KHALIDA RACHID, J.---Through instant petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, Pakistan Telecommunication Company Limited (hereinafter referred to as the PTCL) sought the indulgence of this Court to declare the levy of tax under West Pakistan Urban Immovable Property Tax Act, 1958 on the properties of the petitioner as illegal, without lawful authority and ultra vires the provisions of Article 165 of the Constitution.
2. The impugned claim is assailed substantially on two-fold grounds. Firstly, that PTCL is a body corporate, created, controlled and owned by the Federal Government, its properties being vested in the petitioner, therefore, by virtue of section 4 of the West Pakistan Urban Immovable Property Tax Act, 1958 and Article 165 of the Constitution; the same are exempted from levy of any tax.
Secondly, that point in issue of the instant case stands decided by this Court in the case of Pakistan Telecommunication Corporation v. Peshawar Municipal Corporation (Writ Petition No,657/94 and by the Lahore High Court in Writ Petition No,1451/94 (Pakistan Telecommunication Corporation v.
Province of Punjab and others) wherein Pakistan Telecommunication Corporation (commonly known as PTC) created under Pakistan Telecommunication Corporation Act, 1991 (hereinafter referred to as the Act of 1991) had been held exempt from payment of octroi charges etc. Being controlled and managed by the Federal Government and as such, the. Purposes and functions of the petitioner-company being similar to the purposes and functions of the PTC is also entitled to the same benefits.
3. Amplifying the first ground, Mr.Hamid Khan, assisted by Salman Aslam Butt, urged that under section 12 of the Act of 1991, all assets and liabilities of the erstwhile Telephone and Telegraph Department were transferred and vested in Pakistan Telecommunication Corporation (PTC) which has been declared immuned from payment of taxes being the properties of the Federal Government by this Court in Writ Petition No,657/94. Similarly, under section 35 of Pakistan Telecommunication (Reorganization) Act, 1996 (hereafter referred as the Act of 1996), the properties, rights and liabilities of the defunct PTC are vested in PTCL/petitioner, therefore, the petitioner-company being the successor of the PTC is also entitled to the same exemptions and protection. Referring to section 6 (2-A) of the Act of 1996, the learned counsel insisted that any power, concession, privilege granted to the Telephone and Telegraph Department were mutatis mutandis deemed to have been granted to PTC under the Act of 1991 which shall mutatis mutandis be carried to the PTCL under the Act of 1996 as well, therefore, the exemptions available to the former Telephone and Telegraph Department and later on to the PTC should also be extended to PTCL. Developing his argument further, the learned counsel submitted that under Article 165 of the Constitution, the properties of the Federal Government being exempt from payment of property tax, the veil of incorporation created under the Act of 1996 may be lifted and all the benefits and privileges available to the Federal Government may also be made available to the PTCL/petitioner.
In this context, reference was made to PLD 1985 Supreme Court 97 and PLD 1971 Supreme Court 585.
The next point which has been urged by Mr. Hamid Khan is in regard to the decision of this Court in the case of the Pakistan Telecommunication Corporation v. Peshawar Municipal Corporation (Writ Petition No,657/94), decided on 22-12-1998. The learned counsel attempted to argue that it was held and declared that the exemptions enjoyed by the former Telephone and Telegraph Department of the Federal Government were also available to the Pakistan Telecommunication Corporation being a body created, controlled and managed by the Federal Government and, therefore, veil of incorporation created under the Act of 1991 by establishment of the Corporation was directed to have been lifted and properties of the PTC were given protection under Article 165 of the Constitution, therefore, the PTCL/petitioner, created under the Act of 1996 should have been granted the same exemption.
4. Replying to the exhaustive submission of the learned counsel for the petitioner, Mian Shaukat Hussain, Advocate, appearing for the respondent/Excise and Taxation Department advanced sole argument that petitioner-company being registered under the Companies Ordinance, 1984, its properties are not exempted from payment of property tax under Article 165 of the Constitution. The learned Advocate-General, Barrister Jehanzeb Rahim, despite our utter desire, did not argue the case independently and left the case to be defended by the learned counsel for the respondent/Excise and Taxation Department.
5. The learned counsel for the parties, at the outset, informed us that leave to appeal against the order of this Court in Writ Petition No,657/94 (The Pakistan Telecommunication Corporation v.
Peshawar Municipal Corporation) has been granted by the .August Supreme Court but since no restraining order was in field, the learned counsel opted to proceed with the case.
6. Before the establishment of the Pakistan Telecommunication Corporation (hereinafter referred to as the PTC) through Pakistan Telecommunication Corporation Act, 1991 (Act XVIII of 1991), the telecommunication system of the country was run by the Federal Government's department of the Telephone and Telegraph that was exempted from any tax under Article 165 of the Constitution.
Subsequently the Pakistan Telecommunication (Re-organization) Act, 1996 (XVII of 1996) was promulgated and the Act of 1991 was repealed subject to certain savings specified under section 59 of the Act of 1996. To provide reorganization following four corporate bodies having perpetual and a common seal with powers to acquire and hold property both movable and immovable and to sue and be sued by their names, were established:
(1) Telecommunication Authority established under section 3;
(2) Frequency Allocation Board established under section 42;
(3) National Communication Corporation under section 41;
(4) The Pakistan Telecommunication Employees Trust established under section 44 of the Act, 1996.
Under section 34 of the Act of 1996, the Pakistan Telecommunication Company (PTCL) was formed to be incorporated under the Companies Ordinance, 1984 and is limited by shares. It was created with the principal objects of provision of domestic and international and related services consistent with the provisions of Act of 1996. After the petitioner-company was formed, the Excise and Taxation Department, Government of N.-W.F.P., took a view that the property of PTCL was liable to property tax under the Urban Immovable Property Tax Act. In pursuance thereof, impugned demand notices were served upon the petitioner. The demand was resisted on the plea that property of the Federal Government was vested in the petitioner, therefore, no tax could be levied against it. The plea of the petitioner did not prevail with the respondents/department. Hence the present petition.
7 The sole question which calls for our decision is whether the properties of the petitioner-company are immuned from the property tax under Article 165 of the Constitution being the properties of the Federal Government. To resolve the question at issue in the case, we may first revert to determine as to whether income accrued to the PTCL/petitioner can be deemed to be the income of the Federal Government within the contemplation of Article 165 of Constitution reads as under:- "165. 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 (Majlise-Shoora (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 (Majlis-e-Shoora) (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 imposition of fees for services rendered."
The scope and object of the above provision is that the public property or income accruing to the Federal Government is not liable to taxation by an Act of any Provincial Assembly nor can the property or income of a Provincial Government is liable to taxation under the Act of Parliament or Provincial Assembly but if a trade or business is carried on by the Provincial Government outside its Province, an Act of Parliament or the Government of the Province in which such trade or business is carried on can subject to tax any property used in connection with that trade or business or any income arising from that trade or business.
8. There could be no cavil with the proposition that where trade or business carried on by the State and income derived through its department, as it used to be through erstwhile Telegraph and.
Telephone Department, the said income is income of the Government. But controversy arises where the trade or business is carried on by the body established through a Notification issued under the relevant' provisions of the Act and such body has a personality of its owner, distinct from that of the State.
9. As. Observed above, PTCL is established under the Act of 1996. This Act was promulgated to re- organise the Telecommunication system in the country. Under section 34(2), seven persons shall be nominated by the Federal Government to subscribe to the memorandum and Article of Association of the Company. Clause (3) of section 34 provides that initially all the shares shall be held in trust for the President of Pakistan. Clause (6) authorises the Federal Government to notify the date for the election of the Board of Directors consisting of seven members in accordance with the provisions of the Companies Ordinance, 1984. Section 35 suggests the vesting of all the rights, property and liabilities of the former Corporation in the petitioner-company and four aforesaid entities. By virtue of section 34(4), the Federal Government is authorised to transfer certain shares in the company to general public. As informed by the learned counsel for the petitioner that currently 88% shares are owned by the Federal Government and 12% shares are floated in the private sector.
10. Though seven subscribers to memorandum are nominated by the Federal Government but they need not be beneficially interested in the shares for which they have subscribed. Admittedly, major shares in the company are owned by the Federal Government but it cannot be said that the income of the petitioner-company be claimed by the shareholders. Shareholders are only entitled to dividend approved by the Board of Directors in the Annual General Meeting of the shareholders.
Therefore, the profit and loss of the company would be profit and loss of the company and not the shareholders. Hence the income of the PTCL/petitioner cannot be said to be the income of the Federal Government which is one of the sharesholders in the company having a separate legal entity. Being a shareholder, the Federal Government may decide to float its more shares in the stock exchange/general public at the current rate or at the price established by the stock exchange market, therefore, it may reduce its shares from 88% to any lesser quantity if so wish and may lose the status of major shareholder. Hence it cannot be said that the shareholders own the property of the company. In such circumstances, the doctrine of lifting of the veil of incorporation cannot be invoked. Similar question was raised before the Supreme Court of India in the case The Andhra Pradesh State Road Transport Corporation by its Chief Executive Officer, Hyderabad v. The Income Tax Officer, BIB Ward, Hyderabad (AIR 1964 Supreme Court 1486). The appellant in that case was public corporation established in 1958 under the Road Transport Corporation Act, 1950. Before 1958, since transport was controlled by the Government Department, it was exempt from income- tax under Article 289 of the Constitution of India. After establishment of Corporation in 1958, the Income Tax Authorities assessed tax on the income of the Corporation. The. Corporation denied the payment of tax on the pretext that income of the Corporation was income of the State and, therefore, claimed exemption under Article 289 of the Constitution of India. However, the assessm ent orders issued by the Income Tax Authorities were challenged before the Andhra Pradesh High Court. The High Court of Andhra Pradesh held that the appellant was not a State- owned Corporation and it was not carrying on business on behalf of the State, therefore, no exemption from the tax can be claimed. In appeal before the Supreme Court of India, the judgment of the High Court was upheld and it was declared that the income made by the private or public Corporation was not the State income because a Corporation under the law has a distinct personality from its shareholders. The relevant para. Of the judgment is reproduced as follows:-- "There is no doubt that the bulk of the capital is contributed by the State Government and a small proportion by the Central Government, and in that sense, the majority of shares are at present owned by the State Government. There is also no doubt that the Corporation is a State-controlled Corporation in the same sense that all the material stages and in all material particulars, the activity of the Corporation is controlled by the State; but it is clear that all other citizens may be admitted to the group of shareholders, and from that point of view, the Act contemplates contribution of the capital for the Corporation not only by the Central and the State Government, but also by the citizens. The main point which we are examining at this stage is: is the income derived by the appellant from its trading activity, income of the State under Art.289(1)? In our opinion, the answer to this question must be in the negative. Far from making any provision which would make the income of the Corporation, the income of the State, all the relevant provisions emphatically bring out the separate personality of the Corporation and proceed on the basis that the trading activity is run by the Corporation and the profit and loss that would be made as a result of the trading activity would be the benefit and loss of the Corporation. There is no provision in the Act which has attempted to lift the veil from the fact of the Corporation and thereby enable the shareholders to claim that despite the form which the reorganization has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own."
11. Likewise issue was taken in the case of National Fertilizer Marketing Ltd. v. Secretary, Local Government (1992 M LD 1203) wherein it was held that the petitioner-company incorporated under the Companies Ordinance, 1984 and being a separate entity notwithstanding the fact that its shares were owned by the Government neither its properties nor income would be deemed to be of Federal Government. Therefore, goods of the petitioner-Company were, held not to be exempt from the payment of taxes under provision of Article 165 of the Constitution. We may also refer to the case of Lt.-Col. Shujauddin Ahmad v. Oil and Gas Development Corporation (1971 SCM R 566) wherein the petitioner claimed to be Government servant and therefore, could not be terminated from service by the respondents. The Hon'ble Supreme Court held:- "The petitioner now seeks special leave to appeal and it is, contended on his behalf that the learned Judge in the High Court was wrong in taking the view that the ratio of the decisions of the Supreme Court cited above was applicable in this case. According to him, the respondent- Corporation was in all respects a Government Department, for, the Government contributed the entire capital of the Corporation, appointed all its directors and could remove them at its discretion. The Board of Directors of the Corporation also function subject to the instructions of the Central Government. It had no powers even to borrow or to raise funds without the consent in writing of the Central Government. In these circumstances, it is urged that the respondent-Corporation being under the Executive Control of the Government was performing functions of the Government and, therefore, everyone, who was employed by the Corporation, was under, Article 176 of the Constitution, a person holding a civil post in connection with the affairs of the Centre, to whom the guarantees given by Article 176 applied. Service in the Corporation was also, it is contended, service of Pakistan within the meaning of Article 242 of the Constitution of 1962. We are unable to agree with this contention. The provisions of the Statutes, under which the respondent-Corporation, the East Pakistan Industrial Development Corporation and other statutory bodies had been created in Pakistan, are not radically different. There, too the Government holds the bulk of the shares, appoints a Managing Director and Chairman of the Board, audits the accounts of the statutory Corporation through its own appointed Auditors and has the powers to direct those Corporations to carry out its instructions. The consistent view of this Court hithertofore has been that the employees of such statutory Corporations do not acquire the status of Government servants nor are the guarantees given by the Constitution applicable in their case. The High Court was, therefore, in our view, right in vacating the order of interim injunction for according to the law of Master and Servant, a contract of service cannot be specifically enforced."
The precedent the Central Board of Revenue and another v. The Sindh Industrial Trading Estate Ltd.
(PLD 1985 Supreme Court 97) relied upon by the learned counsel for the petitioner, wherein the august Supreme Court while maintaining the judgment of Division Bench of the High Court of Sindh qua the lifting of the veil of incorporation and granting exemption to the SITE under Article 165 of the Constitution held that the SITE Company was performing functions like department of Government and income of the company was income of the Government but also observed that controversy regarding the lifting of the veil of incorporation would be based, on the facts and circumstances of each case. Similarly, doctrine laid down in PLD 1971 Supreme Court 167 would not be applicable. As to clause (a) to subsection (2) of section 6 of the Act of 1991, regarding conferment of all the powers, privileges or concession granted to Telephone and Telegarph Department on the PTC have been discussed in detail in Writ Petition No,657/94 and it was held that the concession could not be equated with the exemption.
12. Turning now to the second contention of the learned counsel for the petitioner that point in issue has already been decided by this Court in the case of The Pakistan Telecommunication Corporation (Writ Petition No,657/94, we, while determining the scope of the Act of 1991 believe that case of the PTC (W.P. No,657/94 is distinguishable in its formation, effect and functions vis-a-vis Act of 1996. The PTC was established under section 3 of the. Act of 1991. Section 4 provides general direction and administration of affairs vested in the Board consisting the Chairman who was a full time officer and was to hold office for a period of three years subject to such terms and conditions as determined by the Federal Government. The resignation of the Chairman was to take effect only when accepted by the Federal Government. Under section 10, the Chairman, Directors, Officers and servants of the PTC were deemed to be the public servants within the meaning of section 21 of PTC.
In performing its functions under section 6 the Corporation was required to be guided by the instructions given by the Federal Government. The Corporation was to submit to the Federal Government the annual report of its affairs which was to be laid before the Parliament. The Corporation was also required to provide the Federal Government any return, statement, statistics or other information regarding any matter under the control of the Corporation when so asked. The tariffs at which the Corporation was to provide telecommunication services to the customers was to be determined by the Board with the prior approval of the Federal Government. The accounts of Corporation were to be audited by Auditor-General of Pakistan. The Corporation was to comply with the directions of the Federal Government or Public Accounts Committee of the National Assembly for the rectification of an audit objection. The Corporation could be wound up only under the order of the Federal Government and in such manner as Federal Government may direct.
Under section 25 for removing any difficulty in giving effect to any provision of the Act of 1991, the order of the Federal Government was to be sought.
13. As against this, the PTCL/petitioner formed under section 34(6) of the Act to be registered under the Companies Ordinance, 1984. Board of Directors of the petitioner-company consisting of seven directors are to be elected in accordance with the provisions of the Companies Ordinance, 1984.
Section 37(3) provides that the accounts of the company are to be audited in accordance with the provisions of the Companies Ordinance, 1984.
14. In view of above discussion, decision in PTC (W.P.No,657/94) would have lest implication/application on the merits of the present case. Since the petitioner is not the successor of the former PTC in all forms. Therefore, the property and income of the petitioner is not the property and income of the Federal Government.
15. Before parting with the judgment, we may observe with regret that no assistance whatsoever was given to us on behalf of the respondents. The learned counsel for the respondent/Excise and Taxation did not prepare the case to full extent so as to ably argue the cause of respondents with full esteem.
16. In the result, this petition fails and is dismissed with no order as to costs.