I.T.A. No. 2840/LB of 2004, decided on 1st May, 2006. VS I.T.A. No. 2840/LB of 2004, decided on 1st May, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2639 (2006)

Income Tax Ordnance (XXXI of 1979)---

----S. 80-D & Second Sched: Part-I, Cls. 115-A, 115-C, Part-IV, Cl. 123---Income Tax Ordinance (XLIX of 2001), S. 221, Second Sched: Part-I, Cl. 106-A & Part-IV, Cl. 11(xvi)---Companies Ordinance (XLVII of 1984), Ss. 15, 32, 33, 183, 178 & 205---Finance Act (VII of 2005), Preamble---S.R.O. 169(I)/1998---S.R.O. 567(I)/99---Minimum tax on income of certain persons---Assessee was registered as limited company and was sponsored by WAPDA with the expectation of the completion of the process of corporationization (privatization) in three years---Before privatization, the income and assets of the assesssee vested in WAPDA and WAPDA's income enjoyed exemption--During the transit period, exemption of income tax and minimum tax was allowed for three years---Privatization of the company/assessee was not completed within the anticipated period---On expiry of three years department undertook assessment proceedings and minimum tax under S. 80D of the Income Tax Ordinance, 1979 was levied---Assessee contended that business was carried on for and on behalf of WAPDA; that Directors/shareholders were nominated in terms of S.183 of the Companies Ordinance, 1984 and had no interest in the profit and no responsibility in the loss of the company; that Directors had no discretion to proceed independently but were bound to comply with all orders from WAPDA and that as the assessee was doing everything for and on behalf of WAPDA, levy of minimum tax on the turnover of the company was taxation of WAPDA's turnover which was not the intention of law---Validity---Held, WAPDA was the de facto owner of the assessee company as all the Directors including Chairman of the company were the employees of the WAPDA; company was incorporated with the view to privatize business of purchase of electric power; assessee company was only instrumental in the functioning of WAPDA and only indicated a nomenclature; all the Directors, Chief Executive and the Chairman of the assessee company were nominated members from employees of WAPDA and were to hold office during he pleasure of WAPDA; directors had no discretion to proceed independently but were bound to comply with all orders from WAPDA; the directors enjoyed no independent discretion, the company was being run on the commercial considerations determined by WAPDA; therefore levy of minimum tax on the turnover of the assessee company was the taxation of WAPDA's turnover which was exempted under the law and that exemption of income tax and minimum tax had been granted to the corporationized entities of WAPDA on account of sale of electricity from the date of the creation of such corporation up to the date of completion of process if corporationized till the tariff was notified---Tariff having neither been notified in the year under reference nor up to the date of effectiveness of the amendments i.e. 1-7-2005, exemption clause 106-A of Part-I of the Second Schedule of the Income Tax Ordinance, 2001 and clause 11(xvi) of Part-IV of the said Schedule were applicable to the assessee company---Demand of minimum tax pertaining to the year under review stood nullified and the orders in this respect stood abated---Order of the First Appellate Authority was vacated and the assessment order was annulled by the Appellate Tribunal.

1993 SCMR 833; PIDC v. CIT (1980) 41 Tax 44; 1993 SCMR 287; (1972) 83 ITR 211; 1991 SCMR 1447; Commissioner of Income Tax v. Ghazi Brotha Construction 2004 PTD 1994 and PLD 1999 SC 880 ref.

Mian Ashiq Hussain for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

ORDER

The appellant through this appeal has objected to the consolidated impugned order of the learned CIT(A), dated 15-4-2004 for the assessment years 1999-2000 to 2001-2002 regarding only for the assessment year 2001-2002 on the following grounds:

(i) The appellant is a formation of WAPDA; hence, not a person liable to tax in terms of charging sections of the Income Tax Ordinance, 1979.

(ii) The appellant is a wholly owned formation of WAPDA and since WAPDA has been exempted from the Income Tax, the exemption will cover NTDC as well.

(iii) The process of corporationization, including actual takeover of the business assets and liabilities by independent person, has not yet taken place and the real entity entitled to receive income and liable to bear loss is WAPDA (exempt under Clause 115-A of the Second Schedule of the Ordinance). Tax law recognizes the real persons instead of the ostensible.

(iv) Without prejudice to the foregoing grounds, denial of exemption from Income Tax to the appellant, during the year under reference, is discriminatory and violative of Article 25 of the Constitution of Pakistan, 1973 (1993 SCMR 833).

(v) Taxation of unreal book income is confiscatory and unlawful.

(vi) Without prejudice to the foregoing grounds, since the appellant NTDC did not own business and acted as an employee of WAPDA section 80-D is not attracted to the present case.

(vii) Levy of additional tax is unlawful.

(viii) The learned Commissioner of Income Tax (Appeals) did not decide grounds No.1, 2, 3, 4, 5, 6 & 7 of the grounds pressed in the first appeal.

It is, therefore, respectfully prayed that this appeal may kindly be accepted and the appellate order, dated 15-4-2004 and the assessment order, dated 20-11-2002 may kindly be cancelled.

2. The appellant in this case is a company registered as a limited company on 6th November, 1998 under section 32 of the Companies Ordinance, 1984. Initially it was sponsored by WAPDA with the expectation of the completion of the process of corporationization (privatization) in three years. Before privatization, the income and assets of the appellant, vest in WAPDA and WAPDA's income enjoys exemption under Clause 115A of the Part-I of the Second Schedule to the repealed Income Tax Ordinance, 1979. To save WAPDA from levy of income tax during the transit period, exemption of income tax and minimum tax was allowed for three years to the appellant under S.R.O.'s 169(I)/98 read with S. R. O. 567(I)/99 by inserting Clause (115-C) of Part-I of the Second Schedule to the repealed Ordinance, 1979. Privatization of the company, however, could not be completed within the anticipated period of three years i.e. assessment years 1998-99 to 2000-2001. On the expiry of three years the department undertook assessment proceeding against the appellant. Since there was heavy book loss in the accounts of the appellant in the year under review, minimum tax under section 80D of the repealed Ordinance has been levied, against which appeal was tiled before learned CIT(A) which has been dismissed and now the appellant is before this Tribunal against the impugned orders.

3. Mian Ashiq Hussain, Advocate has appeared for the appellant and has contended that appellant/NTDC has carried on business for and on behalf of WAPDA. The directors/shareholders of the appellant company were nominated as such in terms of section 183 of the Companies Ordinance, 1984. They had no interest in the profit and no responsibility in the loss of the company. He has provided the list of directors (all of them employees of WAPDA), memorandum and Articles of Association and certificate of incorporation along with certificate of commencement of business issued by Joint Registrar of Companies. Under Article-1 of the Articles of Associations, the operation of Table-A of the First Schedule to the Companies Ordinance, 1984 was excluded. Article-2(d) laid down that directors meant the directors for the time being of the company as nominated in Article-49 and, subsequently (on privatization), such members would be duly elected and registered pursuant to sections 178 and 205 respectively. Under Article-49 the nominated members were the employees of WAPDA. Such directors had the status of nominated employees in terms of section 183 of the Companies Ordinance, 1984 (excluding the application of sections 178, 180 and 181 of the said Ordinance). Under second proviso to section 183, such nominated directors were to hold office during the pleasure of WAPDA. In view of above state of affairs, learned counsel has argued that it leaves no doubt that the company directors have no discretion to proceed independently under the Memorandum and Article of Associations but were bound to comply with all orders from WAPDA. Since the directors enjoyed no independent discretion, the company was run on the commercial considerations determined by WAPDA. According to him that was the peculiar situation and the appellant company was doing everything for and on behalf of WAPDA. He has contended that in the circumstances of the case, levy of Minimum Tax on the turnover of the company was taxation of WAPDA's turnover which was not the intention of law. He is of the view that for this reason exemption was allowed for three years i.e. assessment years 1998-99, 1999-2000 and 2000-2001 under clause 115-C of Part-I of Second Schedule. He has contended that the judgment relied upon by the Revenue cited as (1980) 41 Tax 44 (H.C. Karachi) in the case of PIDC v. CIT is not relevant in the facts of the present case, because in that case the Corporation was independently carrying on specific business ventures on purely commercial considerations. He has argued that under the Income Tax law, income is to be taxed in the hands of the person who owns it and in the present case WAPDA owned the entire turnover, income/loss of company, it was the turnover and loss of WAPDA and not that of NTDC which was only instrumental in the transit period till the time of privatization; when all the provisions of Companies Ordinance, 1984 and the relevant clauses of the Articles of Association will be put into gear. The learned counsel for the appellant has placed reliance on the judgment of the Hon'ble Supreme Court of Pakistan reported as 1993 SCMR 287 to point out that the income was taxable in the hands of the owner of the income. Reliance in this respect has also been placed on the judgment reported as (1972) 83 ITR 211 (S.C. India) to canvas the point that real owner of turnover income or loss was WAPDA while NTDC was instrument of WAPDA till it's privatization. Meanwhile NTDC is integral part of WAPDA and "no one can sell his goods to himself". Reliance was also placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1991 SCMR 1447 in the case of the Income Tax Officer v. Eruck Maneckji and others. In that case, an Indian company namely Dalinia Cement Limited carried on business activities for and on behalf of Mr. Eruck Maneckhji and/or his nominee namely Pakistan Progressive Cement Industries, Limited, Karachi. The Hon'ble Court upheld that income was taxable in the hands of Eruck Maneckji or his nominee. In the light of the judgment, the counsel of the appellant concluded that subject of Income Tax was ownership of income and not business activity. He has argued that exemption from Income Tax and Minimum Tax was allowed to the appellant under the Second Schedule for the reason that legislature did not intend to tax the income of WAPDA. But the scheme of things envisages that on privatization, private owner of the company will be taxed. During the transit period resort to taxation of the appellant's income would mean taxation of WAPDA's income, which was otherwise exempt under Clause (115A) of Part-I of the Second Schedule to the repealed Ordinance. According to learned counsel, it would be contradiction in terms and unreasonable classification of income upto and after 30-6-2000: first class of exempt income upto the date for the reason that it was WAPDA's income and second class of taxable income after the said date despite the fact that it still remained WAPDA's income. The argument of discrimination was advanced with reference to classification on the cut date. Learned counsel has submitted that the Hon'ble Supreme Court of Pakistan had the occasion to examine the issue whether a special date fixed for grant of any privilege or benefit can form a valid base of classification. The Hon'ble Court has held that without any nexus with the object sought to be achieved by the classification, the classification was discriminatory. He has in this report referred the decision of the Hon'ble Supreme Court of Pakistan reported as 1993 SCMR 833. It was pointed by the learned counsel that the reason for grant of the benefit of exemption upto 30-6-2000 and thereafter was, therefore, without any rational basis and amounted discrimination prohibited under Article-25 of the Constitution of the Islamic Republic of Pakistan, 1973. He has contended that the exemption from tax, available to WAPDA should remain available to NTDC till the object of its privatization was achieved. Learned counsel in this respect has also referred the progress of the amendment in the relevant laws during the pendency to this appeal and has submitted that although from the facts of the case, it flows that appellant's business activity was for and on behalf of WAPDA, but the situation has also been recognized by law as the relevant legal provisions have been amended with retrospective effect by the Finance Act, 2005, (Act, VII of 2005): Clause 106-A was inserted in the Second Schedule, Part-I of the Income Tax Ordinance, 2001. The said clause, granting exemption of Income Tax with retrospective effect, which is reproduced below for ready reference:--

EXEMPTION FROM TOTAL INCOME

"[(106-a) Any income derived by the corporationized entities of Pakistan Water and Power Development Authority from the date of their creation upto the date of completion of the process of corporation i.e. till the tariff is notified.]"

Sub-clause (xvi) of Clause-11 of the Part-IV of the Said Schedle was also inserted. The sub-clause, granting exemption of minimum tax with retrospective effect, is reproduced below:--

"The provision of section 113, regarding minimum tax, shall not apply to the corporationized entities of Pakistan Water and Power Development Authority, so far as they relate to their receipts on account of sales of electricity, from the date of their creation upto the date of completion of process of corportization i.e. till the tariff is notified."

He has contended that it is evident that both the amendments are applicable retrospectively. Exemption of Income Tax and minimum tax has been granted to the corporationized entities of WAPDA on account of sale of electricity from the date of the creation of such corporations upto the date of completion of process of corporationization i.e. till the tariff notified. He has submitted that the tariff was neither notified in the year under reference nor upto the date of effectiveness of the above said amendments i.e. 1-7-2005. He in this respect has also produced a copy of relevant page of daily 'DAWN', dated 18-12-2UU4 which is an article by Engineer S. Tanzeem Hussain Naqvi titled "power sector restructuring: reforms or regression" bearing out that corporationization of entities of WAPDA is not visible in near future. Learned counsel has contended that after the enforcement of aforesaid amendment in law, it is difficult to subscribe to the view that "The fact that the company pressed for grant of statutory exemption under the Second Schedule for its income under all heads, implies an acceptance on it's part that there was indeed a legitimate charge on its turnover under section 80-D as exemption can only be claimed where there was a charge". He has contended that the charge has already been waived through the aforesaid amendments granting exemption with retrospective effect. According to learned counsel there is no estoppel against law. He has in this respect referred the decision of the Hon'ble Peshawar High Court reported as 2004 PTD 1994 (Pesh.H.C.) in the case of Commissioner of Income Tax v. Ghazi Broha Construction wherein it has been held that "The Income Tax Officer is under a duty to apply the law notwithstanding the claim of an assessee, even if the result would be favourable to the assessee, in the same way as he would decline assessee's claim for concessions if not admissible under the law". Learned counsel has contended that as a sequal of the foregoing discussion and amendments in law the impugned order abates as it has no legal sanction. He has, therefore, prayed that the appeal may please be accepted and the impugned orders of the officers below may kindly be cancelled.

4. On the other hand, Mrs. Sabiha Mujahid, learned DR is supporting the impugned orders of the officers below. She has contended that the assessee's stance before this Tribunal is contradictory to the earlier stance before the Taxation Officer where the assessee sought rectification of the assessment orders for the assessment years 1999-2000 and 2000-2001 on the ground that income under all heads was eligible for statutory exemption under the Second Schedule. She is of the view that in fact the company pressed for grant of statutory exemption under the Second Schedule for its income under all heads is impliedly an acceptance on its part that there was indeed a legitimate charge on its turnover under section 80D as exemption can only be claimed where there was a charge. She has argued that the assessee has now taken the stance that no charge arises in its case which is prima facie .a conflict with its earlier stance when rectification was sought for the assessment of the previous assessment years i.e. 1999-2000 and 2000-2001. She has submitted that it is quite obvious that the department has charged turnover tax under section 80D for the year tinder review as statutory exemption was no longer available to the assessee company at the time of the assessment and the assessee company having declared net operating loss was liable to charge of tax under section 80D on its turnover.

According to learned DR under the law of the land, there is no bar on Government from setting up corporate entities to independently carry out specified ventures on purely commercial considerations. She has submitted that it is not at all axiomatic that since WAPDA was instrumental in setting up NTDC/the appellant company, hence the company was necessarily a share company. She is of the view that the appellant to establish conclusively that it was a mere name lender for WAPDA it will have to show that with regard to the day to day operations the company's directors do not adhere to its memorandum and articles of association but rather take all orders verbatim from WAPDA in supersession of its memorandum and articles and that the directors do not run the company on commercial considerations, which according to learned DR the appellant has failed to establish. She has argued that the Government is empowered to set up corporations to independently carry out specified commercial ventures and it follows as a corollary that the income of such corporations would constitute normal business income and be subjected to levy of income tax under the statute. She has in this respect referred the decision of the Hon'ble Karachi High Court in the case of the PIDC reported as (1980) 41 Tax 44 (H.C. Kar.) wherein it has been held that "now it is well settled that in certain exceptional cases, including for tax purposes, the Court is entitled to lift the veil of incorporation and pay regard to the substance and reality behind the legal fiction". It has further been held in this decision that "To treat the corporation as if it were a department of the Government, would defeat the real object of incorporating statutory corporations for undertaking Government functions relating to industrial and commercial development, by freeing it from the red-tapism or inflexibility for which Government departments are notorious". Learned DR has submitted that in the present case notwithstanding the fact that WAPDA has been instrumental in setting up the assessee company it is a genuine company and its income/loss is liable to be assessed under the Income Tax Ordinance, 1979 for the year under review and the treatment meted by the. officers below according to learned DR is fully justified.

5. We have heard the learned representatives from both the sides and have also perused the impugned orders of the learned CIT(A) and the assessment order, case law referred from both the sides and the relevant provisions of law. The instant appeal was initially heard on 23-10-2004 but as the learned Accountant Member in the meanwhile has been transferred/repatriated to his parent department, the appeal has been fixed for rehearing before this Bench. The appellant/assessee in this case in an unquoted public limited company engaged in the business of purchasing electric power from generation projects and selling it to the electricity distribution companies. The Assessing Officer after obtaining copy of incorporation certificate, audited annual accounts for the periods relevant to assessment years 1999-2000 to 2001-2002 which were got attested from the Company Secretary of the assessee and as no suo motu returns were filed despite the fact that the company being incorporated on November 6, 1998 and as such first year of assessment was 1999-2000, the notices under section 56 of the repealed Ordinance, 1979 were issued for all the three years. In reply it was contended that the assessee company is exempt from tax till the completion of corporationization process as the assessee company is till functioning on the basis of "united WAPDA". The Taxation Officer has in the assessment order observed that "the contention of the assessee company could not be accepted as the company was in full operation, and working in accordance with the objectives as per its Memorandum and Articles of Association. The copies of balance sheet and profit and loss account as on 30-6-1999, 2000 and 2001 also depicted the same picture testifying that the process of creation stood completed and the company was in full commercial operation. The process of creation of the company followed the decision taken by the ECC on 13-1-1998 and the ensuing exemption period of 3 years stood exhausted as on 30-6-2000. It would also not be out of place to emphasize that the EEC is subordinate to the Parliament and the Parliament in its wisdom granted exemption to these companies for three years. There is presumption that the relevant provisions were enacted keeping in view the best national interest. Even otherwise the word creation used by the EEC is to be seem in the sense it is used in the legal arena". The Taxation Officer in this respect has also referred the following provisions of Companies Ordinance which lays down the procedure of formation of company:-

"15. Mode of forming a company.--

(1) Any seven or more persons associated for nay lawful purpose may, by subscribing their names to a memorandum of association and complying with the requirements of this Ordinance in respect of registration, form a public company and any two or more persons so associated may in like manner from a private company.

And once it is registered the process of formation of the company is completed as is given in section 32 of the same Ordinance as under.---

32. Effect of registration:--

'(1) On the registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incorporated and in the case of a limited company, that the company is limited by shares or guarantee, as the case may be'.

`(2) From the date of incorporation mentioned in the certificate of incorporation, the subscribers of the memorandum, together with such other persons as may form time to time become members of the company shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company, and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Ordinance'.

33. Conclusiveness of certificates of incorporation.---

A certificate of incorporation given by the Registrar in respect of any association shall be conclusive evidence that all the requirements of this Ordinance in respect to registration and of matters precedent and incidental thereto have been complied with, and that the association is a company authorized to be registered and duly registered under this Ordinance."

The Taxation Officer then issued notice under section 61 on 15-5-2002, and 22-5-2002 confronting the assessee that the exemption has been granted upto assessment year 2000-2001 under Clause 115C of Part-I and Clause (32) of Part-IV of the Second Schedule to the repealed Income Tax Ordinance, 1979 and that the assessment year 2001-2002 is not protected by the said provisions of law. In response to the notices, on behalf of the assessee, it was contended that "the company is exempt under clause 115-A of Part-I of the Second Schedule to the Income Tax Ordinance, 1979 as under this clause income of WAPDA is exempt and assessee company is still working under the control of united WAPDA. The process of transfer of assets and liabilities is still not completed even ensuing process of corporationization is under way." It was also contended' by the assessee company that WAPDA is filing return of General Sales Tax on behalf of the assessee company as per direction of the Federal Government. It was also contended that all expenditure incurred is on behalf of WAPDA and that the employees of NIDC are still owned by WAPDA. It was also stated in the reply that the assessee company has already brought this sensitive issue to the notice of Chairman, C.B.R. and that WAPDA in its presentation will also bring this critical issue to the knowledge of President of Pakistan.

The Taxation Officer after discussing the matter at length has finally assessed the income for the assessment years 1999-2000 to 2001-2002 through consolidated assessment order. The relevant portion regarding the assessment year under review i.e. 2001-2002 is reproduced hereunder:--

Assessment year 2001-2002

Other Income:--

Similarly, for assessment year 2001-2002 the "other income", is being assessed for the same reasons as discussed for assessment years 1999-2000 and 2000-2001. The assessee company has earned Rs. 1,433,674,717 as other income which includes gain on sale of fixed assets, receipts of HVSC laboratories, interest income, late payment surcharge, sale of scrap and others. As this income is not exempt, the same is assessed as taxable.

Business Income

As discussed above, the assessee company is in full operation and working in accordance with the objectives of its Memorandum and Articles of Association. This is further confirmed by the copy of balance sheet and profit and loss account as on 30-6-2001 which testifies that the process of creation stood completed and the company was in full commercial operation. Period of exemption stood exhausted on 30-6-2000. On the request of the assessee, sufficient time has been afforded to if to get the period of exemption extended through Central Board of Revenue. However, the assessee company failed to obtain the same and therefore a final notice under section 62 of the Income Tax Ordinance, 1979 was issued and served upon the assessee, in response to which the attending Directors vide order-sheet entry, dated 20-11-2002 stated that Central Board of Revenue through Member (Direct Taxes) has turned down the request for extending the exemption period. Under these circumstances, no further, adjournment is being allowed and the request by the assessee company to stop the proceedings is rejected. In the above said notice proposed assessment was also confronted to the assessee. Though, the trading results are being accepted the assessee company was required to attend certain queries through notice under section 62 of the Ordinance which have already been discussed in the earlier part of this order. As no explanation/reply has been submitted, therefore, income of the assessee is computed as under:

Other Add Backs:

(1) Salaries claimed at Rs.1,115,606,585

It was confronted in the notice under section 62 of the Income Tax Ordinance, 1979 that to avoid action under sections 24(c), 24(I) and 24(fff), complete details of salary and wages be furnished. However, no record has been submitted, therefore, 10% of the salaries are being disallowed which comes to:--

Rs.111,560,659

(2) "Other" claimed at Rs.93,494,029

As no evidence/detail has been provided regarding the nature of these expenses, the same are being disallowed which come to:

Rs.93,499,029

(3) Addition under section 24(c)

It was requested to the assessee that for the payments made regarding services rendered to it in respect of Advertisement (2,023,066, Audit Fee (645,000), Legal and Professional (24,863,580) and Repair and Maintenance (140,064,753 to furnish the evidence of tax deducted at source under section 50(4) to avoid action under section 24(c) of the Income Tax Ordinance, 1979. However, as no evidence in this regard has been produced the same are being disallowed and added back to the total income of the assessee.

Rs.167,596.399

Tax under section 80D

As discussed above, tax under section 80D was also exempt upto assessment year 2000-2001 under clause 32 of Part IV of the Second Schedule to the Income Tax Ordinance, 1979. However, for the similar reason as discussed for levy of income tax, tax under section 80D is also not exempt from assessment year 2001-2002. As the income of the assessee has been assessed at net loss during assessment year 2001-2002, therefore tax under section 80D of the Income Tax Ordinance, 1979 is being charged as under:--

The assessee against the above referred treatment of the Taxation Officer filed appeal before the learned CIT(A) and also filed rectification application before the Taxation Officer.

The Consolidated assessment order was rectified by the Taxation Officer through order passed under section 221 of the Income Tax Ordinance, 2001, dated 26-5-2003 regarding assessment years 1999-2000 and 2000-2001 and contention of the appellant in respect of exemption of income under Clause 115C has been accepted and no tax has been charged, even the additional tax under section 88 has also been deleted. But for the assessment year i.e. 2001-2002, the previous treatment was upheld and the learned CIT(A) has also upheld the above referred levy of tax under section 80D with the following observation:--

"The arguments of the learned AR have been given due consideration and the record of the case perused. The Assessing Officer after a detailed discussion mentioning various provisions of Companies Ordinance, 1984 as well as the provisions of Income Tax law came to the correct conclusion that the appellant company is liable to tax under the Income Tax Ordinance, 1979. The company has been formed as a separate entity with its memorandum and articles of association, therefore, it cannot be treated as part of WAPDA organization as such. The company's income attracts the provisions of Income Tax Ordinance which has rightly been invoked by the Assessing Officer. In the circumstances the levy of tax under section 80D is considered as lawful and in accordance with the provisions of law on the subject. The assessment completed is, therefore, upheld."

6. It has been contended by the appellant that till today the appellant company NTDC only indicate a nomenclature and tax under section 9 of the repealed Income Tax Ordinance, 1979 is not leviable on nomenclature and is chargeable on a person in true sense of the word. NTDC is not an independent person and only a formation of WAPDA, it is not chargeable to tax under the Income Tax Ordinance, 1979. Regarding section 80D, it has been contended that this section is not attracted to the facts of the case as the appellant is managed by employees of WAPDA and for all intents owned by WAPDA, which is exempt from tax under section 115A of the Income Tax Ordinance, 1979, and also exempt from minimum tax under section 80D under Clause 23 of Part IV of the Second Schedule to the above said Ordinance. Entire sales are in fact paper transaction made to WAPDA by or formation of WAPDA which are covered under the exemption under the Second Schedule and are therefore not covered under section 80D. In this respect, reliance has been placed on a decision of Indian jurisdiction reported as (1972) 83 ITR 211 wherein it has been held that none can sell his goods to himself. It has further been contended that 80D will not be attracted to its turnover till the time company is privatized. The paper turnover by the subsidiary to the parent company will remain out of the purview of tax under Clause 23 of Part-IV of Second Schedule to the late Ordinance, 1979. It has been contended that in case the sales shown on paper, which in fact is only an accounting transfer, as interim arrangement between the subsidiaries of WAPDA to WAPDA are tax under section 80D, the purpose of allowing exemption to WAPDA will be frustrated. There will be no rational basis to tax the transactions of WAPDA indirectly from one of its formation, while turnover of WAPDA is exempt from the charge of Income Tax and minimum tax under section 80D and is against the settled proposition of law by the Hon'ble Supreme Court of Pakistan in a decision reported as PLD 1999 SC 880 holding that what cannot be done directly cannot be done indirectly. After considering all these facts of the case, we are of the view that in this case we have to lift the veil of incorporation to determine the real status of the appellant company. We have found that in this case WAPDA is the de facto owner of the appellant company as all the Directors including Chairman of the Company are the employees of the WAPDA. The company was incorporated with the view to privatize business of purchase of electric power. But as initially the assessee company is only instrumental in the functioning of WAPDA and only indicate a nomenclature.

It is undisputed phenomenon that under Memorandum and Articles of Association of the assessee company all the Directors, Chief Executive and the Chairman of the assessee company are nominated members employees of WAPDA and were to hold office during the pleasure of WAPDA. These directors have no discretion to process independently but are bound to comply with all orders from WAPDA. As the directors enjoyed no independent discretion, the Company is being run on the commercial consideration determined by WAPDA. Due to this peculiar situation, we are of the view that levy of minimum tax on the turnover of the assessee company is the taxation of WAPDA's turnover which is exempt under the law.

Even otherwise we have found that the law, has been amended by the Finance Act, 2005 and the Clause 106-A has been inserted in the second Schedule, Part-I of the Income Tax Ordinance, 2001 granting exemption with retrospective effect. The clause is reproduced hereunder for ready reference:--

"[(106A) Any income derived by the corporationized entities of Pakistan Water and Power Development Authority from the date of their creation upto the date of completion of the process. of corporationization i.e. till the tariff is notified.]"

Likewise through same Finance Act, 2005, sub-clause (xvi) of Clause 11 of Par-IV of the said Schedule has also been inserted. The sub-clause, granting exemption of minimum tax with retrospective effect is also reproduced herewith:

"The provision of section 113, regarding minimum tax, shall not apply to [(xvi) the croporationized entities of Pakistan Water and Power Development Authority, so far as they relate to their receipts on account of sales of electricity, from the date of their creation upto the date of completion of the process of corporationization i.e. till the tariff is notified."

From these provisions of law, it is evident that both the amendments are retrospectively applicable. Exemption of income tax and minimum tax has been granted to the corporationized entities of WAPDA on account of sale of electricity from the date of the creation of such corporation up to the date of completion of process if corporationized i.e. till the tariff is notified in this regard. As the tariff was neither notified in the year under reference nor upto the date of effectiveness of the above said amendments i.e. 1-7-2005 we are of the considered view that the above said exemption clauses are applicable to the assessee company.

7. As a consequence of the above mentioned amendments in law the demand of minimum tax pertaining to the year under review stands nullified and the impugned orders in this respect abated. The appeal, therefore, bears fruit. Impugned order of the learned CIT(A) to the extent of the year under review i.e. 2001-2002 is, therefore, vacated and the assessment order for the year under review is annulled. Appeal filed by the assessee is allowed.

C.M.A./145/Tax (Trib.)Appeal accepted.