2009 P T D (Trib.) 1332
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmed, Chairman and Istataat Ali, Accountant Member
I.T.A. No.187/IB of 2005, decided on 28/02/2009.
(a) Income-tax---
----Local authority---Qualifications and characteristic of local authority---An entity will be "local authority" if it (i) has its own juristic personality distinct from its members (ii) within its own local area, exercises considerable powers of local self-government (iii) chalks out its schemes for the development of a local area under its control and provides civic amenities for the inhabitants of the area (iv) prepares its own annual budget for submission to the Provincial Government (v) exercises its powers within a limited territory included in a Province (vi) exercises powers which belong to the Province but, which by statute, are delegated to the local authority (vii) has powers of imposing taxes; and, (viii) maintains/administers a local fund.
1976 PTD 56 rel.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss. 49(2)(4), 2(31A) & 122(5A)---Income Tax Ordinance (XXXI of 1979), Second Sched: Part-I, Cl. 124AA, 88 & S.80D---General Clauses Act, (X of 1897), S. 3(31)--National Highway Authority Act, (XI of 1991), Ss. 10, 12, 13, 19 & 21---Finance Act (IV of 2007), Preamble---C.B.R. Letter C. No.2(3) WT/93, dated 25-11-2000---C.B.R. Letter C.No.4(2) WHT/91-Pt., dated 27-12-2004---Constitution of Pakistan, 1973, Art. 165A---Federal and Provincial Government, and local authority income---Exemption---Assessee was engaged in construction of national highways and strategic roads filed return declaring "nil" income claiming exemption in the status of local authority---Assessment was finalized by the Assessing Officer for the reason that Authority's income was not exempt from tax---Assessee contested that claim of exemption was wrongly rejected by the Assessing Officer--Assessment was set aside with certain directions---Assessee contended that First Appellate Authority did not discuss the claim of exemption for being a local authority and he was not justified to set aside the assessment---Validity---Given conditions had to be simultaneously and cumulatively fulfilled for any entity to qualify as local authority that it has its own juristic personality distinct from its members---National Highway Authority fulfills these conditions because it was established through an Ordinance as a regulatory authority being independent in the performance of its functions---Condition of exercising considerable powers of self-government within its own local area consists of three parts i.e. (a) it had its own local area; (b) it exercises considerable powers; and (c) these powers are of local self-government---Authority's operations are not restricted to any local area neither it has the powers of local self-government, its operations are spread all over the country and its powers are not in the nature of local self-government, said condition of having local area and powers of local self-government is not satisfied by the National Highway Authority---Condition that it chalks out its schemes for the development of a local area under its control and provide civic amenities for the inhabitants of the area; such condition consists of four parts i.e. (a) it chalks out its schemes (b) these schemes are for development of local area under its control (c) provides civic amenities and (d) these amenities are for inhabitants of the area, said conditions are not fulfilled by the Authority because although it chalks out its schemes for development but these schemes are not for the development of any "local area" under its control, in fact there is no local area under its control, its schemes for development are of national level and are spread in all parts of the country and it did not provide any civic amenities---Provision of civic amenities for "inhabitants of the area" was far fetched propositions for it---Condition that it prepares its annual budget for submission to the provincial government, authority was established by the Federal Government and its operations are controlled by the Federal Government, condition of submission of budget to provincial government is not fulfilled---Condition that it exercises its powers within the limited territory included in a province, this condition is also not fulfilled by Authority because its operations are spread throughout the country and it did not exercise powers within a "limited territory included in a province"--Condition that it exercises powers which belong to the province but, which by statute, are delegated to the local authority, authority does not fulfil this condition because powers being exercised by it did not belong to any province, its powers essentially belong to the Federal Government and it was performing its functions on behalf of the Federal Government---Condition that it has powers of imposing taxes, Authorities does not fulfil this condition because it could collect "tool" and not "tax", very important feature of having powers of imposition of taxes was missing in the case of the Authority---Condition that it maintains/administers a local fund, it is provided in the National Highway Authority Ordinance, 2002 that there shall be a "fund", which will vest in and utilized by it to meet its expenses, said fund is not a "local fund"; local fund means the fund vested in any authority which had its operations restricted to "local area", whereas Authority's operations are spread all over the country and its Fund could not be treated as a "local fund"-In addition to other features the local authority had the powers to lay out towns, mandis, market places, villages, roads, break up land for cultivation etc.---Such features essentially lead to infer that all the operations of a local authority were restricted in a limited area for the uplift and welfare of inhabitants of that very area---Local authority generates its own revenue through imposition of local taxes and short fall of finances, if any, was met out of grants from the Provincial Government---Characteristic of National Highways Authority's operations were in no way similar to those of local authority----Authority was not a local authority; it is rather a regulatory authority---Claim of exemption for being local authority by the National Highway Authority was rightly rejected by the department, however, since no second appeal was filed by the department, the order of Assessing Officer could not technically be restored---Appellate Tribunal rejected the assessee's appeal and maintained the orders of First Appellate Authority whereunder the assessment order was set aside.
1976 PTD 56 and 1981 PTD 66 rel.
2004 PTD 174 (ITAT Lahore); K. D. As. PLD 1977 Kar. 1562; 1980 PTD 329; Army Welfare Sugar Mills Ltd. v. Federation 1992 SCMR 1652; Commissioner of Income Tax v. Shahnawaz Ltd. 1993 SCMR 73; Far Eastern Impex (Pvt. )Ltd. v. Federation of Pakistan 2005 PTD 955; Qaiser A. Manoo v. Income Tax Appellate Tribunal 2006 PTD 406; Muhammad Streamship Company Ltd. v. Commissioner of Income Tax (Central) Karachi, PI,D 1966 SC 828; 1992 SCMR 1652; PLD 1965 SC 201; DLR 1965 SC 74; Rostom Ali v. Chairman LPIDCE PLD 1964 Dac. 721; PLC 1964 Dac. (Pak.) 511; DLR 1963 Dac. 651; Pb. Co. Op. Union v. Govt. of Pub. Excise and Taxation Dept( PLD 1983 Lah. 522; PLD 1966 Pesh 89 (DB); PLD 1965 SC 2001; Messrs Pakistan Telecommunication Authority Ltd. (PTA) 2009 PTD (Trio.) 543 and 2000 PTD (Trib.) 2853 ref.
Syed Tariq Jamil, FCA and Farrukh Jamil, ACA for Appellant.
Muhammad Asif, DR for Respondent.
ORDER
This appeal has been filed by the assessee against order, dated 23-11-2004 passed by CIT(A-l), Islamabad. As per facts the assessee engaged in the construction of national highways and strategic roads filed return declaring "nil" income claiming exemption in the status of local authority. The Assessing Officer requisitioned copies of audited accounts and started proceedings for assessment of income for the reason that in his opinion Authority's income was not exempt from tax. The assessee was confronted to explain its position and for the reasons recorded in the assessment order, dated 30-6-2004 its reply was not accepted and net income was assessed at Rs. 1,670,020,000. The assessee filed appeal contesting that the claim of exemption was wrongly rejected by the Assessing Officer. Learned CIT(A) vide his impugned order, dated 23-11-2004 set aside the assessment with certain directions. The assessee filed second appeal contesting that CIT(A) did not discuss the claim of exemption for being a local authority and he was not justified to set aside the assessment.
2. Referring to history of NHA learned AR stated that National 'Highway Authority before enactment of National Highway Authority Act, 1991 was National Highway Board working as an attached department of Ministry of Communication. NHA Act was passed to create National Highway Authority to plan, promote, organize and implement plans for construction, development, operation, repairs and maintenance of national highways and strategic roads specially entrusted to it by the Federal Government, or by a Provincial Government or other authority concerned. Under section 10 clause (vii) of the said Act NI-IA can levy, collect or cause to he collected tolls on national highways, strategic roads and other roads as may be entrusted to it and bridges thereon; and under clause (viii) it is empowered to collect license facilities on roads under its control on such terms as it deems fit. Under the provisions of section 12 it has the power to eject unauthorized occupants and under section 13 all officers and servants of NHA are civil servants. Section 19 provides that NHA is a local authority for the purpose of borrowing money under Local Authorities Loans Act, 1914. Moreover, section 21 envisages that there shall be formed a non-lapsable fund vesting in the Authority known as "National Highway Authority Fund" to be utilized by the Authority to meet charges in connection with its functions under this Act including the payment of salaries and other remunerations to the chairman, members, officers, servants, experts and consultants of the Authority. Section 25 contains mechanism for recovery of arrears as arrears of land revenue. Extraordinary powers of land acquisition have been given under section 26 and under the provisions of section 29 it has the power to enter any land or premises.
3. Learned AR stated that NHA was first served a notice in 1995 under section 56 of the repealed Ordinance, 1979 to file return of income from establishment of NHA in 1991. NHA declined as it was not under any obligation to file a return. The matter was taken up with the Ministry of Communication. As advised by Ministry of Communication, NHA prepared a case that it cannot be burdened with the income tax as it is a body created for development and maintenance of highways and strategic roads and that it would qualify as a local authority exempt from tax like other development authorities namely LDA, KDA, CDA, etc. NHA also used the case of Thal Development Authority (TDA) which was initially subjected to tax but it was reversed by the High Court and also confirmed by the Supreme Court. This summary was sent to the Law and Justice Division along with a copy of the Thal Development case for their comments. Law and Justice Division ruled that NHA is a local authority and the case of TDA squarely apply to NHA. Based on the findings of the. Law and Justice Division, NHA filed the return of income for all the five years claiming exemption as local authority. These were accepted by the Taxation Officer and he continued to do so every year until 2001-2002, when for the first time it was challenged by the Taxation Officer that NHA is not a local authority. Side by side the assessments for the years 1991-2002 to 1997-98 were amended under section 122(5A) of the Ordinance, 2001 and orders were passed by treating NHA a public company. These seven cases have since been annulled on technical ground that the provisions of section 122(5A) could not be Invoked to amend any order passed on or before 1-7 2003. But the assessment orders for the assessment years 1998-99, 1999-2000 and 2000 2001 are holding field as local authority, even today.
4. Learned AR staled that Excise and Taxation Authority (ETA) has always been granting registration of NHA motor vehicles without payment of CVT. This issue became a subject matter of audit during audit of ETC. Accordingly, LTA served a notice of NHA to deposit CVT on all vehicles registered without payment of CVT. NHA explained to the LTA that it is exempt from levy of CVT as it is not applicable to local authority. In this connection a certificate from Taxation Officer was also presented to ETA but they declined to accept any ruling other than ruling of C.B.R. NHA therefore moved. In application to C.B.R. and in response C.B.R. clarified vide letter C. No. 2(3)WT/93, dated 25-11-2000 that NHA is exempt from CVT as it is a local authority. Another matter that called in question the status of NHA as local authority was with reference to application of rate of withholding tax under section 151 of the Income Tax Ordinance, 2001 on payment of interest on delayed payments under section 28 of the Land Revenue Act, 1894 to the landowners. The matter was referred to C.B.R. for a ruling on rate of tax applicable to such payment. It was confirmed by C.B.R. by their letter C.No.4(2)WHT/91-Pt, dated 27-12-2004 that rate of tax applicable on delayed interest payment was 20%, under section 151(1)(c), which applies to payments of interest on securities of the Federal Government, Provincial Government and local authority. This also confirms that C.B.R has treated NHA as local authority.
5. Learned AR stated that the expression "local authority" has not been defined in the Income Tax Ordinance, 1979. Accordingly, the definition of the expression provided in the General Clauses Act, 1897 is applicable, which provides that "local authority" shall mean a municipal committee, district board, body of port commissions or other authority legally entitle to, or entrusted by the Government with, the control or management of a municipal or local fund. This matter is adequately discussed at tribunal, higher and Supreme Courts level. Some significant reported cases are (i) LDA case reported as 2004 PTD 174 (ITAT Lahore); (ii) KDA case reported as PLD 1977 Karachi 1562; (iii) TDA case reported as 1976 PTD 56 and (iv) TDA case reported as 1980 PTD 329.
6. Learned AR averred that through subsequent legislation amendments were made is section 49 of the Income Tax Ordinance, 2001 by Finance Act, 2007 and Finance Act, 2008, whereby the Government has categorically excluded entities like NHA from the ambit or exemption earlier available under section 49 to the Federal Government, Provincial Government and local authority. Subsection (4) introduced by Finance Act, 2007 reads as under:--
"Exemption under this section shall not be available in the case of corporation, company, a regulatory authority, a development authority, other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company, a regulatory authority, a development authority or other body or institution set up, owned and controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income as laid down in Article 165A of the Constitution Of the Islamic Republic of Pakistan."
7. Learned AR argued that the above amendment was not considered sufficient as it did not serve the purpose of bringing in the ambit of taxation the development authorities like, Defence Housing Authorities, LDA, KDA, and similar other authorities engaged in the activities qualifying as local authority as defined in the General Clauses Act. Subsection (2) of section 49 was further amended by Finance Act, 2008 to substitute the expression "local authority" with the expression "Local government". The expression "local government" has also been defined in section 2(31A) as follows:--
"Local Government" shall have the same meaning as defined in the Punjab Local Government Ordinance, 2001 (XIII of 2001), the Sindh Local Government Ordinance, 2001 (XXVII of 2001), the N.-W.F.P. Local Government Ordinance, 2001 (XIV of 2001) and the Balochistan Local Government Ordinance, 2001 (XVIII of 2001)."
8. Learned AR emphasized that subsection (4) of section 49 of the Income Tax Ordinance, 2001 is neither clarifying in nature nor does it suggest to have retrospective application. It does not by any stretch of imagination clarify an existing legal position. This becomes clear when the provision of subsection (4) is read with Article 165A of the Constitution, as reproduced below:--
"For removal of any 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 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."
9. Learned AR stressed that Clause (2) of Article I65A provided retrospective validation to all orders made, proceedings taken and acts done prior to its insertion. Clause (3) stipulated that 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". In view of this position, the introduction of clause (4) in section 19 of the Income Tax Ordinance, 2001 is not made for removal of doubt but a conscious decision to exclude certain classes of persons and taxpayers from the ambit of exemption as provided in section 49. It is neither clarificatory nor retrospective. It is a settled law that unless the law specifically provides for a retrospective application, such a meaning could not be construed as held in case of Army Welfare Sugar Mills Ltd. v. Federation 1992 SCMR 1652 and Commissioner of Income Tax v. Shahnawaz Limited 1993 SCMR 73. The Courts have also repeatedly ruled that in a tax statute one has to see what is clearly and expressly stated and there is no room for intendment, presumption or to imply. Wherever possible, the law is to be construed strictly against the State and liberally in favour of the taxpayer as held in the case of Far Eastern Impex (Pvt.) Ltd. v. Federation of Pakistan 2005 PTD 955 and Qaiser A. Manoo v. Income Tax Appellate Tribunal 2006 PTD 406.
10. Learned AR highlighted that based on the subsequent legislation, it is quite evident that the exemptions earlier granted to NHA as local authority by the Taxation Officer up to the assessment year 2000-2001 were valid, and for the subsequent assessment years where a change of opinion has taken place is invalid until the tax year, 2007. NHA, however, has lost its status as local authority effective from tax year, 2008 in view of subsequent introduction of subsection (4) in section 49 and substitution of the expression "local authority" with the expression "local government." Again, whenever, it is the intention of legislature to introduce any provision which is clarificatory, the same is so stated, as it is done in case of Article 165A of the Constitution of Pakistan, quoted above. Similarly, the Income Tax Ordinance, 1979 introduced clarificatory provision in the same manner, for instance, (a) explanation inserted by Finance Act, 1992 in section 80D and (b) explanation inserted in clause 124AA of Part I of Second Schedule to Ordinance, 1979.
11. Learned AR staled that case of NHA is similar to TDA and LDA, where it was held that the TDA are local authorities. He stated that the Tribunal in its judgment, dated 20-11-2008 has held that Pakistan Telecommunication Authority (PTA) is not a local authority. There is a distinction between the case of NHA and that of PTA, in as much as that (a) NBA did not have any tax exemption clause in the NHA Act, whereas PTA had it and it was withdrawn. (b) NHA is contesting its case under repealed Ordinance, 1979 whereas PTA's case is both under repealed and current Ordinance. (c) NHA is a development authority entrusted with the function of local authority, whereas PTA is a regulatory authority entrusted with the function of regulating telecom sector. Development and regulation functions are not synonymous. Whilst the expression `development' refers to advancement, expansion, growth, enhancement and improvement, the expression `regulation' refers to rule, direct, guide, control and supervise a particular sector of economy. (d) PTA deals with the entities engaged in the telecommuni cation business, NHA deals with development and maintenance of highways and strategic roads, and carry out all municipal functions in its jurisdictions like any other development authorities in their jurisdictions; and (1) NBA's case is not of surrendering surplus funds to the Government, rather taking of funds from Government, whereas it is the case of PTA.
12. Learned AR asserted that NHA fulfills all the requirements of a local authority, viz; (a) specified area of operation; (b) levy of taxes; (c) develop areas and provide amenities, (d) local fund; and (c) municipal functions: NHA is fully involved in carrying out municipal functions, such as construction and maintenance of roads, bridges. pathways, cleaning of roads, maintenance of lavatories, rest area, road signs, telephone, patrolling, monitoring, providing workshop facilities, etc.
13. Learned DR stated that National Highway Authority was established vide the National Highway Authority Act, 1991 for planning, development, operation and maintenance of national highways and strategic roads and to provide for matters connected therewith and incidental thereto. The very name of the taxpayer shows that it is a national authority and not a local authority. A national authority cannot he a local authority and a local authority cannot be a national authority. It is the contention of the taxpayer that National Highway Authority is a "local authority" and is therefore exempt from tax under clause (88) of part I of the second schedule to the repealed Ordinance, which reads as under:--
"(88) Any income of a local authority, not being income from business, if any carried on by it outside its jurisdictional area."
14. Perusal of the above clause makes it clear that exemption has not been provided to the business income of a local authority. Furthermore it is based upon the premise that the local authority has a restricted jurisdictional area, the taxpayer has, in effect, negated its stance by placing reliance on the aforesaid clause as the operations/network of NHA extended throughout Pakistan and there is no specific area, within a province to which its activities are restricted. Section I of the National Highway Authority Act, 1991 specifies that it shall extend to the whole of Pakistan. The taxpayer has based its claim of being a local authority upon section 16 of the NBA Act, 1991 which envisages that the Authority shall be deemed to be a local authority for the purpose of borrowing money under the Local Authorities Loans Act, 1914. The status of NHA cannot he determined by placing reliance upon section 16 of the NHA Act, 1991 as the said section has been provided for special circumstances, i.e. in the event when the assessee company is borrowing money. By introducing a deeming provision the legislature has provided that it is only in the event of loan transaction that the assessee can be equated with a local authority within the meaning of the Local Authorities Loans Act, 1914. The contention of the authority that under section 16 of the NHA Act, 1991, it has been declared as a local authority with all the powers and functions of local government is not acceptable as a bare reading of section 16 of the NHA Act, 1991 makes it clear that the intention of the legislature, while enacting the above provision was that NHA shall be deemed to be a local authority only if it is engaged in any borrowing transactions, within the meaning of Local Authority Loan Act, 1914 (IX of 1914) and any "work undertaken in exercise of its powers under this Act shall be deemed to be a 'work' under the Act."
15. Learned DR argued that it is of importance to recognize that if NHA had been a local authority as contended, there would have been no need to introduce a deeming provision in section 16 of the NHA Act, 1991 and acceptance of the taxpayer's contention would lead to the conclusion that section 16 of the NHA Act, 1991 is redundant. However, it is settled principle of law that no redundancy can be ascribed to the legislature. In the case of Muhammadi Streamship Company Ltd. v. Commissioner of' Income Tax (Central) Karachi, reported as PLD 1966 SC 828 the honourable Supreme Court of Pakistan held that "it is well established rule of interpretation of statute that no words in a statute arc to be treated as surplusage or redundant." The taxpayer has failed to appreciate that all the words, phrases and even punctuation marks in a statute enacted by the legislature have their sanctity and a conscious purpose behind them. Under the fiscal laws the provisions of an Act and its wordings are to be construed strictly and words cannot be stretched to derive any other meaning. Generally if there is a doubt regarding the interpretation of a certain provision of law, the interpretation favourable to the taxpayer has to be adopted. However, in the case of provisions of law dealing with exemptions the interpretation favourable to the department is to be adopted. Furthermore, acceptance of the taxpayers stance that it has status of a local authority would, in effect, be against the principle enunciated by the apex Court in judgment reported as 1992 SCMR 1652 wherein it has been held that provision of tax exemption cannot be interpreted liberally against the revenue. He stated that the term local authority has been defined in section 3(31) of the General Clauses Act, 1897 as under:--
"Local Authority means a Municipal Committee, District Boards, body of Port Commissioner or other authority legally entitled to or entrusted by the Government with the control or management of municipal or local fund.
16. Learned DR averred that the aforementioned definition of the term local authority stipulates it to be an authority confined to a limited territorial jurisdiction like that of a Municipal Committee, a District Board and a Port Commissioner empowered simultaneously to control a municipal or a local fund. The terms of local fund have to he taken into consideration with respect to the term "local authority". The definition of "local authority" as given in the General Clauses Act, 1897 equates local authority with Municipal Committee and District Board. Likewise the term local fund has been equated in the said definition with the term municipal fund which is administered by a Municipal Committee. Hence, local fund is necessarily a fund which is used for defined activities of a local entity like local committee, union council etc. NHA is not running a local fund but is maintaining National Highway Authority Fund as provided under section 21 of the NHA Act, 1991. The NHA Fund is financed from various sources of income including loans, grants, aids, income from tolls, funds from floating bonds, shares etc. Therefore, it is clear that National Highway Authority Fund is not a local fund and the claim of the authority that it is maintaining local fund, in consequence of which it has the status of a local authority is not sustainable in the eyes of the law. Moreover, administering of a local fund constitutes only one of the essential characteristics for qualifying as a local authority as enumerated by the High Court in the case of Messrs Thal Development Authority. In case reported as 1976 PTD 56 the issue of status of Thal Development Authority was discussed in detail in the order passed by the High Court. The Honourable Court held, inter alia the following features as essential for an entity to be termed as a local authority:
(i) It has its own juristic personality distinct from its members, within its own local area and it exercises considerable powers of local self-Government.
(ii) It may frame schemes for the development of a local area under its control and provide civic amenities for the inhabitants or the area.
(iii) It has its own local fund to manage.
(iv) It prepares its own annual budget for submission to the Provincial Government.
(v) It may levy taxes in its own local area with the sanction of Provincial Government.
17. Learned DR contended that when examined in light of the above criteria, it transpires that Messrs NHA does not possess the essential features mentioned above (a) The jurisdiction of Messrs NHA is not restricted to a local area, rather its functions/operations are spread over the entire length and breadth of the country. (b) it has no powers of local self-Government, which has been held by the honourable high Court as an essential feature of a local authority. (c) It cannot frame schemes of development of a local area under its control, as under the Act. (d) The authority does not maintain any local fund. (e) It does not submit its budget to the Provincial Government; rather it works under the Federal Government. (f) It is not empowered to levy taxes as under the Act Messrs NHA is merely empowered to collect or cause to be collected tolls on national highways, strategic roads, bridges etc. Factually the terms tolls and taxes are not synonymous. Toll may he defined as a sum of money for the use of the roads, highways, bridges etc. whereas tax is charged by the Government on the income of individual, corporation or trust. It is a pecuniary burden laid upon individuals or property, charged by the Government in exercise of its sovereign functions and with the purpose to support the Government .Since Messrs NHA by its constitution is a separate legal entity from the of Government of Pakistan, therefore, collection toll cannot be termed as tax. Further it is also an essential prerequisite that these taxes be collected with the sanction of Provincial Government, whereas in the instant case Messrs NHA has no such legal relationship.
18. Learned DR emphasized that stance of the authority that its case is on all fours with that of Thal Development Authority, and therefore, it should be assigned the status of a "local authority" does not merit acceptance. The above judgment when further challenged was endorsed by the Honourable Supreme Court in case reported as 1981 PTD 66 in the following words:--
"The Thal Development Authority (hereinafter called the said authority) was set up as a body corporate under the West Pakistan Thal Development Act XV of 1949 (hereinafter called the said Act). But, although the said Authority was a body corporate, it had been conferred powers at least as wide as those of any local authority. It was empowered under sections 42 and 43 to levy taxes and to maintain an authority fund. It was empowered under section 21 to frame schemes for development by the acquisition of land under the Land Acquisition Act and the powers conferred by this section expressly included powers to lay out towns, rnandis, market places, villages. roads, break up land for cultivation, etc..."
19. Learned DR stated that the term "local authority" has also been explained in various other judicial pronouncements as under:--
(a) The expression "local authority" under Article 98(2) of the Constitution of Pakistan 1962 means an authority which is entrusted with the administration of a local fund. Local Fund authorities are bodies exercising within limited territories included in a province, powers which belong to the province, but which by statute are delegated to the local authority. A local authority is ordinarily charged with functions of self-Government, maintaining and administering a local fund.... The National Bank of Pakistan which was set up by a Central Ordinance.... bears no resemblance to the recognized concept of a "local authority". (PLD 1965 SC 201; DLR 1965 SC 74).
(b) The expression "local authority" generally means any body of persons for the time being invested by law with the control and administration of any specified matters within a local area. Rustam Ali v. Chairman EPIDCE (PLD 1964 Dac. 721; PLC 1964 Dac. (Pak.) 511; DLR 1964 Dac. 651).
(c) With reference to section 2(35) W.P. General Clauses Act it has been held that mere control of Government over affairs of body alone is not sufficient to confer on it the status of local authority. The words "local authority" are to be given restricted means, ejusdem generics with the words preceding the same. Pb. Co-op. Union v. Govt. of Pub. Excise and Taxation Deptt. (PLD 1983 Lah.522).
(d) The Excise and Taxation Department is not a "Local Authority" (PLD 1966 Pesh 89 (DB).
20. Learned DR placed reliance on judgment of Supreme Court of Pakistan in the case reported as PLD 1965 Supreme Court, 2001 titled as Deputy Managing Director, National Bank of Pakistan v. Attaul Haq wherein the Honourable Court observed as under:--
"The expression "local authority" has been used in statutory phraseology in the Indian Sub-continent for a great many years, and is always understood to mean an authority which is entrusted with the administration of a local fund. Local authorities are bodies exercising within limited territories included in a Province, powers which belong to the province, by which statute are delegated to the local authority. A focal authority is ordinarily charged with functions of the self-government, and has power of making bye-laws, of imposing taxation and of maintaining and administering a local fund. In fact, it is evident from the order in which Article 98 mentions the three tiers of authorities that these are in a descending order of importance, first i.e. the centre, being the most important, a Province being next in order of importance, and a local authority being the last in that order. It is clearly impossible, in view of this clear distinction to treat the Centre as being a "Local Authority" at whichever place in Pakistan, it conducts its affairs."
21. Learned DR asserted that according to the above judgment of honourable Supreme Court the essential features of a local authority are (a) body exercising within a limited territory included in a Province; (h) It exercises powers which belongs to a Province and by statute are delegated to it, (c) It is a third tier of the functions of the self-government; (d) It is charged with the functions of the self-government, (e) It has powers to impose taxes; and (0 It maintains and administers a local fund. He contended that in view of the above essential features of a local authority as explained by the apex Court it is clear that NHA does not fall under the definition of local authority for the reasons that (i) The operations of National Highway Authority are not restricted to a local area or a specified territory. (ii) Its operations extend all over the country. (iii) It does not maintain a local fund. (iv) It is not performing function of self-government. (v) It is not empowered to impose taxes. (vi) It does not function as a third tier of authority. Learned DR stated that in the case of Messrs Pakistan Telecommunication Authority Limited (PTA), 2009 PLD (Trib.) 543 the learned ITAT vide order, dated 20-11-2008, alter a detailed and thorough discussion held that the status of Messrs PTA is not that of a local authority. The case of NHA is on all fours with that of PTA with respect to determination of status i.e. whether or not it is a local authority. Relevant extracts from the said judgment read as under:--
"When we compare the essential features of a local authority as mentioned in the judgments of both the superior Courts, it would be clear that the petitioners case falls short in as much as the Thal Development Authority was not a "local authority" merely by fiction of law (that the authority shall be deemed to he a local authority under the Local Authorities Loans Act, 1914 for the purposes of borrowing money under that Act). In the case of Thal Development Authority, the definition of local authority was enshrined in section 2 of the Thal Development Act itself. That section laid down that a "Local Authority" had the same meanings as in section 2 of the Local Authorities Loans Act, 1914 (i.e. any person legally entitled to the control or management of any local or municipal fund, or legally entitled to impose any cost, rate, duty or a tax within any local area.) Under section 45 of the that Development Act, the Thal Development Authorities was legally entitled to impose tax within its local area. According to the Lahore High Court this factor conclusively established that the Thal Development Authority was a Local Authority for the purposes of Thal Development Act as well as Local' Authorities Loans Act, 1914. The P7'A Act does not contain the like of section 2 of Thal Development Act. The petitioner also does not exercise, within its own local area, the considerable powers of local self-government, which were hallmark of Thal Development Authority and a common feature of all local authorities. Furthermore the petitioner, unlike the Thal Development Authority, is not entrusted with the powers to chalk out its schemes for the development of a local area under its control and provide civic amenities. PTA does not have the sanction of the Parliament to levy taxes in its own local area. The Thal Development Authority exercised its powers (which belonged to the Province but, which by statute, were delegated to it) within a limited territory included in a province, but this feature is lacking in case of the petitioner. The Thal Development Authority maintained/administered a local fund, whereas the petitioner maintains "Pakistan Telecommunication Authority Fund", which is quite different in its nature/composition from a "local fund". Moreover, unlike PTA, in case of a local authority there is no concept of delegation of powers of the authority either to its administrator or any of the subordinate officers. The fact that PTA was not a "local authority" also clear from section 19 of the Act, which provided it exemption from taxation. Had, there been an intention of the legislature, to grant it the status of a local authority, there was no need of such provision because income of a local authority is otherwise exempt from taxation. The above discussion would show that the inherent features of PTA are not on all fours with those of the Thal Development Authority, as enumerated in the judgment of the Lahore High Court. Therefore, we are not convinced by the line of argument of the learned counsel for the petitioner, who has painstakingly, but unsuccessfully, tried to draw parallels between the Thal Development Authority and his client. In order to prove that the later also qualified as a local authority. On the basis of above facts and under the circumstances of the case we are convinced that the petitioner is a regulatory authority and not a local authority "
It would not be out of place to reproduce an excerpt from the Supreme Courts judgment in case of Salahuddin and 2 others v. Frontier Sugar Mills and Distillery Ltd. (PLD 1975 SC 77) (as cited in the case CIT Muzaffarabad v. Altai Ahmed Mir AVP, NBP, RIIG (2001 PTD 1538), whereby it was held that United Bank was a corporation and not a local authority. It was observed as under:--
"...In the recent years, there has been a manifest a growing tendency on the part of the Government to create statutory corporations for undertaking any such functions, particularly in the industrial-and commercial spheres, in the belief that free from inhibiting effects of red-tapism, these semi-autonomous bodies may prove effective, flexible and also profitable. Inevitably, Government retains effective control over their functioning by appointing the heads and other senior officers of these corporate, by regulating their composition and procedures by appropriate statutes and by finding funds for financing their activities...."
In the light of above observations of the apex Court, we are convinced that the petitioner is also a statutory entity, established as a regulatory authority to streamline the telecom sector. Its composition, procedures and functions are not likening to a "Local Authority",
In another case reported as (2001) 83 Tax 3 (H.C. Lah.)(sic.), it was observed by the Court that bodies created under an Act of legislature fall within the definition of a company. Sub-section (16) of section 2 of the repealed Ordinance 1979, provided that a body corporate formed by or under any law for the time in force is a company. Moreover, section 80(2)(b)(ii) of the Income Tax Ordinance, 2001 also stipulates that a body corporate formed by or under any law in force in Pakistan is a company. As the control and operations of PTA are held by the Government of Pakistan, if falls within the definition of Public Limited Company. In our opinion the above mentioned observations of the Supreme Court as well as the "ratio decidendi" of the reported judgment (2001) 83 Tax 3 (H.C. Lah.) (sic) of the High Court, are on all fours with the facts and circumstances of the case at hand. Therefore, we hold that the revenue has rightly designated the petitioner as a body corporate with the status of a "Public Company". Appeal on this issue fails."
22. Learned DR stated that relying upon definition of local authority as contained in the General Clauses Act, judicial interpretations, judgments of superior Courts regarding essential elements of local authority and facts of the case it can be concluded, without a scintilla of doubt, that NHA does not hold the status of a local authority and hence is not exempt from tax. He stated that legal status of Messrs NHA has been declared in the NHA Act, 1991 vide section 3(2) which is reproduced below:--
"(3) Establishment of National Highway Authority:--
(1) --------------
(2) The Authority shall be a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose property, and may by its name sue and be sued."
23. Learned DR emphasized that status of the Authority, for all intents and purposes is that of a body corporate, having perpetual succession and a common seal. NHA being a body corporate created through a statute by the Federal Government can at best be quoted with other State owned corporations like OGDC, NTC, PTV, etc. All these corporations have been created under Acts of Parliament and are being assessed as a corporate bodies. It would be pertinent to mention that NTC has also been termed as a local authority for the purpose of borrowing, money under section 16 of Pakistan Telecommunication Re-organisation Act, 1996. The case of NTC is on all fours with the case of NHA in as much as both the organizations are corporate bodies and have been deemed to be local authorities for the purpose of borrowing, money; both have jurisdiction extending to the whole of Pakistan and both are owned by the Federal Government. However, NTC is offering its income for taxation in the status of a corporate body hence NHA is liable to be taxed in the status of a corporate body. NI-IA has placed reliance upon confirmation/ruling of C.B.R. that NHA is a local authority and is exempt from levy of capital value tax by letter C.No.2(3) WT/93, dated 29-11-2000. The matter was referred to C.B.R. for clarification as to whether National Highway Authority is a local authority for the purpose of charging income tax. In response, clarification was received from C.B.R. on 30-4-2004 which held as under: --
"I am directed to refer to your letter No.SO-11-30(92)/2003-2002/8770, dated 21-4-2004 on the subject and to say that the Board's letter C.No.2(3) WT/93, dated 25-11-2000 was intended only for Capital Value Tax in respect of Motor Vehicles purchases by NHA. The income tax is charged in accordance with the provisions of the Income Tax Ordinance on the persons prescribed therein. Therefore, the assessment of income of NHA may please be made in accordance with the provisions of the Income Tax Ordinance by taking into account the relevant provisions of law."
24. Learned DR stated that the clarification referred to by the taxpayer was for the purpose of CV'T and had no connection whatsoever with income tax proceedings. The objection of the taxpayer on this count is therefore not maintainable. The taxpayer has also placed reliance on confirmation of the Law and Justice Division, Government of Pakistan to the effect that NHA is a local authority communicated vide letter No.4(12)/95-Roads, dated 22-8-1995 of the Ministry of Communication and applicability of the judgment of High Court and Supreme Court in the case of Thal Development Authority to the case of National Highway Authority. He stated that letters relied upon do not explain the actual contents of the matter referred as well as decision of the Law and Justice Division on the query and represent some internal correspondence between Ministry of Communication and Law and Justice Division. The said documents have no binding force as regards taxability of NHA as per the repealed Ordinance.
25. Learned DR stated that vide amendment in section 49 of the Income Tax Ordinance, 2001 through Finance Act, 1997, exemption from tax under the said section was explicitly denied to a corporation, regulatory authority, a development authority, other body or institution established by or under a Federal Law or a Provincial Law, notwithstanding the ultimate distinction of the income of such entity. He stated that section 49 of the Income Tax Ordinance, 2001 specifically exempts the income of Federal Government, Provincial Government and Local Authority. Any authority which is not covered by the definition of local authority is liable to income tax unless specifically exempted. However, some authorities went into unnecessary litigation on the issue of taxability. Hence a clarifiactory amendment was made in law, through Finance, Act, 2007 by inserting subsection (4) of section 49, which specifically clarifies that the income 'of a corporation, company, regulatory authority, other body or institution established by or under a Federal Law or an existing law and set-up owned and controlled either directly or indirectly by the Federal Government or a Provincial Government, is chargeable to tax. It has been further clarified that the ultimate destination of such income is not a bar for the purpose of chargeability of tax as already laid down in Article 165A of the Constitution of Islamic Republic of Pakistan.
26. Learned DR stated that section 49 appears in Part VII of Chapter III of the Income Tax Ordinance, 2001 which deals with "exemptions and tax concessions". Section 49 of the Income Tax Ordinance, 2001 is an exemption provision which specifically exempts the income of Federal Government, Provincial Government and a Local Authority. The taxpayer is claiming exemption under section 49 of the Income Tax Ordinance, 2001. Before insertion of subsection (4) of section 49 of the Income Tax Ordinance, 2001, the taxpayer was in no way entitled to exemption under section 49 of the Income Tax Ordinance, 2001. All the other bodies, institutions, corporation, companies, regulatory authorities etc. are taxable unless specifically exempted under the Ordinance. No exemption is available to OGRA either under the OGRA Ordinance, 2002 or under any provision of the Income Tax Ordinance, 2001. A clarificatory amendment was made in law through the Finance Act, 2007 by inserting subsection (4) in section 49 which specifically clarifies the scope of exemption available under the provisions of the said section. Under the principle of legislative drafting the amendments that "constitute" a new regime are constitutive in nature and amendments that only clarify are "declaratory" in nature. The first category shall become an evidence of the fact that the law shall have only prospective operation, whereas the second category will be an evidence of retrospective clarification of declaratory nature. In nut-shell the amendment made in section 49(4) vide Finance Act, 2007 is declaratory and not constitutive in nature. Amendment in section 49 by insertion of subsection (4) is clarificatory in nature because section 49 is an exemption section and not a charging section. In this regard following excerpts from the case cited as 2000 PTD (Trib.) 2853 are relevant: -
"It appears that my learned brother lost sight of the established principles of the interpretation of statutes which are equally applicable to general statute as well as fiscal statute. The principles have been discussed in depth in a full Bench judgment of this Tribunal reported as 1999 PTD (Trib.) 2949. In the said judgment we have cited the following quotation from the Crawford on Statutory Constructions at (page 241):--
"A Court will resort to interpretation when it endeavours to ascertain the meaning of a word found in a statute, which when considered with the other words in the statute may reveal a meaning different from the apparent when this word is considered abstractly or when given its usual meaning the above principle is applicable not only for ascertaining the meaning and purpose of a particular provision. It is further observed in the above full Bench judgment that, "there is accordingly growing recognition by Courts that a statute should be construed, rather than interpreted with due regard to its avowed object and to its character .."
27. Local authority.---We have considered arguments of rival parties in the light of material placed before us. Both the AR as well as DR placed their reliance on land mark judgment of Hon'ble Lahore High Court in the case of Thal Development Authority reported as (1976 PTD 56) and supported their respective claim in the light of qualifications of local authority laid in the said judgment. In the case of Thal Development Authority it was claimed by the taxpayer that for being local authority its income was exempt from tax. Hon'ble Lahore High Court while deciding the issue had thoroughly analyzed this matter. From plain reading of operative part of the case said judgment it is clear that an entity will be "local authority" if it: (i) has its own juristic personality distinct from its members; (ii) within its own local area, exercises considerable powers of local self-government; (iii) chalks out its schemes for the development of a local area under its control and provide civic amenities for the inhabitants of the area; (iv) prepares its own annual budget for submission to the Provincial Government; (v) exercise its powers within a limited territory included in a Province; (vi) exercises powers which belong to the Province but, which by statute, are delegated to the local authority; (vii) has powers of imposing taxes and, (viii) maintains/ administers a local fund.
28. All the aforesaid conditions have to be simultaneously and cumulatively fulfilled for any entity to qualify as local authority. (i) The first condition for an entity to be considered as local authority is that it has its own juristic personality distinct from its members. In the light of material produced before us it is established that NHA fulfils this condition because it was established through an Ordinance of 2002 as a regulatory authority being independent in the performance of its functions. (ii) The next condition for an entity to qualify as local authority is that within its own local area it exercises considerable powers of self-government. This condition consists of three parts i.e. (a) it had its own local area; (b) it exercises considerable powers, and (c), these powers are of Local Self-Government. NHA's operations are not restricted to any local area neither it has the powers of local self-government. Its operations are spread all over the country and its powers are not in the nature of local self-government. Therefore, this condition of having local area and powers of local self-government is not satisfied by NHA. (iii) Next condition for an entity to qualify as a local authority is that it chalks out its schemes for the development of a local area under its control and provide civic amenities for the inhabitants of the area. This condition consists of four parts i.e. (a) it chalks out its schemes; (b) these schemes for development of local area under its control; (c) provides civic amenities; and (d) these amenities are for inhabitants of the area. These conditions are not fulfilled by NHA because although it chalks out its schemes for development but these schemes are not for the development of any "local area" under its control. In fact there is no local area under its control. Its schemes for development are of national level and are spread in all parts of the country. Moreover, it does not provide any civic amenities. The provision of civic amenities for "inhabitants of the area", therefore, is far fetched proposition for it. (iv) Next condition for an entity to qualify to be a local authority is that it prepares its annual budget for submission to the provincial government. NHA was established by the Federal Government and its operations are controlled by the Federal Government. Therefore, the condition of submission of budget to provincial government is not fulfilled. (v) Next condition for an entity to be treated as a local authority is that it exercises its powers within the limited territory included in a province. This condition is also not fulfilled by NHA because its operations are spread throughout the country and it does not exercise powers within a "limited territory included in a province" (vi) The next condition for an entity to qualify as a local authority is that it exercises powers which belong to the province but, which by statute, are delegated to the local authority. NHA does not fulfil this condition because powers being exercised by it do not belong to any province. Its powers essentially belong to the Federal Government and it is performing its functions on behalf of the Federal Government; (vii) The next condition for an entity to qualify as local authority is that it has powers of imposing taxes. NI-IA does not fulfil this condition because it can collect "toll" and not "tax". Therefore very important feature of having powers of imposition of taxes is missing in the case of NHA. (viii) Another important condition for an entity to qualify as local authority is that it maintains/administers a local fund. It is provided in the NI-IA Ordinance, 2002 that there shall be a "fund", which will vest in and utilized by it to meet its expenses. Learned AR tried to claim that this fund is in the nature of a "local fund" whereas learned DR opposed this contention. We have carefully studied the relevant law and we could not find any provision to lead us to hold that the NHA Fund is a "local fund". In fact local fund means the fund vested in any authority which has its operations restricted to "local area". Whereas NHA's operations are spread all over the country and its Fund cannot be treated as a "local fund". Hon'ble Supreme Court of Pakistan in its judgment reported as 1981 PTD 66 has confirmed the decision of Lahore High Court in the case of Thal Development Authority holding that in addition to other features the local authority has the powers to lay out towns, mandis, market places, villages, roads, break up land for cultivation etc. These features essentially lead to infer that all the operations of a local authority are restricted in a limited area for the uplift and welfare of inhabitants of that very area. The local authority generates its own revenue through imposition of local taxes and short fall of finances, if any, is met out of grants from the Provincial Government. The characteristic of NHA's operation are in no way similar to those of a local authority. We are therefore constrained to hold that NHA is not a local authority. It is rather a regulatory authority which was specifically established to regulate the functions of oil and gas sector in the country.
29. Retrospective application of section 49(4).---Learned AR stated that section 49(4) of Income Tax Ordinance, 2001, is prospectively applicable whereas learned DR tried to establish that it applies retrospectively. In our opinion this issue/controversy is not involved in this case because assessment in question relates to assessment year 2001-2002 which was made under Income Tax Ordinance, 1979, (repealed) and not under the new Income Tax Ordinance, 2001. Controversy about prospective or retrospective application of provisions of section 49(4) was not an issue in dispute at assessment or first appeal stage. This issue was never raised even in the grounds of appeal of the assessee. Therefore, we will not give any decision on prospective or retrospective application of provisions of section 49(4) of the Income Tax Ordinance, 2001 in the instant case.
30. Conclusion.-In the light of aforesaid discussion, we hereby hold that NHA is not a local authority. Its claim of exemption for being a local authority was rightly rejected by department. However, since no second appeal was filed by the department, the order of Assessing Officer cannot technically be restored. We, therefore, reject the assessee's appeal and maintain the orders of CIT(A) whereunder the assessment order was set aside.
C.M.A./67/Tax(Trib.)Appeal rejected.