1. ' MUHAMMAD AFZAL ZULLAH, J.-This appeal through special leave of this Court is directed against the judgment dated 20-12-1973 of the erstwhile High Court of Sind and Baluchistan ; whereby a Constitutional Petition arising out of an income-tax matter, filed by the respondent-Company, was allowed with the following declaration :- "It is not liable to be assessed to income-tax or to pay any income-tax levied and demanded for any year, or period, and that the assessments made by the Income-tax Officer (Companies Circle III), Karachi were without jurisdiction and lawful authority, and, with this declaration, an injunction was given to restrain the respondents from taking any action or step to recover from the petitioner any income-tax levied or assessed for any year or period."
2. Leave to appeal was granted to examine : whether the profits of the Sind Industrial Trading Estate Limited are to be regarded as income of the Provincial Government and thus exempt from tax under the provision of the Constitution.
3. ' The respondent-Company, had itself filed income-tax returns and were assessed from assessm ent year 1948-49 up to 1952-53 on figures of net loss and for 1953-54 on profit. Similarly for the profits for assessm ent year 1954-55 the Income-tax Officer had made provisional assessment under section 23-B of the Income-tax Act, 1922 on 20-9-1957. The demand was so heavy that the respondent was advised to seek legal remedies ; because, as asserted by the respondent then, it might "have destroyed the whole project of development of Industries entrusted to it by the Provincial Government." Apart from the normal remedies pursued but not to their normal end, civil suit was filed which ended in rejection under Order VII, rule 11, C. P. C. An appeal against which was filed but not ptirsued. Petitions were also made to Central Board of Revenue, the present appellant, the Central Finance Ministry and President but all were rejected by 1968 when the assessment was challenged through the Constitutional petition.
4. ' Although other pleas, though in alternative, regarding the respondent-Company being a "Local Authority" or carrying on work of 'public utility' for purpose of section 4(3) of the Income-tax Act were raised before the High Court, the relief was granted only on the plea that the income of the Company was of the Provincial Government, therefore it was exempt from income-tax under various Constitutional provisions. The appellant's position in this behalf was that the respondent being a Company and juristic person under the Companies Act, 1913, its Memorandum and Articles of Association made it the independent "person" as defined in the Income-tax Act where under "every person" was chargeable to income-tax.
5. ' In order to appreciate the controversy it is necessary to re-state the facts and circumstances as to how and with what peculiarities the respondent-Company came into being, as mentioned in the High Court judgment ; which have not been disputed before us. They are as follows : ' This corporation is a company registered under the Companies Act, 1913, and is limited by guarantee. The Company was incorporated on 29th November 1947 under a resolution of the Government of Sind dated 16th May 1947, with a view to promote industrial development of the province of Sind, and, for this purpose, to establish industrial and trading estates at Karachi, Hyderabad and Sukkur. The resolution contained the following guidelines in accordance with which this company was required to work, that is to say, (i) the Company would acquire land for the development of trading and industrial estates, to develop such lands by construction of roads and drainage, and by provision of light and to construct, whenever feasible, premises for purposes of renting them out to traders and industrialists ; (ii) the Company would have power to levy rent for the land and premises let out by it and water and electricity charges to enable it to defray its expenses ; (iii) the Company would not issue any shares to the public and would not make any profits or declare any dividends on its shares ; (iv) the Company would be financed by the Government of Sind, but would also be empowered to issue debentures to raise additional capital,
(v) the Board of Directors of the Company would consist of (a) Secretaries to the Government of Sind in the Ministry of Finance, Agriculture and Industries, and the Director of Industries, and (b) three representatives of the tenants of the Estate to be elected by them on the one firm one vote principle ; (vi) the Managing Director would be appointed by the Government of Sind ; (vii) any resolution of the Board of Directors may be suspended pending a reference to the Government of Sind at the instance of the Managing Director or any of the ex officio Directors mentioned above, and, on such reference being made, the Government of Sind would be empowered to decide that the resolution shall have no effect or shall have effect with such modifications as may be approved by the Government. Under this very same resolution of the Government of Sind, Lieut-Colonel A. J.
6. A. Beck was appointed Industrial Development Officer to take the necessary steps to form the Company, and, on the incorporation of the Company, he was to be appointed Managing Director of the Company. The resolution also made provision that the expenditure involved in the formation of this Company would provisionally be debited to the head "43-Industries", and that the expenditure for the current financial year (1947-48) would be met by way of a supplementary demand, and, for the next financial year, the resolution provided that necessary provision should be made in the budget estimates in consultation with the Director of Industries, Government of Sind. In consequence of this resolution, Sind Industrial Trading Estate Ltd. Was registered under the Companies Act, 1913, on 29th November, 1947, as a company limited by guarantee. The Articles of Association of the Company contained the same provisions which were incorporated in the Sind Government's resolution, referred to above, with the additional provision that the Board of Directors of the Company was to be constituted, that the Directors nominated by the Government of Sind would always be in majority, and that the Managing Director would be a salaried officer of the Government of Sind. As regards the Memorandum of Association, clauses 5 and 8 are relevant.
7. Clause 5 provides that the income and property of the Company when sever derived shall be applied solely towards the promotion of the Company as set forth in the Memorandum and no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever by way of profit to the members of the company. Clause 8 provides that if upon winding up or dissolution of the company there remains, after satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid or distributed among the members ,..Of the Company but shall be paid or transferred to the Provincial Government of Sind or its nominee to be applied in such manner as it may direct. Upon the incorporation of the Company, the Government of Sind, advanced, in the first instance, rupees twenty-eight lakhs to the Company and made further advances from time to time, which ultimately stood at rupees one crore. The Government of Sind transferred an area of 4,000 acres of land to the north of the city of Karachi free of cost to the Company to enable the company to carry out its object mentioned in the Sind Government's resolution referred to above.
8. ' After its incorporation, the Company was to perform the following obligatory functions : "(i) Construction and maintenance of roads and streets in the areas under the control of the respondent.
(ii) Street lighting.
(iii) Maintenance of water supply.
(iv) Provision of an adequate system of public drainage.
(v) Proper arrangement for sanitation of the area under the control of the respondent.
(vi) Removal, collection and disposal of refuse.
(vii) prevention of infectious diseases.
(viii) Registration of Deaths and Births.
9. ' This work was done by the respondent up to September, 1964. The respondent used to prepare monthly statement of births and deaths which used to be conveyed to the Karachi Municipal Corporation.
(ix) Control of buildings in the area."
10. ' It may here be added that, for purposes of levy of property tax, the area of the Sind Industrial Estate situated at Karachi was incorporated within the limits of the Karachi Municipal Corporation on 5th June, 1964, since when, according to the contention of the company, all the Municipal services in the area forming the Industrial Estate, Karachi continued to be performed by the Company, except the fire-fighting service.
11. ' The Company, after its incorporation, derived income from the rent of the lands allotted or leased out to Industrialists, fees on transfer of lands, premium received on allotment and leases of lands and water charges. After making reference to the relevant constitutional provisions in the field from time to time, the High Court concluded that the Industrial Development and trade/business connected therewith was within the legislative and executive competence of Provinces ; and further that the Sind Government Resolution under which the respondent-Company was formed as also its aims and objects being the same, are within provincial field. This has not been disputed in this appeal, though it has been vehemently argued that the respondent-Company is an independent juristic person and its functions are independent of Government functions in the field of Industrial Development. In this behalf the High Court held that veil or cloud of incorporation could lawfully be lifted so as to discover a corporate body's real nature and existence apart from the clock of the juristic person. That done, it was found that the respondent-Company in truth, is a part of Government machinery, notwithstanding the appearance and incorporation as a Company.
12. Although the power of the Court to lift the veil as held by this Court in Reference No, 3 of 1970 (PLD 1971 SC 585 at 616/617) is not disputed but it was argued by the learned counsel for the appellant that this exercise will not make any difference in the facts and circumstances of this case. As to whether the income of a Provincial Government is exempt from income-tax, after making a brief reference to the doctrine of 'Immunity of Instrumentality' in the American Constitutional System, arguments were confined to our own Constitutional provision prevailing at the relevant time.
13. However the main controversy throughout remained whether the income of the respondent- Company when considered under the Sind Government Resolution of 1947 read with its own Memorandum and Articles of Association, is the income of the Provincial Government.
14. ' Learned counsel for the appellants' submission that the respondent-Company could not avail of the benefit of doctrine of 'Immunity of Instrumentality' as the same has not been followed in several other countries and the case-law in U. S. A. Also since the decision in M' Culloch v. Maryland (1) has not been consistent in this behalf, has force. In that context alone the reference to the Indian Supreme Court case Andhra Pradesh State Road Transport Corporation v. Income-tax Officer, B 1 B- Ward, Hyderabad and another (2), or State of West Bengal v. Union of India (3) at p. 1256, seems relevant. But that, in view of our Constitutional provisions on this subject will not make any difference and will not benefit the appellants. In other words it is to be seen independently whether or not
(1) (1819) 4 Wheat 316 (2) (1964) 52 I T R 524
(3) A R 1963 SC 1241 our Constitution allows any immunity from Central Taxation to the Provincial Government income and if so in what manner. For the same reason Article 289 of Indian Constitution sub-Article (2) whereof takes away in practical terms the immunity conferred by sub-Article (1) and its sub Article
(3) regarding business or trade 'incidental' to "the ordinary functions of Government" having no parallel in our provision, it has no bearing on the present discussion.* Therefore except for the statement of certain basic doctrines the Indian cases are of not much help. At this stage it is necessary to reproduce the Constitutional provisions in Pakistan on this subject. They in Government of India Act, 1935 as amended in Pakistan, in 1956, 1962 and 1973 Constitutions are as follows : ' Section 155 (1935 Act)-Exemption of Provincial Governments and Rulers, of Federated States in respect of Federal taxation.-(1) Subject as hereinafter provided, the Government of a Province . . . . .
15. Shall not, be liable to Federal taxation in respect of lands or buildings situate in Pakistan or income accruing, arising or received in Pakistan : ' Provided that :-
(a) Where a trade or business of any kind is carried on by or on behalf of the Government of a Province in any part of Pakistan outside that Province nothing in this subsection shall exempt that Government from any Federal taxation in respect of that trade or business, or any operations connected therewith, or any property occupied for the purposes thereof ; (b)
(2) Nothing in this Act affects any exemption from taxations enjoyed as of right at the passing of this Act by the Ruler of an Indian State in respect of any Indian Government securities issued before that date.
16. ' Article 112 (1956 Constitution).-(1) The Government of a province shall not be liable to taxation under any Act of Parliament in respect of lands or buildings situated in Pakistan, or income accruing, arising or received in Pakistan : ' Provided that where a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that Province, nothing in this Article shall exempt that Government from any Federal taxation in respect of that trade or business, or any operation connected therewith, or any income arising in connection therewith, or any property occupied for the purposes thereof.
(2) Property vested in the Federal Government shall, save in so far as Act of Parliament may otherwise provide, be exempt from all taxes imposed by, or by any authority within, a Province,
(3) Nothing in this Article shall prevent the imposition of fees for services rendered.
17. ' Article 137 (1962 Constitution).-(1) The Central Government shall not, in respect of its property or income, be liable to taxation under any Provincial Law, and, subject to clause (2) of this Article, a Provincial Government shall not, in respect of its property or income, be liable to taxation under a Central Law or under a Provincial Law of the other Province.
18. ' See also The Punjab Province v, The Federation of Pakistan PLD 1956 FC 72.
(2) If a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that Province, that Government may, in respect of any property used in connection with that trade or business or any income arising from that trade or business, be taxed under a Central Law or under a Provincial Law of the other Province.
(3) Nothing in this Article shall prevent the imposition of fees for services rendered.
19. ' Article 165 (1973 Constitution).-Exemption of certain Public Property from Taxation. -(1) The Federal Government shall not, in respect of its property or income, be liable to taxation under any Act of Provincial Assembly and, subject to clause (2), a Provincial Government shall not, in respect of its property or income, be liable to taxation under Act of Parliament or under Act of the Provincial Assembly of any other Province.
(2) If a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that Province, that Government may, in respect of any property used in connection with that trade or business or any income arising from that trade or business, be taxed under Act of Parliament or under Act of the Provincial Assembly of the Province in which that trade or business is carried on.
(3) Nothing in this Article shall prevent the position of fees for services rendered."
20. There are some common features in all these provisions. Apart from the property of Provincial Government its income from trade or business has been exempt from Federal Taxation provided it is within the concerned Province. Where, however, the trade or business is out of that Province, then the income was liable to tax some times by taking away the exemption in the provision itself (as in proviso to section 155 of the 1935 Act), or by making it possible for the Federation or the other Province to tax such income (sub-Article (2) of 1973 Constitution). Much emphasis has been laid during the arguments on subsection (1) (and its proviso) of section 155 of the 1935 Act (amended), as, at the relevant time of the Resolution of the Sind Government of 1947, the said provision would cover the same. Its plane language gives rise to the following, amongst others, conclusions:
(a) Although the sources of income as "trade and business" are not specifically mentioned in subsection (1) of section 155, its proviso postulates the same also in clear terms.
(b) The proviso is not itself the charging provision. It only permits the Federal taxation on the Provincial income in connection with trade and business carried on in Pakistan but out of that Province. PLD 1956 FC 72.
(c) The proviso plays a clarificatory role in an other respect also namely that although subsection
(1) does not mention an agenc which the proviso visualises namely, the trade or business may carried on "on behalf of" the Provincial Government and not b itself directly. In other words it may be through a Government department or by any other agency ; may be a juristic person- Company, a Corporation or an. Authority, the exemption under subsection (1) will be available. But it shall not be available if the business or trade is carried on out of the Province. If the proviso is not attracted because of the trade or business being carried on, within the Province, then it does not make any difference if it is carried on through an agency. The exemption under subsection shall operate. The argument of the learned counsel regarding omission of the words "on behalf of" in subsection (1) of section 155 as implying the negation of concept of agency, is of no force for the simple reason that the phraseology employed therein does not need additional words to include trade and business through agency.
(d) The foregoing constitutional assumption read with other relevant constitutional provisions specifying the field of activity of a Provincial Government like that of Industrial Development in this case, make it amply understandable that the pure classical concept of Government functions of maintaining law and order, administration of justice and few others in the same class has given way to the welfare concept wherein the activity of business, industry and trade can be easily visualised. This very aspect was highlighted in the Lahore cases. West Pakistan Road Transport Board v. Commissioner of Income-tax 1973 PTD 499 and Abdul Razzak Malik v. The Water and Power Development Authority, etc. PLD 1973 Lah. 188-one of us was a member of the Bench deciding the former case which incidentally has been heavily relied upon by the High Court in the impugned judgment of this case."
21. ' This brings us to the next question whether the respondent-Company's income is the income of the Provincial Government. The facts and circumstances in which it came into being (together with the combined reading of the Sind Resolution of 1947 and its Memorandum and Articles of Association) earlier narrated give rise to the following conclusions :- (i)It is the admitted position that the Sind Industrial Trading Estate Limited is a. Company limited by guarantee and a non-profit making association.
(ii) The company was formed and incorporated under the Sind Government's resolution dated 16th May, 1947.
(iii) The whole of the working capital of the company came from Sind Government grants, as also the area of land on which the Trading Estate has been developed by this Company.
(iv) The Managing Director as well as the majority of Directors of the Company are nominees of the Provincial Government.
(v) Any resolution of the Board of Directors of the. Company is liable to be suspended on a reference to the Provincial Government by the Managing Director or any of the other Ex Officio Directors, and, on such reference, the Provincial Government may order that the resolution shall have no effect or that the resolution shall have effect with such modifications as the Provincial Government may approve of.
(vi) Under the Memorandum of Association of the Company, the income and property of the Company is required to be applied solely towards the promotion of the objects of the Company, and no portion thereof can be paid or transferred directly or indirectly by way of dividend, or bonus or otherwise by way of profits to the members of the Company.
(vii) And upon winding up or dissolution of the Company, any property which remains after satisfaction of debts and liabilities is transferable to the Provincial Government or its nominee only, or is to be applied in such manner as the Provincial Government may direct.
22. ' Learned counsel for the appellant, faced with the foregoing features which clearly and rightly led to the finding by the High Court that the respondent-Company was like a limb of the Provincial Government and its income accordingly of the said Government, argued that notwithstanding this lifting of the veil, the fact of incorporation, the private membership of the Company (though very limited and without any financial involvement), the drawing of its balance-sheet and some functions which can be performed under the Memorandum of Association (though never performed) make it a "legal personality" liable to Income-tax as a 'person'. She relied on Tomlin v.
23. Hannaford (1), and the following passage from it : "In the eye of the law, the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is of course, a public authority and its purposes, no doubt, are public purposes, but it is not a Government department nor do its powers fall within the province of Government."
24. ' It needs to be explained that in a controversy like the present one the final decision would rest on the facts and circumstances of each case. The features of this case already highlighted are different from the circumstances of the cited case. However Baccus S. R. L. v. Servicio National Del Trigo (2), relied upon by the High Court in this case as also by the Lahore High Court in the case of West Pakistan Road Transport Board does present somewhat parallel features. At p. 466 they are stated thus :- "P.
466. In view of the evidence, it is reasonably plain that while the defendants "undoubtedly were constituted a juristic personality with powers resembling those of a natural person, they were only accorded that status for the purposes for which they were formed ; and the purposes for which they were formed were, briefly, the importing and exporting grain for the Spanish Government in accordance with the directions of the Spanish Ministry of Agriculture and the policy from time to time laid down by the Spanish Government. Thus, it seems to me that although their status was a corporate status their functions were wholly those of a department of State. Are we then to hold that the State of Spain is deprived of sovereign immunity with respect to this activity of importing and exporting grain by reason of the fact that the defendants are a corporate body ? In my view that would be plainly wrong. In these days the Government of a Sovereign State is not as a rule reposed in one personal sovereign ; it is necessarily carried out through a complicated organization which ordinarily consists of many different ministries and departments. Whether a particular ministry or department or instrument, call it what you will, is to be a corporate body or an unicorporated body seemsto me to be
(1) (1950) 1 K B 18 (2) (1957) 1 -Q- B 438 purely a matter of governmental machinery. If it seemed good to a foreign State let us say Ruritania -composed of a navy to put the affairs of the navy in the hands of a Navy Board-let us say, the Ruritanian Navy Board and to enact that the members for the time being of this board should constitute a juridical person or corporation for the purposes of doing all things necessary for the maintenance and efficiency of the Ruritanian Navy. It seems to me impossible to suppose that an action brought against the Ruritanian Navy Board could be held not to infringe the sovereign immunity of Ruritania because, simply as a matter of convenience and administrative machinery, the duties appertaining to the affairs of the Ruritanian Navy had been put in the hands of an incorporated board. I appreciate that the immunity here claimed is an immunity against direct impleading, so that there is, at first sight, force in the argument that the immunity has no application whatever because the party being sued is not the Sovereign State, but is a separate legal entity or corporation which cannot in its own person claim any immunity at all. The answer to that I think, is this, that once it is found on the evidence that the party sued is in truth a department of a sovereign State, ALBEIT itself a corporate body, then the suit becomes, or it becomes apparent that the suit in truth is one between the plaintiff and the foreign Sovereign State or the part of the foreign Sovereign State represented by the departmental body concerned. Each case must no doubt depend on its own facts, and it is not to be taken as following from what I have so far said that every corporation in which a foreign Sovereign State may be interested, whatever the nature of the, activities of the corporation and whatever the nature of extent of the interest taken by the foreign Sovereign State, becomes itself a department of State.
25. ' Accordingly, for the reasons I have endeavoured to state, my view on the first question is that the defendants are a department of the Sovereign State of Spain, and nonetheless so because they have been invested with corporate powers for the purpose of enabling them to carry out their statutory functions under the supervision of the appropriate Ministry. Accordingly, in the view I take, the claim of immunity is made good subject to the question of waiver."
26. But as stated earlier, the facts found by the High Court and its conclusions on the questions raised by learned counsel are unexceptionable. The respondent-Company was carrying on the function of Industrial Development and the trade and business connected therewith for and on behalf of the Government. The truth is that the lifting of veil, has revealed that for the relevant purposes in this case it was doing so just like a department of the Government, notwithstanding the incorporation. ; which as explained earlier will not make any difference regarding the relevant Constitutional Provision on exemption from Federal Taxation.
27. ' Learned counsel also tried to argue that the West Pakistan Government at one time gave up the claim to exemption and relied on a letter dated 5-7-1966 ; but it does not support her. She also pointed out that the Central Government has not claimed exemption regarding its income through similar corporation. Learned counsel for the respondent explained , that it was only a question of policy and not that of constitutional interpretation. She also tried to argue the point regarding other remedy, but leave; to appeal not having been granted on this question, she could not press any further.
28. ' In the light of the foregoing discussion, this appeal fails and is dismissed. There shall however be no order as to costs.