VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 543 (2008)

2009 P T D (Trib.) 543

[Income-tax Appellate Tribunal Pakistan]

Before Munsif Khan Minhas, Judicial Member and Ch. Nazir Ahmad, Accountant Member

I.T.As. Nos.207/IB to 210/IB, 121/IB to 126/IB and 360/IB to 363/IB of 2008, decided on 20/11/2008.

(a) Income Tax---

----"Local Authority"---Definition and characteristics---Authority which is entrusted by the Government with a `local fund' shall be considered as a Local Authority if it has its own juristic personality distinct from its member; if within its own local area, exercises considerable powers of local self-government; chalks out its schemes for the development of a local area under its control and provides civic amenities for the inhabitants other relevant area; if prepares its own annual budget for submission to the Provincial Government; exercises its powers within a limited territory included in a Province; exercises powers which belong to the Province but, which by statute, are delegated to the local authority; has powers of imposing taxes; and maintains/administers a local fund.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss.49(4) & 66-A---Income Tax Ordinance (XXXI of 1979), Second Sched: Part-I, Cl.(88)---Pakistan Telecommunication (Re-Organization) Act (XVII of 1996), Ss. 3(1), 19 & 16---Local Authorities Loan Act (IX of 1914)---General Clauses Act (X of 1897), S. 3(31)---Finance Act (XXII of 1997), S.10---Finance Act (IV of 2007), Preamble---Exemption---Local Authority---Regulatory Authority---Pakistan Tele communication Authority---Thal Development Authority---Distinction between and status thereof---Pakistan Telecommunication Authority Act, 1996 did not contain the like of S.2 of Thal Development Act, 1949---Pakistan Telecommunication Authority did 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---Pakistan Telecommunication Authority, unlike the Thal Development Authority, was entrusted with the powers to chalk out its schemes for the development of a local area under its control and provide civic amenities to the inhabitants of the area, which was a common feature of all local authorities---Pakistan Telecommunication Authority did not have sanction of the Parliament to levy taxes in its own local area---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 was lacking in case of the Pakistan Telecommunication Authority---Thal Development Authority maintained/administered a `local fund', whereas the Pakistan Telecommunication Authority maintains `Pakistan Telecommunication Authority Fund' which was quite different in its nature/composition from a `local fund'---Unlike Pakistan Tele communication Authority, in case of a `local authority' there was no concept if delegation of powers of the authority either to its Administrator or any of the subordinate officers---Pakistan Tele communication Authority was not a `local authority' as it was clear from S.19 of the Pakistan Telecommunication Authority Act, 1996, which provided it exemption from taxation---If the legislature had the intention to grant it the status of a `local authority', there was no need of such provision because income of a `local authority' was otherwise exempt from taxation---Inherent features of Pakistan Telecommunication Authority were not on all fours with those of the Thal Development Authority---Pakistan Telecommunication Authority was a `regulatory authority' and not a `local authority' and also a statutory entity, established as a regulatory authority to streamline the telecom sector, its composition procedures and functions were not likening to a `local authority'.

Chief Secretary, Government of Punjab v. Commissioner of Income Tax 1976 PTD 56 distinguished.

Deputy Managing Director, National Bank of Pakistan and 3 others v. Atta-ul-Haq PLD 1965 SC 201; 2005 PTD 147; 2000 PTD 280; 61 Tax 30; 7 Tax 153; PLD 1977 Lah. 292; 1992 SCMR 1652; PLD 1983 Lah. 522; PLD 1966 Pesh. 89; Rostom Ali v. Chairman, EPIDCE PLD 1964 Dac. 721; PLC 1964 (Pak.) 511; DLR 1964 Dac. 651; Punjab Co-op. Union v. Government of Punjab Excise and Taxation Deptt. PLD 1983 Lah.522 and 1981 PTD 66 ref.

Salahuddin and two others v. Frontier Sugar Mills & Distillery Ltd. PLD 1975 SC 17 and CIT, Muzaffarabad v. Altaf Ahmad Mir AVP, NBP RHG 2001 PTD 1538 rel.

(c) Income Tax Ordinance (XLIX of 2001)---

----S.80(2)(b)(ii)---Income Tax Ordinance (XXXI of 1979), S.2 (16)---"Person"---Pakistan Telecommunication Authority---Status of---Bodies created' under an Act of legislature fell within the definition of a "company"---Section 2(16) of the Income Tax Ordinance, 1979, provided that a body corporate formed by or under any law for the time being in force was a "company"---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 operation of Pakistan Telecommunication Authority were held by the Government of Pakistan, it fell within the definition of "Public Limited Company"---Revenue had rightly designated the Pakistan Telecommunication Authority as a `body corporate' with the status of a `public company'.

(2001) 83 Tax 3 rel.

(d) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part-1, Cl.(88)---Income Tax Ordinance (XLIX of 2001), S.49(4)---Constitution of Pakistan (1973), Art.165-A---Finance Act (IV of 2007), Preamble---Pakistan Telecommunication Authority---Taxation of---Assessee contended that legislature did not exercise the powers of imposition of tax under Art.165-A of the Constitution until the promulgation of the Finance Act, 2007---Validity---Legislature exercised its powers of taxation when exemption was granted to Pakistan Tele communication Authority vide S.19 of the Pakistan Telecommunication Authority Act, 1996---Legislature again exercised its powers of taxation when the said section was omitted i.e. on 1-7-1997 and income of Pakistan Telecommunication Authority became taxable---Powers under Article 165-A of the Constitution were exercised by the Parliament long before the promulgation of Finance Act, 2007.

2006 PTD (Trib.) 2154; 2007 PTD (Trib.) 830; 2003 PTD 52; 2007 PTD (Trib.) 1226; 2005 PTD 2525; 2006 PTD 734 and 2008 PTD 1420 ref.

1996 PTD 489; Maxwell- in his Interpretation of Statutes, 12th Edition, at page 224 and PLD 1977 Lah. 292 rel.

(e) Income Tax Ordinance (XLIX of 2001)---

----S.49(4)---Constitution of Pakistan, (1973) Art.165-A---Federal and Provincial Government, and local authority income----Retrospective effect of the amendment---Amendment had neither deprived any entity of its vested right nor had it imposed new obligations---Income of various statutory bodies enumerated in the newly inserted subsection (4) of S.49 of the Income Tax Ordinance, 2001 was taxable, and remained so thereafter, regardless of the ultimate destination of such income as laid down in Art.165-A of the Constitution---Such were machinery provisions which were intended to ensure proper application of law rather than creating any substantive liability against the taxpayer and would apply retrospectively.

1996 PTD 489 and PLD 1977 Lah. 292 rel.

2000 PTD 280; 2000 MLD 357; Canadian Eagle Oil Co. Ltd. v. Kind (27 TC 205) and 1991 PTD 999 = 1991 SCMR 2374 ref.

(f) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part-1, Cl.(88)---Income Tax Ordinance, (XLIX of 2001), S.49---Exemption---Income of Pakistan Telecommunication Authority was not exempt either under Cl.(88) of Part-1 of Second Schedule to Income Tax Ordinance, 1979, or S.49 of the Income Tax Ordinance, 2001 as the claim of exemption on the basis of diversion of income through overriding title had no merit.

I.T.As. Nos.39, 40/IB of 1992-93 and 110, 111/IB of 1997-98 rel.

(g) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Income Tax Ordinance, (XLIX of 2001), S.218---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Limitation---Assessee contended that order was barred by limitation because it was not served in accordance with the provisions of S.218 of the Income Tax Ordinance, 2001; that order was actually collected by the assessee on April 7, 2008 and the appeal was within time and that order should have been properly served before initiating consequential proceedings and the limitation. starts from the date when the order was actually served on the taxpayer---Validity---Order under S.66-A of the Income Tax Ordinance, 1979 was not only passed within the period of limitation, but also validly served on the same date---Contention regarding violation of the provisions of S.218 of the Income Tax Ordinance, 2001, too, was not tenable, because the assessee had the knowledge of existence of order under S.66-A of the Income Tax Ordinance, 1979, well in time, at least on the date when first notice for fresh assessment was served as a consequence of such order---Even otherwise, order was valid and sustainable under the law---Order passed within the statutory period of limitation and communicated to the assessee later on, was a valid order---Order was passed within four years of the order sought to be cancelled, hence it was a valid order---Order so passed was in the knowledge of the assessee because the subsequent proceedings for fresh assessment were started immediately thereafter---Appeal filed on 6-6-2008 against the order under S.66-A of the Income Tax Ordinance, 1979 passed and served on the petitioner on 12-5-2006 had-neither any merit nor it was filed within the period of limitation---Appeal of the assessee failed on both counts, on merit as well as on legal premises.

Messrs Qureshi Vegetable Ghee Mills Ltd v. CIT and others 2002 PTD 399 and 2007 PTD 803 rel.

2002 PTD 549; PLD 1971 SC 61; 1986 SCMR 962; PLD 1969 Lahore 1039 and 1985 CLC 1411 ref.

(h) Income Tax Ordinance (XLIX of 2001)---

----S. 114(4)---Return of income---Finance Act (II of 2004), Preamble---Assessment year 2002-2003---Contention was that assessment order passed on 30-6-2006 for the assessment year 2002-2003 was not sustainable, because it was based on a void notice under S.114(4) of the Income Tax Ordinance, 2001 issued on 12-6-2004, whereas notice under S.114 (4) could not be issued in respect of an `assessment year' prior to promulgation of Finance Act, 2004---Validity---Held, that issuance of notice under S.114 of the Income Tax Ordinance, 2001 and the superstructure based thereon was legally justified---Departmental action was confirmed by the Appellate Tribunal.

2007 PTD 1763 reversed.

I.T.As. Nos. 1418 & 1419/IB of 2005; I.T.As. Nos.152-153/IB of 2006; ITA Nos. 351-352/IB of 2006 and I.T.As. Nos.491-493/IB of 2006 rel.

2005 PTD (Trib.) 490 overruled.

(i) Income Tax Ordinance (XLIX of 2001)---

----Ss.121 & 176---Income Tax Ordinance (XXXI of 1979), Ss. 63 & 66-A---Best judgment assessments---Assessee contended that since, sufficient opportunity of being heard was not provided, the consolidated ex parte order under Ss.63/66A of the Income Tax Ordinance, 1979 was not in line with the principles of natural justice---Validity---Adequate opportunity of being heard was allowed to the taxpayer, but to no avail as the assessee wilfully, did not participate in the assessment proceedings inspite of service of statutory notice(s)---Contention that assessments were arbitrary and not `best judgments', was also not tenable as surplus declared by the assessee was taxed and no additions out of the claimed expenses were made by the department---Income declared as per annual accounts of the assessee was accepted and subjected to tax at the applicable rate---Specific notices under Ss. 56, 61 & 62 of the Income Tax Ordinance, 1979 and under Ss.114 & 176 of the Income Tax Ordinance, 2001 were issued requiring the assessee to submit tax returns and produce books of accounts, but the assessee deliberately chose not to cooperate and participate in the assessment proceedings---Assessing Officer was constrained to finalize assessments ex parte, to the best of his judgment in the circumstances---Assessments were finalized on the basis of declared income/surplus as per annual accounts of the assessee---Assessee's assertions regarding arbitrariness of assessments were not supported by any credible documentary evidence---Assessee deliberately, avoided either to join the assessment proceedings or to produce the requisite books of accounts/documents---Appeal was dismissed by the Appellate Tribunal on the issue.

1998 PTD 3835; 51 Tax 181 (SC) and 1975 PTD 58 rel.

(j) Income Tax Ordinance (XLIX of 2001)---

----Ss.190 & 239(3)---Income Tax Ordinance (XXXI of 1979), S.63 & 66-A---Imposition of penalty---Contention that "notice under S.190 of the Income Tax Ordinance, 2001 had incorrectly been issued in respect of assessments completed under Ss.63/66A of the Income Tax Ordinance, 1979" was not tenable in the light of S.239(3) of the Income Tax Ordinance, 2001 because imposition or charge of any penalty, additional tax or any other amount under the Income Tax Ordinance, 1979 had to be imposed in accordance with the corresponding provisions under the Income Tax Ordinance, 2001---Objection was dismissed by the Appellate Tribunal being devoid of merit.

(k) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A & 63---Income Tax Ordinance, (XLIX of 2001), Ss.121 & 114(4)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Pakistan Telecommunication Authority---Status and taxation of income---Pakistan Telecommunication Authority was not a `local authority'; it was a body corporate with status of `public limited company'; its income was taxable---Order under S.66-A of the Income Tax Ordinance, 1979 and the penultimate action was justified---Issuance of notice under S.114(4) for requisitioning tax return and subsequent assessment for the assessment year 2002-2003 was legally tenable---Ex parte/best judgment orders under Ss.63/66-A of the Income Tax Ordinance, 1979 for the assessment years 1998-99 to 2001-2002 as well as under S.121 of the Income Tax Ordinance, 2001 for the tax years, 2003 to 2007 were validly made---Orders of the authorities below were upheld by the Appellate Tribunal.

Naveed Andarabi, Anjum Asim Shahid, C.A. and M. Ayub for Appellant.

Muhammad Asif and Mrs. Reema Masood, D.R. for Respondents

ORDER

This order disposes of fourteen appeals filed by Pakistan Telecommunication Authority (PTA) against a combined order under section 66-A passed on 12-5-2006 by the Additional Commissioner/Taxation Officer and two separate, consolidated orders; (i) Nos. 142, 40, 41, 42, 43 and 44/2007, dated 11-2-2008; & (ii) Nos.389, 390, 391 and 392, dated 15-5-2008 passed by Commissioner of Income Tax (Appeals)-(CIT(A)).

2. PTA was established under Pakistan Telecommunication (Re-Organization) Act, 1996 (hereinafter called the Act). Section 3(1) of the Act says that the authority would be a body corporate having perpetual succession and a common seal with powers, to acquire and hold property, both moveable and immoveable and to sue and be sued by its name. The petitioner is responsible for enforcing federal government's policy directives with regard to telecommunication services in accordance with functions/powers/responsibilities as enumerated in sections 4 to 6 of the Act.

3. Section 19 of the Act, provided the petitioner, exemption from payment of any taxes, duties, levies, charges and fees payable under, or in pursuance to any law, in respect of its business, assets, income, or wealth. The said provision was, however, omitted through section 10 of Finance Act, 1997 (XXII of 1997).

4. Even after the omission of section 19 from the Act, PTA did not file the tax returns. On 11-3-2001, the department requisitioned such returns by issuing notice(s) under section 56 of the repealed Income Tax Ordinance, 1979. The petitioner, vide their letter dated 21-4-2001 contended that their income was exempt under section, 19 of the Act. No cognizant of the omission of the said section, the taxation officer accepted the petitioner's plea and, vide his combined order under section 62 dated 15-5-2002, dropped the proceedings for all four assessment years, for and from 1998-99 to 2001-2002.

5. On examination of the petitioner's assessment records the Additional Commissioner observed that the taxation officer's action/ order allowing exemption to the appellant's come was erroneous in so far as it was prejudicial to the interest of revenue. He, therefore, invoked the provisions of section 66-A, and cancelled the taxation officer's order dated 15-5-2002 with the directions that the concerned assessing officer should make fresh assessment for all the years, on merit, after affording a reasonable opportunity of being heard to the petitioner. Order under section 66-A has, directly, been impugned before the Tribunal.

6. In compliance to the order under section 66-A, the taxation officer initiated the re-assessment proceedings. The petitioner, however, did not cooperate, and chose not to show deference to the statutory notices. None joined the assessment proceedings on the appellant's behalf. Neither tax returns were filed, nor were books of accounts produced. Under these circumstances, after duly confronting the petitioner and in the absence of any response, the department levied tax on the petitioner's surplus income appearing in the appellant's annual reports. The assessments were thus framed ex parte under section 63 read with section 66-A of the repealed Income Tax Ordinance, 1979.

7. For the succeeding assessment year 2002-03, the petitioner, instead of filing tax return in response to notice dated 12-6-2004 issued under section 114(4) of the Income Tax Ordinance, 2001, again claimed tax exemption. It was contended that omission of section 19 of the PTA Act was immaterial, as the said provision was redundant `ab initio'. It was argued at the assessment stage that such omission did not affect the petitioner's stance on the issue of exemption, as it was already enjoying the status of a `local authority', which was exempt from tax under clause (88) Part 1 of 2nd Schedule to the repealed Income Tax Ordinance, 1979 as well under section 49 of Income Tax Ordinance, 2001. After the evaluation/appraisal of lengthy arguments given at the assessment stage, the taxation officer discarded the petitioner's claim of exemption on the premises, that:--

(i) Section 19 of PTA Act was no more on the statute book;

(ii) the petitioner's claim of `local authority' had no merit; and,

(iii) the claim of remitting whole of its income to the Federal Consolidated Fund did not come to the petitioner's help as many other public entities, were also diverting their income to such fund and paying income tax as well.

The assessing officer, after confronting the petitioner with his point of view, and in the light of their failure to file the tax return/computation of income, completed the assessment taking the figure of taxable income on the basis of annual report of PTA.

8. For the next five tax years (2003, 2004, 2005, 2006, and 2007), the similar facts and circumstances of the case, as spelled out at paragraph 7 above, as well as the, petitioner's failure to cooperate and file tax returns or statement of income, resulted in ex parte/best judgment assessments under section 121 of the Income Tax Ordinance 2001.

9. Petitioner's averments against ex parte/best judgment assess ments under sections 63/66-A of the repealed Ordinance 1979, as well as 121 of new Ordinance 2001, before the first appellate authority could not succeed. Appeals against all the assessment orders failed. The CIT(A)'S decisions too, have been impugned before the Tribunal.

10. Besides, the taxpayer/appellant had also filed Writ Petition No.1478 before the Honourable Islamabad High Court seeking injunction against the alleged arbitrary and unlawful statutory notices calling for tax returns. Later on, the petitioner opted not to press the petition and expressed their intention to prosecute their appeals before the Income Tax Appellate Tribunal. The High Court, vide judgment, dated 9-10-2008 has directed the 'Tribunal to dispose of the appeals on priority basis.

11. The petitioner has challenged the three impugned orders on the following grounds:--

(a) I.T.As. Nos.207 to 210/IB/08.---"(a) That the order issued by the AC under section 66A of the repealed Ordinance has not been served upon your appellant in accordance with provisions of section 218 of the Income Tax Ordinance, 2001. It was collected by your appellant on April 07, 2008; (b) That the order issued under section 66A has not been made within the time limit prescribed under section 66A(2) of the repealed Ordinance; (c) That the learned AC has erred at law by cancelling the original assessment in respect of assessment years 1998-99, 1999-00, 2000-01 and 2001-02 without appreciating the fact that the entire surplus of your appellant is diverted at source to the Federal Government, through an overriding title. Your appellant acts as an agent of the Federal Government and no surplus Income accrues to the Authority but to Federal Government. The entire surplus is mandatorily required to be remitted to the Federal Government as soon as it is so determined after the close of each financial year; (d) Notwithstanding the above, the learned AC has failed to appreciate that your appellant is a `Local Authority' under the provisions of General Clauses Act, 1897 and its income is exempt from levy of income tax under Clause (88) of Part I of Second Schedule to the repealed Ordinance; (e) Notwithstanding the above, the provisions to tax the income of the authorities like your appellant was brought under tax through Finance Act, 2007 vide section 49(4) of the Ordinance. Such provisions are clearly intended to be applicable prospectively and not retrospectively as has been claimed by the tax department."

(b) I.T.As. Nos.121 to 126/IB/08.---"(a) That the order issued by Additional Commissioner Audit, Companies Zone, Islamabad under section 66A of the repealed Ordinance, on which the entire superstructure of assessment is based, is not legally maintainable; (b) Notwithstanding the above, the TO has failed to appreciate the fact that the income of your appellant is not liable to tax as; (I) The entire profits and gains of appellant are diverted at source to the Federal Government, through an overriding title. Your appellant acts as an agent of the Federal Government and surplus is mandatorily required to be remitted to the Federal Government as soon as it is so determined after the close of each financial year; (II) that any surplus of your appellant is otherwise exempt from tax under clause (88), Part-I of Second Schedule to repealed Ordinance. The same status is also assigned to your appellant under the Pakistan Telecommunication (Reorganization) Act, 1996; (III) that the surplus of the authority over expenditure has earlier being declared to be exempt from tax vide order issued under section 62 of the Ordinance dated May 15, 2002. The Taxation Officer erred to make a fresh assessment which tantamount to change of opinion; (IV) That the enabling provision to bring the income of the authority to tax was brought under the tax net vide Finance Act, 2007. Such amendments are clearly intended to be implemented prospectively and not retrospectively. The framing of assessment by bringing such income to tax prior to the tax year, 2007 is thus, against the law; (c) Notwithstanding the above, the assessment framed by the TO under sections 63/66A of the Income Tax Ordinance, 1979 is bad in law as the appellant was not afforded sufficient opportunity of being heard; (d) Notwithstanding the above, the Taxation Officer erred to include in total income, items which are otherwise not chargeable to tax. It has also not been allowed such deductions which are admissible under provisions of the Ordinance like depreciation admissible under relevant Schedule of the repealed Ordinance etc.; (e) That the best judgment assessment framed by the TO is not in the true spirit of law; (t) That your appellant has been issued notice under section 190' of the Ordinance for assessment completed under sections 63/66-A of the Ordinance.

(c) I.T.As. Nos.360 to 363/IB/08.---"(a) That. the learned CIT (A) erred in confirming the order of TO by assigning status to your appellant as Public Company without appreciating that your appellant is a `Local Authority' under the provisions of General Clauses Act, 1897. Its income is, thus, exempt from levy of income tax under section 49 of the Ordinance; (b) That the CIT(A) as erred at law by confirming the order of the TO and subjecting the surplus of your appellant to tax, without appreciating the fact that; (i) The entire surplus of your appellant is diverted at source to the Federal Government, through an overriding title. (ii) Your appellant acts as an agent of the Federal Government and no surplus! Income accrues not to the Authority but to the Federal Government. (iii) The entire surplus is mandatorily required to be remitted to the Federal Government as soon as it is so determined after the close of each financial year; (c) Notwithstanding the above, the learned CIT(A) erred in rejecting the claim of exemption under section 49 of the Ordinance without appreciating that: (i) Your appellant is owned by the Federal Government; (ii) Provisions to tax the income of the authorities like your appellant was brought under tax through Finance Act, 2007 vide section 49(4) of the Ordinance; (iii) Such provisions are clearly intended to be applicable prospectively and not retrospectively as has been claimed by the tax department and this principle of interpretation has been confirmed by the apex courts of law in various decision. The TO, on the other hand, has implemented the law as if such provisions are applicable retrospectively; (iv) Article 165-A empowers the legislature to impose tax on the income of authorities such as your appellant. However, such powers have not been exercised by the legislature until the promulgation of Finance Act, 2007; (d) That the learned CIT(A) erred in confirming the TO order as `Best judgment assessment' against the spirit of provisions of "Best judgment assessment". (e) Notwithstanding the above, the learned CIT(A) erred in confirming the order of TO, to include in total income, items which are otherwise not chargeable to tax. It has also not been allowed deductions which are admissible under provisions of the Ordinance like depreciation and initial allowance admissible under relevant Schedule of the repealed Ordinance etc. (f) Notwithstanding the above, the learned CIT(A) erred in confirming the action of TO on the basis of ex parse ignoring the principles of natural justice without appreciating the fact that your appellant received the notice under sections 121/176 of the Ordinance on the date of its compliance and when appellant reached the office of TO, the adjournment was refused on the pretext that the assessment has already been finalized on ex parse basis this morning without considering the reply."

12. Grounds of appeal taken in the petitions, mainly, revolve around the following issues: (i) Status of PTA, as `local authority'; (ii) Claim of exemption from tax; (iii) Legality of notice under section 114(4) of Income Tax Ordinance, 2001 for 2002-2003; (iv) Action under section 66-A; and, (v) Ex parte/best judgment assessments.

The learned authorized representative (AR) of the petitioner has challenged the impugned orders and submitted extensive, written, arguments as well as cited plethora of case law on all the issues involved. The learned departmental representative (DR) has also filed counter (written) objections. Both the learned representatives of the parties to the dispute have pleaded case at length. All the issues are discussed /decided, seriatim as under:--

Status of PTA

13. As regards the status, the learned AR has contended that the department has wrongly held his client to be `a body corporate' with the status of `Public Company' which was unjustifiably confirmed by the learned CIT(A). It is argued that the Taxation Officer had erred in observing that PTA does not fall within the definition of a `local authority' as, contained in section 3(31) of the General Clauses Act, 1897, and that under section 16 of the Pakistan Telecommunication (Re-Organization) Act, 1996 is deemed to be a `local authority' within the meaning of Local Authorities Loan Act, 1914. He further argued that the term `local authority' has not been defined under the Income Tax law. It has been defined under the provisions of General Clauses Act, 1897 and means a Municipal Committee, District Board, and Body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with, control or management of a municipal, or `local fund'. The above definition reveals that an Authority which is entrusted by the Government with a `local fund' shall be considered a `local authority'. He oft-repeated and elaborated his point of view as was done at the two forums below. Since, the definition of `local fund' as given in Rule 652 of the Treasury Rules has been reproduced `verbatim' in the assessment as well as appellate order by the learned CIT (A); it need not be repeated here. The learned AR argued that since, PTA being an Authority, was legally entrusted with control and management of a `local fund', therefore, it was a `local authority' in terms of section 3(31) of the General Clauses Act, 1897. To further support his view point he referred to a judgment of the Lahore High Court, reported as 1976 PTD 56 in the case of Chief Secretary, Government of Punjab v. Commissioner of Income Tax, whereby it was held that the Thal Development Authority was a Local Authority, not liable to tax under the Income Tax Law. The learned counsel of the petitioner asserted that the parameters on the basis of which PTA claims to be a `local authority' were on all fours with those of Thal Development Authority, as laid down by Lahore High Court, as both of them were: (i) established under the relevant legislature; (ii) body corporate, having perpetual succession and could sue and be sued; (iii) created with specific objective, i.e. execution of Thal Project/reorganization of telecommunication sector, (iv) to operate within a specific area; (v) vested with `Authority Fund' to be utilized by the Authority to meet all its expenses; (vi) to prepare their annual budgets three months before each year end and submit financial statements to their respective governments; (vii) authorized to levy taxes/ fees within the areas assigned to them; and, (viii) deemed to be `local authority' under the Local Authorities Loans Act, 1914.

The learned AR went on to say that in spite of the fact that the salient features of both the authorities being identical, yet the officers below, disposed of the matter relying on judgment reported as PLD 1965 SC 201 which was not relevant to the issue involved in case of PTA. In that case the jurisdiction to issue a writ to quash the order of the Election Appeal Committee by the High Court of former East Pakistan under Article 98 of the Constitution of Pakistan had been challenged and accordingly it was allowed and writ recalled. The High Court in the judgment reported as 1976 PTD 56 has clearly defined the local authority in the following words:--

"The expression `local authority' has been used in statutory phraseology in the Indian subcontinent 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, but which by statute are delegated to the local authority. A local authority is ordinarily charged with functions of self---Government, and has powers of making bye-laws, of imposing taxation, and of maintaining and administering a local fund". The learned counsel asserted that since all these characteristics were present in PTA, therefore, his client enjoys the status of a `local authority' as: (i) it was established vide Pakistan Tele communication (Re-Organization) Act, 1996; (ii) section 16 of the PTA Act states that the Authority shall be deemed to be a `local authority' within the meaning of `Local Authorities Loans Act, 1914'. (iii) prepares it annual budget and submits the same within the three months, before the end of each financial year, to the Federal Government, (iv) it is authorized to levy fee and other charges (Section 5); (v) it is vested with `Pakistan Telecommunication Authority Fund' to be utilized to meet all its expenses and charges in connection with its functions under the Act including payment of salaries and other remuneration to its employees (section 13). He further averred that, although there remains no doubt that the appellant is a `local authority' for Income Tax purposes, yet if there is any doubt in the interpretation of provisions of law or in case of two possible-interpretations, the one in favour of the petitioner has to be followed. In this regard he relied on various decisions of the higher judiciary, reported as 2005 PTD 147; 2000 PTD 280; 61 Tax 30; 7 Tax 153; PLD 1977 Lah. 292."

14. Countering the rival arguments, the learned DR contended that PTA was not a `local authority'. He was of the view that the taxpayer's claim of being a `local authority' rests on section 16 of the Act. According to the learned DR, under the said section PTA is deemed to be a `local authority' only for the purpose of borrowing money, within the meaning of the Local Authorities Loans Act, 1914 (IX of 1914). Thus, the status of PTA cannot be determined under section 16 because the said section has a limited scope and will be applicable under special circumstances, i.e. in case the petitioner borrows money. In other words, PTA would be treated a `local authority' only when it involves itself in a borrowing transaction section 16 of the Act, has thus no nexus with any liability under Income Tax law or any other tax levied or leviable, charged or chargeable under the relevant provisions of law. Furthermore, assigning the petitioner the status of a `local authority' would be contrary to the `ratio decidendi' of judgment reported as 1992 SCMR 1652 wherein it has been held that provision of tax exemption cannot be interpreted liberally, against the revenue. The learned DR also detested his opponent's contention that the petitioner's case qualified as a `local authority' in terms of section 3(31) of the General Clauses Act, 1897 according to which a "local authority means a Municipal Committee, District Boards, Body of Port Commissioners or other authority legally entitled to or entrusted by the Government with the control or management of municipal or local fund". He contended that such definition was applicable only, to an authority with a limited territorial jurisdiction like a Municipal Committee, a District Board and a Body of Port Commissioners, empowered simultaneously to control a municipal or a local fund. The 'learned DR argued that PTA does not fit in such a definition as its operations transcends the jurisdiction assigned to a `local authority'. Hence, the substantive law does not support the contention of the petitioner. The learned DR also rebutted the petitioner's claim of being a `local authority' as it did not fit in the parameters of a government controlled body which administers revenue; has the power to sanction its budgets; may create, fill particular posts and enact leave, pension or similar rules: and entrusted to maintain a `local fund' as defined in Financial Rule 9(14). He explained that the expression `local fund' envisages revenues administered by bodies which by law or rule have the force of law and come under the control of Government, whether with regard to the proceedings generally, or to specific matters such as the sanctioning of their budgets, sanction to the creation of filling up of particular vacancies, the encashment of leave, pension or similar rules, and, the revenues of any entity which may specifically be notified by the government as such. Thus the petitioner's contention does not merit acceptance on the grounds that: (i) The definition relied upon by the taxpayer in respect of 'local fund' has been taken from Financial Rules, which have a subordinate status as compared to a statute. Financial Rules are,' in fact, instructions, which are issued from time to time, for implementation of statutory financial provisions and the said rules cannot be equated with the provisions of a statute, (ii) Secondly, the definition of `local fund' as understood by the petitioner, is not applicable in its case. The said definition refers to a fund with regard to matters such as sanctioning of budgets, creation and filling of posts, enactment of leave and pension rules etc. The contention of the petitioner that it was performing all these functions may be correct; but these were incidental functions which PTA was bound to perform under various provisions of the Act for running the organization. Such functions are necessarily performed by every ordinary organization for its smooth running. (iii) The core functions to be performed by the petitioner, the powers to be exercised by it and its responsibilities as assigned by the legislature are provided in sections 4, 5 and 6 of the Act, according to which the petitioner is responsible for enforcing Federal Government's policy directives with regard to telecommunication services; (iv) The definition of `local authority' as given in section 3(31) of the General Clauses Act, 1897 covers Municipal Committee and District Board. Similarly, the term `local fund' refers to a fund administered by a Municipal Committee. Hence; `local fund' is necessarily a fund which is used for defined activities of a local entity like Municipal Committee, (v) Instead of running a `local fund', PTA is maintaining `Pakistan Telecommunication Authority Fund' as provided under section 13 of the Act. Such Fund is financed through various sources including fees, grants, aids, loans etc. subsection (c) of section 13 of the Act provides that sale proceeds of bonds issued under the authority of Federal Government should also be deposited in the Fund. It is thus clear that PTA Fund is not a `local fund'. In view of above facts, it was averred on behalf of the respondent department, that the petitioner's claim of being a `local authority' by virtue of maintaining a `local fund' is not tenable. Furthermore, merely administration of a `local fund' does not qualify the petitioner as a `local authority'. The parameters laid down by the High Court in the case of Messrs Thal Development Authority have to be jointly and severally satisfied.

15. The learned DR also found fault with the rival contention that the petitioner's case was on all fours with the principles laid down in case reported as 1976 PTD 56. He explained that the learned AR had mistakenly placed reliance on that decision. In fact, he argued, the Hon'ble Court, `inter alia', had also held that in order to qualify as a `local authority' an entity should have: (i) 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 of the area; (iii) It has its own `local fund' to manage; (iv) It prepares its own annual budget for submission to the Provincial Government; and, (v) It may levy taxes in its own local area with the sanction of Provincial Government. However, when examined in the light of the above criteria, PTA lacks in the essential features in as-much-as: (a) Jurisdiction of the petitioner is not restricted to a local area. The PTA Act 1996 extends to whole of Pakistan; (b) It has no powers as enjoyed by the local self government--a core characteristic of a `local authority'; (c) It cannot frame schemes of development of `local area under its control, as it has been established as regulator of the Telecom Sector, only; (d) Instead of a `local fund', the appellant maintains `Pakistan Telecommunication Authority Fund'; (e) It does not submit its budget to the Provincial Government, rather it works directly under the Federal Government; (1) It is not empowered to levy taxes, instead, the `Pakistan Telecommunication Authority Fund' is fed through initial and annual license fees, fines, penalties etc. The learned DR, in light of the above distinguishing features, asserted that the case of the petitioner was not on all fours with that of Thal Development Authority, and therefore, it does not qualify for the status of a `local Authority'. To further support the departmental stance, the learned DR also placed reliance on a case law reported as PLD 1965 (SC) 201 viz. The Deputy Managing Director, National Bank of Pakistan and three others v. Atta ul-Haq wherein the Supreme Court, inter-alia, also observed as follows:--

"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, but which by statute are delegated to the local authority. A local authority is ordinarily charged with functions of the self Government, and has power of making bye-laws, of imposing taxation and 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 (highlighted for emphases). 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."

According to the above judgment of the Supreme Court the essential characteristics of a local authority are that it: (i) exercises its powers within a limited territory within a Province; (ii) exercises powers which belongs to a Province and by statute are delegated to it; (iii) is a third tier of authorities in a descending order of importance; (iv) is charged with the functions of the self government;(v) has powers to impose taxes; and, (vi) maintains and administers a local fund. However, PTA falls short of the qualifications of a `local authority' for the purpose of clause (88) Part I of the II schedule to the -repealed Ordinance or section 49 of the Income Tax Ordinance, 2001 for the reasons that: (i) operations of the PTA are not restricted to a local area or a specified territory;(ii) Its operations extend to the whole of Pakistan; (iii) It does not maintain a `local fund'; (iv) It does not perform its functions as a self government; (v) It is not empowered to impose taxes; and,(vi) It does not function as a third tier of authority. To explain the term `local authority' further, the learned DR has also submitted excerpts from various other judicial pronouncements cited as (PLD 1983 Lah.522); and, (PLD 1966 Pesh. 89 (DB).

(a) The expression `local authority' generally means a body of persons for the time being vested 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 (Pak.) 511; DLR 1964 Dac. 651). (b) 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' is to be given restricted meanings, `ejusdem generis' with the words preceding the same. Punjab Co-op. Union v. Govt. of Punjab Excise and Taxation Deptt. (PLD 1983 Lah.522).

The learned DR concluded his argument on the issue by submitting that, in the light of principles laid down by the judicial pronouncements quoted supra, it is clear that PTA does not qualify to be a `local authority'. Facts of the instant case were distinguishable from Thal Development Authority. Hence AR's reliance on the judgment of Lahore High Court cited supra is misplaced. He was of the view that. the department had full support from the judgment (PLD 1965 SC 201) of the Apex Court wherein, inter-alia, it has also been held that: "...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..." The learned DR reiterated that PTA did not fulfil the conditions precedent for a `local authority' in the light of the above mentioned judgments of the higher judiciary, and its definition as provided in General Clauses Act, 1897.

16. We have heard both the learned representatives and perused the relevant record as well as the case law cited in support of their arguments by the rival parties. The petitioner's counsel has argued that his client was a `local authority' as it had the same features as discussed by the Lahore High Court in their landmark judgment 1976 PTD 56 in the case of Thal Development Authority. The learned representative of the Income Tax Department has, on the other hand, opposed the rival contention and averred that the petitioner was a body corporate with the status of a Public Company, as its case was distinguishable from Thal Development Authority. When we carefully analyze the judgment 1976 PTD 56 we find it so exhaustive that for determining the status of any claimant to be a `local authority' there is no need to travel an extra mile. Before reaching at a conclusion as to whether PTA's claim is justified, it would be pertinent to reproduce the operative part of the said judgment whereby the question "whether the Tribunal was justified in holding that Thal Development Authority was not a `local authority' within the meaning of section 4(3)(iii) of Income Tax Act, 1922", referred to the court was answered in the negative. While answering the question their lordship, at paragraphs 7-12 of the judgment, observed as follows:--

"(7) As already mentioned above the term "local authority' is nowhere defined in the Income Tax Act, 1922. But section 2(9) of the Act defines a "person" to include an individual, a Hindu undivided family, a firm, an association of persons or a body of individuals, whether incorporated or not, a company, Government of a Province, a local authority and every other artificial juridical person. This definition in itself implies that for the purposes of Income Tax Act a. local authority is an artificial juridical person distinct from a company and an association of persons whether incorporated or not. This definition reads with section 3 (before and after it's amendment by the Finance Act 1965) leaves no room for doubt in our mind that the local authority itself is a unit of assessment quite distinct and separate from a company, firm or other association of persons. In fact the local authority occupies a unique position under the Income Tax Act and is taxable only in respect of that part of its income which arises from any business carried on by it so far as that income not arise from the supply of a commodity or service within its own jurisdictional area under section 4(3)(iii) of the Act. These are some of the specific provisions applicable to a local authority to distinguish it from a company defined in section 2(5A) of the Act."

"(8) The term "local authority" is of course defined in section 3(26) [sic] of the General Clauses Act 1897 reproduced below;

"Local Authority" shall mean a municipal committee, district board body of Port Commissioners or other authority legally entitled to or entrusted by the Government with the control or management of a municipal or a local fund."

As such the definition will hold good (sic) in interpreting the term used in the Income Tax Act. But the Tribunal has altogether failed to advert to it. Local authority is vested with the control or management of municipal or a local fund. A municipal Committee, district board and a body of port commissioners are illustrations of the local authorities specifically included within the definition. A common feature in all these is that they exercise powers of local self Government vested in them over a local areas within their limits (highlighted for emphasis). In exercise of some of the powers and functions of local Government and is entrusted with the development and municipal administration of a local area within its jurisdiction. The Supreme Court of Pakistan in the reported case of the Deputy Managing Director, National Bank of Pakistan Dacca and others v. Ataul Haq has held that the National Bank of Pakistan is not a "local authority" within the contemplation of Article 98(2) of the Constitution of Pakistan, 1962. In this context the Court observed that:--

"The expression "local authority" has been used in statutory phraseology in the India 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, but which by statutes are delegated to the local authority. A local authority is ordinarily charged with functions of self-Government, and has power of making bye-laws, of imposing taxation, and maintaining and administering a local fund". If we may say with respect, this explanation of the term is also, in consonance with the definition of the term Local Authority contained in section 3(28) [sic] of the General Clauses Act, 1897."

"8A. The term "local fund" is defined in the Compilation of the Treasury Rules (Volume 1) as under:-

"(i) revenue administered by bodies which by law or rule having the force of law comes under the control of the Government, whether in regard to the proceedings generally, or to specific matters, such as the sanctioning of their budgets, sanction to the creation of filling up of particular appointments, the encashment of leave, pension or similar rules;

(ii) the revenues of anybody which may be specially notified by the Government as such".

According to the law Lexicon by Aiyer the term "local fund" means any fund under the control or management of a local authority. We shall presently show from a discussion of the different provisions of the Thal Development Act, 1949 that the "Authority Fund" constituted under section 42 of that Act meets with all these requirements and is nothing but a local fund vested in the Thal Development Authority:--

"(9) Let us now examine the status of the Thal Development Authority. It was constituted under the Thal Development Act XV of 1949 by virtue of a notification issued on 29-7-1949. This Act according to its preamble was enacted to provide for the speedy development of the area brought under irrigation by the execution of the Thal Project, and for the re-settlement thereon of refugees and others and for the levy of development fee. Under section 1(2) the Act was extended to the Districts of Mianwali, Muzaffargarh, Khushab, Sub-Division in Sargodha District and the Provincial Government was empowered by notification to extend all or any of the provisions of the Act to other Parts of the Punjab. Section 3 of the Act lays down that the duty of carrying out the provisions of the Act in the local area to which the Act is extended, shall be vested in a Board called the Thal Development Authority. The Board shall be a body corporate, and shall have perpetual succession and a common seal and shall by that name sue and be sued. Section 4 lays down that the Authority shall consist of not more than seven members appointed by the Provincial Government by notification. Under subsection (1) of section 21 the authority may frame a scheme for the development of any local area or part thereof providing for all or any of the matters enumerated therein. Inter alia it may provide for the acquisition for any land or interest in land necessary for, or affected by the execution of the scheme, the relaying of any land comprised in the scheme, the lay out and the construction of towns, mandis, market places, villages and settlements and the provisions of facilities for communication including the layout and alteration of roads, streets, footpaths, bridle paths aerodromes and waterways. The scheme may also provide for the provision of open spaces, playing fields, national parks, natural reserves, forests and forest parks, the breaking up, cultivation, a forestation or plantation of lands, the draining, water supply and lightening of streets and sanitation of villages, town and mandis and market places, the installation, management, maintenance and encouragement of public utility undertakings, rural trades and crafts, industries and works. These are some of the matters provided in the scheme. The scheme may authorize the doing of all acts intended to promote health, well being and the prosperity of the residents of local area, including the conservation and preservation from injury or pollution of rivers and other sources and means of water-supply, and establishment of educational institutions, dispensaries and nursing homes. Under section 30(1) of the Act the Authority may undertake any work and incur any expenditure for the improvement and development of local area. Section 40 lays down that when by the execution of any scheme under this Act any land in the area comprised therein which is not required for the execution thereof, will in the opinion of the Authority be in value or will obtain benefit from the execution of the scheme the Authority may, while framing the scheme provide that in lieu of acquisition of such land a development fee will be paid by the owner or any person having interest therein. Chapter VII of the Act contains the financial provisions applicable to the Authority. Section 42 of the Act lays down that there shall be a fund to be known as `Authority Fund' vested in the Authority which shall be utilized to meet charges in connection with its functions under the Act including the salaries and other remunerations of the members of the authority and the Tribunal and any officers and servants duly appointed under the Act. Section 42 of the Act lays down that the Authority shall prepare its annual budget estimates and submit the same to the Provincial Government. Under section 43 the Authority is authorized to levy taxes in its local area with the previous sanction of the Provincial Government. Section 45 of the Act defines the powers of the Authority to borrow money. It lays down that the Authority shall be deemed to be a local authority under the Local Authorities Loan Act, 1914 for the purposes of borrowing money under the Act, and the making and execution of any scheme under this Act shall be deemed to be a work which such authority is legally authorized to carry out. Under section 50(1) the Provincial Government may by notification in the official Gazette make rules consistent with the Act. The Authority may from time to time with the previous sanction of the Provincial Government, make by-laws under section 51 of the Act. Section 81 of the Act provides for ultimate dissolution of the Authority and transfer of its assets and liabilities to an Administrator. In this connection subsection (1) lays down that when all schemes sanctioned under this Act have been executed or have so far been executed as to render the continued existence of the Authority in the opinion of the Provincial Government, unnecessary, or when in the opinion of the Provincial Government it is expedient that the Authority, shall cease to exist, the Provincial Government by notification declare that the Authority shall be dissolved from such date as may be specified in this behalf in such notification; and the authority shall be deemed to be dissolved, accordingly.

Under subsection (2) of this section from that dates all the properties, liabilities shall vest in the Administrator. In this case the Thal Development Authority was actually dissolved from i-6-1969 by virtue of Government of West Pakistan, Services and General Administration Department Notification No.S-III-2-68/67(1247), dated 31-5-1969 issued under section 81(1) of the Act".

"(10) The brief review of some of the relevant provisions of Thal Development Act discussed above is sufficient to form a fair idea as to the constitution and features of the Thal Development Authority, its powers and duties and the functions entrusted to it under the law. It is a statutory corporation constituted under section 3 of the Thai Development Act. It is a body corporate, has perpetual succession and can sue and be sued. It has its own juristic personality distinct from its members. Within its own local area under its control it exercises considerable powers of local Self-Government. It may frame schemes of a local area under its control and provides of the civic amenities for the inhabitants of the area. It has its own local fund to manage. It prepares its own annual budget for submission to the Provincial Government. It may levy taxes in its own local area with the sanction of the Provincial Government. It may also make bye-laws. We have therefore, no hesitation in holding that the Thal Development Authority is a Local Authority as defined in section 3(28)(sic) of the General Clauses Act".

"(11) But in the opinion of the Tribunal the Authority was created under section 3 of the Thal Development Act as a body corporate and this in itself was sufficient to hold that its status was that of a company as defined in section 2(5A) of the Income Tax Act, to mean a body corporate formed by or under any law for the time being in force. In this connection as already discussed above there can be no doubt from a reading of section 2(9) with sections 3 and 4(3)(iii) of the Income tax Act that a local authority is a separate unit of assessment distinct from a company. Both a company and a local authority have corporate existence and are corporate bodies. They have this feature and characteristic common to both of them. But at the same time they do retain their individual characteristics as well.

It is not that simply because the local authority has a corporate existence, its entity was completely lost in the company and it ceased to exist in its own right and must be treated as company for all purposes of the Income Tax Act. Indeed, if this process of elimination is pressed further, it would lead to many anomalies in the Act...."

"(12) In holding that Thal Development Authority is not a local authority, the Tribunal has also relied on the provisions contained in section 45 of the Thal Development Act, and made capital out of it. This section merely lays down that the Authority shall be deemed to be a local authority under the Local Authorities Loan Act 1914 for the purposes of borrowing money under that Act and the making and execution of any scheme under this Act shall be deemed to be a work which such Authority is legally authorized to carry out. From this the Tribunal concluded that the Thal Development Authority is not a local authority merely by this fiction of law. In arriving at this conclusion the Tribunal seems to have lost sight of the definition of `Local Authority' contained in section 2 of the Thal Development Act itself. It lays down that a `Local Authority' has the same meanings as in section 2 of the Local Authorities Loan Act, 1914. Now according to section 2 of the Local Authorities Loan Act, 1914, Local Authority means 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. As already discussed above under section 45 of Thal Development Act, The Thal Development Authority was legally entitled to impose tax within its local area. This conclusively establishes that the Thal Development Authority was a Local Authority for the purposes of Thal Development Act as well as Local Authorities Loan Act, 1914. This Act is designed merely to regulate borrowing powers of Local Authorities. A combined reading of sections 2 and 45 of the Thal Development Authority shows that they were designed merely to ensure that the borrowing powers of the Thal. Development Authority shall be regulated by the provisions of Local Authorities Loan Act, 1914. It appears to us that these provisions were clarificatory in nature. At any rate for the purposes of interpreting the term "local Authority" contained in section 4(3)(iii) of the Income Tax Act, reliance can be placed on the definition contained in section 3(28)[sic] of the General Clauses Act, which is readily applicable. In these circumstances the Tribunal was little justified in completely ignoring section 3(28) [sic] of the General Clauses Act."

17. From the plain reading of the operative part of the case law cited in support of his arguments, by the learned counsel of the petitioner, it is clear that to establish as to whether an entity is a `local authority' or not; one has to rely on the definition as provided in the General Clauses Act read with the constitution and features enumerated by the Lahore High Court as discussed in paragraphs 9 & 10 of the judgment reproduced supra. Under section 3(31) of the General Clauses Act, a `local authority' means a Municipal Committee, District Board, Body of Port Commissioners or other authority legally entitled to or entrusted by the Government with, control or management of a municipal or `local fund'. Hence, an authority which is entrusted by the Government with a `local fund' shall be considered as a `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; exercises its powers within a limited territory included in a Province; 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.

18. On the basis of touchstone provided in the judgment of Lahore High Court and the General Clauses Act, now let us analyze, whether the petitioner qualifies to be a `local authority' or not. Section 4 of the Act, enumerates the functions of the petitioner to: Regulate Tele communication services; allow the use of radio-frequency spectrum; protect the interests of telecommunication services; promote competitive telecommunication services; modernize telecommunication system; arrest contravention of provisions of PTA Act; make recommendations to the Fed. Government on international telecommunication; perform such other functions assigned by the Government; regulate arrangements amongst various telecommunication service providers of sharing their revenues; ensure effective compliance by licensees with Universal Services Obligations; regulate Access Promotion Contribution; settle disputes between licensees; and, regulate competition in the telecommunication sector and protect consumer rights. As per section 5 of the Act, the petitioner is empowered to: grant/ renew licenses for any telecommunication system; monitor/ enforce licenses; modify license conditions thereof; establish /modify accounting procedure for licenses and regulate tariffs for telecommunication service; regulate the transfer of licenses; prescribe standards for telecommunication equipment; provide guidelines of interconnection arrangements between licensees; carry out inspections of telecommunication equipment; appoint an administrator; develop national telecommunication numbering plan; review impact of getting information with respect to telecommunication; enter into contracts; enter into deal with regard to moveable or immoveable property; levy fee and other charges at such rates and in respect of such services as may ,be fixed by it from time to time not exceeding the limits as specified by the Federal Government; regulate the allocation of revenues between interconnecting licensees; undertake an auction to determine eligibility for licensing the Board allocated or assigned specific portions of radio frequency spectrum. Section 6 enjoins upon the authority to ensure: that rights of licensees are duly protected; all of the petitioner's decisions and determinations are made promptly in a transparent manner; expeditious disposal of applications; persons effected by PTA's decisions are issued dues notices and allowed an opportunity of being heard; fair competition in the telecommunication sector; and that interests of users of telecommunication services are duly safeguarded and protected. Section 9 of the Act, allows the petitioner to delegate its powers [except to grant new license/modify conditions of license/establish or modify accounting procedure for license/regulate the transfer of license/arrangement between the licensees/acquire or lease moveable or immovable property issue regulations], to its chairman, member or any of its officers.

19. The important features of a `local authority' in the case of Thal Development Authority are enumerated in paragraphs 9 & 10 of the Lahore High Court's judgment, reproduced supra. The above judgment, when further challenged, was also endorsed by the Hon'ble Supreme Court 1981 PTD 66, in following words:--

"The Thal Development Authority (hereinafter called the said Authority) was set up as a body corporate under the West Pakistan 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, mandis, market places, villages, roads, break up land for cultivation, etc..."

20. 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 petitioner's case falls short inasmuch as the Thal Development Authority was not a `local authority' merely by fiction of law (that the Authority shall be deemed to be a `local authority' under the Local Authorities Loan 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 Loan 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 Thal Development Act, The Thal Development Authority 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 Loan Act, 1914. The PTA 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 for the inhabitants of the area, which is also a common feature of all local authorities. PTA does not have 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 Tele communication 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' is 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 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'.

21. It will not be out of place to reproduce an excerpt from the Supreme Court's judgment in case of Salahuddin and 2 others v. Frontier Sugar Mills & Distillery Ltd. (PLD 1975 SC 17) [as cited in the case: CIT Muzaffarabad v. Altaf Ahmad Mir AVP, NBP RHG. 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 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'.

22. In another case reported as. (2001) 83 Tax 3 (HC Lahore) (sic), it was observed by the Court that bodies created under an Act of legislature fall within the definition of a company. Subsection (16) of section 2 of the repealed Ordinance 1979, provided that a body corporate formed by or under any law for the time being 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, it falls within the definition of Public Limited Company.

23. 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 (HC Lahore) (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.

EXEMPTION UNDER CLAUSE (88) PART-I OF IIND SCHEDULE TO REPEALED ORDINANCE 1979/SECTION 49(4) OF INCOME TAX ORDINANCE 2001

24. The petitioner's next objection against the impugned decision of the first appellate authority is with regard to the denial of exemption under clause (88) Part-I of 2nd Schedule to I.T. Ordinance, 1979 or section 49 of the I.T. Ordinance, 2001. Those provisions allow exemption to income of the Federal Government. Besides, income of a Provincial Government or a Local Authority is also exempt, except for their income derived from a business carried on, outside their jurisdictional area. Any payment received by the Federal Government, a Provincial Government or a Local Authority is not liable to any collection or deduction of advance tax. Through Finance Act, 2007, however, a new subsection (4) was added to this section, which specifically excludes, from the purview of exemption, a 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. The learned counsel of the petitioner contended that such an amendment always, has prospective effect and would not operate, retrospectively, as misconstrued by the department. In this regard reliance has been placed on case law reported as: (i) 2006 PTD (Trib.) 2154 [statutes dealing with substantive rights are prima facie/ generally prospective unless it is expressly or by necessary implications made to have retrospective operation...Rule in general is applicable where the object of the statute is to affect the vested rights or impose new burdens or to impair existing obligations...]; (ii) 2007 PTD 830(Trib.) [statutes would operate prospectively, unless it expressly provided for its retrospective operation...]; (iii) 2003 PTD 52 SC [...where any statute affects substantive right, it would operate prospectively unless by express enactment or necessary intendment retrospective operation has been given...]; (iv) 2007 PTD 1226(Trib.) [...if something is to be done, it needs to be specifically enacted, as the law cannot be interpreted in anticipation...plain language of law is to be adhered to and no intendment is permitted]; (v) 2005 PTD 2525 (LHC) [...Amendment brings change in existing statute of law, unless same was of clarificatory/declaratory nature clarificatory or declaratory amendments would be retrospective in effect... Amendment bringing change in existing statute of law, if not given retrospective effect, would be prospective in effect...]; (vi) 2006 PTD 734 (H.C. Sindh) [...No provision of law is to be considered in isolation but has to be considered in the context of and in the totality of scheme under the statutes...]; and, 2008 PTD 1420 (LHC), [...the question as to 'whether, unless statute itself so provides in unequivocal and clear terms, provision creating charge or otherwise dealing with substantive right cannot be made retrospectively"... answered in affirmative].

25. On the basis of above case law, the learned counsel for the petitioner has contended that amendment made in section 49 of the Income Tax Ordinance 2001, was of substantive nature, and its retrospective applicability, not having expressly been provided in the statutes, would come into force with effect from tax year 2008 i.e. commencing from 1-7-2007. Therefore, imposition of tax up to Tax Year 2007 was not lawful. Furthermore, it was argued, that Article 165A of the Constitution does not levy tax by itself but empowers the legislature to impose taxes through appropriate enactments. However, the learned AR though admitted, that the Parliament had the powers to extend the tax net to the entities mentioned in subsection (4) of section 49, yet contended that, such power was not exercised till 30-6-2007. Hence, up to tax year 2007, the petitioner's income was not hit by the mischief of new provision.

26. The departmental arguments regarding operation of sub-section (4) of section 49 are, however, to the contrary. According to the learned DR, section 49 specifically exempts the income of Federal Government, Provincial Government and Local Authority. Any authority, other than a Local Authority is liable to income tax unless specifically exempted. Explaining the need for amendment, he said that some authorities were unnecessarily agitating on the issue of taxability; hence, in order to remove the doubt once and for all, the amendment was made in law, through section 10 of Finance, Act, 2007 by inserting subsection (4) in section 49. By virtue of this amendment, it was clarified 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, was always chargeable to tax. The said amendment further clarifies that the ultimate destination of income of such entities was not a bar on the chargeability of tax as already laid down in Article 165-A of the Constitution of Islamic Republic of Pakistan. Thus, it was averred on behalf of the department, that the stance of PTA with regard to exemption to its income up to the tax year 2007, was contrary to the principle laid down in Article 165-A of the Constitution, which empowers the Parliament to levy tax on the income of a corporation, company or any other entity or institution established by or under a Federal Law or a Provincial Law or an existing law, regardless of the ultimate destination of their income. The learned DR argued that under the principles of legislative drafting the amendment that 'constitutes' a new regime is constitutive in nature, whereas, the amendment that only `clarifies' the existing provisions is `declaratory' in nature. The first category (constitutive amendment) shall have only prospective operation, whereas the second category (declaratory amendment) will be applicable,, retrospectively. The learned DR explained that subsection (4) was not `constitutive'. It was declaratory in nature for the reasons that: (i) Before the said amendment, exemption under section 49 was available to the Federal Government, Provincial Government and Local Authorities and not to Corporations, Companies, Regulatory Authorities, Development Authorities and other bodies or institutions. Now, after the amendment, exemption is still available to none but the Federal Government, a Provincial Government and a Local Authority; (ii) No substantive change has occurred in the said section in respect of provision of exemption from tax; (iii) Through this clarification neither any entity has been included nor excluded from the ambit of exemption (iv) The amendment has neither infringed any vested right nor has it created new obligations; hence it is not substantive in nature (v) The amendment also clarifies that the ultimate destination of income is not a bar on its chargeability to tax as already enshrined in Article 165-A of the Constitution of Islamic Republic of Pakistan. The learned DR also referred to paragraph 2 of Circular No.1 of 2007, dated 2-7-2007 whereby the Federal Board of Revenue had further explained the need for such amendment in the following words:--

"Regulatory authorities and development entities are liable to income tax. These authorities are covered by the definition of "company" given under income Tax Ordinance but some of these entities have gone into litigation on the issue of taxability In view of above, a clarificatory amendment has been made in the law by adding new subsection to section 49 which specifically prescribe that income of: (i) Corporation; (ii) Company; (iii) Regulatory authority; (iv) Other body; or (v) Institution; Established by or under a Federal law or a Provincial law or an existing law and setup, owned and controlled (a) either directly; or (b) indirectly, by the Federal Government or a provincial government is chargeable to tax. Further the ultimate destination of such income is not a bar for purpose of chargeability of tax as laid down in Article 165 A of the Constitution of the Islamic Republic of Pakistan."

From the above explanation, the learned DR inferred that the amendment is declaratory in nature and is operative, retrospectively. It was contended on behalf of the department that any view regarding its prospective applicability would not be in line with Article 165-A of the Constitution of Pakistan. The learned DR, in support of his argument regarding retrospective effect of declaratory amendment, referred to the Lahore High Court's judgment in the case reported as 1996 PTD 489 whereby it has been held that:

" as regards question of retrospectively, suffice it to say that the power of legislature to legislate retrospectively is well recognized and in the present case the retrospective operation to the explanation has been given by a specific provision in the amending law. Be that as it may, it is trite law that an amendment which is explanatory or declaratory, always operates retrospectively."

It was pointed out further that, Maxwell in his interpretation of statutes, 12th Edition, at page 224 has stated that "if a statute in its nature is a declaratory Act the argument that it is not to be construed so as to take away previously vested rights is inapplicable". The learned DR also referred to another judgment reported as PLD 1977 Lah. 292 whereby the honorable court has held that:

"...The note of caution struck in the portion underlined can hardly be disputed. Undoubtedly, we have to find out the intent of legislature and should not be swayed merely by the use of the word "declaratory" or otherwise. If therefore, the object of statute is to explain the previous provisions or to remove a doubt the law would apply retrospectively as held in other judgments referred to before." Thus, the learned DR concluded that, the amendment in section 49 being of declaratory nature is applicable retrospectively. Any other interpretation will not only be extra constitutional but would also make the whole scheme of law unworkable because, apart from regulatory authorities, the government owned corporations, companies and other entities like National Finance Corporation, National Telecommunication Company, Oil and Gas Development Corporation, Pakistan Electronic Media Regulatory Authority, Pakistan Television etc. can also claim that their income was not chargeable to tax before this amendment. The contention of the petitioner that the legislature did not exercise the powers of imposition of tax under section 165-A until the promulgation of the Finance Act, 2007, is not justified. The legislature exercised its powers of taxation when exemption was granted to PTA vide section 19 of PTA Act in 1996. The legislature again exercised its powers of taxation when the said section was omitted i.e. on 1-7-1997, and income of PTA, subsequently, became taxable. In the light of above contentions, the learned DR asserted that the powers under Article 165-A were exercised by the Parliament much before the promulgation of Finance Act, 2007".

27. The learned counsel has also challenged the departmental contention regarding taxability of his client's income with effect from 1-7-1997, i.e. immediately after the omission of section 19 from PTA Act. He reiterated the petitioner's contention that the measure taken through Finance Act' 1997 had no bearing on their claim of exemption because the said section was superfluous/redundant `ab initio'. On the contrary, the learned departmental representative argued that, originally, the mainstay of petitioner's defense was the existence of section 19 of PTA Act which provided it exemption from taxation. He supported his point of view by referring to assessment order under section 62 for the assessment years 1998-99 to 2001-2002, when the petitioner, in reply to notice under section 56 sought refuges in section 19 of PTA Act, and the assessing officer erroneously accepted such reply and dropped the assessment proceedings. The learned departmental officer asserted that the only provision that lent help to the petitioner was section 19, whereas stance regarding the petitioner's status of local authority' was nothing but an afterthought. He continued stressing that PTA Act, enacted and promulgated on 19-10-1996 specifically exempted the PTA from levy of tax through section 19 as income of the petitioner was, otherwise, taxable and no exemption was available under any other statute. The said section was intentionally included to provide tax exemption to the petitioner's income, and, subsequently, consciously, omitted [through section 10 of the Finance Act, 1997] to withdraw the facility. Thus, the appellant's income became taxable with effect from 1-7-1997. The learned DR asserted that the contention of the appellant that section 19 was omitted from the PTA Act because of its redundancy is against the facts of the case. Had PTA been exempt from tax otherwise, section 19 would not have been provided in the Act. 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. The learned DR was of the view that taxpayer's arguments, on the issue, were tantamount to challenging the Supreme Parliament's collective wisdom. Such an argument does not find support from any judicial dictum. Since, a legislation approved by the Parliament enjoys constitutional sanctity; the petitioner's stance in this regard was legally untenable. The learned DR-also dismissed the petitioner's claim of exemption on the basis of diversion of income through overriding title. Under section 8 of the PTA Act, the petitioner implements directives of the Federal Government on matters relating to telecommunication policy. It also regulates, enforces tariff and collects annual license fees and other charges. However, under subsection (3) of section 12 of the PTA Act, it is obliged to remit `all surpluses of receipts over the actual expenditure' to the Federal Consolidated Fund. The learned DR adverted to the relevant subsection, which, for the sake of convenience, is reproduced below:--

"Section 12(3).---Any surplus of receipts over the actual expenditure in a year shall be remitted to the Federal Consolidated Fund and any deficit from the actual expenditure shall be made up by the Federal Government."

The learned DR has rebutted the petitioner's stance of exemption from tax of the entire surpluses because of its diversion at source to the Federal Government through an overriding title, and that income does not accrue to PTA but to the Federal Government. He contended that Income Tax payable by the petitioner is also an expense and the surplus, for the purpose of diversion to the Federal Consolidated Fund, is to be computed after paying all admissible expenses including taxes as held by the Tribunal in the case of Attock Refinery Limited (ARL)-(decided vide I.T.As. Nos.39, 40/IB of 1992-93). Relevant, operative part of the judgment was read which is reproduced as under:---

"...Keeping in view the language of clause 26 of the Agreement we are of the view that true income of the assessee can be deduced only if its income is computed in accordance with the provisions of the Ordinance relating to computation of income from business and the above clause is applied after the net profit has been determined after paying admissible expenses 'including taxes...The case law referring to the concept of real income or diversion of income by overriding title relates to the situations where the assessee has been obligated by or under law to pay or expend any amount or to collect any money for any purpose other than the purpose of its business. None of the above elements is visible here. The obligation of the assessee and of the Government under clause 26 of the Agreement is a contingent obligation. It does not arise for earning income by the assessee. It arises only when the Income of the assessee has been computed in accordance with the common principles of computation of income provided in the Ordinance and its profit is in excess of the specified percentage. There is absolutely no obligation on the assessee to pay any definite amount to the Government or to collect any levy for the Government as in the case of Development surcharge, if the assessee pays tax on its total receipts naturally its profits will deplete. May be that, in that eventuality, if it does not earn any surplus profit, it will not pay anything to the Government. It will pay to the Government only if its profit exceeds the guaranteed percentage...."

28. It was further argued on behalf of the respondents that a comparison of the provisions contained in the agreement of Attock Refinery Limited and in the PTA Act reveals that the terms and conditions of transfer of surplus earnings are identical in both cases. Therefore, in the light of decision of the Tribunal in the case of ARL, surplus income earned by PTA is also to be computed in accordance with the provisions of Income Tax Law and the surplus income so determined is to be taxed before its transfer to the Federal Consolidated Fund. In nutshell, the learned DR concluded that the petitioner cannot take the plea that since its surpluses are surrendered to the Government, therefore, the same could not be offered for tax. To further support his argument, the learned DR cited the case of Army Welfare Trust (AWT) which was decided by the Tribunal vide I.T.As. Nos.110, 111/IB of 1997-98, dated 2-3-1999. In that case the taxpayer was of the view that portion of its income surrendered to Welfare Directorate General Headquarters; Rawalpindi was not liable to tax. While deciding this issue the Tribunal observed that, "...the concept of overriding title to income does not arise in this case....".

29. The learned DR continued his arguments and asserted that the petitioner, here, has also the same concept of 'diversion of income by over-riding title', and, is of the view that the concept does not allow the Income Tax Authorities to tax that portion of their income which is transferred to the Federal Consolidate Fund in the light of the provisions as contained in subsection (3) of Section 12 of PTA, Act. In this regard they have tried to take the shelter of an 'explanation' from the tax-commentary excerpted from 'Kanga and Palkiwala's book on Income Tax Laws. Before pleading further, the learned DR read out the said explanation, which is reproduced hereunder:

"Case arises where income is applied in a particular manner under a statutory or contractual obligation or under the provisions of a company's memorandum or articles of association. Such, appropriation or destination of profit, or the charge which has been made on them by previous agreements, or otherwise, is perfectly immaterial and has nothing to do prima facie with the question whether they are liable to income tax. If a person has alienated or assigned the source of his income so that it is no longer his he may not be taxed upon the income arising after the assignment of the source."

According to the learned DR, the above explanation is not relevant to the petitioner's case because it does not dilate upon the 'transfer of income'. In fact, it primarily deals with the transfer of 'source of income' and the 'income' arising therefrom. The relevant part of the 'explanation', reads under:-

"If a person has alienated or assigned the source of his income, so that it is no longer his, he may not be taxed upon the income arising after the assignment of the source."

30. The learned DR contended that the above 'explanation' does not support the petitioner's stance regarding exemption even though its surpluses are transferred to the Federal Consolidated Fund in the' light of section 12(3) of PTA Act. As per the said explanation, if a person alienates any source of income, the income, after its alienation/ assignment may not be taxed. He opined that `Source of income' and `income' were two different connotations having different meanings. `Source of income' represents the head under which the income is derived e.g. `business', 'property'. On the contrary, the word `income' represents the profit/gains derived from a source e.g. 'business', 'Property' etc. It is thus clear that said 'explanation' does not favour the petitioner: However, if, for the sake of arguments, it is presumed that the 'explanation' covers the 'transfer/alienation' of income which, according' to the learned AR, might not be taxed, even then law of the land, [Constitution of Pakistan, Income Tax Law, judicial pronouncements of Pakistani origin], does not support the petitioner's claim of exemption. The learned DR contended that commentary written by Kanga and Palkiwala might be relevant to Indian tax laws, but it is not applicable here, because Pakistani law, on the issue involved, is different. The issue under reference i.e. taxability of income under the concept of diversion of income by over-riding title' has been thrashed out threadbare in Article No. 165A of the 1973 Constitution. Section 12(3) of the PTA Act, is procedural in nature. The appellant is not obliged to divert the whole of its receipts, but only the excess amount after deducting its expenses. The learned DR contended that it was a settled principle that provision of law is to be interpreted strictly according to its language and not on the basis of assumptions. In this connection reliance was placed on following judgments:---

(i) In the case cited as 2000 PTD 280 (H.C. Kar.), it was held that: "...While interpreting a provision of statute, court has to read the provision as it exists and not to deduce or infer the meaning in accordance with the existing test or the words or particular provision. Court is not supposed to add to or subtract any word[s] from any provision of a statute while interpreting a provision so as to give same meanings which obviously and plainly flows or can be inferred from it..."

(ii) Similarly, in a case reported as 2000 MLD 357, it was held that "...where a thing was provided to be done in a particular manner, it had to be done in that manner and if not so done, the same would not be lawful...."

(iii) In the famous case of Canadian Eagle Oil Co. Ltd Vs Kind (27 TC 205) the guiding principle of interpretation of statutes as laid down by the court is that: "...In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

The learned DR, concluding his arguments on this issue, reiterated that, interpretation of section 12(3) of PTA Act, as adopted by learned AR was misconceived, and not tenable. In this regard he also referred to a case law cited as 1991 PTD 999 = 1991 SCMR 2374, wherein Supreme Court had observed that when an assessee receives any money which has nexus with the business of the assessee the money whether called grant, subsidiary or aid, is the income of the assessee. In the light of above submissions the learned DR asserted that the claim of exemption of the taxpayer on the basis of diversion of income through overriding title was not tenable under the substantive provisions of the Income Tax Ordinance, 2001, the Constitution of Pakistan as well as the judicial pronouncements.

31. Heard, record and case law perused. The taxpayer claims that its income up to tax year 2007 was exempt as the amendment in section 49 did not have retrospective application. It is also claimed that, since, any surplus of receipts over actual expenditure in a year is remitted to the `Federal Consolidated Fund' by virtue of an overriding provision as contained in subsection (3) of section 12 of PTA Act; therefore, there was no income left with the petitioner which could be taxed under the law. Before proceeding further it would be pertinent to reproduce the provisions of section 49 of I.T. Ordinance, 2001, which after amendment (vide Finance Act, 2007), read as under:

"(49) Federal and Provincial Government, and local authority income.---(1) The income of the Federal Government shall be exempt from tax under this Ordinance. (2) The income of a Provincial Government or a local authority in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head "Income from Business" derived by a Provincial Government or local authority from a business carried on outside its jurisdictional area. (3) Subject to subsection (2), ally payment received by the Federal Government, a Provincial Government or a local authority shall not be liable to any collection or deduction of advance tax.] (4) 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 Islamic Republic of Pakistan."

32. A careful perusal of the amended section 49 would show that the income of Federal Government, Provincial Governments, as well as Local Authorities, remains exempt from tax. Neither any entity has been included in nor excluded from the ambit of exemption. The amendment has neither deprived any entity of its vested right nor has it imposed new obligations. Income of various statutory bodies enumerated in the newly inserted subsection (4) was taxable, and remains so thereafter, regardless of the ultimate destination of such income as laid down in Article 165-A of the Constitution. We are of the considered opinion that these are machinery provisions which are intended to ensure proper application of the law rather than creating any substantive liability against the taxpayer. As such they would apply retrospectively. In this regard the ratio of judgments reported as 1996 PTD 489 [whereby it has been held that: "...it is trite law that an amendment which is explanatory or declaratory, always operates retrospectively..."]; and PLD 1977 Lah. 292, [that "...If, therefore, the object of statute is to explain the previous provisions or to remove a doubt the law would apply retrospectively...."], is applicable in the instant case as well. Moving further, we have also pondered upon the appellant's contention of having no income of its own, because of its diversion to the Federal Consolidated Fund by virtue of section 12(3) of PTA Act. This contention is not tenable because income of other statutory bodies, also find their ultimate abode in the said fund, after payment of the taxes as per law. The ratio of Tribunal's decisions in the case of AWT, and ARL, as mentioned in paragraphs 27 & 28, supra, are on all fours with the facts of this case. In the light of above discussion; substantive provisions of the Income Tax Ordinance, 2001; the Constitution of Pakistan as well as judicial pronouncements we have no doubt in our mind that the appellant's claim of exemption on the basis of diversion of income through overriding title, has not merit. Therefore, we hold that the petitioner's income was not exempt either under clause (88) Part I of 2nd Schedule to IT. Ordinance 1979, or section 49 of the I.T. Ordinance 2001.

Order under section 66-A [Asstt. Years-1998-99 to 2001-2002]

33. Order under section 66-A of the repealed Ordinance 1979 was passed on 12-5-2006, and according to the department, it was also served on the appellant on the same date. The petitioner has, however, called into question such/order having barred by limitation in the light of provisions of subsection(2) of that section, because it was not served in accordance with the provisions of section 218 of I.T. Ordinance 2001. It is contended that the order was actually collected by the petitioner on April 7, 2008, therefore, the appeal was within time. It is contended that as per law the order should have been properly served before initiating consequential proceedings. The learned counsel of the petitioner argued that, it was a settled principle of law that the limitation starts from the date when the order was actually served on the taxpayer. To support his point of view, the learned counsel referred to Supreme Court's decision in the case of Messrs Qureshi Vegetable Ghee Mills Ltd v. CIT and others 2002 PTD 399, whereby, while explaining the principle of limitation, the court had observed: "It is well settled by now that where a judgment has not been conveyed to a party limitation starts from the date of knowledge....". Similarly, in a judgment reported as 2002 PTD 549, the prayer for condonation of delay was allowed on the point of limitation. Further, the petitioner also contends that the order was not passed within time limit prescribed by the provision of section 66A (2) of the repealed Ordinance, which lays down that: "No order under subsection (1) shall be made after the expiry of four years from the date of the order sought to be revised". The learned counsel of the petitioner concluded that, since, the order under section 66- A, dated May 12, 2006 was collected by his client, on April 7, 2008, i.e. after the period of limitation, therefore, such order was illegal and the superstructure built on such a void order was unlawful/not sustainable. He sought support from the `ratio decidendi' of the judgments reported as: PLD 19'71 SC 61 ("...a void order will have no value whatever and is simply to be ignored and consequently no question of limitation will arise against such an order."); 1986 SCMR 962 ("...an impugned order has been passed without hearing and notice to party whose presence is otherwise necessary before the authorities concerned, then the order will he nullity in the eyes of law and no question of limitation would arise..."); PLD 1969 Lah. 1039 ("...If an order is without jurisdiction and void, then it need not be formally set aside, and no question would, therefore, arise of holding that the matter cannot be considered on merits on account of any bar of limitation..."); and 1985 CLC 1411 (Kar.) ("...No period of limitation is to be observed for setting aside a void order....") The learned DR has, on the other hand, refuted the contention of the taxpayer. He contended that the order was legally passed and validly served within the period of limitation, after fulfilling all the essential requirements enunciated in law i.e. (i) examination of record; (ii) order being erroneous as well as prejudicial to the interest of revenue; (iii) provision of opportunity of being heard to the taxpayer; (iv) cancellation of order under section 62, directing the subordinate officer to make a fresh assessment; and, (v) proper service on the petitioner in their office on the same date on which such order was passed. The learned DR further averred that the consolidated assessment order passed under section 62 of the repealed Ordinance for the assessment years 1998-99 to 2001-02 was erroneous as well as prejudicial to the interest of revenue. The assessing officer called for the tax returns by issuing notice under section 56. The petitioner, in compliance, submitted in writing that their income was exempt under section 19 of the Act, 1996. The assessing officer believed the petitioner's statement, and did not levy tax. On examining the record the Additional Commissioner found that petitioner had misrepresented his case. The relevant provision, (section 19 of the Act), lending specific" exemption to the appellant was no more on the statute book, with effect from 1-7-1997 (assessment year 1998-99). The border under section 62 was passed on 15-5-2002. Hence, it was rightly cancelled under section 66-A, after allowing a reasonable opportunity of being heard to the petitioner. The learned DR also refuted the appellant's plea regarding non-service of order under section 66-A. He produced the evidence of service of the order, in original, bearing the official stamp of the petitioner. The Income Tax Inspector, who had served the order in the petitioner's office, also appeared before this court, in person, and also filed a written statement in this behalf. The learned DR concluded his arguments on the issue by reiterating that the order under section 66-A, as well as its service on the petitioner was made in accordance with law. At this point, the learned counsel for the petitioner took objection to the DR's claim regarding proper service of the order. Firstly, that the service was made on a person who was not an employee of the petitioner. Secondly, the service was claimed to have been made, on Friday, 12th May, 2006, at 2-30 p.m., when the office was closed for prayer. The learned counsel asserted that such a service cannot be taken to have been made in accordance with the provision of section 218 of the I.T. Ordinance, 2001. On the learned DR's query, however, the learned counsel admitted that the stamp borne on the served document was that of the petitioner. The learned DR also contended that the petitioner's plea regarding non-service of order was an after-thought; because no objection was ever raised during the, subsequent, reassessment proceedings.

34. Heard, record perused. The order under section 62 was passed on 15-5-2002, which was cancelled under section 66-A vide, order dated 12-5-2006 and claimed by the department, as having been served on the appellant on the same date. Record shows that such order was made within the statutory time of limitation as provided in subsection (2) of section 66-A. As an evidence, it has been averred on behalf of the department that, the petitioner had the knowledge of the existence of order under section 66-A and, therefore, its veracity was never challenged during the reassessment proceeding which were immediately initiated as a consequence of such order. The learned counsel of the petitioner has argued that unless the order was served in accordance with the provisions of section 218 of the I.T. Ordinance the consequential proceedings would be nullity in the eyes of law. He had quoted the case of Messrs Qureshi Vegetable Ghee Mills Ltd v. CIT and others (2002 PTD 399), in' support of his contention. A careful perusal of the referred judgment would show that ratio of the decision is against the petitioner's point of view. In that case the court had held that, where a judgment was not conveyed, the limitation would start from the date of knowledge. Relevant, operational, part (paragraph 8) of that judgment reads as under:--

"It is well-settled by now that where a judgment has not been conveyed to a party limitation starts running from the date of knowledge. The proposition canvassed [sic] on behalf of the appellant-company is that unless result of the appeal is communicated limitation would not start running cannot be accepted because then it would mean that it will not be possible to file an appeal if the Tribunal does not intimate the result to the party. In that case even the appellant's appeal before the High Court was defective because it has not been filed on the basis of intimation but on the basis of knowledge...."

35. In the present case, the reassessment proceedings were initiated immediately after the passage of order under section 66-A. The petitioner has never contested the receipt of such order during such proceedings. From perusal of the record produced by the department as well as the case law referred to at the bar, we are convinced that the order under section 66-A was not only passed within the period of limitation, but also validly served on the same date i.e. 12th May, 2006. Appellant's plea regarding violation of the provisions of section 218 of the I.T. Ordinance, 2001, too, is not tenable, because the petitioner had the knowledge of existence of order, under section 66-A, well in time, at least on the date when first notice for fresh assessment was served as a consequence of such order. However, even if the petitioner's argument regarding service of order beyond the period of statutory limitation is taken on its face value even then the order was valid and sustainable under the law. This view finds support from the Tribunal's judgment, in a case reported as 2007 PTD 803, whereby it has been held that an order passed within the statutory period of limitation and communicated to the assessee later on, is a valid order. In the instant case the order under section 66-A was passed within four years of the order sought to be cancelled. Hence it was a valid order. The order so passed was in the knowledge of the petitioner because the subsequent proceedings for fresh assessment were started immediately thereafter. Under these circumstances, we have no hesitation to observe that the appeal filed on 6-6-2008 against the order under section 66-A passed and served on the petitioner on 12-5-2006 had neither any merit nor it was filed within the period of limitation. Hence, the taxpayer's appeal fails on both counts---on merit as well as on legal premise.

ILLEGAL NOTICE UNDER SECTION 114(4) OF ORDINANCE, 2001.

36. The learned counsel for the petitioner has argued that the assessment order passed on 30-6-2006 for the assessment year 2002-2003 was not sustainable, because it was based on a void notice under section 114(4) issued on 12-6-2004. Section 114(5) of the Ordinance, as applicable on the date of issuance of notice, reads: "A notice under subsection (4) may be issued in respect of one or more last five completed tax years." After the promulgation of Finance Act, 2004, the same provision reads: "....A notice under subsection (4) may be issued in respect of one or more last five completed tax years or assessment years". The learned counsel for the petitioner posed a question as to whether notice under section 114(4) could be issued in respect of an `assessment year' prior to promulgation of Finance Act, 2004. He himself answered his question in the negative, by placing reliance on a case cited as 2007 PTD 1763, wherein the Tribunal had held that an assessment on the basis of notice issued under section 114(4) dated 7-1-2004 for the assessment year 2002-03 was void as the words `Assessment Years', which were inserted through Finance Act, 2004, did not exist on the statute book at the time of issuance of such notice. In view of these facts, the assessment order based on a notice issued under section 114(4) on June 12, 2004, was contended as not sustainable. It was argued that the entire superstructure of assessment based on a void notice was illegal and without lawful jurisdiction.

37. The learned DR, on the other hand, has opposed the rival contention. The issue is stated to have been resolved in favour of the department by full bench of the Tribunal vide I.T.As. Nos. 1418 & 1419/IB of 2005, I.T.As. Nos. 152-153/IB of 2006, I.T.As. Nos.351--352/IB of 2006, I.T.As. Nos. 491-493/IB of 2006 dated 22-4-2006. The question in respect of issuance of notice under section 114 of the Income Tax Ordinance, 2001 and all penultimate proceedings under section(s) 62/63 of the repealed Ordinance in respect of an income year ending on or before 30-6-2002 was decided against the taxpayers in the context of saving provisions of section 239 of the Income Tax Ordinance, 2001. The learned DR averred that since, the Tribunal's judgment referred to by the petitioner's counsel had, subsequently, been reversed, by the Full Bench, therefore, the rival plea was not tenable under the law.

38. After hearing the learned representatives of both the parties and perusal of the Tribunal's referred decisions, we tend to agree with the stance taken by the revenue. The Tribunal's decision reported as 2005 PTD (Trib.) 490 in favor of the taxpayer which was on all fours with the decision referred to by the learned counsel of the appellant, was later on, overruled by the Full Bench. In the overriding decision, the Full Bench (in paragraphs 23 & 24 of the order) observed that:

"...In all these cases there was no option left with the Income Tax Authorities under the new Ordinance, 2001 but to initiate proceedings by calling the returns of income through notice under section 114(4) of the new Ordinance, 2001 and as such their action was justified and lawful in that regard. Accordingly, the finalization/completion of assessments under section 62 or 63 of the old Ordinance 1979 by the Income Tax Authority/Taxation Officer was also in accordance with the savings provided in subsection (2) of section 239 of the new Ordinance, 2001 for framing assessments under section 62 or 63 of the Ordinance 1979 relating to "assessment years" falling on or before 30-6-2002.

In the light of above discussion we will respectfully disagree with the views expressed by our learned members of the Division Bench of the Tribunal at Lahore in the case reported as 2005 PTD (Trib.) 490 while interpreting the provisions of new Ordinance 2001 and the old Ordinance 1979 in respect of case relating to the period falling on or before 30-6-2002. The procedure for initiation of proceedings for calling a return through notice under section 114 was rightly adopted by the Taxation officer under the new Ordinance, 2001. Moreover, the non saving of provisions of section 56 will not have any effect on the proceedings initiated through notice under section 114(4) of the new Ordinance, 2001 being a procedural matter and there was no other way but to initiate the proceedings in the cases where the substantive provisions relating to the manner of determination of rights obligations/liabilities/computation of income/charge of income tax etc., have been specifically saved in the Savings in section 239 of the new Ordinance, 2001 and therefore we resolve the proposition in hand accordingly in favour of the revenue...".

In the light above discussion, and following the Tribunal's combined judgment in I.T.As. Nos. 1418 and 1419/IB of 2005, I.T.As. Nos.152-153/IB of 2006, I.T.As. Nos.351-352/IB of 2006, and I.T.As. Nos.491-493/IB of 2006-dated 22-4-2006, we hold that issuance of notice under section 114 and the supper structure based thereon was legally justified. Hence, we confirm the departmental action. The taxpayer's appeal on this issue fails.

EX PARTE ORDERS: (a) under sections 63/66-A (Asstt. Years 1998-99 to 2001-2002): (b) under section 121 (Tax years 2003, 2004, 2005, 2006 and 2007).

39. The taxpayer has contended that since, sufficient opportunity of being heard was not provided to them, therefore, the consolidated ex parte order under sections 63/66A of the repealed Income Tax Ordinance 1979, for the assessment years 98-99 to 2001-02, was not in line with the principles of natural justice. The learned DR has opposed the appellant's contention, because this view did not find support from the facts of the case and perusal of relevant record. Before passing ex parte order under sections 63/66A, statutory notices were issued. But the appellant did not cooperate. Tax returns were not filed, with the plea that the petitioner's income was exempt from levy of tax under section 19 of the PTA Act. Thereafter, notices under sections 61/62 dated 18-5-2007 were issued for furnishing certain details/documents. On the due date i.e. 25-5-2007, the appellant sought adjournment which was allowed up to 14-6-2007. But on the due date none appeared before the assessing officer. Neither tax returns, nor documents/explanations as requisitioned through legal notices were filed. It is, thus, evident that sufficient opportunity of being heard was allowed to the taxpayer but they, deliberately, failed to comply with the statutory notices. Hence, on the basis of information available on record, the assessing officer constrained to finalize the assessment ex parte under section 63 read with section 66-A of the Income Tax Ordinance, to the best of his knowledge. The learned DR asserted that the departmental action of passing an ex parte order was justified in the light of observations recorded by the Lahore High Court in a case reported as (1998) 78 Tax 188 [LHC).

40. The `best judgment'/ex parte orders in respect of tax years 2004 to 2007 have also been impugned. The learned counsel averred that a plain reading of section 121 of the I.T. Ordinance, 2001 would show that the requisite conditions which invite their invocation were absent in his client's case. If a `person' is not hit by the mischief of such law, the assessment would not sustain, being against the principles of natural justice. He was pained to note that the guiding principles as laid down in various judgments of the apex court were violated by the department in the appellant's case. However, the learned counsel failed to cite any such judgment, except that he of repeated his point of view that the best judgment/ex parte assessment framed by the Taxation Officer, against PTA was unlawful and against the principle of natural justice. He asserted that PTA received notices under sections 121/176 of the Ordinance on the very date of their compliance. When the appellant reached the office of Taxation Officer, the adjournment was refused on the pretext that the assessment had already been finalized ex parte without considering the petitioner's reply. Furthermore, he contended that, the assessment framed by the Taxation Officer was against the spirit of `best judgment assessment'. It has been contended on behalf of the taxpayer that the Taxation Officer erred in including items in total income which were not otherwise chargeable to tax and that various deductions admissible under provisions of the repealed Ordinance/new Ordinance were not allowed.

41. The learned DR, however, opposed the appellant's plea. He narrated at length, in chronological order, the failed efforts of the department to extract cooperation of the petitioner by issuing statutory notices from time to time. It was contended that adequate opportunity was provided to the taxpayer to file tax returns and to produce relevant details/documents along with books of accounts. However, the statutory notices went unheeded. The taxpayer consciously and persistently chose not to cooperate with the department. Neither, tax returns were filed nor books of accounts and related material were produced. Under these circumstances the assessing officer was left with no option except to finalize the assessments ex parte, to the best of his judgment. The learned DR also asserted that the `best judgment assessments' finalized under section 121 of the Income Tax Ordinance, 2001 were not whimsical, capricious or arbitrary. The assessing officer was guided by the principles of natural justice, equity and good conscious. This is apparent from the fact that tax was charged only on the surplus/income declared by the taxpayer as per their annual audited accounts/annual reports for the relevant Tax Years. Furthermore, the assessing officer was legally obliged to finalize the assessments, ex parte under section 121, for the Tax Years 2003 to 2007 because of wilful default of the taxpayer to respond to various statutory notices issued under the Income Tax Ordinance, 2001. The learned DR averred that it was wrong to say that the learned CIT (A) erred in confirming the Taxation Officer's ex parte orders without appreciating the facts. He took strong exception to the petitioner's claim that: "notice under sections 121/176 was received on the date of its compliance and when the taxpayers representatives reached the office of the taxation officer, adjournment was refused on the pretext that assessment had already been finalized ex parte." According to the 'earned DR, notice under section 114 for the tax year 2003 was issued on 12-6-2004 calling for the tax return. In response, the taxpayer claimed exemption by placing reliance on section 19 of the PTA Act, 1996. Thereafter, during the course of assessment proceedings letters/statutory notices dated 18-6-2004; 27-12-2004; 18-3-2006; and, 30-3-2006 were issued to the appellant who, in turn, reiterated their claim of exemption. A notice/letter under section 176 bearing No.255, dated 18-5-2007 was issued to the taxpayer wherein, besides, explaining the departmental point of view on the petitioner's claim of exemption, it was requested that copies of audited accounts, bank statements and various books of accounts be furnished by 28-5-2007 failing which assessment for the tax year 2003 would be finalized at the figures of income as disclosed in the Annual Report 2003. In response, the taxpayer sought adjournment which was allowed up to 14-6-2007. On the due date no compliance was made. Neither tax return nor any reply, in response to the said notice was filed, in spite, of allowance of sufficient opportunity of being heard. Hence, the assessing officer was left with no option except to invoking the provisions of section 121. Furthermore, the learned DR claimed, it was truly the `best judgment assessment' because it was not based on conjectures, surmises or arbitrary figures. Rather, it was finalized on the basis of surplus declared by the petitioner themselves, as per their audited accounts. For the Tax Years 2004 and 2005, again, no return was filed even in response to notice under section 114(4) issued on 11-2-2006. On 18-3-2006, a notice was issued under section 121 for compliance on 29-3-2006. On the stipulated date a meeting was held with the representatives of, the petitioner and the case was adjourned for 5-4-2006 on their request. On 19-6-2007 another letter bearing No.1301 was issued, in order to verify as to whether tax return for Tax Year 2006 was filed or not. Compliance was requested by 26-6-2007, which, however, was not forthcoming. Therefore, notice under section 114(4) for the Tax Year 2006 was issued on 14-11-2007. Petitioner's representatives attended the office of the assessing officer and, on his request, adjournment was allowed up to 30-11-2007. On 9-1-2008, the Commissioner of Income Tax, vide letter No.2817 addressed to Chairman PTA elaborated all the issues regarding taxability of petitioner's income, and advised them to file tax return for Tax Year 2007. On 12-1-2008 Taxation Officer issued a letter/notice under section 176 requiring the appellant to submit information, and produce books of accounts by 21-1-2008. But the petitioner failed to respond. For Tax year 2007 notice under section 114(4) was issued on 9-2-2008 requiring the taxpayer to file the tax return, but to no avail. On 21-2-2008 notice/letter under section 176 was issued for production of books of accounts/financial statements, for all the four tax years, on 25-2-2008. Again, there was no compliance. Finally, the taxpayer was confronted vide notice(s) under sections 121/176 of the Income Tax Ordinance, 2001 for the Tax Years 2004 to 2007 and date of hearing was fixed for 10-3-2008. On the said date adjournment was once again sought, for two weeks. The assessing officer, in the interest of justice granted final adjournment for 18-3-2008. As usual the appellant failed to comply, Therefore the taxation officer was left with no option except to finalize the assessments ex parte under section 121 on the basis of surplus income declared in the financial statements/annual reports. In the light of these, detailed submissions, the learned DR expressed his opinion that the assessing officer was justified in passing ex parte order under section 121 for the Tax Years 2004 to 2007. He further mentioned that the assessment proceedings continued almost for two years starting from 11-2-2006 till the date of the finalization of assessments (in the absence of petitioner's cooperation on 18-3-2008. In these circumstances the assessing officer had no option except to pass ex parte orders under sections 63/121.

42. After hearing the rival arguments and perusal of the available record as well as the case law relied upon by the learned DR, we are persuaded to agree with the revenue's stance. In the referred case law 1998 PTD 3835 their Lordship observed that:--

"...It is hardly necessary to reiterate that the appellants neither produced audited accounts nor any evidence in support of their plea of claiming exemption; that the, assessing officer granted numerous adjournments to do so. In such circumstances the assessing officer had no other option but to proceed under section 63 of the Ordinance and deliver a' decision known as "best judgment...As a result of the foregoing discussion we do not find any question of law calling for our answer within the ambit of amended section 136 of the Ordinance. This appeal is found without any merit and is accordingly dismissed."

In various other cases, where there was deliberate non-compliance on the part of the taxpayer, the superior courts have upheld the ex parte assessments. In a case (51 TAX 181(SC)) the Supreme Court upheld the ex parte order passed by the Income Tax Officer, where the assessee had failed to produce books of accounts requisitioned through a statutory notice. In another case (1975 PTD 58 (Lah.)), where, in spite of valid service of notice, the assessee neither appeared on the appointed date nor produced `account books', an ex parte assessment order was upheld by the High Court.

In the present case, it is observed that, an adequate opportunity of being heard was allowed to the taxpayer, but to no avail. The petitioner, wilfully, did not participate in the assessment proceedings in spite of service of statutory notice(s). The petitioner's contention that assessments were arbitrary and not `best judgments', is also not tenable. Only the surplus, (i.e. excess of income over expenditure), as declared by the appellant itself was taxed and no additions out of the claimed expenses were made by the department. In other words the income declared per annual accounts of the petitioner was accepted and subjected to tax at the applicable rate. Record shows that specific notices under sections 56/61/62/114/176 of the repealed as well as new Ordinance, 2001 were 'issued requiring the appellant to submit tax returns and produce books of accounts, however, the petitioner deliberately chose not to cooperate and participate in the assessment proceedings. Under these circumstances the assessing officer was constrained to finalize assessments ex parte, to the best of his judgment. The assessments were finalized on the basis of declared income/surplus as per annual accounts of the petitioner. In the light of these facts, the taxpayer's assertions regarding arbitrariness of assessments are not supported by any credible documentary evidence. It is apparent that the taxpayer, deliberately, avoided either to join the assessment proceedings or to produce the requisite books of accounts/documents. In view of these facts and circumstances we do not find any merit in the petitioner's contentions with regard to ex parte/best judgment assessments made under sections 63/66-A of the repealed Ordinance' as well as under section 121 of new Ordinance, 2001, therefore, the appeal on this issue is also dismissed.

43. The learned counsel for the taxpayer has also agitated that notice under section 190 of the Income Tax Ordinance, 2001 has incorrectly been issued in respect of assessments completed under sections 63/66A of the repealed Ordinance. The learned DR has opposed the petitioner's plea. After hearing both the parties and perusal of the relevant provisions of law the contention is adjudged as not tenable in light of section 239(3) of the Income Tax Ordinance, 2001 because imposition or charge of any penalty, additional tax or any other amount under the repealed Ordinance has to be imposed in accordance with the corresponding provision under the Income Tax Ordinance, 2001. The objection is dismissed being devoid of merit.

44. In the light of above facts and circumstances of the case, as well as the conclusion arrived at after threadbare appraisal of verbal/written arguments of both the parties, all the fourteen appeals filed by the taxpayer stand dismissed. In nutshell, it is observed that: The taxpayer is not a `local authority'. It is a body corporate with the status of a public limited company; hence, its income is taxable Order under section 66-A, and the penultimate action is justified. Issuance of notice under section 114(4) for requisitioning tax return and subsequent assessment for the assessment year 2002-2003 was legally tenable. Ex parte/best judgment orders under sections 63/66-A of the repealed I.T. Ordinance, 1979, for the assessments years 1998-99 to 2001-2002 as well as under section 121 of the I.T. Ordinance. 2001 for the Tax Years 2003 to 2007 were validly made. Resultantly, all the three consolidated, impugned orders of the authorities below are upheld.

C.M.A./121/Tax (Trib.)Appeals dismissed.