industry" and "industrial", the High Court made the following observations with regard to the petitioner in para 14:-…
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