' NAIMUDDIN, J.--This appeal by leave is from the judgment dated 21-2-1985 of a Division Bench of the High Court of Sind, whereby the appellant's petition under Article 199 of the Constitution was dismissed in the following circumstances:--
2. The Excise & Taxation Department, Government of Sind, demanded from the appellant, which is a limited liability company incorporated under the Companies Act, having its registered office at Islamabad, the two amounts of Rs,3,40,963 and Rs,90,000 on account of education cess for the years 1972-73 to 1975-76 and the year 1976-77 respectively. The appellant filed objection under rule 10 of the Sind Workers' Children Education Cess Rules, 1974, claiming that the appellant's press at Karachi was not liable to pay education cess as the provisions of the Workers' Children (Education)
Ordinance, 1972 (hereinafter referred to as the Ordinance) were not applicable to the appellant.
The Excise and Taxation Officer, P-Division, Karachi, respondent No, 4 dismissed the objection by the order dated 23-5-1977, holding that the appellant is a public limited liability company established under the Companies Act, 1913, and is a separate legal entity and its affairs are controlled by its Managing Director/ Chairman and not by the Government.
3. Aggrieved by this order, the appellant filed an appeal before the Director/Collector, Excise & Taxation (Taxes), Karachi, respondent No,3, but the same was dismissed by him by the order dated 29-6-1977. The appellant's revision before the Director General, Excise & Taxation Sind, Karachi, respondent No,2 also met the same fate as per order dated 26-7-1978.
4. The appellant, therefore, challenged the order in a petition under Article 199 of the Constitution as stated before but again failed.
5. Before the High Court, it was contended on behalf of the appellant:-
(i) that since the ultimate control over the affairs of the appellant is of Federal Government, latter is an employer for the purposes of Ordinance, therefore, the persons in the service of the appellant are in the service of the State and hence the provisions of the Ordinance are not applicable to the appellant; and
(ii) that in view of section 5 of the Corporation Employees (Special Powers) Ordinance, 1978, service of a Corporation has been declared to be service of Pakistan and therefore, the provisions of the Ordinance are not applicable.
' The High Court, after elaborate discussion and consideration of a large number of authorities, rejected the contentions and dismissed the petition as stated before.
6. Leave was granted to consider the submission that the High Court failed to determine the real character of the appellant by applying the well established principle of lifting the veil of corporate character of the Corporation so as to discover the real nature apart from the cloak of juristic person and to further consider the question whether on the facts and circumstances of the case the provisions of the Ordinance are applicable to the appellant?
7. We have heard the learned counsel for the appellant and the learned Advocate General on behalf of the respondents. The learned counsel for the appellant has raised before us the same contentions as were raised by him in the High Court. Before I discuss the facts, it would be pertinent if I first quote the relevant provisions of the Ordinance.
8. Section 3 of the Ordinance, which is a charging section, reads as follows:- "3. Levy of Education Cess. -(1) Every employer of an establishment in which the number of workers employed at any time during a year is twenty (now ten) or more shall pay to the Provincial Government an education cess at the rate of one hundred rupees per worker per annum.
(2) Every employer shall, within every three months beginning from the first day of the calendar month following the commencement of the Workers' Children (Amendment) Act, 1973, prepare and deliver, or cause to be prepared and delivered, in the form and to the officer prescribed by the Provincial Government, a return showing the number of workers employed in the establishment during the preceding quarter and shall subscribe a declaration of the truth of the return at the foot thereof.
(3) The levy of education cess shall be on the basis of the number of workers shown in the return referred to in subsection (2)."
' The definition of 'employer', as given in section 2(a) of the Ordinance, reads as follows:- "Employer" in relation to an establishment means the person who has ultimate control over the affairs of the establishment.
' Section 2(c)(i) of the Ordinance defines 'worker' as follows:- "Worker" means any person employed, whether directly or through any other person, in any establishment to do any skilled, unskilled, manual or clerical work for hire or reward whose monthly wages do not exceed one thousand five hundred rupees, but does not include -
(i) persons in the service of the State including members of the Armed Forces, Police Force, Railway servants;"
9. Now, in the light of the above definitions, I have to examine whether on the facts of the case, it could be held that the Federal Government controls the affairs of the Corporation, therefore, they are the employers of the persons in the service of the appellant Corporation. Accordingly such persons are in the service of the State and as such exempted from the definition of 'worker' reproduced above.
10. "Service of the State" has not been defined in the Ordinance, which obviously means "service of Pakistan" as defined in Article 260 of the Constitution which reads as follows:- "service of Pakistan" means any service, post or office in connection with the affairs of the Federation or of a Province, and includes an All-Pakistan Service, service in the Armed Forces and any other service declared to be a service of Pakistan by or under Act of Majlis-e-Shoora (Parliament) or of a Provincial Assembly, (not relevant) . . .
' In support of the contention that the affairs of the appellant Corporation are controlled by the Federal Government and the persons employed by the Corporation are in the service of the State, Mr.Muhammad Ali Sayeed, the learned counsel for the appellant, relied on the following points:-
(a) that the Government of Pakistan had provided the entire paid up capital of the appellant amounting to Rs,104,528,400;
(b) that under the Articles of Association of the appellant, the Government of Pakistan has also provided the working capital of the Corporation;
(c) that the Government of Pakistan transferred assets of its printing press such as machinery and building of the value of Rs,126,73,130;
(d) that the appellant absorbed the employees of the Government Press which was taken over by the Corporation;
(e) that the Government of Pakistan appointed all the Directors of the Corporation who are not liable to removal by the Corporation; and
(f) that the Printing Presses run by the Corporation do not accept work from private firms, establishments or individuals.
11. These points will be considered in the light of the Memorandum and various articles of the Articles of Association of the Corporation. The object for which the appellant Corporation was formed is contained in its Memorandum of Association which includes the following:-
3. To undertake printing and publishing of text books, as one of its principal functions.
4. To carry on all or any of the business of printers, stationers, block makers, lithographers, type- founders, stereo-typers, electrotypers, photographic printers, photo-lithographers, chromo- lithographers, engravers, die sinkers, book binders, designers, draughtsmen, paper and ink manufacturers, book sellers, publishers and dealers in or manufacturers of any other articles or things of a character similar or analogous to the foregoing or any of them or connected therewith; manufacturing and printing of cartons, packages, specialised containers for various commodities; manufacturers, importers, exporters and dealers in raw material, articles and things required for purpose of manufacture and printing of items in which the company is interested and to establish and maintain show rooms for this purpose; and of distributors, contractors, suppliers and sellers of the said articles to Government, military, railway, semi or fully autonomous bodies and private organizations.
5. To carry on any other business, whether manufacturing or otherwise, which may seem to the Company capable of being conveniently carried on in connection with the above or calculated directly or indirectly to enhance the value of or render profitable any of the Company's property or rights.
6. To acquire and undertake the whole or any part of the business, property, and liabilities of any person or organization, whether corporate or not, carrying on any business which the Company is authorised to carry on, or possessed of property suitable for the purposes of this Company.
7. To apply for, purchase, or otherwise acquire any patents, brevets d' invention, licenses, concessions, and the like, conferring any exclusive or non-exclusive or limited right to use, or any secret or other information as to any invention which may seem capable of being used for any of the purposes of the Company, or the acquisition of which may seem calculated directly or indirectly to benefit the Company, and to use, exercise, develop, or grant licences in respect of or otherwise turn to account the property, rights or information so acquired.
8. To enter into partnership or into any arrangement for sharing profits, union of interest, co- operation, joint venture or reciprocal concession, with any person or company carrying on or engaged in, any business or transaction which this Company is authorised to carry on or engage in any business or transaction capable of being conducted so as directly or indirectly to benefit this Company. And to lend money to, guarantee the contracts of or otherwise assist, any such person or company to take or otherwise acquire shares and securities of any such company, and to sell, hold, reissue, with or without guarantee, or otherwise deal with the same.
10. To enter into any arrangement with any government or authorities, central or provincial, municipal, local or otherwise, that may seem conducive to the Company's objects, or any of them and to obtain from any such government or authority any rights privileges, and concessions which the Company may think it desirable to obtain, and to carry out, exercise and comply with any such arrangements, rights, privileges and concessions.
14. To appoint such persons, firm or company as may be deemed expedient to be consultants, secretaries, managers, representatives and agents of the Company upon such terms and conditions as the Company may determine. Also to appoint and remunerate the directors, administrators, officials and employees of the Company or any person or firm or company rendering services to the Company out of or in proportion to the returns or profits of the Company or otherwise as the Company may deem fit.
18. To distribute any of the property of the Company in specie among the members.
19. To act as agents or brokers of any person, firm, company or corporation.
12. According to the Articles of Association, the share capital of the appellant Corporation is Rs,5,00,00,000.00 divided into 50,00,000 ordinary shares of Rs,10 each classified into 30,00,000 'A' class ordinary shares and 20,00,000 'B' class ordinary shares. The Articles of Association further provide that 'A' class ordinary shares are the "Promotors" shares that means the Government of Pakistan shares and 'B' class ordinary shares are of the private sector which may be subscribed by the parties other than the Government of Pakistan. Therefore, the submission that the entire capital of the Corporation has been subscribed by the Government will not be conclusive to hold that the Corporation is wholly owned by the Federation as the Government has subscribed only capital to the extent of 'A' class ordinary shares. Further the Corporation may and can issue 'B' class ordinary shares to private parties unless and until the Memorandum or Articles of Association of the Corporation which is registered as a limited liability company under the Companies Act, 1913, are amended which has not been done so far. Therefore, the fact that the part of the capital has been subscribed by the Government does not, in any manner, establish that the Federal Government controls the affairs of the appellant and the workers of the appellant are in the service of the State.
Similarly, if the Government has provided working capital, it would be a loan to the appellant which has to be repaid. Therefore, it cannot be said by any reason or logic that by doing so the Federal Government controls the affairs of the appellant or the workers of the appellant could be considered to be in the service of the State.
13. Taking up the point that the Government of Pakistan transferred the assets of its printing press, such as building and machinery of the value of Rs,126,73,130 to the Corporation, it may be stated that when a limited liability company is formed, it may acquire assets either by taking over the assets of another person or existing company and issuing shares in lieu thereof or by purchase of the assets directly, but in no case the transferor or the transferee becomes the owner of the company to which the assets are transferred. The transferor of assets to a limited liability company, in accordance with the terms of the contract, could acquire a share in the share capital of the company by allotment of shares in lieu thereof which seems to be the case here. But this will not make the Government of Pakistan owner of the company or the workers of the company, the workers of the Government so as to come within the expression "persons in the service of the State."
14. Same will be the position with regard to the employees of the Government Press absorbed by the Corporation. This would be a new relationship governed either by Service rules or the terms of the contract between the workers and the Corporation and not between the workers and the Government, therefore, this point also, in no way, supports the contention that the Federal Government controls the affairs of the Corporation or the latter's workers are in the service of the State.
15. As regards the point that all the Directors of the Corporation are appointed by the Government of Pakistan, it may be stated that under clause 91 of the Articles of Association, the Government of Pakistan has the right to appoint all the Directors of the Corporation, but this can be done only until 'B' class ordinary shares have been issued and taken up in accordance with the Articles of Association. The Articles further provide that 'B' class ordinary share holders shall be entitled to elect and appoint their Directors in proportion to their shareholding as compared to the total paid up share capital of the company subject to the condition that at least 60 per cent of the Directors including the Chairman, Managing Director and the Finance Director shall be appointed by 'A' lass ordinary shareholders representing the Government of Pakistan. Merely by 1 D the; fact that the Government owns 60 per cent share capital or the A class I -dinary shareholders representing the Government of Pakistan can appoint I Directors including the Chairman, the Managing Director and the Finance Director, would not establish that the affairs of the Corporation are controlled by the Government. The learned counsel for the appellant further supported his submission that the Government of Pakistan controls the affairs of the Corporation, by referring to Articles 91, 93 and 94, which read as follows:-
91. Until otherwise determined by the Company in General Meeting the number of Directors shall not be less than two nor more than twelve including the Chairman and the Managing Director.
' Until "B" Class ordinary shares have been issued and taken up in accordance with these articles, all Directors shall be appointed by the holders of "A" Class Ordinary Shares, i.e, the Government of Pakistan, acting through Secretary, Ministry of Education. Thereafter "B" Class ordinary shareholders, if any, shall he entitled to elect and appoint their Directors in proportion to their shareholding as compared to the total paid-up share capital of the company subject to the condition that at least 60 percent of the Directors including the Chairman, the Managing Director and the Finance Director shall he appointed by "A" Class ordinary shareholders representing the Government of Pakistan, irrespective of the quantum of shares held by them. In determining the 60 percent of the Directors to he appointed by the "A" Class ordinary shareholders, if there remains any fraction the next number shall be considered as the number of the Directors to he appointed by such shareholders.
' The Directors appointed by "A" class ordinary shareholders shall be entitled to hold office until removed by the Government of Pakistan and accordingly the Directors so appointed shall not be liable to retire by rotation or be removed by the Company or be required to hold any qualification shares. As and whenever any such Director vacates office upon removal as aforesaid or by death or otherwise, the Government of Pakistan shall he entitled to appoint another Director in his place.
Such a Director may at any time, by notice in writing, resign his office. Any Director appointed by or at the instructions of Government of Pakistan shall have the same rights, powers and duties as any other Directors.
93. Directors shall have power at any time, and from time to time to appoint or co-opt persons as Additional Directors with or without qualifications provided the majority of them concur in the appointment. The Additional Directors shall retire from office at the next following ordinary general meeting but shall be eligible for election by the Company at that meeting as Additional Directors.
94. So long as only "A" class ordinary shares are issued, a Director need not be a member of the Company. Thereafter qualification of a Director shall be such as may be required by the Controller of Capital Issues. Provided always that a Director appointed by a Member or Members holding shares of the requisite value shall require no qualification in his own name.
' A perusal of the above articles shows that the Government of Pakistan has a right to elect and appoint their Directors in proportion to their shareholding as compared to the paid up share capital of the Company subject to the condition that at least 60 per cent of the Directors including the Chairman, the Managing Director and the Finance Director shall be appointed by 'A' class ordinary shareholders, which means the Government of Pakistan. In other words, it means that so long as 'B' class ordinary shares are not issued, a Director need not be a member of the Company and the Government of Pakistan has the power to appoint the Directors, but once 'B' class ordinary shares arc issued, a Director has to be a member of the company.
16. The Articles of Association show that the management of the Corporation vests in the Board of Directors headed by the Chairman, and all decisions are required to be taken at the Board's meeting, therefore, the Government of Pakistan having merely powers to appoint all Directors representing 'A' class ordinary shares could not claim that they have the management and control of the Corporation. Dealing with this question the High Court, after discussing various cases cited before it, observed in para. 6 of the judgment as follows:-- "It may be true that the petitioner company is now performing the function of a Government Printing Press and in that context it can be said that it is performing functions in connection with the affairs of the Federation of Pakistan. But we may point out that under the Memorandum and Articles of Association, there is no prohibition against taking of private work."
' And finally on this point rightly concluded:-- "We are also of the view that though the Federal Government has a say in the management of the petitioner company, but the ultimate control over its affairs vests in its Board of Directors in terms of the Memorandum and Articles of Association of the Company."
17. As regards the point that the printing presses run by the Corporation do not accept any work from private firms, establishments or individuals. This may be true presently, but under the Articles of Association, there is no restraint against printing the private work or undertaking private work.
Indeed the Corporation could undertake printing work of any kind or enter into any business or transaction with any other party or company. Further the company is authorised to carry on or engage in any other business or transaction capable of being conducted so as to directly or indirectly benefit the Corporation as mentioned in Articles 3, 6 and others of the Articles of Association. Therefore, this point again does not support the contention that the Federation controls the affairs of the Corporation.
18. Mr. Muhammad Ali Sayeed also relied on section 5 of the Corporation Employees (Special Powers) Ordinance, 1978 in support of his contention that the Federal Government is the employer of the workers and the workers are persons in the service of the State. Section 5 of the Ordinance reads as follows:--
5. Service of Corporation to be service of Pakistan, etc.--Service of a Corporation is hereby declared to be service of Pakistan and every person in Corporation service who is removed from service, or reverted to a lower post or grade, under this Ordinance, not being a person who is on deputation to a corporation from any province, shall be deemed to be a civil servant for the purposes of the Service Tribunal Act, 1973.
' A perusal of the above quoted section shows that the service of a Corporation in the present case of the appellant is declared to be the service of Pakistan and every person in the Corporation service is deemed to be a civil servant only for the purposes of Service Tribunal Act, 1973 and not for any other purpose. The intention of the law seems to provide a forum for obtaining redress or relief from the Service Tribunal for any adverse order in respect of an employee of a Corporation. But this provision alone would not make the employee of a Corporation or for that matter of the appellant an employee in the service of Pakistan, for all other purposes. On this point the High Court, referring to Farid Ahmed v. Karachi Shipyard and Engineering Works Ltd. And another PLD 1983 Kar. 576, which is a Division Bench case and extensively quoting therefrom, stated in para. 9 of the judgment as follows:-- "In our view, the above case does not support the contention which has been canvassed by the learned counsel for the petitioner before us. On the contrary it has been clearly observed "that in the first part of the section the status of corporation employees has been determined that they shall have the same rights as persons in service of Pakistan in their service matters", and it has not been held that they shall be deemed to be in service of Pakistan for all purposes."
19. Now remain the two main cases heavily relied upon by the learned counsel for the appellant namely, (1) Salahuddin and 2 others v. Frontier Sugar Mills and Distillery Ltd., Takht Bhai and 10 others PLD 1975 SC 244 and (2) Central Board of Revenue and another v. S.I.T.E. PLD 1985 5 C 97.
The first case, in my view, also does not support the contention of the learned counsel, for in this very case, it was held, as the headnote of the report at page 244 would show, that a public limited company not created by any statute and governmental control limited only by certain regulations, such company not a person performing functions in connection with affairs of Federation. It may be pertinent to quote the relevant passage from the judgment which reads as follows:-- "Examples of such statutory corporations are the National Bank of Pakistan, the West Pakistan Water and Power Development Authority, the National Shipping Corporation, the Agricultural Development Bank of Pakistan, and the large number of Universities functioning under their respective statutes. On account of their common attributes, as mentioned in the preceding paragraph, they have all been regarded as persons performing functions in connection with the affairs of the Federation or a Province.
' However, private organizations or persons, as distinguished from Government or semi- Government agencies and functionaries cannot be regarded as persons performing functions in connection with the affairs of the Federation or a Province simply for the reason that their activities happen to be regulated by laws made by the State. Accordingly, a joint-stock company, incorporated under the Companies Act, for the purpose of carrying on commercial or industrial activity for the benefit of its shareholders, cannot be regarded as a person performing State functions, (emphasis supplied) just for the reason that its functioning is regulated by law or that the distribution of its manufactured products is subject to governmental control in the public interest. The primary test must always be whether the functions of the State involving some exercise of sovereign or public power; whether the control of the organisation vests in a substantial manner in the hands of Government; and whether the bulk of the funds is provided by the State. If these conditions are fulfilled, then the person, including a body politic or body corporate, may indeed be regarded as a person performing functions in connection with the affairs of the Federation or a Province; otherwise not."
' As regards the second case, this Court, after examining the functions being performed by the S.I.T.E., held that notwithstanding the incorporation of the S.I.T.E., as a company it was performing the functions of a department of the Government and, therefore, in view of the relevant constitutional provision, the S.I.T.E., was not liable to be taxed on its income. In the present case, we inquired from the learned counsel for the appellant whether the Corporation was liable to pay any tax and its income was assessable under the Income Tax Act. The answer to the first part of the question was in the negative, but regarding the second part of the question, the learned counsel obtained a statement from the Corporation and submitted as follows:-- "The Printing Corporation of Pakistan (Pvt.) Limited, Islamabad, has intimated that as the said Corporation has been suffering heavy losses eversince its incorporation in 1968, it has, therefore, never paid Income Tax."
' It is obvious from the above statement that if the appellant was earning profit, it would have been liable to pay income-tax. It was not the case of the appellant, as in the case of the S.I.T.E., that it was not liable to pay tax on its income if it earned any profit.
19-A. I, therefore, find that the judgment of the High Court does not call for any interference and I accordingly dismiss the appeal with costs.