PAKISTAN STOCK EXCHANGE LIMITED vs COMMISSIONER INLAND REVENUE ZONE-VI, KARACHI

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PAKISTAN STOCK EXCHANGE LIMITED VS COMMISSIONER INLAND REVENUE ZONE-VI, KARACHI. Second Sched., Pt.1, Cl. 93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl. 59---Constitution of Pakistan, Art.185(3)---Income tax exemptions---Scope and preconditions---Essential elements and components---Charitable purpose---Meaning, extent and application---Pakistan Stock Exchange Limited filed seven connected civil petitions arising from income tax assessments for tax years 1993-94 to 1998-99 under the Income Tax Ordinance, 1979, and tax year 2003 under the Income Tax Ordinance, 2001, in which the appellate tribunal had earlier allowed exemption on income from 'house property' under clause (93) of the Second Schedule (1979 Ordinance) and clause (59) (2001 Ordinance), but the High Court later reversed those findings---Core issue before the Supreme Court was "whether the petitioner was legally entitled to income-tax exemption by establishing that its income was derived from house property held under legal obligation for charitable purposes and was actually applied or finally set apart for such charitable application"?---Held: Insofar as the first "element" for exemption from tax was concerned, it appeared to be clear that the income in question was derived from "house property"---Therefore it was appropriate to move on to the second "element", which had been the principal point of dispute between the parties---This itself could be regarded as having two "sub-components": (i) the income must be held under trust or "other legal obligations", which must (ii) be "wholly, or in part only, for … charitable purposes" (it being common ground that no "religious" purposes were involved in the case)---It was not enough for the petitioner simply to show that the sub-clause was a "charitable purpose" as the exemption clause required that the sources of income or the income be held under some "legal obligation", either wholly or in part, for a "charitable purpose"---Sub-clause (2) could be regarded as a "charitable purpose" within the meaning of the definition clause---Therefore, while disagreeing with the High Court, Supreme Court concluded that the petitioner's situation, in the facts and circumstances of the case, came within the definition clause---An examination of the order of the tribunal showed that there was no affirmative and actual finding of fact that the income in question was either actually applied or "finally" set aside for purposes of achieving the objects set out in sub-clause (2)---The entire discussion related to a matter of law, i.e., whether the sub-clause in question could be regarded as a "charitable purpose"---A finding in favor of the petitioner was recorded in this regard, but that was not enough---The tribunal also had to apply its mind as to whether the third "element" of the exemption clause existed during the periods in question and absent any such finding the benefit of the exemption clause could not be extended to the petitioner---In our view, while the finding of the tribunal might have sufficed for purposes of the second "element" of the exemption clause, it was wholly deficient for the third "element"---The reasoning appeared simply to amount to this: that because the second "element" was found to exist therefore the third was equally found to (or must) exist---But, the tribunal failed to appreciate that while the determination of the second "element" was a question of law (or perhaps a mixed question of law and fact) the third "element" was a separate requirement, which was only a question of fact---The existence of the one could not, and did not, inevitably, as seemed to have been concluded by the tribunal, lead to the other---To conclude that the one existed did not show or mean that the other did as well---The positive obligation that lay on the petitioner in this regard was not discharged---And since the tribunal was the last finder of fact the exercise in relation to the third "element" could not be carried out by either the High Court (which in any case decided against the petitioner) or the Supreme Court---This deficiency was fatal for the petitioner's case---Even when the exemption clause was viewed in its totality the last portion thereof had to be clearly established, at the latest, by or before the final forum designated to determine questions of fact---This was patently not the situation at hand---Petitioner had failed to make out a case for entitlement to the exemption clause---Leave to appeal was refused and the petitions were dismissed, in circumstances.

PAKISTAN STOCK EXCHANGE LIMITED vs COMMISSIONER INLAND REVENUE ZONE-VI, KARACHI — 2026 PTD 252 SUPREME-COURT

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