1. SALAHUDDIN AHMED, J.--These three appeals by special leave have been heard together as common questions of law are involved in them and they are now being disposed of under one judgment.
2. Appeals Nos, K-42/69 and K-29/70 arise out of two representative suits filed by the plaintiffs- appellants disputing the legality of the acts of the defendants-respondents Director of Taxation, Karachi/Director, Excise and Taxation, Karachi seeking to recover tax from the appellants under the West Pakistan Urban Immovable Property Tax Act, 1958 (hereinafter called Act V of 1958). Appeal No, K-43/69 arises out of another representative suit filed by the plaintiffs-appellants challenging the recovery of municipal taxes under Municipal Administration Ordinance, 1960 (hereinafter called Ordinance No, X of 1960).
3. All the three suits having been dismissed by the trial Court three first appeals were preferred from the orders of dismissal before the then High Court of West Pakistan, Karachi Bench, by the plaintiffs concerned.
4. The appellants in Appeals Nos, K-42/69 and K-29/70 are sub-licensees of lands in Pakistan Employees Co-operating Housing Society Ltd. (hereinafter called the P. E. C. H. S.) while the appellants in Appeal No, K-43/69 are the lessees of the plots situated in Karachi Co-operating Housing Society Union (hereinafter called the Housing Union).
5. The main ground on which the suits were founded was that Karachi had not been legally constituted as a Municipality under Ordinance No, X of 1960.
6. In Appeals Nos, K-42/69 and K-29/70 the suits were also based on the ground that the properties in question were exempt from the tax leviable under Act V of 1958 by reason of section 4.
7. Before this Court, too, the appellants have pressed mainly the same two grounds.
8. The High Court dismissed all the three appeals, and the appellants, accordingly, approached this Court and obtained special leave to appeal. The leave was granted to consider the questions of law of a Constitutional nature regarding the validity of the Constitution of the Karachi Municipal Corporation and its right to recover taxes under the West Pakistan Urban Immovable Property Tax Act, 1958 from the persons who had constructed houses in the P. E. C. H. S. and plot-holders of the Housing Union.
9. In order to fully appreciate the contentions raised in these appeals, it is necessary to give briefly the factual background as well as the history of administrative changes in Karachi both before and since it became the Federal Capital of Pakistan.
10. In the year 1947, Karachi was the Capital of the former Province of Sind. On the 23rd of July 194) it was made the Federal Capital by the Pakistan (Establishment of Federal Capital) Order No, 15 of 1948 (hereinafter called Order No, 15 of 1948) promulgated by the Governor-General of Pakistan as he then was. On the 3rd of October 1955 Karachi became territoriality a part of the Province of West Pakistan under the Establishment of West Pakistan Act, 1955, but it still continued to be administered by the Central Government. This status of Karachi was not altered under the Constitution of 1956 and the President alone was entitled to make provision for the administration of the Federal Capital, namely, Karachi. Similarly, the Laws (Continuance in Force) Order, 1958 did not make any alteration in the status of Karachi. On the 1st of August 1960, the name of Karachi as "the Federal Capital" was changed, into "the Federal Territory" under the Seat of Government Order, 1960 (President's Order No, 20) promulgated by the President of Pakistan. Under this Order Rawalpindi became the principal seat, and a place in East Pakistan, namely, Dacca became the second seat of the Government of Pakistan. The said Order No, 20 of 1960 repealed the Pakistan (Establishment of Federal Capital) Order No, 15 of 1948. The Federal Territory of Karachi was, however, to be administered "as nearly as may be in accordance with the provisions" of the said Order No, 15 of 1948 "as so amended or supplemented". On the 1st of July 1961, Karachi became a division of the Province of West Pakistan and it ceased to be administered by the Central Government as a result of the West Pakistan Administration (Merger of the Federal Territory of Karachi) Order, 1961 (President Order No, 9).
11. After the establishment of the Federal Capital in Karachi -in the year 1948, the Government of Pakistan resumed 2053 acres of waste lands in Karachi from the Karachi Municipal Corporation (hereinafter called the K. M. C.), under section 57 of the City of Karachi Municipal Act, 1933 (Bombay Act No, XVII of 1933), and allotted them to the different Co-operative Housing Societies of Karachi including the Housing Union and the P. E. C. H. S. It may be mentioned here that 24 housing societies constituted the Housing Union. On the 1st of August 1951, the Government of Pakistan executed an agreement with the P. E. C. H. S. whereby the former allotted 1292 acres of land to the latter as a licensee. The P. E. C. H. S. was required to divide the lands into plots and then to issue sub-licences in respect of the plots to the individual members of the society. After the sub-licensees had constructed buildings on their plots and made all payments in respect of their lands they were entitled to obtain directly from the Government of Pakistan registered leases in their favour.
12. Similarly, on the 14th of January 1954, the Government of Pakistan executed another agreement with the Housing Union and allotted lands to the latter as a licensee. The Housing Union was required to develop the lands and to allot portions to its member Housing Societies as sub- licensees, and the sub-licensees were required to further divide the land and to allot them to their members as sub-licensees for building houses on the plots. After completing the construction on these plots and payment of all charges due from them sub-licensees were similarly entitled to obtain directly from the Government of Pakistan registered leases in their favour. While the individual plot-holders of the P. E. C. H. S. are sub-licensees only, the individual plot-holders of the Housing Union are sub-licensees of sub-licensees. Most of these sub-licensees and sub-licensees of sub-licensees have not yet obtained registered lease deeds in their favour from the Government although they have erected buildings on their plots and are either living in them or have rented them out.
13. In the meantime Ordinance No, X of 1960 came into force in Karachi on the 15th of April 1960, and the Government of Pakistan declared the Urban Area of Karachi to be a Municipality under section 7 of the Ordinance by a notification, dated the 11th October 1960. The areas of the Housing Union and the P. E. C. H. S. fell within the territorial boundaries of the K. M. C. In January 1961, the K. M. C. started demanding, taxes under Ordinance X of 1960 from those persons who had constructed buildings in the areas of the two aforesaid societies. In January 1963, the West Pakistan Urban Immovable Property Tax Act, 1958 (Act V of 1958) came into force in Karachi and the respondents in Appeals Nos, K-42/69 and K-29/70 demanded-taxes under the said Act from the appellants in these two appeals. The appellants therefore filed the aforesaid three suits challenging the legality of the demands made by the respondent. No, 1 in each of the three appeals.
14. Against this background I now proceed to consider the first point raised by Mr. A. S. Farooqui appearing on behalf of the appellants, namely, that the K. M. C. was not legally constituted and as such the payment of tax under Ordinance X of 1960 or under Act V of 1958 cannot be legally demanded.
15. It has been argued that Karachi having ceased to be the Federal Capital on the promulgation of the Seat of Government Order No, 20 of 1960 on the 1st of August 1960, the Central Government was not competent to issue the aforesaid notification, dated the 11th of October 1960 (hereinafter called the impugned notification) under section 7 of Ordinance X of 1960 declaring the areas comprised in Karachi to be a Municipality. In order to appreciate this contention it is necessary to quote the following provisions of Ordinance X of 1960 :- "Section 3(1)(19).--`Government' means, in the case of the Federal Capital, the Central Government, and in other cases, the Provincial Government ;
(26) 'owner' includes the person for the time being receiving the rent of land and buildings, or either of them, whether on his own account or as agent or trustee for any person or society or for any religious or charitable purpose or who would so receive the same if land or building were let to a tenant ; 'Section.
7. Declaration etc. of Municipality.--The Government may, in the prescribed manner, declare any urban area other than a Cantonment to be a municipality, and extend, curtail or otherwise alter the limits thereof, or declare that any urban area shall, from a date to be specified, cease to be a municipality."
16. It is thus evident that the relevant Government competent to issue a notification under section 7 of the Ordinance in respect of the Federal Capital is the Central Government. The pertinent question, therefore, is as to what was the Federal Capital on the date the impugned notification was issued. This takes me to a consideration of certain provisions of the Seat of Government Order, 1960 (President Order No, 20 of 1960) which was promulgated on the 1st of August 1960. They are as follows :- "Section. 1(2).--It shall "come into force at once and shall be deemed to have taken effect on the 20th day of October 1959.
2. From the commencement of this Order and until the President makes any further Order in this behalf Rawalpindi shall be the Principal Seat of Government of Pakistan.
4. Without prejudice to anything in Article 2 there shall be, at a place in East Pakistan to be appointed by the President, a second seat of Government and upon such appointment the provisions of Article 3 shall apply as if for the reference to West Pakistan a reference to East Pakistan were substituted.
17. 5.--(1) The territory demarcated by the Pakistan (Establishment of the Federal Capital) Order, 1948, and heretofore known as the Federal Capital shall henceforth be and be known as the Federal Territory of Karachi and shall continue to be administered by the President, from such day forward as he may appoint, acting to such extent as he may think fit through an Agent to be appointed by him.
(2) On the appointed day the discharge in the Federal Territory of Karachi of any function hitherto discharged in the exercise of the exclusive authority of the Federation by any authority other than the President shall forthwith vest in the Agent.
6. The Pakistan (Establishment of the Federal Capital) Order, 1948, together with all other Orders amending and supplementing the same, is hereby repealed but until other provision is made by competent authority Karachi shall, notwithstanding such repeal and subject to the provisions of Article 5 of this Order, continue to be administered as nearly as may be in accordance with the provisions of that Order as so amended or supplemented."
18. (The underlining is mine).
19. It is to be noted that the Order "shall be deemed to have taken effect on the 20th day of October 1959". It is quite evident from section 5 that what was heretofore known as "the Federal Capital" henceforth came to be known as "the Federal Territory of Karachi", and it continued to be administered by the President, and furthermore notwithstanding the repeal of the Pakistan (Establishment of the Federal Capital) Order, 1958 it continued to be administered as nearly as might be in accordance with the provisions of that Order as so amended or supplemented until other provision was made by the competent authority. The position, therefore, was that as from the 20th of October 1959, what was hitherto known as "the Federal Capital" came to be known as "the Federal Territory of Karachi". In other words the substance remained the same and only the name was changed. Consequently, on the date the impugned notification was issued, namely, the 11th of October 1960, the name 'Federal Capital' had already been changed into "the Federal Territory of Karachi", and the mere fact that the Legislature was not as prudent as it must be presumed to be in not providing in the Seat of Government Order that the change in name should apply to every statute wherein the words "Federal Capital" occur does not in my opinion make any difference. The belated prudence dawned on the 24th January 1961, when Ordinance No, 1 of 1961 was promulgated and clauses (8) and (19) of Ordinance X of 1960 were amended and the words "Federal Capital" therein were substituted by the words "Federal Territory of Karachi". This further supports the clear intention of the Legislature that only a change of name was intended and these two remained the same. The factual position remained that the name "Federal Capital" had been changed into "the Federal Territory of Karachi". It was the common case of both the parties that the territorial limits of the "Federal Territory of Karachi" remained the same as they were in "the Federal Capital". That being so, the Central Government was undoubtedly competent to issue the impugned notification.
20. In my opinion the question of competency is relatable to the territory that at one stage was known as "the Federal Capital". Subsequently, the name alone was changed into "the Federal Territory of Karachi" leaving the territory the same as it was before the change. The intention of the Legislature is clear and apparent. On a careful consideration of the provisions of the two Orders, namely, the Pakistan Establishment of Federal Capital Order, 1948 and the Seat of Government Order, 1960 it seems to me that the Legislature in spite of the fact that it made Rawalpindi the principal seat and Dacca the second seat of the Government of Pakistan left in tact the status and administration of Karachi as they were before the promulgation of the Seat of Government Order. The omission to use the word 'Capital' is self-evident.
21. There can be no doubt that the Legislature contemplated and provided for the competence of both the Central Government and the Provincial Government in regard to the issue of a notification under section 7 of Ordinance X. Again, there is no doubt that their competency extended to different territories. These territories were "the Federal Capital" and "in other cases". The question, therefore, is what was the territory that was known as the "Federal Capital". There being no dispute as to what actually constituted the Federal Capital and no dispute that on the date of the Notification the Central Government had power of administration over this very area, a mere change in the nomenclature does not, in my opinion, deprive the Government of its competency to issue the impugned notification so as to defeat the obvious intention of the Legislature. I, accordingly, hold that the Central Government was fully competent to issue the impugned notification, dated the 11th of October 1960, and, accordingly, the Karachi Municipal Corporation was legally constituted as a Municipality.
22. I now proceed to consider the contentions relating to the Urban Immovable Property Tax Act V of 1958. On the 12th of January 1963, when Act V of 1958 was extended to Karachi it was already an "urban area" as a result of the impugned notification, which I have already held to be valid and legal. Even before this notification Karachi was a properly constituted Municipality under the City of Karachi Municipal Act, 1933. It has also been noticed that the area comprised in the Karachi Municipality is the same under both the laws, viz. Act X of 1960 and the Bombay Act of 1933. Even apart from the impugned notification under Ordinance X the Notification which had been issued under the latter Act constituting Karachi as a Municipality not being inconsistent with the provisions of Ordinance X of 1960 must by reason of section 4 of Ordinance X of 1960 be deemed to have been issued under the Ordinance. Karachi became a "rating area" under the Act V of 1958 when the Government of West Pakistan levied tax therein under section 3(1) of the said Act. All these are evident from the following provisions of Act V of 1958 and Ordinance X of 1960 :- "Act V of 1958-- Section 2 (d).--`Government' means Government of West Pakistan ; (g)rating area' means urban area where tax is levied under the provisions of this Act ; (h)tax' means the tax leviable under the provisions of section 3 ; and (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.
(1) Government may by Notification specify urban areas where tax shall be levied under this Act 3(2) There shall be charged, levied and paid a tax on the annual value of buildings and lands in a rating area at the rate of ten per cent. of such annual value : Provided that where a building is occupied (for residential purposes by the own himself), the tax shall be levied at the said rate on one-half of the annual value of such building, if the owner or any member of his family does not own any other property in that rating area."
23. Section 4 of the Ordinance of 1960 runs thus : "Repeals and Savings.--(1) On the coming into force of this Ordinance in any area, the enactments mentioned in the First Schedule shall, if and in so far as applicable to that area, stand repealed.
(2) Where an enactment stands repealed under subsection (1) any appointment, rule, regulation, or bye-law made, notification, order or notice issued, tax imposed or assessed, contract entered into, suit instituted or action taken under such enactment shall, so far as it is not inconsistent with the provisions of this Ordinance and the rules, be deemed to have been respectively made, issued, imposed or assessed, entered into, instituted or taken under this Ordinance."
24. In this context it has been further argued that as the appellants in Appeals Nos, K-42/69 and K- 29/70 are not 'owners' within the meaning of the Act V of 1958 inasmuch they are not lessees in perpetuity no tax thereunder is realisable from them. The short answer to this argument is that under section 3(2) of Act V of 1958 the tax is levied on the annual value of the buildings and lands in a "rating area" and the tax is recoverable even from the tenants inasmuch as the tax is a charge upon the property.
25. As regards the contention on behalf of the appellants that the properties in dispute are exempt from payment of the tax under Act V of 1958 it may be stated that a true construction of the agreements in question leaves no room for doubt that the appellants were not merely licensees as they were labelled to be. They have much more interest in the lands over which they have constructed buildings with the express consent of the Government, than those of mere licensees.
26. The licensees have constructed pucca buildings on almost all the lands allotted to the different licensees, and what is more the agreements have specifically mentioned that on the construction of the buildings the licensees shall at once be entitled to obtain registered leases from the Government.
27. The agreements inter alia provided that in the event of the breach of the terms and conditions of the licenses the landlord shall be entitled to terminate the agreements and on such termination the payments made by the licensees shall be forfeited and they "shall have no further claim whatever against the landlord . . . . except the option of compensation to the extent of the amount of actual expenditure incurred by him on building on the plot."
28. Section 4(a) of the Act V of 1958 is as follows :- "4. The tax shall not be leviable in respect of the following properties, namely :-
(a) buildings and lands, other than those leased in perpetuity, vesting in the Federal Government."
29. Mr. Farooqui has frankly conceded that so far as the buildings are concerned they are not vested in the Federal Government. As I have already said the question involved is one of discovery of the true intention of the parties from the terms of the agreement. This view finds support from the case of Promoda Nath Roy v. Srigobind Chowdhury . In the case under report the kabuliat did not specify any period during which a lease was to subsist or the land was to be held by the lessee from year to year, and in the event of a masonry building being erected on it, rent was to be assessed at the prevailing rate; and the lessee built a structure on the land. It was held that the parties contemplated the possibility of a pucca structure being erected on the land, and therefore the lease was for building purposes, and the Court could presume that the lease was intended to be permanent, and the plaintiff was not entitled to eject the defendants. On a consideration of the various provisions of the agreement in question, coupled with the fact that the Government have not only allowed the appellants and other sub-licensees to construct masonry building on the lands but also expressly provided in the agreements that on the completion of the buildings the sub-licensees shall be entitled to obtain a registered lease from the Government and the conduct of the parties, in treating the agreement as one for lease in all respects, and in the absence of anything to show that the Government is responsible for not executing the promised lease, I have no doubt that for all practical purposes the sub-licensees have become the holders of a permanent lease. The appellants and the other sub-licensees are either living in the houses constructed by them or have rented them out to the tenants. In short, but for the technical objection that no registered lease has been executed the lands are leased out in perpetuity, and it would indeed be very difficult for the Government to oust them. In any proceeding for ejectment section 53-A of the Transfer of Property Act would afford a valid defence against the ejectment.
30. The agreements clearly show that the Government has intended to divest itself and to vest the lands in the sub-licensees, but the latter have apparently mala fide omitted to execute the lease as they were required to do under the terms of the agreement. In these circumstances to accept the appellants' contention is not only to act directly against the intention of the Legislature as contained in section 4 of Act V of 1958 but also to help the appellants in their wrongful efforts to1 evade the payment of tax under the said Act.
31. All the contentions having failed I would dismiss the appeals. In view, however, of the inaction of the Government in not taking suitable steps to obtain execution of the lease by the parties concerned I leave the parties to bear their own costs.
32. HAMOODUR RAHMAN, C. J.--I agree. MUHAMMAD YAQUB ALI, J.--I agree.
33. SAJJAD AHMAD, J.--I agree. 32 Cal. 648