HABIB JUTE MILLS LTD. VS PROVINCE OF SINDH through Secretary, Finance Department Sindh Secretariat, Karachi, 2012 PTD-KARACHI-HIGH-COURT-SINDH 901 (2012)

West Pakistan (Sindh) Finance Act (XXXIVof 1964)---

----S. 11 [as amended by Ss. 5, 6 & 7th Schedule of Sindh Finance Act (XII of 1994)]---Constitution of Pakistan, Arts. 164, 199 & 260---Constitutional petition---Double taxation---Professional tax---Establishment in more than one provinces---Petitioner company had more than one establishments in different provinces and was already paying professional tax in other province---Plea raised by petitioner was that charging of professional tax by second province was double taxation---Validity---Petitioner company could not point out any defect or legal error nor could refer to any Article of the Constitution or provision of law, which could put any restriction on any Provincial Government to impose such tax on a person---Provisions of Art. 163 of the Constitution postulated that professional tax would not be considered as a tax on income and it had authorized Provincial Government to impose professional tax on any person including any body politic or corporate as defined in Art. 260 of the Constitution---Provincial Government had the authority to impose professional tax on companies having more than one establishments or offices in more than one province, if their work was expanded from one province to another---Levy of professional tax upon petitioner did not amount to double taxation as it was not levy on income of a person---Petition was dismissed in circumstances.

Province of Punjab through Secretary, Excise and Taxation, Government of Punjab and others v. Sargodha Textile Mills Ltd., Sargodha and others PLD 2005 SC 988 and Government of Sindh v. Bank of Khyber and others Civil Appeal No.1550 of 2001 ref.

Messrs Bank Alfalah Limited, Karachi v. Excise and Taxation Officer-IV, Peshawar and 2 others 2010 PTD 1913 fol.

Adnan Iqbal Chaudhry for Petitioner.

Saifullah Khan, A.A.-G. for Respondents.

Date of hearing: 21st November, 2011.

JUDGMENT

AQEEL AHMED ABBASI, J.---Through instant petition, the petitioner has sought following relief:--

(I)Declare that the petitioner is not a person engaged in activities that are taxable under the Act of 1964.

(II)Declare the Seventh Schedule to the Sindh Finance Act, 1964, insofar as it relates to the petitioner, as null and void.

(III)Declare that the demands raised for Professional Tax and any proceedings initiated for the collection or recovery thereof by the respondents against the petitioner are without legal authority and of no legal effect.

(IV)Prohibit the respondents from demanding, collecting or recovering Professional Tax from the petitioner.

(V)Declare that the petitioner is entitled to seek a refund or adjustment, as the case may be, with regards to Professional Tax paid.

2.Brief facts leading to the instant petition are that the petitioner is a public limited company having its registered office and factory in Punjab where it employs about 860 personnel in carrying on business as spinners, weavers, manufacturers, balers and pressers of jute and other fibers. The petitioner also maintains a small office in Karachi where it employs 9 people.

3.Petitioner, through this petition, has challenged the authority of the respondents to levy the tax in respect of trades, professions, callings and employment as levied on certain classes of persons under section 11 of the West Pakistan Finance Act, 1964.

4.It is stated that under Article 141 of the Constitution of 1962, the West Pakistan Provincial Government through section 11 of the West Pakistan Finance Act, 1964 (hereinafter "the Act of 1964") imposed an annual tax of Rs.30 on certain classes of persons in respect of their profession, trades, callings and employments (hereinafter "Professional Tax").

5.Thereafter, under the Constitution of 1973, taxing corporations remainedwithintheexclusivedomainoftheFederalGovernment(Entry 48 in the Federal Legislative List). The Provincial Governments were however given the power to impose taxes on persons engaged in "professions, trades, callings or employments" within the Province, not exceeding limits set by the Parliament (Article 163 of the Constitution). Such limit had been set by the Professions Tax Limitation Act, 1941 initially at Rs.50 per annum (subsequently enhanced to Rs.100,000 per annum by the Finance Act, 1999).

6.As per contents of the petition, by virtue of Section 6 of the Sindh Finance Act, 1975, subsection (1) of section 11 of the Act of 1964 (except for its explanation clause), in its application to the Province of Sindh, was substituted and a "Seventh Schedule" was added to the Act of 1964. This schedule essentially listed categories of persons from whom Professional Tax was collectable and the rate of such Professional Tax "Companies (as defined under the Companies Act)" were specifically mentioned as a category at serial number 3 to this Seventh Schedule though the levy remained one "in respect of profession, trades, callings and employments" and continues to remain so to-date the respondent No.1 had no lawful authority to impose, demand or recover the same on/from companies/corporations or to fix the rate of Professional Tax beyond Rs.50 per annum.

7.It has been further stated in the petition that the Seventh Schedule of the Act of 1964 was substituted by the Second Schedule of the Sindh Finance Ordinance, 1980, which made "all public limited companies having registered office in Sindh" and "all private and foreign companies" with a specified "share capital" chargeable to Professional Tax. The rate of Professional Tax was also unilaterally enhanced. The rate of Professional Tax was revised and the SeventhSchedule was amended/substituted from time to time, the most recent change being by the Sindh Finance Ordinance, 2000. Section 11 of the Act of 1964 as applicable to the Province of Sindh, now reads:--

Section 11: Tax on trade, professions, callings and employment

(1)There shall be levied and collected an annual tax from the class of persons shown in column 2 of Seventh Schedule to this Act in respect of their professions, trades, callings and employments at the rate shown in column 3 of that schedule, in addition to any tax, rate, duty or fee that may be payable under any other law except the trades, professions, callings and employments in rural areas (the areas other than rating areas prescribed under the SindhUrbanImmovablePropertyTaxAct, 1958)listedatserial 4 of the Schedule:

Provided that the person liable to pay tax in respect of more than one profession, trade, calling or employment shall pay the tax only in respect of one such profession, trade, calling or employment for which rate of tax is higher;

Explanation - in this section:

(i)the expression "person" includes a company;

(ii)the expression "Land revenue" excludes any water rate, payable in respect of irrigated land.

(2)Governmentmay,bynotificationintheOfficialGazette,except any class of persons from the operation of subsection (1) orremitinwholeorinpart,thetaxpayableundersub-section (1).

8.It has been contended that the respondents acting without lawful authority have been raising demands for payment of Profession Tax from the petitioner in Sindh. The petitioner is already paying Professional Tax in Pubjab where the demand for the year 2002-2003 was for Rs.30,000. As per contents of petition, the respondents have now raised demand for Rs.1,50,000 as the purported Professional Tax for Sindh for the years 2000 to 2003 vide notice dated 6-2-2003.

9.It has been further stated that the activities of the petitioner are centralized in Punjab where the petitioner is already paying Professional Tax. The office at Karachi is only a correspondent office. Any demand for Professional Tax in Sindh is without legal basis and constitutes double taxation. Even otherwise, the quantum of Professional Tax demanded from the petitioner in the face of its setup and activities at Karachi, is palpably unreasonable and devoid of any legal justification. It is submitted that as per entry 48 of the Federal Legislative List (Part I of Fourth Schedule of the Constitution), taxing corporations is the exclusive domain of the Federal Government. The petitioner being a corporation, the respondent No.1 has no lawful authority to impose, whereas respondents 2 and 3 have no authority to consequently demand or recover Professional Tax from the petitioner. Per learned counsel, the Seventh Schedule of the Act of 1964 insofar as it categorizes companies/ corporations is unlawful, of no legal effect and is liable to be struck off. Per learned counsel, Entry No.50 of the Federal Legislative List (Part I of the Fourth Schedule of the Constitution), taxing "capital value of assets" is the exclusive domain of the Federal Government. The respondents have no lawful authority to impose or demand or recover the impugned tax from the petitioner. The Seventh Schedule of the Act of 1964 insofar as it levies Professional Tax on "paid-up capital" and "paid up share capital and reserves" is unlawful, of no legal effect and is liable to be struck off. It has been contended that the acts of the Provincial Government or the respondents in imposing and demanding Professional Tax from the petitioner is repugnant to Articles 97, 137 and 142 of the Constitution.

10.Learned counsel for the petitioner, while arguing instant petition, has candidly drawn the attention of this Court to his statement dated 17-5-2007 filed on 22-5-2007, wherein it has been stated that part of the controversy involved in the instant petition i.e. "whether a Province is empowered to levy Professional Tax?", has already been decided by the Hon'ble Supreme Court in the case of Province of Punjab through Secretary, Excise and Taxation, Government of Punjab and others v. Sargodha Textile Mills Ltd., Sargodha and others reported as PLD 2005 SC 988. Learned counsel has also made reference to the judgment dated 19th March 2010 of the Hon'ble Supreme Court in Civil Appeal No.1550 of 2001 and several others in the case of Government of Sindh v. Bank of Khyber and others, wherein the earlier view of the Hon'ble Supreme Court in the above cited case has been approved. It is contended by the learned counsel that the only issue in this petition i.e. "whether a company is liable to pay Professional Tax only in the Province where it is registered?" is required to be adjudicated by this Court. Learned counsel for the petitioner argued that since the petitioner is already making payment of Professional Tax in Punjab, where its registered office is situated and the business of manufacturing etc is carried on, therefore, the levy of Professional Tax in Sindh, where petitioner only maintains a small office at Karachi, amounts to double taxation, which is not permissible under the law. It is contended by the learned counsel that such levy is restrictive in nature, whereas it violates the provisions of Article 151 of the Constitution, which provides for free trade to all the citizens throughout Pakistan. Per learned counsel, such levy is without lawful authority, hence the same is liable to be struck down.

11.Conversely, learned Assistant Advocate-General, Sindh has contended that the levy of professional tax by provinces is lawful as already has been declared by the Hon'ble Supreme Court in the above cited case. As regards the issue as to whether a company is liable to pay Professional Tax only in the Province where it is registered, the learned A.A.G has drawn the attention of this Court to a judgment of Division Bench of Peshawar High Court in the case of Messrs Bank Alfalah Limited, Karachi v. Excise and Taxation Officer-IV, Peshawar and 2 others reported as 2010 PTD 1913, wherein, per learned A.A.-G., the very controversy has already been resolved in favour of the respondent. When learned counsel for the petitioner was confronted with such judgment, he has candidly conceded to such fact, however, stated that since the D.B. judgment of Peshawar High Court is not binding on this Court, therefore, the legal issue may be decided by this Court independently.

12.From record it is seen that large number of similar petitions involving identical controversy i.e. "as to whether under Article 163 of the Constitution of Pakistan, the Provincial Government of Sindh has no powers to impose tax on trades, professions, callings and employments under section 11 of West Pakistan (Sindh) Finance Act, 1964 as amended under section 6, 7th Schedule of Sindh Finance Act, 1975 and further amended by section 5 of Sindh Finance Act, 1994", have already been resolved by the Hon'ble Supreme Court in its reported judgment i.e. Province of Punjab v. Sargodha Textile Mills Ltd., Sargodha and others PLD 2005 SC 988, whereas, in the case of Government of Sindh v. The Bank of Khyber and others in Civil Appeal No.1550 of 2001 and several others, similar view has been approved. It has been declared that the Provincial Government of Sindh has the power to impose tax on trades, professions, callings and employments under section 11 of West Pakistan (Sindh) Finance Act, 1964 as amended under section 6, 7th Schedule of Sindh Finance Act, 1975 and further amended by section 5 of Sindh Finance Act, 1994".

13.It will be advantageous to reproduce the finding of the Hon'ble Supreme Court as follows:--

"Be that as it may, after the pronouncement of the judgment of High Court of Sindh and by this Court the Act, 1941 was once again amended vide section 4 of the Finance Act, 2006. For the sake of convenience, said amendment is reproduced hereinbelow:--

'(4)Amendment of Act XX of 1941.---In the Professions Tax Limitation Act, 1941 (XX of 1941), for section 2 the following shall be substituted and shall be deemed to have been so substituted on the 1st day of July, 1977, namely:---

(2)Limitation of tax on professions, etc.---(1) Notwithstanding the provisions of any law for the time being in force, a Provincial Assembly may by an Act impose tax no exceeding one hundred thousand rupees on persons engaged in professions, trade, callings or employments.

(2)Notwithstanding anything contained in any law or in any judgment of any court including a High Court and the Supreme Court, the tax on professions, trades, calling or employments levied and collected under an Act of a Provincial Assembly on or after the 1st day of July, 1977, as is not in excess of the limit fixed in subsection (1), shall be deemed to have been validly levied and collected and shall not be liable to be refunded and the provisions of the Act shall have and shall be deemed always to have had, effect accordingly.'

(4)A perusal of the above amendment indicates two important aspects, firstly, that this amendment has been made with retrospective effect from July, 1977, and secondly, it has been made notwithstanding anything contained in any law or in any judgment of any Court including a High Court and the Stipreme Court etc.

(5)We do not consider it appropriate, at this stage, to give any observation except to say that prima-facie, on account of above amendment, the basis of the judgment of the High Court under challenge as well as the judgment of this Court in Province of Punjab's case (ibid) have been removed, therefore, in view of the such development both the judgments shall have no bearing on the rights of the appellants to claim professions tax from respondents, however, subject to the law noted hereinabove read with Article 163 of the Constitution."

It has been further held as follows:-

"When we inquired from the learned counsel for the appellants about the effect of the above amendment as well as the judgment of the High Court and this Court, he stated that unless the amendment so made in 2006,reproduced hereinabove, is not challenged or declared as null and void, it would be deemed that no judgment is operating against the petitioner-Government and it has got right to effect recovery of the professions tax from respondents subject to the relevant provision of the Constitution. Learned counsel for the respondents on having seen the amendment as well as the judgment referred to hereinabove also conceded that as far as the present appeals are concerned they have become in fructuous but the learned counsel for the appellants stated that in fact on account of an act of legislation the appeals have borne fruit and now Government of Sindh is entitled to take action against the respondents for effecting the professions tax according to the law, therefore, it may be declared so.

(7)After having heard both the sides we are of the opinion that presently no judgment is operating against the appellants in view of the above amendment of law laid down by this Court in Fecto Belarus Tractor's case(Supra) reproduced hereinabove. Since the appeals have borne fruit, therefore, they are disposed of accordingly leaving parties to agitate their grievance against the above amendment, if any, before the competent forum. No order as to costs."

14.Learned counsel for the petitioner has also conceded to such legal position. Accordingly, respectfully following the dicta laid down by the Hon'ble Supreme Court in the above two judgments, we hold that the levy of professional tax by the Provincial Government, under the circumstances, does not violate any constitutional or statutory provision of law, hence the contention of the petitioner in this regard is baseless and the same is hereby repelled.

15.As regards the contention of the learned counsel pertaining to the ground of double taxation, which according to the learned counsel for the petitioner was not considered in the above referred judgments of the Hon'ble Supreme Court, we have noted that such aspect of the matter has already been dealt with by a Division Bench of Peshawar High Court in the case of Messrs Bank Alfalah Limited, Karachi v. Excise and Taxation Officer-IV, Peshawar and 2 others reported as 2010 PTD 1913, wherein, after placing reliance in the judgment of the Hon'ble Supreme Court in the case of Province of Punjab v. Sargodha Textile Mills Ltd, Sargodha and others reported as PLD 2005 SC 988, it has been held as follows:--

"(5)How far the Provincial Assembly is competent to impose the provincial tax on a profession, trade, calling or employment, has been elaborately dealt with by the apex Court in the case of "Province of Punjab and others v. Sargodha Textile Mills Ltd. and others" (PLD 2005 Supreme Court 988), in the words which are reproduced as under:--

'We have heard the learned Advocate-General, Punjab, the learned Deputy Attorney-General for Pakistan, the learned counsel for the Cantonment Board as well as the learned counsel for the companies. The subject-matter of professional tax has a chequered legislative history. The Government of India Act, 1935, by section 111, as also the Government of India Act, 1935, by Item No.46, List II (Provincial Legislative List) of the Seventh Schedule, empowered the Provincial Legislatures of India levy the Professional Taxes. Certain provinces imposed the professional taxes on the basis of income which were considered to be quite unjust and inequitable as if they were in the nature of income tax in disguise. The Calcutta Municipal Corporation and other bodies in the State of West Bengal imposed the annual professional tax at a flat rate ranging from Rs.3 to Rs.50 for individuals and from Rs.20 to Rs.200 from companies calculated on the basis of their paid-up capital. The Government of United Provinces by taking advantage of the unlimited power imposed the employment tax on all salaries persons who were entitled to draw monthly emoluments of Rs.250 of above. The Governor General of India took up the matter with the Secretary of State for India for the removal of anomalies with regard to the unfettered powers of the Provincial Governments to impose the professional tax. Therefore, the British Parliament enacted the India and Burma (Miscellaneous Amendments) Act, 1940. Item No.46 List II (Provincial Legislative List) in the Seventh Schedule of Act of 1935 was amended. The professional tax was made subject to newly inserted section 142-A which clearly laid down, inter alia, that a provincial law relating to professional taxes for the benefit of a Province or a municipality, district or local board or other local authority would not be invalid on the ground that it was with respect to a tax on income provided that the professional tax would not exceed Rs.50 per annum. The Constitution of India, by Article 276 had originally fixed a maximum limit of Rs.250 of the professional tax which was raised to Rs.2,500 by the Indian Constitution (Sixtieth Amendment) Act, 1988.'

Another relevant paragraph also deserves verbatim reproduction which runs as under:--

'Both in Pakistan and India the companies were made liable to pay the professional tax, by the provincial law, in the past as well. Even by the West Pakistan Finance Act, 1964, the companies were made liable to payment professional tax. Generally speaking, a company is considered to be a body of persons associated for the purpose of business. It is a juristic and artificial person created under the provisions is of the Companies Ordinance, 1984, possessed with certain legal rights and charged with certain legal duties. The word "person" has been defined in Article 260 of the 1973 Constitution so as "to include any body politic or corporate". The same is the definition of "person" is found in section 3(47) of West Pakistan General Clauses Act, 1956. Therefore, the companies cannot be considered as falling outside the purview of provincial law in the matter of imposition of professional taxes. Article 163 of the Constitution clearly postulates that the professional taxes shall not be considered as a tax on income. It was with a view to remove the doubt that all the Constitutional dispensations had made it clear that a provincial law imposing professional taxes would not be regarded as imposing a tax on income."

16.The controversy "as to whether the levy of professional tax on a company having more than one establishments in different provinces can be subjected to professional tax and the same would amount to double taxation or not" has been dealt by the learned bench as under:--

"(6)Now the question crops up whether a company with its Head Office outside the province having paid the professional tax according to its paid up capital, is liable still to pay professional tax simply because one of its Branches is functioning in the province? Our answer to the question would be a simple "yes" because what is required for the levy of such tax is that it must be a limited company, Mudariba, mutual fund and other body corporate with paid-up capital or reserves in the preceding years. If the petitioners come within the pale of any these, as they do, they cannot escape the liability of such levy, irrespective of the fact whether their Head Offices are within or outside the province. Even otherwise, acompanywhichentersa Province other than the one where its Head Office is establishedwithallitsparaphernaliaforanybusinessactivityshall invariably be exposed to such levy. Payment of professional tax in one province cannot diminish or dilute its liability once it decides to expand its activity by entering into another province."

17.We do not find any error in the finding of the learned division bench of Peshawar High Court in the above cited judgment, which has laid down the correct legal position with regard to authority of a Provincial Government to levy professional tax, independently, if the activity of a company is expended from one Province to another. Learned counsel for the petitioner has not been able to point out any defect or legal error, nor could refer to any article of Constitution or provision of law, which may put any restriction on any Provincial Government to impose such tax on a person. On the contrary, Article 163 of the Constitution of Pakistan, 1973 postulates that the professional tax shall not be considered as a tax on income. Article 163 of the Constitution authorizes a provincial Government to impose professional tax on any person including any body politic or corporate, as defined in Article 260 of Constitution of 1973. We are in respectful agreement with the finding of the learned Division Bench of Peshawar High Court, as referred to hereinabove, and hold that a Provincial Government has the authority to impose professional tax on companies having more than one establishment or offices in more than one province, if their work is expanded from one province to another. We do not find any force in the contention of the learned counsel for the petitioner, that the levy of professional tax amounts to double taxation as it is not a levy on income of a person; hence the question of double taxation does not arise. Accordingly, instant petition having no merits, is hereby dismissed, however, with no order as to costs.

M.H./H-2/KPetition dismissed.