1. RAJA QURESHI, J.---Impugned in this appeal is an order of assessment under section 62 of the Income Tax Ordinance, 1979, dated 29-10-1996, relating to assessment year 1995-96 and order under section 132 of the Income Tax Ordinance passed by the respondent No, 1, dated 15-12-1996 and order passed by the Income-tax Appellate Tribunal in I.T.A. No,1605/KB of 1996-97 under section 135 of the Income Tax Ordinance, 1979, dated 12-12-1997.
2. The following question has arisen in this appeal.
3. "Whether the appellant company, being a public limited company incorporated under the Companies Ordinance, 1984, 50% of whose share are owned/held by Pakistan Industrial Development Corporation (PIDC) which is wholly owned and controlled by the Government of Pakistan, is a 'public company' as defined in para. B(2) of Part IV of the First Schedule to the Income Tax Ordinance, 1979, and therefore, whether the appellant would be entitled to the levy of Income Tax on its total income at the rate of 36% as against the rate of 46% as applicable in the cases of other companies, as specified in the Table in Para.A(2) of Part V of the First Schedule to the Income Tax Ordinance, 1979?"
4. In order to understand the controversy in this appeal resulting into a question of law that has been framed hereinabove it would be necessary to narrate the background of this appeal.
5. The appellant company incorporated under the Companies Ordinance, 1984, is engaged in the business of manufacturing of steel pipes of gas, oil and water distribution. Pursuant to an agreement, dated 7th March, 1967, between the WPIDC (now PIDC) and M/s. Hussain Industries Limited Karachi, each of them holds 50% shares of the appellant company. It seems that PIDC was originally established under the Pakistan Industrial Development Corporation, Act, 1950 (Act No,XLV of 1950), which was converted into West Pakistan Ordinance, 1962 (Ordinance XXXVIII of 1962), which was eventually dissolved under Pakistan Industrial Development Corporation (Dissolution)
6. Ordinance, 1984, which provided for incorporation of PIDC as a limited company under the Companies Act, 1913, wholly owned and controlled by the Government of Pakistan. It would be seen that corporate status of PIDC is that of a private limited company whose shares are exclusively owned by the Government of Pakistan, and, according to the appellant, it functions as Government Departments are under the overall control of the Ministry of Production and Industries. The appellant company had filed its return of Income Tax declaring total income at Rs,5,96,43,300 on which the Income Tax Liability was worked out at the rate of 46% in accordance with the applicable stipulations of the Table in para.A(2) of Part V of the First Schedule to the Income Tax Ordinance.
7. This Table provides the charge of Income Tax in respect of public companies to be at the rate of 36% and other companies are subjected to charge of Income-tax at the rate of 46%.
8. The appellant company claims to be treated as a "public company" chargeable to Income-tax at the reduced rate of 36% for the purpose of understanding the concept of "Public Company" the same has been defined in para. B(2) of Part IV of First Schedule to the Income Tax Ordinance. In the schedule definition of a "public company", is as follows":--- "(2) Public company means---
(a) a company is which not less than 50% of the shares are held by the Government; (b)............................
9. (c).......................
10. The appellant company had claimed the benefit of chargeability of tax on its income at the reduced rate of 36% by virtue of the claim to be a "public company" as 50% shares were held and owned by PIDC which is cent per cent owned and controlled by the Government of Pakistan. It seems that the respondent No,2 had framed the assessment for the year 1995-96 under section 62 of the Income Tax Ordinance, whereby additions have been made to the income of the appellant and, consequently, had determined the taxable income of the appellant to be Rs,7,01,96,763 and subjected the same to tax but at the rate of 46% thereby raising the Income Tax demand of Rs,3,22,90,511.
11. It seems that the status of the company for the purposes of levy of tax has been held by the respondents to be "Private Limited Company" on the ground that holding of shares partly by PIDC would not make it a Government owned company and, therefore, tax chargeable would not be at the rate of 36%.
12. Aggrieved by the assessm ent, the appellant preferred an appeal before the respondent No,1 challenging the treatment meted out to the appellant in terms of being a "Private Limited Company" and being subjected to the chargeability of tax at the rate of 46% and not at the rate of 36%, which is the scale provided for a "Public Limited Company". In appeal, the order of the respondent No,2 had been maintained by the respondent No,1 on the premise that the shares of the appellant were held by a public corporation and not by the Federal Government. Such order passed in First Appeal had been challenged by the appellant in second appeal before the Income Tax Appellate Tribunal, who had, upon hearing, passed an order under section 135 of the Income Tax Ordinance on 12-12-1997, and had maintained and confirmed the impugned orders passed by the respondents. Reliance has been placed by the Income Tax Appellate Tribunal on its Full Bench decision reported in (1997) 76 Tax 187 (Tribunal), consequently the present appeal.
13. It has been contended by the learned counsel for the appellant that the appellant besides being a "Public Limited Company" as a Corporate entity, is covered by the definition "Public Company" as defined in para. B(2) of Part IV of First Schedule to the Income Tax Ordinance, 1979, having 50% of its shares owned by PIDC which, according to the appellant, is cent per cent owned by the Government of Pakistan. It has been further contended that the impugned orders have not given a speaking finding on the legal issue involved in this appeal as, according to the appellant, the real point in issue was whether holding of 50% shares of the appellant company by PIDC being wholly owned by the Government makes the company eligible to be treated as a "Public Company" within the meaning of stipulation of para. B(2) of Part IV of First Schedule to the Income Tax Ordinance. In so far as reliance having been placed by the respondents as well as the Income Tax Appellate Tribunal on their Full Bench decision the same was canvassed by the learned counsel for the appellant to be erroneous and required the same to be struck down on the ground that the ratio decided of the reported case PLD 1985 SC page 97 (Central Board of Revenue V.S.I.T.E.) as well as 1973 PTD page 499 was required to be taken into consideration. It was further contended that the impugned order did not digest the legal principles laid down by the Supreme Court of Pakistan in terms of analysis for ascertaining the true nature and the real status of a corporate entity. Such corporate entity was argued to be performing functions on behalf of the Government and, consequently, entitled for tax exemption under Article 165 of the Constitution of Pakistan. It was contended that the power of the Court to lift the veil of a company is available and ought to be done as has been I propounded in PLD 1971 SC page 585. It was further contended by the learned counsel that a Division Bench of this Court has held that Site was like a limb or department of the Provincial Government and, therefore, the Supreme Court had laid down two principles of law firstly, that Site is to be equated with the Government and secondly, that income of Site was exempt from Income Tax as it carried on its activities within the jurisdiction of the Province of Sindh. The learned counsel conceded that in so far as the second limb of the decision stood nullified upon introduction of Article 165-A in the Constitution of Pakistan, whereby exemptions from tax were withdrawn to Government owned corporations but the fact remains that the first limb of the Supreme Court Judgment, according to the learned counsel for the appellant, remained unaltered to the effect that a Government owned corporation is to be equated with the Government.
14. Reference made by the Income Tax Appellate Tribunal to the Full Bench decision (1997) 76 Tax 187
(Trib) was canvassed to be misconceived as, according to the learned counsel for the appellant, a company in which 50% or more shares are held by a corporation, which is wholly owned and controlled by the Government, is lawfully eligible to the status of a "public company" within the meaning stipulated in para.B(2) of Part IV of First Schedule to the Income Tax Ordinance, 1979. The position taken by the appellant is that a corporation owned by the Government still remains to be a Government Department for all purposes except that now in view of the provisions of Article 165- A of the Constitution, the income of such corporation is taxable and exemption of income of such corporation as previously exempt under Article 165-A of the Constitution, has been taken away. The finding of the appellate tribunal was canvassed by the appellant to have deprived them of their legal status of being a "public company" which consequentially has resulted in charging of Income Tax on the appellant's income at the raw. of 46% against 36%, which is chargeable in case the status of the appellant is that of a "public company".
15. On the other hand, the learned counsel for the respondents have supported the impugned orders passed in terms of being in total conformity with the principles laid down in 1998 PTD (Tribunal) page 273 as well as 1993 PTD (Tribunal) page 1106. They further contended that the Government cannot be extended to include bodies, created by Provincial or Federal Government statutes or incorporated as company by these Governments. It was further canvassed by the learned counsel that rules of interpretation do not, in any manner, permit to restrict or enlarge the meaning of express words used in the statutes. In so far as fiscal statutes are concerned, it was contended that a statute does not permit a Court to restrict or enlarge the meaning of express words used and employed in a fiscal statute.
16. Having considered the submissions made before us, it would be seen that the order of assessment passed by the Deputy Commissioner of Income Tax, Circle 04, COS-II, Karachi, has held the status of the appellant company to be a "Private Limited Company" and holding of shares partly by PIDC does not make it a Government owned company. Consequently, Income Tax has been worked out at the rate of 46% and not at the rate of 36% applicable to "Public Limited Companies". We further find that even in appeal the Commissioner of Income Tax has maintained the action of Assessing Officer to be quite justified in assigning the status of a "Private Limited Company" to the appellant on account of its shares being held by a public corporation and not by the Federal Government.
17. Reliance has been placed by the assessing officer as well as the Commissioner of Income Tax in appeal on 1993 PTD 1100 (Tribunal). Even the appellate tribunal has dealt with the question of status of the appellant company and upon hearing, found the issue to have been decided correctly, whereby the status of the appellant company has been held to be a "Private Limited Company" and not a "public company". Consequently, the appellant company being a "Private Limited Company" had been subjected to a tax liability under section 88 amounting to Rs,11,86,902, which has been created against the appellant and if the appellant had been a "public company", then there would have been tax liability, but at a lesser scale of 36%.
18. In order to understand the concept of chargeability of tax on public and private limited company, it would be beneficial to examine as to whether shares of the appellant company to the extent of 50% are owned by PIDC, a corporate body, created through a statute and an independent artificial juridical person and not by the Government of Pakistan. Indeed, we find that the status of the appellant company to be a public limited company" has been assigned on account of the fact that a corporate body was created in terms of PIDC through a statute and an independent artificial juridical person and not by the Government itself. It seems that shares are also not quoted in the Stock Exchange, yet another way of looking at the status of the appellant company could be that 50% of shares are being held by PIDC and in order to know the exact status of PIDC, this Court could lift the corporate veil and in the event the veil of the corporation is lifted, it would transpire that 50% shares are owned by the Government of Pakistan, the funds are contributed by the Government and in case of dissolution under the statutes, all properties, funds, liabilities and assets to the extent of 50% would become the assets and liability of the Government. It would further be seen that PIDC being 50% owner of the shares of the appellant company had been created by the Government for the purposes of convenience. Otherwise, the 50% ownership is held by the PIDC for the benefit and on behalf of the Government.
19. At the same time, we cannot treat PIDC and equate the same as a department of the Government of Pakistan for the purposes of First Schedule. We are also mindful of the fact that while statutes are interpreted, than one has to read words and interpret them in the light of what was clearly expressed and we should not rely upon meanings which are not expressed but are only employed.
20. The fact remains that PIDC holding 50% shares the appellant company was created by a statute which sufficiently establishes that it is independent from the Government of Pakistan. Black's Law Dictionary Sixth Edition defines Government to be "the whole class or body of officeholders of functionaries considered in the aggregate, upon whom devolves, the executive, judicial, legislative, and administrative business of the state". As such, a body set up under a statute as a limited company cannot be held to be a Government.
21. Having examined 1997 PTD (Tribunal) 1435, it appears to be a correct view that a corporation created as a result of a statute was held not to be a part of the Provincial Government. The present appellant company being an assessee cannot be taken to be an organ of the State and, therefore, it seems that the issue in hand can only be resolved by examining the status of a company and looking into the important distinctive features. It would be seen that the definition of the Government in the definition clause cannot be extended to an extent so as to include bodies created by Provincial or Federal Statutes or incorporated as "public companies" as nothing is to be employed in statutes or documents which is inconsistent with the words expressly used. We further find that legislative intent is absent so to include corporation like the appellant company as an integral part of the Federal Government. We further find that in the present set of circumstances, the legislature has, in fact, restricted this concession to companies and corporations directly owned by them and not to those which are so owned by them through the medium of intermediate corporations.
22. We further find that a company owned by a Government shall not, for all purposes, be deemed to be a Government Department. It may be quite correct that 50% holding of shares by a corporation for carrying on the functions in which they are engaged may be to some extent are carried out on behalf of the Government and further that the income of the corporation to the extent of 50% income of the appellant company is, in fact, the income of the Government of Pakistan. One further aspect could also not be ignored that 50% shares are held by the corporation in the appellant company, than at least to the same extent, employees of the appellant company would be employees of the corporation and than whether it could be said that to the extent of 50% employees of the appellant company shall be deemed to be Government servants and all properties owned by the corporation are owned, by the Government and further all contracts made by the corporation will only be made by the President is required by Article 173 of the Constitution. Consequently, we are of the view that a company or a corporation owned by the Government shall be deemed to be a department of the Government, which was confined for the purposes of its immunity to tax earlier granted and available under Article 165 of the Constitution.
23. In view of the aforementioned, we find that the appellant company has failed to establish their view for dislodging the reasons as well as the ratio settled, whereby shares held to the extent of 50% in the appellant assessee company cannot be taken to be held by the Government of Pakistan as contemplated in the definition of a "Public Company". In view of the aforementioned and having considered the judgment of the Full Bench 1998 PTD (Tribunal) 273, we are of the view that the appellant company cannot be accorded the status of a "Public Limited Company" but could only be accorded the status of a private limited company, as the appellant company is not a department of the Government and, therefore, would not be entitled to the concessional rate on levy of tax at the rate of 36% but at the rate of 46%, which is applicable to private limited companies. Consequently, the impugned orders passed are hereby maintained and the present appeal fails, which is, accordingly, dismissed.