CAA told to avail ADR mechanism for resolving income tax exemption issue

Counsel for the CAA contended the CAA does not fall within the definition of an SOE

By Jamal Khurshid
June 17, 2024
An office of the Civil Aviation Authority (CAA). — PCAA webstie/File

KARACHI: The Sindh High Court (SHC) has turned down a Civil Aviation Authority petition seeking exemption from the levy of the income tax and directed the authority to either avail the alternative dispute resolution (ADR) resolution mechanism under Section 134A of the income tax ordinance or under Rule 8(2) of the 1973 rules of business.


The Civil Aviation Authority (CAA) had approached the court for seeking declaration that it is exempt from the levy of the income tax pursuant to Section 34 of the Pakistan Civil Aviation Authority Act, 2023 and Section 38 of the Pakistan Airports Authorities Act, 2023 read with Article 165A of the constitution notwithstanding the restriction imposed under Section 54 of the Income Tax Ordinance, 2001.

The court had earlier confronted the CAA as to the recent amendment in the income tax ordinance whereby Section 134A has been amended requiring the state-owned enterprise to mandatorily go for ADR, whereas even in terms of Rule 8(2) of the rules of business the matter has to be resolved at the level of the federal government.

The counsel for the CAA however contended that the CAA does not fall within the definition of an SOE, and Section 3 of the state-owned enterprises (Governance and Operation) Act, 2023 (“SOE Act”) is not applicable; therefore, the provisions of section 134A of the Ordinance are not relevant.

Regarding objection of Rule 8(2) of the 1973 Rules, the counsel submitted that the CAA and Airport Authorities Acts in question have been passed by the Parliament and have an overriding effect. Therefore, Rule 8(2) of the 1973 Rules has no relevance as well.

The counsel submitted that the matter cannot be referred to the ADRC and has to be decided by the court by exercising its jurisdiction under Article 199 of the constitution. He has further contended that he FBR has already deducted more than Rs15 billion from the bank account of the CAA as advance tax for the last quarter.

A high court division bench headed by Justice Mohammad Junaid Ghaffar, after hearing the arguments of the counsel, observed that the petitioner is an authority which is generating its revenue from selling services on a commercial basis, and there appears to be no dispute that the petitioner is being run on a commercial basis.

The court observed that it does not appear to be the case of the petitioner that is not controlled or managed by the federal government and the petitioner is covered by the SOE Act.

The SHC observed that most significant and relevant amendment made in the income tax ordinance, which was fully applicable to the CAA as now it is mandatory for SOE to go for ADR.

The court after the perusal of the amendments in the income tax ordinance and gathering the intent of the federal government observed that it clearly reflects that an internal mechanism has been evolved for the quick disposal of tax disputes between SOEs and the FBR.

The court further observed that the reason being that at the end of the day, in any such disputes, it is, in fact, the federal government which is the ultimate loser, by way of litigation costs, besides delay in the settlement of such disputes from the courts of law.

The SHC observed that the CAA is owned by the government and is being asked to pay a certain amount of tax by the FBR, which is also under the revenue division of the federal government, and ultimately even if the CAA is required to pay any tax the cost of such payment of tax is to be borne by the federal government.

The court remarked that it is just like withdrawing money from one pocket and putting it into the other, and in this entire exercise, it is the litigation cost and delay which must be borne by the federal government additionally.“Resultantly, it is the federal government alone which is the loser and besides incurring costs, the time consumed by the courts in deciding such matters could be reserved and allocated to disputes of private parties before the court,” the court observed in its judgment.

It observed that in terms of Section 134A of the ordinance, duly amended by the Finance Amendment Act, 2024, the CAA is mandatorily required to approach the FBR for the resolution of its dispute coupled with the fact that the petitioner claims that its case has been supported by the ministry of law and justice division.

The court observed that even if Section 134A of the ordinance is not applicable, as claimed by the petitioner’s counsel on the ground that the CAA is not a state-owned enterprise, Rule 8(2) of the 1973 Rules clearly applies and the matter has to be referred to the prime minister.

It said courts are already burdened with excessive litigation as against its total strength and the number of judges, including the infrastructure; therefore, any further unnecessary burden has to be avoided and must be nipped in the bud at the very outset. The court observed that the government has to act fairly, sensibly and with a helping hand as the majority of litigation in the high courts under Article 199 of the constitution is against either the provincial government or the federal government.

The SHC said the government has already taken a step forward by amending Section 134A of the ordinance in question, and this is to be appreciated as a timely step forward, but at the same time, it has failed to guide and persuade its divisions and authorities to go for such a route of settling its disputes with the tax departments.

The court observed that if the petitioner’s counsel, under instructions, had agreed to referral of this matter to ADR under the aforesaid provision of law, this would have definitely saved precious time of the court in writing this opinion.It remarked that it does not see any justifiable reason to exercise its discretion under Article 199 of the constitution and directed the petitioner to either avail the Alternate Dispute Resolution mechanism under Section 134A of the ordinance; or under Rule 8(2) of the 1973 Rules.

The court observed that if at all the issue is not resolved by way of these two alternate mechanisms and the petitioner still remains aggrieved, then the petitioner is at liberty to seek remedy as may be available under the law.

The court observed that if the CAA opts for ADR in terms of Section 134A of the ordinance, then FBR shall immediately form a committee under the law and as soon as the committee is notified, and the FBR and its Inland Revenue department shall act strictly in accordance with sub-section (7) of section 134A and halt the recovery proceedings accordingly.