2010 P T D 2552

[Lahore High Court]

Before Syed Mansoor Ali Shah, J

DEFENCE HOUSING AUTHORITY through Secretary

Versus

DEPUTY COMMISSIONER INCOME TAX and 3 others

Writ Petition No. 6512 of 2008, decided on 8th September, 2010.

Income Tax Ordinance (XLIV of 2001)---

----Ss. 49 & 122(1)(5)(5-A)---Defence Housing Authority Lahore Order (C.E. Order 26 of 2002),
Arts.4, 6, 7(2)(e)(g), 13, 14 & 16---General Clauses Act (X of 1897), S.3(28)---Local Authorities
Loan Act (IX of 1914), S. 3---Constitution of Pakistan (1973), Art. 199---Constitutional petition---
Defence Housing Authority---DHA on ground to be a local authority claimed exemption from
income tax for years 2003-2005---Refusal of Income Tax Authority to accept such claim and issuance
of notices to DHA under S. 122(1)(5)(5-A) of Income Tax Ordinance, 2001---Validity---
Determination of status of an Authority to be a local authority would depend on its power to manage
and administer "local fund"-DHA had a statutory status and through its Executive Board had powers
to impose fees and charges and develop and regulate housing facilities within its area---Management
of DHA vested in Governing Body with Chairman being Secretary Ministry of Defence and Vice-
Chairman being Corps Commander---Executive Board of DHA had to submit to Governing Board at
end of every financial year general report on its affairs including audit and balance sheet---DHA in
its name was maintaining a fund for crediting therein all money received by DHA---Governing Body
had powers to approve budget prepared by DHA---According to Art. 16 of Defence Housing
Authority Lahore Order, 2002, any sum payable to DHA would be recoverable as arrears of land
revenue---DHA for being a local authority, was exempt from income tax for tax year, 2003-2005---
High Court set aside impugned notices for being illegal and without lawful authority.

The Deputy Managing Director, National Bank of Pakistan, Principal Office, Jinnah
Avenue, Dacca and others v. Ataul Huq PLD 1965 SC 201; Chief Secretary, Government
of the Punjab Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore 1976 PTD 56;
Karachi Development Authority v. Province of Sindh through the Secretary, Excise and
Taxation Department, Karachi and 4 others PLD 1977 Kar. 152; Commissioner of Income
Tax v. U.P. Forest Corporation (1999) 80 Tax 173 (S.C. India); Chief Secretary,
Government of the Punjab, Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore
PLD 1976 Lah. 258; Union of India and others v. R. C. Jain and others AIR 1981 SC 951;
Commissioner of Income Tax, Lahore v. Chief Secretary, Government of the Punjab,
Lahore 1980 PTD 329 and Messrs Qadri Brothers v. Assessing Authority PLD 1969 Kar.
47 ref.

Naveed A. Andrabi for Petitioner.

Mansoor Usman Awan for Respondent.

Dates of hearing: 24th June, and 1st July, 2010.

JUDGMENT

SYED MANSOOR ALI SHAH, J.---The legal question that requires determination in this
case is whether petitioner i.e., Defence Housing Authority ("DHA") is a "local authority"
for the purposes of section 49 of the Income Tax Ordinance, 2001("Ordinance") (as it stood
before the amendment brought about through Finance Act, 2008) and therefore entitled to
exemption of income tax for the period in question i.e., Tax Years 2003 to 2005.
2. Brief facts of the case are that the petitioner approached the respondent department for
exemption under section 49 of the Income Tax Ordinance, 2001 for tax years 2003-2005 on
the ground that DHA is a "local authority" and hence its income be exempt from income
tax.

3. The contention of the petitioner was turned down by the respondents department vide
letter dated 7-4-2008 and thereafter notices under sections 122(1), (5), (5-A) of the
Ordinance dated 19-5-2008 were served on the petitioner for the aforementioned Tax
Years. Letter dated 7-4-2008 and said notices have been challenged before this Court.

4. Learned counsel for the petitioner argued that DHA is a "Local Authority" in terms of
section 3(28) of the General Clauses Act, 1897. In support of his contention learned counsel
relied on The Deputy Managing Director, National Bank of Pakistan, Principal Office,
Jinnah Avenue, Dacca and others v. Ataul Huq (PLD 1965 SC 201), Chief Secretary,
Government of the Punjab Lahore v. Commissioner of Income Tax, Lahore Zone, Lahore
1976 PTD 56, Karachi Development Authority v. Province of Sindh through the Secretary,
Excise and Taxation Department, Karachi and 4 others (PLD 1977 Karachi 152) and
Commissioner of Income Tax v. U.P. Forest Corporation (1999) 80 Tax 173 (S.C. India)

5. He further contended that DHA maintains and manages a "Local Fund" generated from the
residents of DHA under various heads. In support of the same he has placed on record Schedule
of Levies/Fees, as well as, Annual Accounts duly audited by KPMG Taseer Nadi and Co. for the
year ending 30-6-2008 and 30-6-2007 to establish that DHA maintains a local fund.

6. Learned counsel appearing on behalf of respondent F.B.R. vehemently opposed the petition
and submitted that DHA does not constitute a "local authority". He placed reliance on Chief
Secretary, Government of the Punjab, Lahore v. Commissioner of Income Tai, Lahore Zone,
Lahore (PLD 1976 Lahore 258) and Union of India and others v. R. C. Jain and others (AIR
1981 SC 951) in support of his contention. He contended that general words appearing in section
3 (28) of the General Clauses Act, 1897 have to be read ejusdem generis with the words
preceding them. It is also contended by relying on the judgment of India Supreme Court (ibid),
that the Members of the authority must be elected by the inhabitants of the area which is not the
case with DHA.

7. Arguments heard. Record perused.

8. A good starting point is to see how "Local Authority" and "Local Fund" have been defined
under the law.

Meaning of "Local Authority".

9. "Local Authority" is defined in section 3(28) of the General Clauses Act, 1897 and is
reproduced hereunder:-

"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 local fund:" (emphasis supplied).

10. Local authority is also defined in Local Authorities Loan Act, 1914 in the following manner:-
-

"local authority" means any person legally entitled to the control or management of any
local or municipal fund, or legally entitled to impose any cess, rate, duty or tax within
any local area". (emphasis supplied)

11. A similar matter came up before the august Supreme Court of Pakistan in The Deputy
Managing Director, National Bank of Pakistan, Principal Office, Jinnah Avenue, Dacca and
others v. Ataul Huq (PLD 1965 SC 201) wherein the question was whether National Bank of
Pakistan constituted "local authority". Even though it was held that National Bank of Pakistan
was not a local authority, Cornelius C.J. speaking for the Court elaborated the meaning of Local
Authority:--

"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 including in a Province, 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 power of making bye-laws, of imposing taxation and of
maintaining and administrating a local fund." (emphasis supplied)

12. Similarly in Chief Secretary, Government of the Punjab Lahore v. Commissioner of Income
Tax, Lahore Zone, Lahore 1976 PTD 56 (also reported as PLD 1976 Lahore 258), a Division
Bench of this Court held Thal Development Authority to be a "local authority" relying on the
National Bank of Pakistan case (ibid). The Hon'ble Division Bench held:--

"(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 statutory corporation constituted under section 3 of the Thal 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 areas, it exercises
considerable powers of local Self-Government. It may frame schemes for the
development of a local area under its control and provide of 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." (emphasis supplied)

The above judgment has been upheld by the august Supreme Court of Pakistan vide judgment
reported as Commissioner of Income Tax, Lahore v. Chief Secretary, Government of the Punjab,
Lahore 1980 PTD 329.

13. Again in Karachi Development Authority v. Province of Sindh through the Secretary, Excise
and Taxation Department, Karachi and 4 others (PLD 1977 Karachi 152) Karachi Development
Authority (KDA) was declared to be a "local authority". In Commissioner of Income Tax v. U.P.
Forest Corporation [(1999) 80 Tax 173 (S.C.) India)]. B.N. Kirpal J. held that:-

"In construing the meaning of the expression "local authority" as defined in section 3(31)
of the General Clauses Act, it was observed by this court at pages 857-858 of [1981] 2
SCR as follows (page 952 of AIR 1981 SC; page 286 of 5$ FJR):

"Let us, therefore, concentrate and confine our attention and enquiry to the definition of
 `local authority' in section 2(31) of the General Clauses Act. A proper and careful
scrutiny of the language of section 3(31) suggests that an authority in order to be a local
authority, must be of like nature and character as a municipal committee, district board or
body of port commissioners, possessing therefore, many, if not all, of the distinctive
attributes and characteristics of a municipal committee, district board, or body of port
commissioners, but possessing one essential feature, namely, that it is legally entitled to
or entrusted by the Government with the control and management of a municipal or local
fund. What then are the distinctive attributes and characteristics, all or many of which a
municipal committee, district board or body of port commissioners shares with any other
local authority? First, the authorities must have separate legal existence as corporate
bodies. They must not be mere Governmental agencies but must be legally independent
entities. Next, they must function in a defined area and must ordinarily, wholly or partly,
directly, be elected by the inhabitants of the area. Next they must enjoy a certain degree
of autonomy, with freedom to decide for themselves questions of policy affecting the area
administered by them. The autonomy may not be complete and the degree of dependence
may very considerably but an appreciable measure of the autonomy there must be. Next,
they must be entrusted by statute with such Governmental functions and duties as are
usually entrusted to municipal bodies, such as those connected with providing amenities
to the inhabitants of the locality, like health and education services, water and sewerage,
town planning and development, roads, markets, transportation, social welfare services,
etc. Broadly we may say that they may be entrusted with the performance of civic duties
and functions which would otherwise be Governmental duties and functions. Finally,
they must have the power to raise funds for the furtherance of their activities and the
fulfilment of their projects by levying taxes, rates, charges, or fees. This may be in
addition to moneys provided by Government or obtained by borrowing or otherwise.
What is essential is that control or management of the fund must vest in the authority."

14. Local authority is also defined in Words and Phrases:---

"(ii) A proper and careful scrutiny of the language of section 3(31) suggests that an
authority, in order to be a `local authority', must be of like nature and character as a
Municipal Committee, District Board or Body of Port Commissioners, possessing,
therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal
Committee, District Board, or Body of Port Commissioners, but, possessing one essential
feature, namely, that it is legally entitled to or entrusted by the government with the
control and management of a municipal or local fund. [General Clauses Act]. Union of
India v. Shri R.C. Jain, AIR 1981 SC 951." (emphasis supplied).

15. It, therefore, transpires from above references that the main ingredient that determines
whether an authority is a local authority is its power to manage and administer "local fund".
 Meaning of Local Fund.

16. Scope and meaning of "local fund" therefore, becomes important. "Fund" is defined in Local
Authorities Loan Act, 1914 as:

"funds", used with reference to any local authority, includes any local or municipal fund
to the control or management of which such authority is legally entitled, and any cess,
rate, duty or tax which such authority is legally entitled to impose, and any property
vested in such authority." (emphasis supplied)

And in Chief Secretary, Government of the Punjab Lahore v. Commissioner of Income Tax,
Lahore Zone, Lahore 1976 PTD 56:-

"According to the law Lexicon by Aiyer the term "local fund means any fund under the
control or management of a local authority." (emphasis supplied)

And in Messrs Qadri Brothers v. Assessing Authority (PLD 1969 Karachi 47) as

"Now, what is a "local fund"? This term again has a technical meaning when used in any
legislative provision. We may refer to the Sindh Local Fund Audit Act of 1930. This term
has been defined by section 3, clause (d) of the said Act to mean any fund to the control
or Management of which a local authority is legally entitled and includes the proceeds of
any cess, rate, duty or tax which such authority is legally entitled to impose, etc. As far
back as 1871, the term "local authority" and "local fund" was defined in the Cattle
Trespass Act (1871) in section 2. "Local authority" was defined to mean any body of
persons for the time being invested by law with control and administration of any matters
within a specified local area, and "local fund" was defined to mean any fund under the
control or management of a local authority." (emphasis supplied)

17. In the present case DHA has been constituted under Chief Executive's Order No. 26 of' 2002
namely Defence Housing Authority Lahore Order, 2002 ("Order"). The management of the
authority is vested in the Governing Body with the Chairman being Secretary, Ministry of
Defence and the Vice-Chairman being Corps Commander, Lahore (section 4). Executive Board
under the Order is to submit to the Governing Body at the end of every financial year general
report on its affairs including audit, balance sheet and audit report for the year (Section 6).
Authority through the Executive Board has the power to "impose, recover, alter, vary or enhance
development charges, installments, cost of apartments, housing units of scheme, commercial
projects and transfer fees and other charges in respect of any property, plot or project with in the
area of the Authority; (Section 7(2)(e)). The authority through Executive Board may plan,
develop and execute new developments and projects through joint ventures with local and
international agencies, institutions and individuals (Section 7(2)(g)).

18. Authority is empowered to do all the acts that are necessary for planning and development of
and for providing and regulating housing facilities in the area notified by the Authority (Section
13)." Under the order, the Authority maintains a "Defence Housing Authority Lahore Fund"
which vest in the Authority and is credited with all the moneys received by the Authority
(Section 14). The Order also provides that any sum payable to the Authority shall be recoverable
as arrears of land revenue (Section 16).

19. Learned counsel for the petitioner has placed on record list of levis fees and charges collected
by the Authority which includes; registration fee, sub-division fee, combination fee, sewerage
connection fee, water supply fee, along with residential water charges, commercial water
charges, spray charges, street warden charges septic tank cleaning charges, garbage basket
charges, sub-divided plot water charges, etc. It is contended by the counsel that the Fund is
further sub-divided under four different heads i.e. Land and Development Fund, Maintenance
Fund, Membership Fund and General Fund and in support of this learned counsel relied on the
audited Balance Sheets of the Authority for the years ending 30-6-2008 and 30-6-2007.

20. Learned counsel for the respondent when asked whether other development authorities in the
Province, for example, Lahore Development Authority (LDA), Faisalabad Development
Authority (FDA), Multan Development Authority (MDA) enjoy exemption under section 49 of
the Ordinance, learned counsel confirmed that they did enjoy exemption and were considered as
"local authorities" under section 49 of the Ordinance (as it was prior to the commencement of the
year, 2008).

21. From the above, it is .clear that the Authority has a statutory status. It enjoys the powers of
imposing fees and charges and is involved in developing and regulating housing in the area. The
Authority also maintains a separate Fund by the name of Defence Housing Authority Fund
("Fund") and all the moneys is received by the authority are credited to the said Fund. It also
prepares its own budget which is placed before the Governing Body that comprises the
Secretary, Ministry of Defence, Corps Commander, Lahore.

22. I, therefore, hold that DHA is a "local authority" and, therefore, is exempted from tax under
section 49 of the Income Tax Ordinance, 2001 (as the said section was prior to the Finance Act,
2008) for Tax Years 2003-2005. As a result, letter dated 7-4-2008 issued by respondent No.1, as
well as, notices issued under section 122(1)(5) (5-A) of the Income Tax Ordinance, 2001 dated
19-5-2008 for Tax Year 2003-2005 are set aside being illegal and without lawful authority.

23. For the above reasons, this petition is allowed with no order as to costs.

S.A.K./D-16/L Petition accepted.