MUHAMMAD FARRUKH IRFAN KHAN, J.---Through the instant petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 the petitioner/Rawalpindi Development Authority ("RDA") has challenged the legality and validity of issuance of notices under sections 137(2) and 138(1) of the Income Tax Ordinance, 2001 whereby it is required to pay arrears of tax pertaining to the tax year 2014-2015.
2. Brief facts of the case as stated in the instant petition are that the petitioner/Rawalpindi Development Authority (Hereinafter called as "RDA ") was established in May, 1989 under the Punjab Development of Cities Act, 1976. It has the status of an autonomous body . It was allotted Free Tax Number (FTN) by the respondents. In the Income Tax Return for the tax year 2014-2015 the RDA declared its Net Income as "Nil" and claiming to be the department of a Provincial Government sought exemption from tax under section 49 of the Income Tax Ordinance, 2001 (Hereinafter referred to as "Ordinance, 2001 "). Respondent No.4, however , issued to "RDA" notice dated 21.5.2016 under section 122C of the Ordinance, 2001. The RDA filed reply to the show-cause notice, vide letter dated 27.5.2016 stating therein that its income was exempted from tax under section 49 of the Ordinance, 2001 read with Articles 165 and 165A of the Constitution of Islamic Republic of Pakistan, 1973 as being the non-profit generating Provincial Government Department. Respondent No.4, however , pass ed order under section 122C of the Ordinance, 2001 on 1.6.2016. Respondent No.4 issued notice of Demand dated 2.6.2016 under section 137(2) of the Ordinance, 2001 asking the RDA to pay tax in the sum of Rs.142.857 million for the tax years 2014 and 2015. Thereafter respondent No.5 started recovery proceedings by issuing notice dated 18.7.2016, under section 138(1) of Ordinance, 2001, which is under challenge in the instant writ petition.
3. Learned counsel for the petitioner contends that the petitioner-RDA as per Punjab Government Rules of Business, 1974 being attached department of the Province of Punjab is exempted from levy of tax under section 49(2) of the Ordinance, 2001 read with Article 165A of the Constitution of Islamic Republic of Pakistan, 1973; that the RDA has been established to regulate developmental public projects in Rawalpindi and in no way falls within the category of profit earning department; that the assessment order passed under section 122C of the Ordinance, 2001 being contrary to law and facts is not sustainable in the eye of law; that as the proceedings initiated by the respondents by issuing the impugned notice dated 2.6.2016 are based on an order , which is illegal, unlawful and without jurisdiction, therefore, the said notice is liable to be declared illegal, unwarranted and void ab inito; that the petitioner for all intents and purposes falls within the definition of a Local Government and is exempted from levy of tax under section 49(2) of the Ordinance, 2001; that case of the petitioner does not fall within the ambit of subsection (4) of section 49 of the Ordina nce, 2001. In support of his arguments, learned counsel has relied upon the cases of Defence Housing Authority through Secretary v. Deputy Commissioner Income Tax and 3 others (2010 PTD 2552 ), Federal Board of Intermediate and Secondary Education, Islamabad through Secretary v. Federation of Pakistan through Secretary , and 6 others (2005 PTD 2082 ), Commissioner of Income Tax v. U.P. Forest Corporation (1998 PTD 2716 ), Karachi Development Authority v. Province of Sindh through the Secretary , Excise and Taxation Department, Karachi and 4 others (PLD 1977 Kar. 152) and Chief Secretary , Government of the Punjab, Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore (1976 PTD 56 ).
4. Conversely , learned counsel for the respondents submitted that the petitioner is not a Provincial Government Department as per Schedule I of Rules of Business of Government of Punjab, 1974; that it is also not the attached department of Housing and Physical Planning Department, Government of the Punjab and its status is that of an autonomous body; that it does not fall within the definition of Local Government rather it is a body corporate in terms of section 3(3) of the Punjab Development of Cities Act, 1976 and falls within the definition of a "company" as provided in section 80(2)(b) of the Ordinance, 2001; that the petitioner is a Development Authority , therefore, it cannot claim exemption from tax under section 49(2) of the Ordinance, 2001; that prior to 2008 Development Authorities were exempted from tax but addition of subsection (4) to section 49 of the Ordinance, 2001 by Finance Act, 2007 Development Authorities have been excluded to avail the benefit of exemption from tax; and that the petitioner derives income from various sources, which is taxable under the Ordinance, 2001; that the petitioner has been filing returns and paying due tax during the years from 2009 to 2013; and that all the proceedings initiated against the petitioner are lawful and the impugned notices have been issued in accordance with the provisions of the Ordinance, 2001. Learned counsel has placed reliance on the cases of Collector of Sales Tax and Central Excise, Lahore v. Water and Power Development Authority and others (2007 SCMR 1736 ), Punjab Small Industries v. The Deputy Commissioner of Income Tax, Circle 14, Companies Zone-I, Lahore (1995 PTD 431) and Karachi Development Authority v. Central Board of Revenue through Member s Central Excise and Land Customs, Islamabad and others (2005 PTD 2131 )
5. Arguments heard. Record perused.
6. The petitioner's claim that it is exempted from payment of Income Tax is controverted by the respondents. This controversy between the parties requires determination of status of the petitioner for the purposes of application of the Income Tax Ordinance, 2001. The petitioner's assertion that its status is that of Local Government is not supported by any law. The definition of "Local Government" as given in section 2(v) of the Punjab Local Government Act, 2013 reads as follows: "local government" means a Union Council, a Municipal Committee, a Municipal Corporation, the Metropolitan Corporation, a District Council or an Authority"
A bare reading of the above said provisio n of law envisages that the petitioner does not fall within the definition of "Local Government". Admittedly , the petitioner is a "Development Authority" created under section 4 of the Punjab Development of Cities Act, 1976. In section 2(c) of the said Act the word "Authority" has been defined as under: "Authority" means the Development Authority , created under section 4 of this Act"
In section 4 subsection (3) of the Act, 1976 it has further been explained that the "Authority" shall be a body corporate, having perpetual succession and a common seal with powers, subject to the provisions of Act, to acquire, hold and transfer property both movable and immovable and may by its name sue or be sued. In these circumstances, there remains no doubt to hold that the petitioner being a "body corporate" is a "company" as defined in sub-clause (b) of subsection (2) of section 80 of the Income Tax Ordinance, 2001.
7. In order to claim exemption from payment of income tax the petitioner has mainly relied upon section 49(1) and
(2) of the Income Tax Ordinance, 2001. For better appreciation of the arguments advanced by learned counsel for the petitioner the above said provisions of the Constitution and Ordinance, 2001 are reproduced hereunder: "49. Federal [Government,] Provincial Government, and [Local Government] income.---(1) The income of the Federal Government shall be exempt from tax under this Ordinance.
(2) The income of a Provincial Government or a [Local Government] in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head "Income from Business" derived by a Provincial Government or [Local government] from a business carried on outside its jurisdictional area."
From bare reading of the above said provisions of law it is evident that exemption from income tax is available only to the Federal Government, Provincial Government and the Local Government. In the preceding para No.6 it has been observed that status of the present petitioner is that of .a corporate body , which falls within the definition of a "company". It is an admitted position between the parties that the petitioner functions as a Development Authority .
According to section 49 subsection (4) of the Ordinance, 2001 the petitioner being included in the definition of a Development Authority is not exempted from levy of income tax. For facility of reference subsection (4) of section 49 of the Ordinance, 2001 is reproduced hereunder: "(4) Exemption under this section shall not be available in the case of a corporation, company , a regulatory authority , a development authority , other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company a regulatory authority , a development authority or other body or institution set up, owned and controlled, either directly or indirectly , by the Federal Government or a Provincial government, regardless of the ultimate destination of such income as laid down in Article 165A of the Constitution of Islamic Republic of Pakistan."
The stance of the petitioner that as it is performing its functions in connection with the affairs of the Province as such carries the status of a Provincial Government Department is not proved on record.
8. It also to be emphasized that the petitioner institution/department does not figure anywhere in Schedule I of the Rules of Business of Government of the Punjab, 1974. It is also not an attach ed department of Housing and Physical Planning Department, Government of the Punjab. On the contrary it has been established on record that the petitioner is an autonomous body and also drawing income from the following sources:
1. Government grant: i. Grant in Aid (PSDP Current) ii. Grant in Aid (Maintenance)
2. RDA Sources: Revenue Account: i. Building plan fee. ii. Commercialization fee. iii. Fee on transfer of plots. iv. Rent of building v. Sale of plots. vi. Departmental charges vii. Profit on investments viii. Misc. Receipts. ix. Municipal contribution. x. Income from Parking plaza.
9. The respondents have appended with the report and parawise comments letter No. SO(H-II)2-1 1/2005(B), dated 8.1.201 1, written by Government of the Punjab, Housing, Urban Development and Public Health Engineering Department to the Chairman, Federal Board of Revenue, Islamabad in which while referring to amendment in section 49(4) of the Income Tax Ordinance, 2001 the following request has been made: "I am, therefore, directed to request FBR, to propose the amendment in Section 49(4) of Income Tax Ordinance, 2001 to restore to pre-2008 position and to exempt Development Authorities constituted under the Lahore Development Authority Act, 1975 and Punjab Development of Cities Act, 1976 from the purview of the Income Tax as has been done in the case of Local Governments."
It is, therefore, evident that the petitioner is cognizant of the fact that the exemption from income tax has been withdrawn in respect of Development Authorities like the petitioner after the introd uction of amendment in section 49 of the Ordinance, 2001 by Finance Act, 2007. This fact is further substantiated from the fact that the petitioner has been submitting Income Tax Returns and paying the tax due during the years 2009 to 2013. As the learned counsel for the petitioner has failed to convince this Court that the petitioner is exempted from levy of income tax, therefore, I am not inclined to interfere in the proceedings initiated by the respondents under the Ordinance, 2001 and the impugned order passed under section 122C therefore.
10. In view of above, I see no merit in this petition, which is accordingly dismissed . The respondents may proceed further in the matter for recovery of the income tax due from the petitioner in accordance with the provisions of the Income Tax Ordinance, 2001.