1993 PLP 468 (SCMR)

AJMAL MIAN, J:‑‑This is an appeal with the leave of the Court against the judgment dated 14‑1‑1992 passed by a Division Bench of the High Court of Sindh in Constitution Petition No. D‑1033 of 1988 filed by the respondent for seeking declaration that all property/goods imported by them for their consumption/use is exempt from payment of octroi tax on the ground that the respondent belonged to Federal Government and because of that Article 165 of the Constitution of Islamic Republic of Pakistan, 1973, hereinafter referred to as the Constitution, was attracted to. The above petition was resisted by the appellant which had levied the above octroi. However, the High Court allowed the above petition in the following terms:‑‑ "For the reasons stated above, this petition is accepted. We hold that all the property/goods imported by petitioner for its consumption/use is exempt from payment of octroi tax. The respondents are restrained from recovering any octroi tax on the property/goods imported by the petitioner for its consumption/use. In the circumstances of the case,. the parties are directed to bear their own costs." Thereupon, the appellant filed a petition for leave to appeal, which was granted to consider the questions, whether the learned Judges of the Division Bench have erred in holding that the respondent could press into service Article 165 of the Constitution keeping in view a recent unreported judgment of this Court in Civil Appeal No.234 of 1987 (Karachi Development Authority v. Central Board of Revenue and another), decided on 29‑12‑1991, and whether the impugned judgment was in conflict with the judgment of another Division Bench of the said High Court, namely, in the case of Kotri Association of Trade and Commerce v. Government of Sindh (1982 CLC 1252).

2. The admitted facts seem to be that the respondent is a company incorporated under the Companies Act, 1913, which had its registered office in Bombay and which owned two Cement Factories in Sukkur and Wah respectively. It appears that by an agreement dated 12‑3‑1962 the erstwhile Government of West Pakistan purchased buildings, structures, vehicles, machines, plants and tools and other items from the respondent. On the dissolution of West Pakistan unit and upon creation of the four Provinces, the President promulgated "The Associated Cement (Vesting) Order, 1970, whereby the undertaking known as Associated Cement (Government of West Pakistan) was vested in the President for the purposes of new Provinces. It appears that by Associated Cement (Vesting) Ordinance,. 1974, issued on 24‑10‑1974, the above undertaking was vested in the State Cement Corporation of Pakistan Limited which has been managing the respondent. It may also be stated that State Cement Corporation of Pakistan (Private) is a private limited company, the total shares of which are owned and controlled by the Government of Pakistan.

3. It seems that the respondent received a letter dated 30‑7‑1988 from M/s. Baluch Traders, who were respondent No.2 in the above Constitution Petition, informing them that they had been leased out the right of collection of octroi for the year 1988‑

89. The respondents were also asked to pay octroi on all goods before taking the same into the factory. The above demand was resisted by the respondent on the ground that it was‑ owned by the Government of Pakistan. Since the above demand was not dropped, the respondent filed the aforesaid Constitution Petition which was allowed in the above terms inter alia for. the following reasons:‑‑ "In a matter of this description, it is well established that the Courts are entitled to pierce the veil of corporate entity and look at the reality of the transactions. It is true that from the juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are enjoying rights as those enjoyed or borne by the members. But in certain exceptional cases, the Court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. We have already reproduced hereinabove the relevant part of the Associated Cement (Vesting) Order, 1970, Associated Cement (Vesting) Ordinance, 1974 and the Memorandum and Articles of Association of State Cement Corporation of Pakistan (Private) Limited, it is clear to us that Associated Cement vests in the Federal Government and the petitioner Corporation is essentially performing functions covered by the wide field of activity permissible to the Federal Government under the Constitution of Pakistan. The petitioner Corporation is clearly entitled to the exemption germane to the property of the Federal Government as provided by Article 165 of the Constitution and all property/goods imported by the petitioner for its consumption/use is exempt from payment of octroi tax."

4. The short controversy in the present case is, as to whether the High Court was justified in pressing into service Article 165 of the Constitution by lifting the veil of incorporation of the respondent. Before proceeding with the above question, it may be advantageous to reproduce Article 165 of the 'Constitution and Clause (1) of Article 165‑A, which Article was added by the Constitution (Amendment) Order, 1985 (P.O.No.1l of 1985), which read as follows:‑‑ "165‑‑‑(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 Majlis‑e‑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 is 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. 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 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.

5. A perusal of the above Article 165, of the Constitution indicates that clause (1) thereof exempts the Federal Government and Provincial Government from payment of tax in respect of its property or income subject to clause (2) which enjoins that 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 use in connection with that trade or business or any income arising from that trade or business be taxed under Act of Majlis‑e‑Shoora or under Act of the Provincial Assembly of the Province in which that trade or business is carried on. It may further be observed that clause (3) of the above Article lays down that nothing in the Article shall prevent the imposition of fee for services rendered. It may also be noticed that clause (1)‑of Article 165‑A makes it clear that Majlis‑e‑Shoora has and shall be deemed always to have the power to make a law to provide for the levy and recovery of a tax on the income of Corporation, company or other body or institution established by or under the 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.

6. It appears to be an admitted position that the respondent is a company incorporated under the Companies Act having an independent and legal personality distinct from the Government which owns its shares. It is also an admitted position that the respondent has been paying income‑tax and other taxes on their products and is also subject to Labour Laws like any other company which owns, manages or runs a factory. If we were not to lift the veil of incorporation of the respondent, Article 165 cannot be attracted to. The question, therefore, which needs consideration is, as to whether the High Court was justified to lift the veil of incorporation of the respondent in order to make above Article 165 applicable to the respondent. In this behalf, it may be pertinent to refer to the celebrated decision of the House of Lords in the case of Salomon v. Salomon & Co. (1897) AC 22), in which the facts were that Salomon was boot and shoe manufacturer trading as a successful sole trader in the East End of London for over 30 years. There was family pressure to give them a share in the business. He also wished to expand the business. Accordingly he formed a company and sold his business to the company. At the relevant time the legal requirement for a company was to have a minimum of seven members. The above newly‑incorporated company had Salomon himself and six members of his family to whom he allotted one share each as nominees. Thus the company was in reality "one man" company. The price paid by the company for the transfer of business was on paper over pounds 39,

000. It appears that after the expiry of a year of its formation the above company got into financial difficulties. Inter alia the question before ‑the Court was, whether the debentures originally issued to Salomon by the Company were valid and entitled to priority over the unsecured creditors who denied the priority on the ground that the company was "one man" company and Sham. Vaughan Williams, J. held that A. Salomon & Co. Ltd. was mere alias or agent for Aron Salomon and, therefore, Salomon was bound to pay the unsecured creditors of the company out of his own pocket notwithstanding that his shares had all been fully paid‑up. The above decision was affirmed by the Court of Appeal though on somewhat different ground, namely, that the whole scheme was a fraud on the policy of the Act and that it was never intended by the Legislature that a company should consist of one substantial person and six mere dummies devoid of any real interest. However, the above decision was unanimously reversed by the House of Lord for the reasons inter alia recorded by Lord Halsbury and Lord Macnaghten asunder:‑‑ "Lord Halsbury L.C. said: " ..the statute enacts nothing as to the extent or degree of interest which may be held by each of the seven, or as to the proportion of interest or influence possessed by one or the majority of the shareholders over the others." Lord Macnaghten said: "There is nothing in the Act requiring that the subscribers to the memorandum should be independent or unconnected, or that they or any of them should take a substantial interest in the undertaking, or that they should have a mind and will of their own, as one of the learned Lords Justices seems to think, or that there should be anything like a balance of power in the constitution of the company."

7. It may be stated that even earlier than the above decision, the view taken by the English Courts was in line with what was held in the above celebrated case, Suffice to refer to the case of Farrar v. Farrars Ltd. (1888) 40 Ch. D 395), wherein Lindley L.J. observed as follows:‑ A sale by a person to a corporation of which he is a member is not, either in form or in substance, a sale by a person to himself. To hold that it is, would be to ignore the principle which lies at the root of the legal idea of a corporate body, and that idea is that the corporate body is distinct from the persons composing it. A sale by a member of a corporation to the corporation itself is in every sense a sale valid in equity as well as at law."

8. However, the Courts in certain cases in order to ascertain the real state of affairs of a corporate body in relation to others adopt device of lifting of veil or cracking open the corporate shell so as to go behind the corporate personality of the individual members. The above topic has been exhaustively dealt with in the various well- known treatises on the Company Laws. In Gower's Principles of Modern Company Law, Fifth Edition, the author while dealing with the question of lifting the veil of incorporateness under the caption "the end result" has analysed the above subject as follows:‑‑ "Where then does this leave "lifting the veil"? Well, considerably more attenuated than some of us would wish. There seem to be three circumstances only in which the Courts can do so. These are: (1) When the Court is construing a statute, contract or other document. (2) When the Court is satisfied that a company is a "mere facade" concealing the true facts. (3) When it can be established that the company is an authorised agent of its controllers or its members, corporate or human. And (2) only is a true example of lifting the veil; in (1) and (3) the separate personality of the company is not denied but the practical effect on the parties' rights and' liabilities is the same as if it had been. The Court cannot lift the veil merely because it considers that justice so requires. Nor, unless the case falls within one or both of circumstances (1) and (2), can it have regard to the economic reality that most company groups are operated as if they were a single entity. When the case falls within (1)‑‑‑an "interpretation case"‑‑‑the Court may have regard to the economic reality and treat a group as if it were one entity if that is how the group operates. This gives scope for a measure of judicial activism by judges especially if they are prepared to adopt a purposive construction. In doing so they will not be constrained by a need to find that the company is a mere facade. as they will if they are to act under (2). The difficulty about (2) is the lack of guidance on the principles for determining whether a company is a mere facade. The holding by the Court of Appeal in Cape that motive might be highly relevant is helpful. It also seems clear that a company can be a facade even though it was not originally incorporated with any deceptive intention; what counts is whether it is being used as a facade at the time of the relevant transactions. But, apart from that, uncertainty and difficulties, remain. If only for that reason, it is regrettable that the Court of Appeal and the House of Lords refused in Cape to give leave to appeal. It is to be hoped that the Lords will be afforded another opportunity of reviewing the law in this field. Having invented the "facade" test it behoves the Lords to tell us what it means. Perhaps one factor suggesting that a subsidiary is a mere facade for its parent is that the subsidiary is obviously under‑capitalised for the role that it is ostensibly performing as an independent entity. In the United States this is regarded as an important factor, as it was here in Re. F.G. Films Ltd. (1953)1 WLR 483). Regarding circumstance (3), while it may be possible to establish that in particular. transactions a subsidiary has acted as the authorised agent of its parent (or vice versa) any prospect of establishing that it has general authority to carry on the latter's business is remote. Hence while statutory inroads into the corporate entity principle continue to increase those by the judiciary have contracted."

9. Farrar's Company Law, Third Edition, has categorised the following cases in which device of lifting of veil of incorporation can be pressed into service:‑‑ "(1) agency,. (2) fraud; (3) group enterprise; (4) trusts; (5) tort; (6) enemy; (7) tax; (8) the companies legislation; (9) other legislation. In Palmer's Company Law, Twenty‑Fourth Edition, the author has referred to 15 categories in which the veil of incorporateness can be lifted.

10. It is evident that by now the device of lifting of veil of incorporateness is well‑established. However, it may be observed that the same cannot be pressed into service as a matter of course in every case, but there should be some justifiable reason which may warrant the lifting of veil of incorporateness.

11. It may be appropriate at this juncture to refer to the case‑law which has been referred to by M/s. Khalid M. Ishaque and SA. Sarwana, learned counsel for the parties. (i) The President v. Mr. Justice Shaukat Ali (PLD 1971 SC 585); in which the Supreme Judicial Council while investigating about the misconduct of a Judge of the erstwhile High Court of West Pakistan, pressed into service the doctrine of lifting the veil of incorporation and Hamoodur Rahman, J. acting as the Chairman of the Supreme Judicial Council observed as follows:‑‑ 'There are also other circumstances in which the veil has been pierced and the separate legal entity theory given the go‑by. Thus in the case of the Roberta (1937) 58 LLR 159) a parent company was held liable on a bill of lading signed on behalf of its subsidiary. The Court there described the subsidiary as a separate entity in name only and probably for the purposes of taxation alone. The same principle was applied in the case of William Cory & Son Limited v. Dorman Long & Company Limited (1936) 2 All ER 386) where judgment was given against the parent company for the negligent navigation of a ship by her Master, even though the ship was owned by a subsidiary company. It appears that even where questions of public policy are involved, the Courts have not hesitated to lift the veil of incorporation. Whatever might be the position of third parties, vis‑a‑vis the company and the liabilities of its shareholders, it does appear that there is no bar to the Courts lifting the veil of incorporation to determine the true relationship of the shareholders with regard to their dealing with the company or to ascertain the true nature of the company itself in matters which are governed by other, statutes or where other considerations necessitate the taking of such a step. In the present case too, we are not concerned with the liability of the respondent as a member of the companies but we are concerned in terms of a Code of Conduct drawn up under the Constitution, with determining as a matter of public policy as to whether the association of a Judge of a Superior Court with such concerns constitutes involvement in activities of trade, business or industry. For this purpose we think we are entitled to go behind the shadow of incorporation in order to ascertain as to what the real nature of the association of the respondent was with these concerns." (ii) Fauji Foundation and another v. Shamimur Rehman (PLD 1983 SC 457); In the above case this Court pressed into service the doctrine of lifting of veil of incorporation in order to ascertain the real nature of the ownership and the dealings of those concerned. (iii) Central Board of Revenue and another v. S.I.T.E. PLD 1985 SC 97; This case relates to Article 165 of the Constitution in which the facts were that S.I.T.E. filed a Constitutional Petition claiming exemption from the payment of income‑tax by virtue of Article 165, which was 'allowed by a Division Bench of the High Court of Sindh. This Court in appeal, while affirming the above judgment of the High Court, highlighted the peculiar features of S.I.T.E. and held that the said features clearly and rightly led to the finding of the High Court that S.I.T.E. was like a' limb of the Provincial Government and its income accordingly of the said Government. It was also pointed out that in a controversy like the one which was in issue, final decision would rest on the facts and circumstances of each case. (iv) Chairman, District Council, Rahim Yar Khan v. United Bank Limited, Rahim Yar Khan (1989 CLC 1397); in which a learned Single Judge of the Lahore High Court on the basis of Article 165 of the Constitution, upheld the judgment of the Court below declaring imposition of professional tax on nationalised banks by a Provincial Act as illegal. (v) Messrs Rice Export Corporation of Pakistan Ltd. v. Karachi Metropolitan Corporation through Director Octroi and another (PLD 1990 Kar.186); In the above case, a Division Bench of the High Court of Sindh allowed a Constitution Petition filed by the Rice Export Corporation to the extent of declaring that the respondents shall not give effect to the Sindh Local Government Ordinance, 1979, and the Municipal Committees octroi Rules, 1964, in any lawful manner so as to impose a tax burden on the petitioner Corporation in the context of the referred goods and articles. Reliance was placed on the above judgment of this Court in the S.LT.E. case and the veil of incorporation was lifted. (v) Unreported judgment dated 29‑12‑1991 rendered by this Court in the case of Karachi Development Authority v. Central Board of Revenue and another (Civil Appeal No.284 of 1987), in which this Court, while maintaining the judgment of the High Court of Sindh dismissing K.DA.'s petition for claiming exemption from the payment of sales tax under Article 165 of the Constitution and after referring the judgment in the S.I.T.E.'s case, repelled the contention of the learned counsel for the K.D.A. as to the application of Article 165 and the ratio of the S.I.T.E.'s case as under:‑‑ "

5. Mr. Mansoor Ahmad Khan, Advocate, the learned counsel for the appellant/K.DA. has no longer pursued the ground of exemption on the grant of it for any reason whatsoever. His claim now rests on the admitted position that K.DA. is a statutory corporation, entirely financed by the Provincial Government, and discharging the statutory and the ordinary sovereign functions of the Provincial Government. In that position, the learned counsel considers that the appellant is amply justified in claiming the lifting of the corporate veil in order to demonstrate that the commodity produced and manufactured, which is not to be brought to tax, is government owned property and it cannot be brought to such a tax under Article 165 of the Constitution. As regards the subsequent amendment that has taken place by addition of Article 165‑A, the learned counsel has taken up the position that it should be confined, as the words themselves suggest, to income‑tax only and to have covered that subject only notwithstanding the judgment given in S.I.T.E.'s case (PLD 1985 SC 97) by the Supreme Court. According to him, this added Article would have no effect on the levy and collection of sales tax. The learned counsel has also referred to a number of precedents where the discharge of sovereign function through instrumentalities like statutory corporations was to be a Government function notwithstanding the veil of statutory corporation. (6) We find that by statutory dispensation a juristic personality is created which is distinct from that of the Government. Such a juristic personality is then entrusted with the statutory duties, some of which or all of which may partake of the functions of the Government both sovereign and non‑sovereign. In the case in hand, we are concerned with the welfare activity of the Government which has been passed on to the K.DA. It is not wholly for the discharge of sovereign functions as such. Nevertheless, the distinction that was sought to be established on the strength of Article 165 of the Constitution for the purposes of taxability between the property and income of the Government under statutory veil and the property and income of Government under no such veil has been brought to an end. The ultimate ownership of the property or the destination of the income has ceased to be the test. The statutory veil holds good for the purposes of determining the ownership of the property as well as its income. (7) It is true that what is mentioned in Article 165‑A(1) of the Constitution is limited to the levy of income‑tax. Nevertheless, the purpose, the object and the field of Article 1‑65‑A of the Constitution is to fix the legal ownership of the property and the identity of the recipient of the income. This has beet/ achieved by reinforcing the statutory corporate veil for all fiscal purposes. The lifting of the corporate veil as such is no longer permissible and the distinct juristic personality of the incorporated or statutory body has been recognised notwithstanding the control, the destination and the functioning of such bodies. Such a declaratory law would certainly stand in the way of the appellant because the same distinction which was sought to be created by lifting the veil in the matter of the income‑tax is sought to be achieved in the matter of sales tax".

12. From the above cited judgments it appears that this Court pressed into service the doctrine of lifting the veil of incorporateness in the S.I.T.E. s case and maintained the judgment of the High Court holding that S.I.T.E. was entitled to exemption from the payment of income‑tax by virtue of Article 165 of the Constitution as it was a limb of a Government Department and was discharging Constitutional functions, but in the above recent case of K.D.A. this Court declined to invoke the device of lifting the veil of incorporateness in order to allow exemption to the K.DA. from the payment of sales tax by virtue of Article 165 of the Constitution and it has been held that the welfare .activities of the Government which has been passed on to the K.DA. is not wholly for the discharge of sovereign functions as such. It is also evident that the effect of the incorporation of Articel 165‑A which was incorporated in 1985 as pointed out hereinabove, has also been considered and in that context it has been observed that "the purpose, the object and the field of Article 165‑A of the Constitution is to fix the legal ownership of the property and the identity of the recipient of the income. This has been achieved by reinforcing the statutory corporate veil for all fiscal purposes. The lifting of the corporate veil as such is no longer permissible and the distinct juristic personality of the incorporated or statutory body has been recognised notwithstanding the control, the destination and the functioning of such bodies".

13. We may also observe that this Court declined to invoke in aid the doctrine of lifting of incorporate veil in eases of employees of corporation though it was demonstrated that the corporation was in fact for all intents and purposes a Government department. In this regard, it will suffice to refer to the case of Lt.‑Col. Shujauddin Ahmad v. Oil and Gas Development Corporation (1971 SCMR 566), wherein Hamoodur Rahman, C.J. declined to lift the veil of incorporateness and observed as follows:‑‑ "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 functioned subject to the instructions of the Central Government. It had no power 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, every one, 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 177 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 Corporations through its own appointed Auditors and has the power to direct those Corporations to carry out its instructions."

14. The above view has been consistently maintained by this Court with the modification that relief is granted to an employee of a Corporation if he can demonstrate that there has been violation of a provision of law or any of the statutory rules. In this behalf reference may be made to the case of Raziuddin v. Chairman, Pakistan International Airlines Corporation and 2 others (PLD 1992 SC 531), in which most of the cases on the above subject have been referred to.

15. We may also refer to the case of Manek, J. Mobed and another v. Shah Behram and others (PLD 1974 SC 351) and the case of Messrs Premier Mercantile Service and another v. S. M. Younus and 2 others (PLD 1982 SC 79). In the first case, the tenant incorporated a private limited company of which he became the Managing Director. He passed on tenement to the private limited company. This Court maintained the ejectment order by holding that "If a person obtains lease‑hold rights in his own name and subsequently assigns them to a firm or to a private limited company consisting of family members it cannot be said that no change has taken place in the status of the tenant or that it is not a case of subletting or assignment of lease‑ hold rights". Whereas in the above second case a partnership firm was the tenant. It was dissolved and a private limited company was incorporated, in which the partners of the dissolved firm were the share‑holders. This Court, while maintaining ejectment order on the ground of subletting, declined to press into service the device of lifting the veil of incorporation and observed as follows:‑‑ "

6. We would agree with the learned counsel for the petitioners that it is necessary and appropriate in certain cases to lift the veil of incorporation with a view to find out the true state of affairs and to determine the rights and liabilities of the parties. Nonetheless on doing so in this case we find that the result is not to the advantage of the petitioners. A distinct legal entity different from the firm had come into existence. It was so whether the veil of incorporation was lifted or not. Such a legal entity had altogether different rights and liabilities with respect to third parties including the landlords. Such a change could not be unilaterally brought about by the tenants so as to transform their very legal existence in a manner to affect their liability. The landlords could object. They could make it a ground for proceedings under the Rent Laws. Such a tenant as had permitted itself to be dissolved and then effaced and substituted by a different legal entity could be ejected for this ad alone, having not taken the landlord into confidence."

16. In the present case, the respondent cannot be said to have been performing Constitutional functions of the State. It is engaged in manufacture and sale of cement like the other companies which own and run cement factories. The present case is distinguishable from the S.I.T.E.'s case as in the latter case, providing infrastructure for industrial development was a function of the State, whereas to run a cement factory cannot be equated with the above work. Furthermore, the above judgment in the S.I.T.E. case was rendered on 5‑9‑1984, whereas Article 165‑A was incorporated in the Constitution in 1985, which has direct bearing on Article 165 as pointed out in the above unreported judgment of this Court in the case of KDA.

17. The cases referred to in the above treatises on the Company Law and the comments of the authors indicate that the Courts have not pierced the veil of an incorporate entity in order to allow exemption from payment of tax or to reduce tax burden. On the contrary, the doctrine of lifting the veil of incorporation has been pressed into service in order to deter tax evasion. In the Farrar's Company Law, Third Edition (supra), the author has dealt with the above question under the heading "Tax" as under at page 79:‑‑ "From time to time for reasons of fiscal policy tax legislation disregards the separate legal personality of companies. Also the Courts are prepared to disregard the separate legal personality of companies in the case of tax evasion or over‑liberal schemes of tax avoidance without any necessary legislative authority. In such cases the Courts frequently dismiss the company as a mere sham. The question of form and substance in tax law is quite complex and this is merely part of it."

18. It may be observed that the Courts have invoked the doctrine of lifting of the veil of incorporateness, whenever there is justifiable cause. In the case of The President v. Mr. Justice Shaukat Ali (supra), the Supreme Judicial Council went behind the shadow of incorporation in order to determine as to whether, there had been a breach of Code of Conduct for the Judges of the Superior Courts, which was a matter of Public Policy and of public importance. In times of war the Courts are inclined to pierce the corporate veil to determine, whether the controlling shareholders are enemy as was done in the case of Daimler Company Ltd. v. Continental Yijne & Rubber Co. (GB) Ltd. (1916) 2 AC 307, in which shares in an English Company were held by Germans in the First World War.

19. In our view, in the case in hand, there does not exist any justifiable reason for pressing into service the device of lifting the veil of incorporation of the respondent. On the contrary, there are more than one reason, which militates against invoking in aid the above doctrine. Suffice to refer a few of them. (i) As observed hereinabove, the respondent is engaged in manufacture and sale of cement like any other private or public limited company which is engaged in manufacture and sale of cement. If we were to invoke the doctrine of lifting of veil of incorporation in the present case in order to enable the respondent to have the benefit of Article 165 though otherwise it is not applicable to a private limited company, it will place the respondent in an advantageous position to the detriment of the companies which are also engaged in manufacture and sale of cement as they will not be entitled to the benefit of exemption of octroi. This will be violative of inter alia Article 25 of the Constitution which enjoins that the person placed in the same position cannot be discriminated. In this behalf, reference may be made to the case of IA. Sharwani and others v. Government of Pakistan through Secretary, Finance Division, Islamabad and others (1991 SCMR 1041), wherein the above question has been exhaustively dealt with. That the octroi is levied by the appellant Union Council in order to raise funds for the development of the rural area which is under‑developed and badly needs funds. Grant of exemption to the respondent by lifting the veil of incorporation will not, in any way, foster the cause of justice but in fact retard the development of the rural area.

20. The upshot of the above discussion is that the appeal is allowed. The judgment of the High Court is set aside, writ issued by the High Court is recalled. The respondent's petition stands dismissed. The parties shall bear their own costs. (Sd.) Ajmal Mian, J. (Sd.) Sajjad Ali Shah, J. I agree subject to my note appended herein. (Sd.) (SALEEM AKHTAR, J.) SALEEM AKHTAR, J.‑‑‑I have read with great interest the exhaustive judgment prepared by my learned brother which deals with the legal problem of lifting the veil of incorporation. As I have been a party in two judgments in the cases of K.DA. and Rice Export Corporation of Pakistan referred by my learned brother, I feel it necessary to clarify the matter from my point of view. The problem is complex and since its inception from the time of Saloman v. Saloman (1897) till today it has seen several conflicting and divergent opinions, which at times become difficult to reconcile. Considering the shifts and diversions in the opinions so far no conclusive and definite grounds or principles hove been evolved for lifting the veil of incorporation. Mayson, French and Rayan on Company Law 1991‑92, Eighth Edition have discussed the subject under heading "Lifting or Piercing the Veil" (page 107) onwards with reference to a large number of judgments of the Superior Courts and wrote: "Arguments over `lifting the veil' have raged throughout the common law world for the whole of the 20th century. It would be impossible to reconcile the hundreds of cases thought to be relevant to the argument or the dozens of academic opinions. Cases are decided by Judges who adopt different attitudes to the question and rarely, if ever, state what their general theory of corporate personality is. Sometimes, a Court, on being invited to lift the veil, enumerates circumstances in which it says this may be done and then decides that the case before it does not fall within those circumstances (see, e.g., Pioneer Laundry & Dry Cleaners Ltd. v. Minister of National Revenue (1940) Act 127, PC; Re Kinookimaw Beach Associateion (1979) 102 DLR (3d) 333;Saskatchewan CA; Pioneer Concrete Services Ltd. v. Yelnah Pty. Ltd. (1986) 5 NSWLR 254; Allarco Group Ltd. v. Suncor Inc. Resources Group, Oil Sands Division (1987) 5 WWR 159, Alberta CA; Sharrment Pty. Ltd. v. Official Trustee in Bankruptcy (1988) 82 ALR 530, Federal Court of Australia). Unfortunately the lists of circumstances provided by Courts vary considerable (probably reflecting differences of view on what constitutes lifting the veil) and, of course, a Court arguing in this way is primarily concerned with circumstances relevant to the case before it and not with producing a general theory." Finally they concluded: "The wide divergence of views on the question of lifting the veil reveals a fundamental uncertainty about the nature and effect of corporate personality. It is highly unlikely that a theory can be found which will reveal that all past cases are consistent. A general incorporation statute like CA 1985 allows people to create separate legal persons very easily. It has always been feared that this would have unforeseen disadvantages. It has been thought useful to retain the possibility of denying separate personality in order to overcome these disadvantages. However, recent judgments in Britain, especially Woolfson v.‑ Strathclyde Regional Council 1978 SC (HL) 90 and Adams v. Cape Industries plc (1990) Ch. 433, show that judicial opinion has moved towards acceptance of separate personality whatever its consequences. The change can be seen in two statements of the Court of Appeal only four years apart. In Re a Company (1985) BCLC 333 it said, at pp. 337‑8, that `the Court will use its powers to pierce the corporate veil if it is necessary to achieve justice'. In Adams v. Cape Industries plc (1990) Ch. 433, the Court said at p.536: .... save in cases which turn on the wording of particular statutes or contracts, the Court is not free to disregard the principle of Salomon v. A. Salomon & Co. Ltd. (1897) AC 22 merely because it considers that justice so requires'." In spite of this fluid and uncertain state of judicial opinions and lack of comprehensive definition of the principles, depending on the facts and circumstances of the case, the veil of incorporation can be drawn where a statute provides for it, in cases of agency where the arrangement between the company and the shareholders is such which makes the business, business of the shareholders (Smith, Stone & Knight Ltd. v. Birmingham Corporation (1939) 4 All ER 116), when company is a sham, pretence or a puppet, cases involving fraud, illegal trading, evasion of tax or liabilities imposed by law or enemy character of the corporation and many other instances which arise from the circumstances and peculiar facts of the case. As held by this Court in the President v. Mr. Justice Shaukat Ali (PLD 1971‑SC 585) referred by learned brother that `even where question of public policy is involved, the Courts have not hesitated to lift the veil of incorporation'. So in the list of cases in which veil of incorporation can be lifted as described by my learned brother, the case where public policy is involved may be added. The principle of lifting the veil of incorporation is an exception to the rule laid down by Salomon v. Salomon. After discussing various instances and theories Farrar has summoned up as follows:‑‑ "It is difficult to sum up these exceptions except to say that the departures from the Salomon principle seem to be based on policy decisions. The general principle seems to be that Salomon will be applied until some reason to the contrary appears. There is a range from legitimate purposes where it will be applied to dishonest purposes where it will not be applied. Where there is rarity of interest and ownership and the concept of separate legal personality is being used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will tend to regard the company as an association of the natural persons comprising it. Reduction of potential tort liability (short of fraud) will not suffice. In between are cases where the Court might disregard it to achieve a just result. There seems to be a general reluctance to apply the principle in a pedantice way where the result will cause injustice. It should, however, be noted that the argument for piercing the corporate veil will not usually be the sole argument in the case. It will usually be incidental to some other argument of substance. A similar but not identical point was made by Stone, J. in the American case of Re Clark's Will, when he said: Many cases present avowed disregard of corporate entity But they all come to just this‑‑Courts simply will not let interposition of corporate entity or action prevent a judgment otherwise required. Corporate presence and action no more than those of an individual will bar a remedy demanded by law in application to facts. Hence the process is not accurately termed one of disregarding corporate entity. It is rather and only a refusal to permit its presence and action to divert the judicial course of applying law to ascertained facts. The method neither pierces any veil nor goes behind any obstruction, save for its refusal to let one fact bar the judgment which the whole sum of facts requires. For such reasons, we feel that the method of decision known as `piercing the corporate veil' or 'disregarding the corporate entity' unnecessarily complicates decision. It is dialectically ornate and correctly guides understanding, but over a circuitous and unrealistic trail. The objective is more easily attainable over the direct and unencumbered route followed herein. It is submitted, however, that this describes judicial policies rather than legal principle. To state a policy is not to provide a substitute for legal principle. However, as a frank avowal of judicial policy it is welcome." The sum and substance of the views of various authors is that no hard and fast rule can be laid to limit the cases in which veil of incorporation can be lifted. Some definite instances as stated above have attained universal acceptance but it would not be safe to limit them to these given cases alone. In view of the broad spectrum in which the commerce, business and industry are developing creating new situations, novel commercial relationships and innovative dealings unknown in the past, the piercing of the veil of incorporation will entirely depend on particular fads of each case. In the same manner in my humble view all cases which lay down the principles for lifting the veil have to be read with particular reference to the facts of that case. In Karachi Development Authority (K.DA.) v. Central Board of Revenue and another (CA. No.284 of 19$7) the observations quoted in the judgment of my learned brother reflect a particular situation and background. K.DA. was manufacturing pre‑stressed cement pipes for its own use. It denied its liability to pay sales tax on the plea that it is a statutory corporation entirely financed by the Provincial Government and discharging the statutory and the ordinary functions of the Provincial Government. It was claimed that the commodity manufactured is Government‑owned property and can not be brought to tax under Article 165 of the Constitution. It was observed that K.D.A. is discharging welfare activity of the Government which is "not wholly for the discharge of sovereign functions as such". The observation quoted in the judgment proceeds on the interpretation of Articles 165 and 165‑A(1) of the Constitution and applies to sales tax the principles which have been laid down for income‑tax. It however does not mean that in fit cases and situations not relating to income‑tax or sales tax the veil of incorporation cannot be pierced. In Rice Export Corporation of Pakistan Ltd. v. K.M.C. PLD 1990 Kar. 186, the petitioner had challenged the levy of octroi duty on the plea that the goods on which levy was made belonged to the Federal Government. On the factual side it was noted that similar functions performed by Rice Export Corporation were being performed by the Director‑General Food in the Ministry of Food and Agriculture, Government of Pakistan and therefore it (RECP) was performing the function of the Federal Government and entitled to relief. In this case apart from the distinguishing feature mentioned above, RECP was the sole person exporting rice from Pakistan. In the present case the Cement Corporation is not the sole manufacturer of cement in Pakistan. There are several other corporations which are engaged in this business activity. Where a Government owns, controls and manages a corporation which is engaged in a commercial activity competing with other public/private companies engaged in similar business, the Corporation can hardly claim any privilege or immunity to the disadvantage of its competitors Subject to these observations in my view the appeal may be allowed with no order as to costs. M.BA./U‑45/S Appeal allowed