' SYED MANSOOR ALI SHAH, J.---The legal question that requires determination in this case is whether petitioner i,e,, Defence Housing Authority ("DHA") is a "local authority" for the purposes of section 49 of the Income Tax Ordinance, 2001("Ordinance") (as it stood before the amendment brought about through Finance Act, 2008) and therefore entitled to exemption of income tax for the period in question i,e,, Tax Years 2003 to 2005.
2. Brief facts of the case are that the petitioner approached the respondent department for exemption under section 49 of the Income Tax Ordinance, 2001 for tax years 2003-2005 on the ground that DHA is a "local authority" and hence its income be exempt from income tax.
3. The contention of the petitioner was turned down by the respondents department vide letter dated 7-4-2008 and thereafter notices under sections 122(1), (5), (5-A) of the Ordinance dated 19- 5-2008 were served on the petitioner for the aforementioned Tax Years. Letter dated 7-4-2008 and said notices have been challenged before this Court.
4. Learned counsel for the petitioner argued that DHA is a "Local Authority" in terms of section 3(28) of the General Clauses Act, 1897. In support of his contention learned counsel relied on The Deputy Managing Director, National Bank of Pakistan, Principal Office, Jinnah Avenue, Dacca and others v.
Ataul Huq (PLD 1965 SC 201), Chief Secretary, Government of the Punjab Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore 1976 PTD 56, Karachi Development Authority v. Province of Sindh through the Secretary, Excise and Taxation Department, Karachi and 4 others (PLD 1977 Karachi 152) and Commissioner of Income Tax v. U.P. Forest Corporation (1999) 80 Tax 173 (S.C. India)
5. He further contended that DHA maintains and manages a "Local Fund" generated from the residents of DHA under various heads. In support of the same he has placed on record Schedule of Levies/Fees, as well as, Annual Accounts duly audited by KPMG Taseer Hadi and Co. For the year ending 30-6-2008 and 30-6-2007 to establish that DHA maintains a local fund.
6. Learned counsel appearing on behalf of respondent. F.B.R. Vehemently opposed the petition and submitted that DHA does not constitute a "local authority". He placed reliance on Chief Secretary, Government of the Punjab, Lahore v. Commissioner of Income Tax. , Lahore Zone, Lahore (PLD 1976 Lahore 258) and Union of India and others v. R. C. Jain and others (AIR 1981 SC 951) in support of his contention. He contended that general words appearing in section 3 (28) of the General Clauses Act, 1897 have to be read ejusdem generis with the words preceding them. It is also contended by relying on the judgment of India Supreme Court (ibid), that the Members of the authority must be elected by the inhabitants of the area which is not the case with DHA.
7. Arguments heard. Record perused.
8. A good starting point is to see how "Local Authority" and "Local Fund" have been defined under the law.
Meaning of "Local Authority".
9.: "Local Authority" is defined in section 3(28) of the General Clauses Act, 1897 and is reproduced hereunder:- "local authority" shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with the control or management of a municipal or local fund:" (emphasis supplied).
10. Local authority is also defined in Local Authorities Loan Act, 1914 in the following manner:-- "local authority" means any person legally entitled to the control or management of any local or municipal fund, or legally entitled to impose any cess, rate, duty or tax within any local area".
(emphasis supplied)
11. A similar matter came up before the august Supreme Court of Pakistan in The Deputy Managing Director, National Bank of Pakistan, Principal Office, Jinnah Avenue, Dacca and others v. Ataul Huq (PLD 1965 SC 201) wherein the question was whether National Bank of Pakistan constituted "local authority". Even though it was held that National Bank of Pakistan was not a local authority, Cornelius C.J. Speaking for the Court elaborated the meaning of Local Authority:-- "local authority" has been used in statutory phraseology in the Indian sub-continent for a great many years and is always understood to mean an authority which is entrusted with the administration of a local fund. Local authorities are bodies exercising within limited territories including in a Province, which belong to the Province, but which by statute are delegated to the local authority. A local authority is ordinarily charged with functions of self-government and has power of making bye-laws, of imposing taxation and of maintaining and administrating a local fund." (emphasis supplied)
12. Similarly in Chief Secretary, Government of the Punjab Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore 1976 PTD 56 (also reported as PLD 1976 Lahore 258), a Division Bench of this Court held Thal Development Authority to be a "local authority" relying on the National Bank of Pakistan case (ibid). The Hon'ble Division Bench "(10) The brief review of some of the relevant provisions of Thal Development Act discussed above is sufficient to form a fair idea as to the constitution and features of the Thal Development Authority, its powers and duties and the functions entrusted to it under the law. It is statutory corporation constituted under section 3 of the Thal Developmtnt Act. It is a body corporate, has perpetual succession and can sue and be sued. It has its own juristic personality distinct from its members. Within its own local areas, it exercises considerable powers of local Self-Government. It may frame schemes for the development of a local area under its control and provide of civic amenities for the inhabitants of the area. It has its own local fund to manage. It prepares its own annual budget for submission to the Provincial Government." (emphasis supplied)
' The above judgment has been upheld by the august Supreme Court of Pakistan vide judgment reported as Commissioner of Income Tax, Lahore v. Chief Secretary, Government of the Punjab, Lahore 1980 PTD 329.
13. Again in Karachi Development Authority v. Province of Sindh through the Secretary, Excise and Taxation Department, Karachi and 4 others (PLD 1977 Karachi 152) Karachi Development Authority
(KDA) was declared to be a "local authority". In Commissioner of Income Tax v. U.P. Forest Corporation [(1999) 80 Tax 173 (S.C.) India)]. B.N. Kirpal J. Held that:- "In construing the meaning of the expression "local authority" as defined in section 3(31) of the General Clauses Act, it was observed by this court at pages 857-858 of [1981] 2 SCR as follows (page 952 of AIR 1981 SC; page 286 of 58 FJR): "Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'local authority' in section 2(31) of the General Clauses Act. A proper and careful scrutiny of the language of section 3(31) suggests that an authority in order to be a local authority, must be of like nature and character as a municipal committee, district board or body of port commissioners, possessing therefore, many, if not all, of the distinctive attributes and characteristics of a municipal committee, district board, or body of port commissioners, but possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a municipal committee, district board or body of port commissioners shares with any other local authority? First, the authorities must have separate legal existence as corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly, be elected by the inhabitants of the area. Next they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of dependence may very considerably but an appreciable measure of the autonomy there must be. Next, they must be entrusted by statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority."
14. Local authority is also defined in Words and Phrases:- "(ii) A proper and careful scrutiny of the language of section 3(31) suggests that an authority, in order to be a 'local authority', must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the government with the control and management of a municipal or local fund.
[General Clauses Act]. Union of India v. Shri R.C. Jain, AIR 1981 SC 951." (emphasis supplied).
15. It, therefore, transpires from above references that the main ingredient that determines whether an authority is a local authority is its power to manage and administer "local fund".
Meaning of Local Fund.
16. Scope and meaning of "local fund" therefore, becomes important. "Fund" is defined in Local Authorities Loan Act, 1914 as "funds", used with reference to any local authority, includes any local or municipal fund to the control or management of which such authority is legally entitled, and any cess, rate, duty or tax which such authority is legally entitled to impose, and any property vested in such authority."
(emphasis supplied)
' And in Chief Secretary, Government of the Punjab Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore 1976 PTD 56:-- "According to the law Lexicon by Aiyer the term "local fund" means any fund under the control or management of a local authority." (emphasis supplied)
' And in Messrs Qadri Brothers v. Assessing Authority (PLD 1969 Karachi 47) as "Now, what is a "local fund"? This term again has a technical meaning when used in any legislative provision. We may refer to the Sindh Local Fund Audit Act of 1930. This term has been defined by section 3, clause (d) of the said Act to mean any fund to the control or Management of which a local authority is legally entitled and includes the proceeds of any cess, rate, duty or tax which such authority is legally entitled to impose, etc. As far back as 1871, the term "local authority" and "local fund" was defined in the Cattle Trespass Act (1871) in section 2. "Local authority" was defined to mean any body of persons for the time being invested by law with control and administration of any matters within a specified local area, and "local fund" was defined to mean any fund under the control or management of a local authority." (emphasis supplied)
17. In the present case DHA has been constituted under Chief Executive's Order No, 26 of 2002 namely Defence Housing Authority Lahore Order, 2002 ("Order"). The management of the authority is vested in the Governing Body with the Chairman being Secretary, Ministry of Defence and the Vice-Chairman being Corps Commander, Lahore (section 4). Executive Board under the Order is to submit to the Governing Body at the end of every financial year general report on its affairs including audit, balance sheet and audit report for the year (Section 6). Authority through the Executive Board has the power to. "impose, recover, alter, vary or enhance development charges, installments, cost of apartments, housing units of scheme, commercial projects and transfer fees and other charges in respect of any property, plot or project with in the area of the Authority; (Section 7(2)(e)). The authority through Executive Board may plan, develop and execute new developments and projects through joint ventures with local and international agencies, institutions and individuals (Section 7(2)(g)).
18. Authority is empowered to do all the acts that are necessary for planning and development of and for providing and regulating housing facilities in the area notified by the Authority (Section 13).
Under the order, the Authority maintains a "Defence Housing Authority Lahore C Fund" which vest in the Authority and is credited with all the moneys received by the Authority (Section 14). The Order also provides that any sum payable to the Authority shall be recoverable as arrears of land revenue (Section 16).
19. Learned counsel for the petitioner has placed on record list of levis fees and charges collected by the Authority which includes; registration fee, sub-division fee, combination fee, sewerage connection fee, water supply fee, along with residential water charges, commercial water charges, spray charges, street warden charges septic tank cleaning charges, garbage basket charges,- sub-divided plot water charges, etc. It is contended by the counsel that the Fund is further sub- divided under four different heads i,e, Land and Development Fund, Maintenance Fund, Membership Fund and General Fund and in supports of this learned counsel relied on the audited Balance Sheets of the Authority for the I D years ending 30-6-2008 and 30-6-2007.
20. Learned counsel for the respondent when asked whether other development authorities in the Province, for example, Lahore Development Authority (LDA), Faisalabad Development Authority (FDA), Multan Development Authority (MDA) enjoy exemption under section 49 of the Ordinance, learned counsel confirmed that they did enjoy exemption and were considered as "local authorities" under section 49 of the Ordinance (as it was prior to the commencement of the year, 2008).
21. From the above, it is .Clear that the Authority has a statutory status. It enjoys the powers of imposing fees and charges and is involved in developing and regulating housing in the area. The Authority also maintains a separate Fund by the name of Defence Housing Authority Fund ("Fund") and all the moneys is received by the authority are credited to the said Fund. It also prepares its own budget which is placed before the Governing Body that comprises the Secretary, Ministry of Defence, Corps Commander, Lahore.
22. I, therefore, hold that DHA is a "local authority" and, therefore, is exempted from tax under section 49 of the Income Tax Ordinance, 2001 (as the said section was prior to the Finance Act, 2008) for Tax Years 2003-2005. As a result, letter dated 7-4-2008 issued by respondent No,1, as well as, notices issued under section 122(1)(5) (5-A) of the Income Tax Ordinance, 2001 dated 19-5-2008 for Tax Year 2003-2005 are set aside being illegal and without lawful authority.
23. For the above reasons, this petition is allowed with no order as to costs.