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 of the 1979 Ordinance and Clause (59) of the Second Schedule of the 2001 Ordinance, but the High Court later reversed those findings. The 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. The second element itself consisted of two sub-components: first, the income must be held under trust or other legal obligations; secondly, such legal obligation must exist wholly or partly for charitable purposes, it being common ground that no religious purpose was involved in the present case. It was not sufficient for the petitioner merely to establish that the relevant sub-clause constituted a charitable purpose. The exemption clause specifically required that either the sources of income or the income itself be held under some legal obligation wholly or partly for a charitable purpose. The Supreme Court concluded, while disagreeing with the High Court, that sub-clause (2) could be regarded as a charitable purpose within the meaning of the definition clause and that, on the facts and circumstances of the case, the petitioner's position came within that definition. However, examination of the Tribunal's order showed that there was no affirmative finding of fact that the income in question had actually been applied or finally set apart for achieving the charitable objects contained in sub-clause (2). The Tribunal confined itself to deciding the legal question whether the relevant sub-clause constituted a charitable purpose. Although the Tribunal recorded a finding in favour of the petitioner on that legal issue, it failed to determine whether the third and independent requirement of the exemption clause existed during the relevant tax periods. The Supreme Court held that while the second element involved a question of law or mixed question of law and fact, the third element constituted an entirely separate factual requirement. The existence of one element did not automatically establish the other. The petitioner failed to discharge the positive burden of proving that the income had actually been applied or finally set apart for charitable purposes. Since the Tribunal was the final forum for determination of questions of fact, neither the High Court nor the Supreme Court could undertake that factual exercise. This deficiency was fatal to the petitioner's claim. Even when the exemption clause was read as a whole, the final requirement had to be affirmatively established before the last fact-finding forum. The petitioner failed to establish entitlement to the statutory exemption. Leave to appeal was refused and all petitions were dismissed.

PAKISTAN STOCK EXCHANGE LIMITED vs COMMISSIONER INLAND REVENUE ZONE-VI, KARACHI — 2026 SCMR 373 SUPREME-COURT

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