APPELLATE TRIBUNAL
INLAND REVENUE, DIVISION BENCH-I, ISLAMABAD
MA(Rect.) No.241/IB/2024
In ITA No.868/IB/2024
(Tax Year, 2023)
MA(Rect.)
No.242/IB/2024
In ITA No.783/IB/2024
(Tax Year, 2017)
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M/s Motorway
Operation and Rehabilitation Engineering, 509, Kashmir Road, R.A.Bazar
Saddar, Rawalpindi.
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Applicant/Appellant
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Vs
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Commissioner
Inland Revenue, LTO, Islamabad.
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Respondent
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Appellant by:
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Mr. Mazhar
Ilahi, Advocate
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Respondent by:
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Mr. Khalid Sultan, DR
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Date of hearing:
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26.09.2024
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Date of order:
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28.10.2024
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O R D
E R
M.M.AKRAM (JUDICIAL MEMBER): Through the titled miscellaneous applications,
the appellant has requested rectification under Section 221 of the Income Tax
Ordinance, 2001 ("the Ordinance") regarding the order dated
29.08.2024, issued by this Tribunal in ITA No. 868/IB/2024 & ITA No. 1306-1307/IB/2015.
In that order, the appeals were returned to the appellant on the basis that, as
a state-owned enterprise (SOE), the appellant is not entitled to file an appeal
before this Tribunal. The grounds for this request are outlined in the
aforementioned applications.
2. We have heard the parties and perused the
record. The crucial question before us is whether the applicant taxpayer is a
State-Owned Enterprise (SOE) within the scope of Section 3 of the
State-Owned Enterprises Act, 2023. In this respect, the relevant excerpt from
the said Section 3 is quoted below: -
“3. Scope and application.--- (1)
Notwithstanding anything contained in any other law for the time being in
force, this Act shall have application to all public sector companies as
defined in sub-section (54) of section 2 of the Companies Act, 2017
(XIX of 2017) and other corporate bodies which are owned and controlled
by the Federal Government including those established under
special enactments”. (Emphasis supplied)
The
above legislative quote describes that the SOE Act applies to: -
(i)
Public Sector Companies as defined in
sub-section (54) of section 2 of the Companies Act, 2017; or
(ii)
The Corporate Bodies that are owned and
controlled by the Federal Government.
To answer the question of whether the applicant taxpayer
(MORE Pvt. Ltd.) is an SOE, we now analyse whether the taxpayer comes within
the ambit of either of the above two propositions.
A.
Whether the taxpayer is a corporate body which
is owned and controlled by the Federal Government?
MORE (Pvt.) Limited is a company registered under the
Companies Ordinance, 1984 hence, it is a corporate body. Now the second limb of
the question boils down to the determination of the issue of ownership and
control by the Federal Government.
3. We had an
opportunity to read and analyse the “Form A: Annual Return of Company having
share capital” of the taxpayer which outlines the list of shareholdings as
below: -
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Sr No.
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Name
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No. of shares
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1.
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Mr. A. Sami
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1
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2.
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Frontier Works Organisation
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110417139
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3.
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Mr. W. H. Abbasi
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1
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4.
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Mr. M. B. Khan
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1
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An analysis of the above table reveals that unlike
Pakistan Telecommunication Company Limited, Pakistan Services Limited etc., the
taxpayer does not have shareholdings of the Federation of Pakistan in the name
of the president of Pakistan. Hence, the taxpayer company is not owned by the
Federal Government. Contrarily, many of the shareholdings of the taxpayer are
in the names of Frontier Works Organisation (FWO), a formation of the
Pakistan Army, which as per subsection (1A) of Section 8 of the Pakistan Army
Act, 1952 comes within the ambit of the “entities affiliated with or
controlled by the Pakistan Army” duly “approved by Federal
Government”; hence, the taxpayer company is also not controlled by the
Federal Government either, as enunciated in subsection (d) of Section 2 of the
SOE Act, 2023.
Pakistan Army Act, 1952
Section
8
(1A) “affiliated
entities” mean entities affiliated with or controlled by the Pakistan
Army, including but not limited to statutory bodies, trusts,
foundations, organisations and other entities approved by the Federal
Government.(Emphasis supplied)
4. It is
pertinent to point out that the above amendment was incorporated in the
Pakistan Army Act, 1952 vide Pakistan Army Amendment Act, 2023 which came into
force on 18 August 2023. This post-dated the enforcement (30.01.2023) of the
State-Owned Enterprise Act, 2023. Besides, the provisions of the Pakistan Army
Act, 1952 are given overriding effect under an amendment introduced by the
Pakistan Army Amendment Act, 2023 by way of insertion of Section 176E: -
“176E. Overriding effect.—
The
provisions of this Act shall have effect notwithstanding anything inconsistent
contained in any other law, rules or regulations for the time being in force
and such law, rules or regulations shall, to the extent of any inconsistency,
cease to have effect.”
Given
the fact that the major shareholder of the taxpayer company, the FWO, is the
formation of the Pakistan Army and under the new amendments to the Pakistan
Army Act, 1952, it is controlled by the Pakistan Army. Furthermore, the fact
that the taxpayer is not owned by the Federal Government and the Pakistan Army
Act, 1952 has an overriding effect hence, we do not need to further examine the
scope of the definition of the controlled by the Government as enunciated in
subsection (d) of section 2 of the SOE Act, 2023. However, we venture to
examine the proposition only for brevity.
5. SOE Act 2023
Section
2. Definitions.
(d) Controlled by the Government
(i)
In the case of a company, if the Federal
Government directly or indirectly has the right to appoint a majority of
directors or control over management or policy decisions, exercisable by a
person individually or through any person acting in concert, directly or
indirectly, whether by virtue of Federal Government shareholding, management
right, shareholders agreement, voting agreement or otherwise.
(ii)
In the case of an entity created by an Act of
the Majlis-e-Shoora, if the Federal Government has the power to appoint a
majority of the persons who are directors of that entity or otherwise has the
power to determine the outcome of decisions about the entity’s management or
financial and operating policies.
The perusal of the above definition reveals the following
either of the following attributes of the “Controlled by the Government”, that
is: -
(a) A company
which is in relation to which the Federal Government directly or I ndirectly has the right to appoint the majority
of the directors; or
(b) A company in
relation to which the Federal Government has control over management or policy
decisions, exercisable by a person individually or through any person acting in
concert, whether by virtue of Federal Government shareholding, management
right, shareholders agreement, voting agreement or otherwise; or
(c) In the case
of an entity created by an Act of the Majlis-e-Shoora, if the Federal
Government has the power to appoint a majority of the persons who are directors
of that entity;
(d) In the case
of an entity created by an Act of the Majlis-e-Shoora, the Federal Government
otherwise has to power to determine the outcome of decisions about the entity’s
management or financial and operating policies.
We have carefully examined the above attributes and find
that the directors of the taxpayer company are appointed by the shareholders of
the company which does not include the Federal Government nor there is any
evidence of any indirect role of the Federal Government in determining the
outcome of the decisions about entity’s management or financial and operating
policies. In a nutshell, the company is neither owned by the Federal Government
nor is controlled by the Federal Government yet is merely an affiliated entity
of the Pakistan Army much less than an artificial judicial person. It is
pertinent to point out that both the aspects, that is, (i) owned by the Federal
Government; and (ii) controlled by the Federal Government must co-exist,
whereas, in the instant case neither of the attributes is met. Hence, the
taxpayer company is not an SOE within the scope of Section 3 of the SOE Act,
2023 in this context.
6. Now, this
situation leads us to the alternative question of whether the taxpayer company
is a public sector company within the meaning of subsection (54) of Section 2
of the Companies Act, 2017.
B. Whether
the taxpayer company is a public sector company as defined in sub-section (54)
of section 2 of the Companies Act, 2017?
In this respect, it would be beneficial if the definition
of the public sector company as enacted in the Companies Act, 2017 as
re-produced below is analysed at the outset.
Companies Act, 2017
Section 2. Definitions
“public sector
company” means a company, whether public or private,
which is directly or indirectly controlled, beneficially owned or not less than
fifty-one per cent of the voting securities or voting power of which are held
by the Government or any agency of the Government or a statutory body, or in
respect of which the Government or any agency of the Government or a statutory
body, has otherwise power to elect, nominate or appoint majority of its
directors and includes a public sector association not for profit, licenced
under section 42:
Provided that nomination of
directors by the Commission on the board of the securities exchange or any
other entity or operation of any other law shall not make it a public sector
company;”
In other words, a company which meets either of the
following legal tests is called a Public Sector Company under Section 2(54) of
the Companies Act, 2017.
a. A
company which is directly or indirectly controlled by the Federal or Provincial
Government or its agency,
b. A
company which is beneficially owned by the Federal or Provincial Government or
its agency; or
c. A
company not less than 50% of voting securities or voting power of which are
held by the Federal or Provincial Government, or its agency or
d. A
company in respect of which the Federal or Provincial Government or its agency
has otherwise power to elect, nominate or appoint the majority of its directors
and includes a public sector association not for profit, licenced under section
42:
A perusal of the above attributes of a public sector
company reveals that the ownership or control of the Federal Government is
hallmark of the definition of the public sector company, which as concluded in
the first part of our determination is absent in the case of taxpayer company.
This leads us to conclude that the taxpayer company does not come within the
ambit of a public sector company as defined in subsection (54) of Section 2 of
the Companies Act, 2017.
7. Conclusion
Based
on the above analysis and reasoning, we conclude that MORE (Pvt.) Ltd., the
taxpayer company, does not qualify as a State-Owned Enterprise (SOE) under the
scope of Section 3 of the State-Owned Enterprises Act, 2023. Accordingly, the
rectification applications are accepted, and the office is directed to schedule
the main appeals for a regular hearing on 11.11.2024. Notices to the parties
should be issued accordingly.
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(M.M. AKRAM)
JUDICIAL MEMBER
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(IMRAN
LATIF MINHAS)
ACCOUNTANT
MEMBER
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