RISHAD CHOUDRI VS CANTONMENT BOARD, KARACHI, 2014 PTD-KARACHI-HIGH-COURT-SINDH 136 (2013)

2014 P T D 136

[Sindh High Court]

Before Mushir Alam, C.J. and Syed Muhammad Farooq Shah, J

RISHAD CHOUDRI and another

Versus

CANTONMENT BOARD, KARACHI through Chief Executive and another

Constitutional Petition No.D-2083 of 2006, decided on 09/09/2013.

(a) Cantonments Act (II of 1924)---

----S. 99(2)(b)---Property tax in case of building---Exemption---Scope.

According to section 99 of the Cantonments Act, 1924, no building other than that used for educational purpose or the public libraries which are open to public and no income is derived therefrom or hospitals and dispensaries maintained wholly by charitable contributions shall be exempted from payment of property tax.

(b) Cantonments Act (II of 1924)---

----Ss. 77, 99(2)(b) & 259---Constitution of Pakistan, Art.199---Constitutional petition---Trust property being used for charitable activities---Remission of property tax and conservancy tax on such property granted by Cantonment Board from 1-7-1987 to 30-6-2004---Withdrawal of such remission on 23-11-2003 by Cantonment Board and demand of such remitted tax from petitioner-trust on basis of audit objection raised by Departmental Accounts Committee---Validity---Trust property was being used for sponsoring FDMR and other charitable activities, whereas rent of its Hall was charged from parties for arranging program therein---Nothing on record was available to show that petitioner-trust was deriving reasonable income from its property, thus, was not entitled for exemption under S.99(2)(b) of Cantonments Act, 1924---Exemption once granted would be given a wider and liberal construction---Impugned refusal of exempted tax had been raised after 14 years finding the petitioner to be a charitable trust and exempt from levy of tax---Exemption granted for years could be regarded as a right---Petitioner-trust had acquired vested right in such exemption and they remained entitled even if same was withdrawn---Tax exempted earlier by Cantonment Board could not be claimed retrospectively, otherwise same would amount to re-opening of past, closed and completed transactions affecting vested right---Legislature had not given retrospective effect to Cantonments Act, 1924---High Court declared impugned demand as illegal and of no legal effect in circumstances.

Shah Nawaz v. Government of Pakistan 2011 PTD 1558; State Bank of Pakistan v. The Director, Military Lands and Cantonments. Rawalpindi and others PLD 1990 SC 827; Chief Administrator of Auqaf, Government of Punjab, Auqaf Department and another v. Cantonment Board, Bahawalpur through Officer Commanding and 2 others 2001 MLD 1660 and Shagufta Begum v. The Income Tax Officer, Circle-XI, Zone-B, Lahore PLD 1989 SC 360 ref.

Black's Law Dictionary 6th Edn; Corpus Juris Secundum 1954 Edn. Vol. 84, Para 215, p.411; Al-Samrez Enterprize v. Federation of Pakistan 1986 SCMR 1917; Collector of Central Excise and Land Customs and others v. Azizuddin Industries Chittagong PLD 1970 SC 439 and Molasses Trading and Export v. Federation of Pakistan 1993 SCMR 1905 rel.

(c) Taxation---

----Exemption---Retrospective demand of such exempted tax---Scope.

Once exception or exemption becomes applicable, no rule or principle requires it to be construed strictly and against the subject and once exemption is granted, then it should be given a wider and liberal construction.

Retrospective demand of exempted tax amounts to reopening of past, closed and completed transactions, effecting accrued vested rights and remedies, unless there is something specifically provided in the enactment. Annulment of exemption certainly shall affect existing rights and liabilities or vested rights or obligations already acquired under the provisions of law, it does affect the existing right as well. If an enactment expressly provides that it should be deemed to have come into effect on a past date, it is retrospective in nature, it then operates to effect existing rights and obligations, and is construed to take away a vested right which had been acquired under some existing law.

Black's Law Dictionary 6th Edn; Corpus Juris Secundum 1954 Edn. Vol. 84, Para 215, p.411; Al-Samrez Enterprize v. Federation of Pakistan 1986 SCMR 1917; Collector of Central Excise and Land Customs and others v. Azizuddin Industries Chittagong PLD 1970 SC 439 and Molasses Trading and Export v. Federation of Pakistan 1993 SCMR 1905 rel.

(d) Constitution of Pakistan-

----Art. 199---Constitutional petition based on important question of law of public importance---Maintainability---Such question could be raised directly before High Court and constitutional petition was maintainable in circumstances.

Abdul Rehman for Petitioners.

Sohail H.K. Rana for Respondents.

Date of hearing: 16th August, 2013.

JUDGMENT

SYED MUHAMMAD FAROOQ SHAH, J.---Precisely, the germane events forming the background of this writ petition are that the petitioners being trustees of the Rafia Choudhry Memorial Trust, claimed exemption from payment of tax under section 99(2) of the Cantonments Act, 1924. They were allowed remission in respect of house tax for the period from 1st July 1987 to 30 June 1992 vide letter No.KCB/264/RA.L/74 dated 9-2-1992. Subsequent remissions on different five occasions were also granted to the petitioner's Trust. Thereafter, on 21-11-2003, the petitioners were directed to pay considerable exempted amount of Rs.8,91,306 as a house tax and conservancy tax, relating to periods from 1-7-1987 to 30-6-2004, on directives of Public Accounts Committee based on audit by Cantonment Board and findings of Departmental Accounts Committee. The petitioners have prayed for a declaratory relief that the decision of respondent No. 1 for withdrawal of remission, granted earlier, is void and of no effect. They have also prayed for restraining the respondents from taking any action to recover an amount of Rs.9,22,449 which becomes due on account of withdrawal of remission.

2.Being aggrieved and dissatisfied with the demand of respondent No.1 initiated vide its letter dated 21-11-2003, and of respondent No. 2 vide its order dated 4-10-2006, the petitioners assailed both actions of respondents, on the following grounds:--

(A)The decision of the respondent No.1 to withdraw a remission granted under section 99(2) of the Cantonments Act, 1924 and hence the demand made by letter No.KCB/R.M. Hall/S.A.C./2893 (Annexure H) above is void.

(B)The respondent No. 1 is bound by its departmental practice in following the previous interpretation cast on section 99(2) of the Cantonments Act, 1992 in granting exemption to the petitioner which cannot now be deviated from.

(C)The respondent No.1 is estopped from withdrawing the remission granted under section 99(2) of the Cantonments Act, 1924 for the period from 1 July 1987 until 30 June 2003.

(D)That the petitioners have a legitimate expectation to a remission of property tax for a period from 1 July 1987 until 30 June 2003 under section 99(2) of the Cantonments Act, 1924.

(E)The remission of house tax for a period from 1 July 1987 until 30 June, 2003 is a past and closed transaction which cannot be reopened by the respondent No.1 or the respondent No.2.

(F)The interpretation cast by the respondent No.1 on income does not negate the right of the petitioner to a remission under section 99(2) of the Cantonments Act, 1924 as there is no element of profit being disbursed to the trustees; the entire amount being disbursed for charitable purposes in terms of the Trust Deed.

(G)The petitioners had not been given a right to a hearing before the Departmental Accounts Committee which is in violation of the rules of natural justice hence the decision on the same grounds as indicated in Grounds A to G above. Departmental Accounts Committee is null and void.

(H)The action of the respondent No. 2 being based on the decision of the respondent No.1 is mutatis mutandis void on (sic).

3.A perusal of record transpires that respondent No.1 in his para-wise comments has denied the assertions and legal grounds raised by the petitioners and has also made preliminary legal objections wherein it is stated that the trust deed dated 27-6-1987 is an unregistered document and there is no any documentary evidence that the petitioners got exemption from income tax department. It is next submitted that factual dispute is involved in the instant petition, which can only be resolved through evidence of both the parties, more-so the petitioners failed to serve notice under section 273 of the Cantonments Act, 1924 before filing the petition, therefore, the instant petition being barred by law is liable to be dismissed.

4.To counter the assertions made by the petitioners, the respondent No.1 has further submitted that petitioners have failed to justify the remission of house tax, which was earlier granted in good faith for the period from 1st July, 1987 to 30th June, 1992 under section 99(2) of the Cantonments Act, 1924, though petitioners were not entitled for any exemption. Respondent No. 1, however, admitted that the exemption granted to the petitioners was withdrawn on the basis of actual facts and on audit objection and also on the directions of the Departmental Accounts Committee. In reply to the grounds raised by the petitioners as supra, it is submitted that the respondent No.1 are fully competent to withdraw and recall any earlier decision including remission granted to the trust, particularly the petitioner's Trust is deriving reasonable income from the building, therefore, they are not entitled for remission under section 99(2)(b) of the Cantonments Act, 1924.

5.We have considered the worthy arguments advanced from both the sides at length and carefully perused the relevant law.

6.Learned counsel for the petitioners submitted that the exemption in view of section 99 of the Cantonments Act, 1924 cannot be withdrawn in light of the reported decision of this court delivered in the case of SHAH NAWAZ V. GOVERNMENT OF PAKISTAN (2011 PTD 1558).

7.Conversely, learned counsel for the respondent submitted that neither the petitioners have prayed for relief, available to them against the order passed by the learned Magistrate, nor they have filed appeal under the provisions of Cantonments Act, 1924 against the imposition of tax, therefore, Constitutional Petition is not maintainable as per law laid down by the apex Court in the cases reported as STATE BANK OF PAKISTAN V. THE DIRECTOR, MILITARY LANDS AND CANTONMENTS RAWALPINDI AND OTHERS (PLD 1990 SC 827) and CHIEF ADMINISTRATOR OF AUQAF, GOVERNMENT, OF PUNJAB, AUQAF DEPARTMENT AND ANOTHER V. CANTONMENT BOARD, BAHAWALPUR THROUGH OFFICER COMMANDING AND 2 OTHERS (2001 MLD 1660) SHAGUFTA BEGUM V. THE INCOME TAX OFFICER, CIRCLE-XI, ZONE-B, LAHORE (PLD 1989 SC 360).

8.It may not be out of context to point out that section 99 of the Cantonments Act, 1924 reproduced hereinbelow is dealing with the exemption in the case of buildings exempted from the payment of any conservancy or scavenging tax imposed in the Cantonment areas.

99. Exemption in the case of buildings:--

(1) ..

(2)The following buildings and lands shall be exempt from any tax on property [other than a tax imposed to cover the cost of specific services rendered by the Board], namely: -

(a) ..

(b)building used for educational purposes and public libraries, play-grounds and dharmsalas which are open to the public and from which no income is derived; "

9.Perusal of section 90 of the Cantonments Act, 1924, reproduced as above, reveals that no building other than that used for educational purpose or the public libraries which are open to public, and no income is derived therefrom or hospitals and dispensaries maintained wholly by charitable contributions shall be exempted from payment of property tax. In the instant case exemption from payment of house tax was granted for property No. 264, R.A. Lines known as "Sidco Centre" despite the fact that as per respondent No. 1 the property was being used for sponsoring FDMR and other charitable activities while the hall was often rented out to various parties for arranging program and the income was earned therefrom. Section 77 of the Cantonments Act, 1924 stipulates that no remission or refund of property tax shall be made unless notice in writing of the fact that building had become vacant and unproductive of the rent has been given to the Board/respondent No.1. It appears that the petitioners were also served with a notice under section 259 of the Cantonments Act, 1924 and after reply to the show-cause notice, Judicial/Cantonment Magistrate, Karachi-South has passed an order dated 4-10-2006, based on audit objection, whereby the petitioners were directed to pay a sum of Rs.9,22,449 against outstanding exempted amount for a period with effect from 1-7-1987 to 30-6-2003.

10.In the case of Shah Nawaz (supra) audit of income tax was carried out with reference to specific tax year after treating tax payer and accepting his return on its face value for ensuing that all income required to be brought to tax had in fact been taxed, therefore, it is held that under section 177 of the Income Tax Ordinance, 2001, a tax payer could not be vexed twice by selecting his case a second time for audit for same tax year, it was held by Division Bench of this court that section 214(c) of the Income Tax Ordinance would effect vested right but not to past and closed transactions. In the mentioned case in the year 2008, the income tax payers were selected for audit through computer ballot by FBR and were served with notice under section 177 of the Ordinance. Being aggrieved with computer balloting, petitioners approached this court for quashment of the order and it is held that no audit in terms thereof can be carried out either for income tax or sales tax purposes.

11.Claim of respondent No.1 that being legally competent to withdraw the remission granted earlier is not supported by law, rather respondent No.1 has absolutely failed to produce any material on the record in shape of documentary evidence, showing that petitioner's Trust is deriving a reasonable income, is not entitled for exemption, under section 99(2)(b) of the Cantonments Act, 1924.

12.We have examined the legality of withdrawal of remission of tax having been made about 14 years, after having been first granted by respondent No.1 and found that petitioner, a charitable trust, was served by respondent No. 1 with impugned notice dated 21-1-2003, prior to meeting of Departmental Accounts Committee held on 9-10-2003, it is stated that meeting of Public Accounts Committee was reportedly held but no documentary material against the petitioner was brought on the record. Even otherwise, perusal of decision made by DAC during special audit on account of Cantonment Board, copy of which is duly annexed along with annexure `H' to the petition reveals that in para 5.5 it was held that "The matter is sub judice in the court, the DAC directed the ML&C Department that the case be pursued actively in court and case of disciplinary action be also expedited."

13.Undoubtedly, exemption was allowed to the petitioners' Trust by the respondent No.1, who was released from payment of house tax and freed from the liability or obligation to which others are subject, petitioners were set free from liability and tax on normal principle of construction or interpretation of statute or on economic justification of inequitable burden of fiscal provisions intended to augment State revenue, therefore, once exception or exemption becomes applicable, no rule or principle requires it to be construed strictly and against the subject and once exemption is granted, then it should be given a wider and liberal construction. The word "Exemption" in the Black's Law Dictionary (6th Edition) is defined as:--

"Exemption.--Freedom from a general duty or service; immunity from a general burden, tax, or charge. Immunity from service of process or from certain legal obligations, as jury duty, military service, or the payment of taxes.

A privilege allowed by law to a judgment debtor, by which he may retain property to a certain amount or certain classes of property, free from all liability to levy and sale on execution, attachment, or bankruptcy. "

14.It may be advantageous to refer to a passage defining the nature and purpose of exemption, in the Corpus Juris Secundum 1954 Edition, Volume 84, Para 215, page 411, as reproduced in AL-SAMREZ ENTERPRIZE V. FEDERATION OF PAKISTAN (1986 SCMR 1917), (relevant page 1923),

"Exemption, as applied to taxation, presupposes a liability, and is properly applied only to a grant of immunity to persons or property which otherwise would have been liable to assessment, and exists only by virtue of constitutional or statutory provisions.

Exemption, as applied to taxation is freedom from the burden of enforced contribution to the expenses and maintenance of government and may include freedom from the burden of taxes accrued and unpaid as well as from the burden of future levies. The term, as here used, presupposes a liability, and is properly applied only to a grant of immunity to persons or property which otherwise would have been liable to assessment, and, thus, is distinguishable from immunity from taxation which exists apart from any exempting statute or constitutional provision, or from abatement whereby the property is relieved of its share of the burden of taxation after the assessment has been made and the tax levied, or from a deduction which is merely a subtraction.

Exemptions from taxation are regarded not only as in derogation of sovereign authority, but of common right as well, and exist only by virtue of constitutional or statutory provisions. Thus, the right to immunity is not inherent in the persons or property exempted but is a matter of grace and not of right, and exists only by grant. An exemption may arise from a contract which has received legislative sanction, and such an exemption will be governed by the terms of the contract, and be subject to the rules of law applicable to contracts. Where an exemption is granted by statute, whether or not a particular person or particular property is entitled to the immunity depends on the facts and circumstances of the case."

15.In the case of COLLECTOR OF CENTRAL EXCISE AND LAND CUSTOMS AND OTHERS V. AZIZUDDIN INDUSTRIES CHITTAGONG (PLD 1970 SC 439), it is held that:--

"It is settled rule that an executive authority cannot in exercise of the rule-making power of the power to amend, vary or rescind an earlier order, take away the rights vested in the citizens by law. If a person had acquired a vested right of exemption from the levy of excise duty on all the goods produced or manufactured by it for a period of four years under Notification No.S.R.O. 35(R)/61 of the Central Government that vested right could not, therefore, be taken away by an executive action. The Notification dated the 28th February 1964, being completely destructive of the right already vested is without lawful authority and of no legal effect."

16.In the aforementioned case their lordships have been pleased to reproduce a paragraph from a decision of the case of Government of Pakistan v. Messrs Mardan Industries Ltd. reads as follows:--

"It is well settled that no statute shall be construed so as to have a retrospective operation unless its language is such as plainly to require such construction. We understand that 17 lacs cigarettes which had been seized before issue of the impugned notification, have been released and the Excise Department do not claim any excise duty in respect of the said cigarettes."

17.It is an admitted position that various notices and correspondence were exchanged between the parties, culminating in letter No. KCB/264/RAL/74, dated 9-1-1992, in respect of which the petitioner was exempted from payment of tax under section 99(2)(b) of the Cantonments Act, 1924, allowing a remission of house tax for thetax period from Financial Year 1987 to Financial Year 1992. (1st July 1987 to 30-7-1992) and subsequent remissions were also granted for FY 1992-1993, FY 1996-1997, FY 1998, FY 2000 to 2001, FY 2001 to 2003 and thereafter the petitioner was asked to pay the exempted tax, based on objection of audit and so-called DAC/PAC. Exemption which was granted for years together can be regarded as a right, that was availed by the petitioners, particularly they acquired vested right in the exemption, to which they remains entitled, even if the exemption itself stood withdrawn, as held in the case of MOLASSES TRADING AND EXPORT v. FEDERATION OF PAKISTAN (1993 SCMR 1905) and AL-SAMREZ ENTERPRIZE v. FEDERATION OF PAKISTAN (1986 SCMR 1917).

18.On bare readings of the relevant provisions of Cantonments Act, 1924, we are unable to accept the submissions made by learned counsel for the respondent No.1 with regard to recovery of house tax claimed on the basis of audit objections, more particularly prior to these objections, on sound and cogent reasons supported with sufficient documentary proof, the petitioner, a charitable trust was exempted from levy of tax, as there were no allegations of concealment of facts by the petitioners. Furthermore, there is no provision in the Cantonments Act to make retrospective claim of the tax which was exempted earlier.

19.Retrospective demand of exempted tax amounts to reopening of past, closed and completed transactions, affecting accrued vested rights and remedies, unless there is something specifically provided in the enactment. Annulment of exemption certainly shall affect existing rights and liabilities or vested rights, or obligations already acquired under the provisions of law, it does affect the existing right as well. If an enactment expressly provides that it should be deemed to have come into effect on a past date, it is retrospective in nature, it then operates to affect existing rights and obligations, and is construed to take away a vested right which had been acquired under some existing law. The enactment applicable in this case is having no retrospective operation or implications also, otherwise the legislature must expressly and in clear and unequivocal language say so, in the enactment itself. It is not out of context to say that retrospective operation is not given to the statute. In the case of ITO v. Hibibullah (AIR 1962 Supreme Court 918, relevant page 921) it is held that where the provision is not procedural in character, it affects vested rights and in the absence of compelling reasons, greater retrospectively should not be given to it, then is warranted by the plain words used by the legislature.

20.Insofar as the ground of non-maintainability of the instant petition is concerned, it is settled that if a petition based on important questions of law of general application, then it can be raised directly before the High Court, therefore, the petition is maintainable.

21.For the foregoing reasons, we reached at the conclusion that the petitioners' charitable Trust is entitled to the relief as claimed. Accordingly, the petition is allowed as prayed for with no order as to costs.

SAK/R-20/KPetition accepted.