1989 PLP (Trib (PTD)

MIAN ABDUL KHALIQ (JUDICIAL MEMBER).--These are seven further appeals filed at the instance of an assessee, assailing separate orders passed by the learned AAC/C I T (A) of Income-tax, Lahore for the charge years 1975-76 through 1980-81 and 1982-83. Appeals for the assessment years 1975-76 and 1976-77 were earlier heard by a Division Bench on 30-10-1979. There being difference of opinion amongst the learned Members of the Bench, judgment could not be finalized. By order of the learned Chairman ITAT dated 3-1-1988 the aforesaid two appeals were directed to be heard by a Full Bench. During this period the assessee's appeals for the subsequent years were also received and as such all the seven appeals were laid for hearing before the Full Bench.

2. The relevant facts of the case are that the assessee a Public Limited Company, was in cooperated on 9-5-1974. As per Memorandum of Association, the main objects of the Company were: (a) To construct, own and operate oil refineries and other facilities, and to purchase or otherwise acquire, produce, manufacture, refine, treat, purify, blend, reduce, distil, store, transport, pump, i1se, market, distribute, supply, sell and otherwise dispose of and generally trade in any and all kinds of petroleum and petroleum products, oil, gas, hydrocarbons, petrochemicals, asphalt, bituminous substances and the products and by-products which may be derived, produced, prepared, developed, compounded, made or manufactured therefrom. (b) To establish and operate facilities for and carry on in all its branches the business of storing, transporting, importing, exporting and' otherwise dealing in petroleum and petroleum products of any and all kinds whatsoever, and any products or by-products thereof. (c) To construct, operate and maintain pipelines for the transportation of liquids and gases, to transport such liquids and gases by means of such pipelines and to utilize, sell and supply liquid and gases to others to store the same in tanks or otherwise, and to lay, buy, lease, sell and operate pipelines, tanks and other storage facilities. (d) to buy, sell, manufacture, store, repair, alter, improve, exchange, hire, import, export and deal in all factories, works, plant, machinery, tools, utensils, appliances, apparatus, products, materials, substances, articles and things capable of being used in any business which the company is competent to carry on or required by any customers of or persons dealing with the Company or commonly dealt with by person engaged in any such business or which may seem capable of being profitably dealt with in connection therewith and to manufacture, experiment with, render marketable and deal in all products of residue and by-products 'incidental to or obtained in any of the business carried on by the Company. (c) To promote and form other companies for all or any of the objects mentioned in this Memorandum or any extension thereof and to transfer to any such company all or any of the property of this company, and to take or otherwise acquire and hold shares, debentures or other securities of any such Company, and to subsidise of otherwise assist any such company. (f) To undertake financial and `commercial obligations, transactions and operations of all kinds, and to open and operate accounts, overdraft accounts and cash credit, with or without security, to keep fixed. and other deposits with banks, firms, corporations and .institutions, loan offices and other concerns. (g) To receive money on deposit or loan and to borrow, raise or secure the payment of money in such manner as the Company shall think fit, and in particular by the issue of debentures or debenture-stock, perpetual or otherwise, charged upon all or any of the Company's property, both present and future including its uncalled capital, and to purchase, redeem and payoff any such securities. (h) To distribute all or any of the property of the company amongst the members in specie or kind, but so that no such distribution shall amount to an unlawful reduction of capital. (j) To do all or any of the above things in any part of the world either as principals, agents, trustees, contractors or otherwise, and either alone or in conjunction with others. The authorised capital of the Company was Rs. one billion and five hundred million divided into 150,000,000 ordinary shares of Rs.10 each. The minimum subscription on, which Directors could proceed for allotment was fixed at Rs. one hundred thousands.

3. As per Memorandum of Association the main objection of the company was construction and operation of an oil refinery and most of the clauses just elaborated the powers ancillary to the real object. Operations for construction of refinery were started in the assessment years 1975-76 and 976-77 which started functioning in the subsequent years. For all the years are consideration the assessee filed returns and the departmental officers create tax liabilities.

4. The learned authorised representative of the assessee argued this case in a half-hearted and lukewarm manner stating that he received intimation for representation of the case very late and as such he deemed it fit to reiterate the arguments advanced by him and discussed by learned Members of the Division Bench at the time of hearing of appeals for the first two years under review. Position of the learned Legal Adviser appearing on behalf of the Department was not so happy as he also expressed grievance regarding insufficient time given to him by the departmental officers for preparation of the case. The learned Legal Adviser of the Department stated that he adopted the reasons and discussion as made by the learned Judicial Member in the dissenting order. The assessee's learned authorised representative did not furnish any citations whereas on behalf of the Department on 20-1-1988 a note was sent stating that reliance was placed on a case reported as (1937)-41-CWN-458. We are thus deciding the issue involved in these appeals of our own and after taking into consideration the submissions of the learned representatives of the parties recorded in the dissenting order of the Tribunal.

5. The solitary issue involved in all these appeals pertained to taxability or non-taxability of the assessee's income. The assessee denied its liability to be taxed under the provisions of the repealed Income Tax Act as well as the Income tax Ordinance, 1979 (hereinafter called the "Act" or the "Ordinance" as the case may be). The Company claimed immunity from tax on the ground that persons really carrying on business under the veil of incorporation of Public Limited Company were the Governments of Pakistan and Abu Dhabi. The assessee's case was that the Government of Pakistan being sovereign authority in the country and Government of Abu Dhabi because of Diplomatic immunity allowed to foreign countries could not be subjected to tax under any provision of the Act or the Ordinance. On behalf of the assessee it was pleaded that the Government of Pakistan being unable to start the venture by itself sought collaboration with Government of Abu Dhabi and special narration to that effect was made in the budget speech of the charge year 1974-75. Incorporation of the Company was stated to be to facilitate day to day working of the refinery and the act of refining of petrol by erecting of refinery was urged to be an activity of Government of Pakistan for welfare of the subjects of the State; hence not liable to tax.

6. The Department's plea was that no immunity from tax was available to the assessee company which was incorporated as a Public Limited Company under the Companies Act, 1913 and hence liable to tax under provisions of the Act or Ordinance.

7. After perusal of Memorandum of Association of the assessee-Company, we find that it was incorporated as a Public Limited Company under the Companies Act, 1913 and as such it had a taxable personality within the meaning of sections 2 (9) of the Act and 2(16) of the Ordinance. By financial support of Government of Pakistan in the form of investment for owing of shares, the assessee company could neither represent the Government of Pakistan nor call itself a Department or limb of the Federal Government. The issue involved in this case virtually stands settled by a Full Bench decision of the Tribunal reported as (1979) 39 Tax 13 (Trib). In somewhat similar circumstances Tribunal repelled the assessee's plea holding that exemption from not be allowed merely on account of flowing of funds from Government of Pakistan. In this case Company mainly undertook development of airports and 100% capital invested was of the Government of Pakistan. The plea raised on behalf of the assessee regarding lifting of veil of incorporation does not arise in this case. There being no veil; question of its lifting does not arise. Memorandum of Association of the assessee company establishes beyond any shadow of doubt that it was a company incorporated in Pakistan for commercial activities. None of its clauses indicated that income derived from commercial activities was payable to the Government of Pakistan. There is no dispute on the proposition that in certain circumstances the Courts have jurisdiction to look behind the veil of incorporation but in such like cases existence of a veil is a pre requisite condition. In the case of the assessee company neither the Government of Pakistan nor the Government of Abu Dhabi ever pretended to wear a veil. Providing of some fund by Government of Pakistan in its budget for the charge year 1974-75 cannot be taken to mean that business of the company was of the Government of Pakistan and income derived therefrom was of the Federal Government. In a modern welfare State the Government has to undertake several economic activities for execution of welfare policies in helping the process of economic improvement of the citizens. Ordinary business of Government is distinguishable from socio-economic activities. By no stretch of imagination, commercial activities of the assessee could be termed as trade activities of the Federal Government. Even if some officers of the Federal Government were signatories to the Memorandum of Association or were running the affairs of the Company, this in itself was not sufficient to conclude that the assessee company was a Government Department. The well-established doctrine that a Corporation has its separate entity of its own has been enunciated in various decisions. In no case trade activities of the assessee company could be termed to be of Government of Pakistan or that of Government of Abu Dhabi. The assessee having failed to establish that income of Pak Arab Refinery or any part of it was ever passed on to the Federal Government of Pakistan as part of revenue, its income was liable to tax as Public Limited Company under relevant provisions of the Act or the Ordinance. The cases cited on behalf of the assessee before the Division Bench were West Pakistan Road Transport Board v. C.I.T. reported as 1973 P T D 499; Wali Mohammad v. WAPDA reported as P L D 1964 Peshawar 167 and Sind Industrial Trading Estate. Ltd. v. CBR reported as P L D 1975 Kar.

128. In the case of West Pakistan Road Transport Board, the High Court held that the Board being an instrument of Provincial Government was not a taxable entity. In the case of Sind Industrial Trading Estate Ltd. Karachi High Court concluded that it was nothing more than the Department of the Provincial Government clothed with juristic personality. West Pakistan Road Transport Board was a statutory Corporation functioning under the direct control of the Provincial Government and the Corporation was created under the Motor Vehicles Act. Similarly Sind Industrial Trading Estate Ltd. was a Corporation formed under Resolution of the Sind Government providing that no dividend was to be paid to the Members. That company was limited by guarantee meaning thereby that it was run on no profit basis. In this context in the reported decisions it was held that the two Corporations were in fact the Departments of the Provincial Government. In the case of S.I.T.E. decision of Karachi High Court was confirmed by the Supreme Court of Pakistan vide P L D 1985 SC

97. All the reported decisions were again considered and relied by the Tribunal in its decisions reported as 1986 P T D (Trib.) 873 wherein Overseas Pakistan Foundation was held to be liable to tax under the Act/Ordinance. Another aspect of the matter is that the assessee Company's case does lot fall within constitutional provisions for exempting the income of the provincial Government or Federal Government as contained in Article 165 of the constitution of the Islamic Republic of Pakistan 1973. Similarly, no diplomatic Community was available to the Government of Abu Dhabi as exemption is provided for Rulers of State and Diplomatic Representatives of foreign Governments and not for any investment made for the purposes of trading activities. Lastly, by virtue of the Constitutional (Amendment) Order, 1985 (P.O. 11 of.1985) following new Article 165-A (1) was added:-- "165-A (1): For the removal of doubt, it is hereby, declared that Majlis-e-Shoora (Parliament) has, and shall be deemed always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or recovery of tax on the income of a corporation, company or other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly by the Federal Government or a Provincial Government regardless of the ultimate destination, of such income. (2) All orders made, proceedings taken and acts done by any authority or person, which were made, taken or done, or purported to have been made, taken or done, before the commencement of the Constitution (Amendment) Order, 1985, in exercise of the powers derived from any law referred to in clause (1), or in execution of any orders made by any authority in the exercise or purported exercise of powers as aforesaid, shall, notwithstanding any judgment of any Court or Tribunal, including the Supreme Court and a High Court, be deemed to be and always to have been validly made, taken or done and shall not be called in question in any Court, including the Supreme Court and a High Court, on any ground whatsoever. (3) Every judgment or order of any Court or tribunal including the Supreme Court and a High Court, which is repugnant to the provisions of clause (1) or clause (2) shall be, and shall be deemed always to have been, void and of no effect whatsoever:"

8. In these circumstances we feel that no useful purpose will be served in further examining the situation of lifting of veil. We have refrained from repeating the case law on that subject, the same having been already discussed in the Tribunal's earlier reported decisions. CONCLUSION The upshot of the discussion is that Pak Arab Refinery Ltd. is a Company simplicitor incorporated for business purposes and its income being not the income of the Federal Government of Pakistan was taxable under the relevant provisions of the repealed Income-tax Act. 1922 and Income-tax Ordinance, 1979. All the seven appeals filed by the assessee being devoid of any merits are dismissed. M.BA./645/T Appeals dismissed.