FOUNDATION UNIVERSITY Versus MINISTRY OF RELIGIOUS AFFAIRS

JAWAD HASSAN, J.--- Foundation University (the Petitioner University has filed this petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (the Constitution ) with the prayer to set aside impugned letter dated 24.04.2018 issued by the Respondent No.1 whereby the Petitioner University was held liable to pay zakat on investment made by it.

I. Brief Facts

2. As per contents of this petition, the Petitioner University was informed by the Respondent No.3/the Manager National Saving Centre, Chaklala Scheme-III, Rawalpindi by way of letter dated 27.12.2017 qua recovery of zakat from the investment made by the Petitioner University . Being dissatisfied, the Petitioner University filed application before the Respondent No.1/Ministry of Religious Affairs which was rejected through the impugned letter; hence this petition.

II. Submissions of the Petitioner University

3. Learned counsel for the Petitioner University argued that the Petitioner University , being a Chartered University and a charitable institution, is not liable to pay zakat on its investment/National Saving Certificates in terms of Section 1(2) of the Zakat and Ushr Ordinance, 1980 (the Ordinance ). He further argued that the Petitioner University was sponsored by Fauji Foundation, a Trust established under the Charitable Endowment Act, 1890 (the Act ) for the establishment of the Petitioner University to provide quality education of international standard to talented students of Pakistan and its savings are with the National Saving Centre. However, through the impugned letter, the Petitioner University was held liable to pay zakat on investment that was exempted from deduction of zakat under the Income Tax Ordinance , 2001 (the Ordinance of 2001 ). The counsel for the Petitioner University has placed reliance on Administrator General Zakat, Central Zakat Administration, Islamabad v. Pakistan Insurance Corporation through Secretary and others (PLD 2016 SC 448).

4. Report and parawise comments were filed by the Respondents denying the stance of the Petitioner University .

III. Submissions of the Respondents Nos. 1 to 4

5. As per report and parawise comments submitted by the Respondents Nos. 1 to 4, the Petitioner University is a private sector university as per record of Higher Education Commission and does not fulfill the requirements of Section 2(xia) and Section 2(xxiii) (a) to (n) of the Ordinance .

6. Barrister Zain Mansoor, Assistant Attorney General appearing on behalf of the Respondents Nos. 1 to 4 supported the impugned letter and argued that Ordinance contains a comprehensive mechanism defining assets and institutions liable to Zakat. He further argued that the statutory status of the Petitioner University neither exempts it from the operation of the said law nor alters the character of the accounts attracting Zakat. It is further contended that exemption provisions are specific and exhaustive and as the Petitioner University does not fall within any such statutory exemption, it squarely remains liable to pay zakat on its investments.

IV. Submissions of the Respondents Nos. 5 and 8

7. While the Respondent No.5/Ministry of Law and Justice, Government of Pakistan and Respondent No.8/State Bank of Pakistan seek deletion from the array of Respondents on the ground that they have no nexus with the case as no relief or claim was sought against them.

V. Submission of the Respondent No.6

8. The stance of the Respondent No.6/Higher Education Commission is that HEC does not have any role in the matter of deduction of zakat from the investments made by the Petitioner University in the National Saving Schemes.

VI. Stance of Amicus Curiae

9. During the course of hearing, the Court appointed Mr. Nisar A Mujahid, ASC as amicus curiae to assist in the determination of the issue who duly filed his written submissions and stated that the Petitioner University does not qualify as a charitable institution. He further stated that Petitioner University though engaged in educational advancement yet cannot be deemed as a charitable institution solely by virtue of Ordinance of 2002 as it does not expressly confer charitable status upon the Petitioner University .

10. I have heard the arguments advanced by the learned counsel for the parties and perused the record made available.

VII. Determination by the Court

11. The Petitioner University has invoked the writ jurisdiction of this Court challenging the deduction of Zakat by the Respondents from its investments in National Saving Certificates. The primary contention of learned counsel for the Petitioner University is that the Petitioner University , being a charitable institution established under The Foundation University Ordinance, 2002 (the Ordinance of 2002 ), is exempt from payment of Zakat as the Petitioner University is investing its surplus funds under the National Saving Scheme for making it self-sufficient. It is argued that the Petitioner University was sponsored by Fauji Foundation, a trust established under the Charitable Endowment Act, 1890, and therefore its assets and investments should not attract Zakat liability. Now the question that looms large before the Court is whether the Petitioner University being a Chartered University under the Higher Education Commission, claims to be a charitable institution, is exempted from deduction and payment of zakat under the provisions of the Ordinance or not. The Ordinance of 2002 is the governing statute of the Petitioner University ; Section 3(2) whereof defines its status as a body corporate which reads as under:

3. Establishment and incorporation of the University.--- (1) There shall be established at Islamabad a University to be called the Foundation University consisting of-- a------------------------------------ b------------------------------------ c------------------------------------ d------------------------------------

(2) The University shall be a body corporate by the name of the Foundation University having, Islamabad, perpetual succession and a common seal, with power, among others, to acquire, hold and dispose of any property or investments and shall by the said name sue and be sued.

The phrase shall be a body corporate used in above provision of law signifies that the Petitioner University was created under the Ordinance of 2002 and not merely registered under a general law i.e. the Companies Act or Societies Registration Act. The attributes of perpetual succession, common seal, and power to sue and be sued establishes the Petitioner University as an independent juristic person, separate and distinct from the Federal Government and Provincial Government. This autonomy enables it to manage its internal affairs, property, and legal relations in its own name and thus its powers, functions, and existence flow directly from the Ordinance of 2002 . It is an admitted position that the Petitioner University is a chartered university recognized by the Higher Education Commission and the legal consequence of a charter is that the institution acquires a juristic personality separate and distinct from its members and management. Under the law, once an entity is clothed with the status of a body corporate, it is governed primarily by the statute which creates it. Pertinently, the Petitioner University was established through promulgation of the Ordinance of 2002 for establishment of a Foundation University at Islamabad; preamble of which clearly states that it is in the interest of country to establish a centre of excellence to provide quality education of international standard to talented students of Pakistan . The preamble to a statute is though not an operational part of an enactment but it is a gateway, which opens before us the purpose and intent of the legislature, which necessitated the legislation on the subject and also sheds clear light on the goals which the legislator aimed to secure through the introduction of such law. The preamble of a statute, therefore holds a pivotal role for the purposes of interpretation in order to dissect the true purpose and intent of the law. The Supreme Court of Pakistan in Director General, FIA and others v. Kamran Iqbal and others (2016 SCMR 447) has laid down the similar principle by holding that indeed, preamble to a Statute is not an operative part thereof, however, as is now well laid down that the same provides a useful guide for discovering the purpose and intention of the legislature. It may also be noted that this Court in its earlier pronouncements has already elaborated and discussed in detail the importance of the preamble of an enactment in the cases of Ms Tradhol International SA Sociedad Unipersonal v. Ms Shakarganj Limited (2023 CLD 819 Lahore), Abwa Knowledge Pvt Ltd etc v. Federation of Pakistan etc (PLD 2021 Lahore 436), Chenab Flour and General Mills etc v. F.O.P through Secretary Revenue Division etc (PLD 2021 Lahore 343), Messrs Jet Green (Pvt.) Limited v. Federation of Pakistan and others (PLD 2021 Lahore 770), M.C.B. v. Adeel Shahbaz etc (2023 CLD 655 Lahore), Pakistan Tehreek e Insaaf through Asad Umar v. Governor Punjab through Principal Secretary (PLD 2023 Lahore 179=PLJ 2023 Lahore 467), Messrs Bahria Town Pvt v. District Consumer Court etc (PLJ 2022 Lahore 199 ,PLD 2022 Lahore 488), F.O.P v. Nasir Munir Ahmed etc (2022 CLC 2072 Lahore), Addl. Registrar Company v. Al-Qaim Textile Mills Ltd (2021 CLD 931), Ch Fayyaz Hussain Wains v. Province of Punjab etc (PLD 2022 Lahore 1) and Shaheen Merchant v. Federation of Pakistan etc (2021 PTD 2126 Lahore). In view of the judgments referred to above, the preamble of the Ordinance of 2002 is significant in two respects. Firstly, it situates the establishment of the Petitioner University within the broader framework of national interest, thereby underscoring that the institution was conceived as a vehicle for educational advancement and intellectual development. Secondly, the emphasis on centre of excellence and quality education of international standard reflects a legislative desire to elevate the standards of higher learning in Pakistan, ensuring that talented students are nurtured to meet global benchmarks. However, it is equally important to note what the preamble does not say. Nowhere does it employ the terminology of charity, charitable institution, or trust ; thus it is clear that the Petitioner University was established for paramount national interest to establish a Centre for the advancement of education and learning of internationally acknowledged standards to the talented and deserving students of Pakistan and it neither elevate the institution to the category of a charity nor there exists any operative provision in the Ordinance of 2002 for its declaration to be a charitable institution. Section 5 of the Ordinance of 2002 goes onto stipulate the functions and powers which reads as under:

5. Functions and powers of the University.--- The University Shall have the powers----

(a) to provide for instruction and training in such branches of learning as it may deem fit, and to make provisions for research, demonstrations and other services, and for the advancement and dissemination of knowledge in such a manner as it may determine;

(b) to select, admit and examine students;

(c) to hold examinations and confer or award degrees, diplomas, certificates and other academic distinctions on and to persons who have passed its examinations under prescribed conditions or have participated in its executive development programmes;

(d) to establish and promote faculties;

(e) to confer honorary degrees on persons as approved by the Board;

(f) to prescribe courses of studies in such branches of learning as the University may determine;

(g) to establish and support other facilities for education, training and research;

(h) to enter into agreements, contracts and arrangements with universities, organisations, institutions, bodies and individuals for the purpose of carrying out its functions and activities in Pakistan or abroad;

(i) to decide teaching method and strategies in order to ensure the most effective educational and training programmes;

(j) to create posts for teaching, research, administration and other related functions and to appoint persons thereto;

(k) to receive and manage property transferred and grants, bequests, trust gifts, donations, endowments and other contributions made to it and to invest any funds representing such property, grants, bequests, trusts, gifts, donations, endowments or contributions and to convert one kind of property into another, in such manner as it may deem fit;

(l) to institute and award fellowships, scholarships, exhibitions, bursaries medals and prizes under prescribed conditions;

(m) to demand and receive such fees and other charges as it may determine;

(n) to appoint members of various bodies and committees, as the Board may determine, for academic and administrative activities;

(o) to appoint such officers and staff and prescribe terms and conditions, powers and duties of such officers and staff;

(p) to do all such other acts and things as may be required to further its objectives; and

(q) in the exercise of above powers and functions, the University shall be subject to any general rules, instructions or directions as the HEC may from time to time, issue.

A cumulative reading of above provisions confers upon the Petitioner University a wide and comprehensive range of powers, both academic and administrative, which collectively establish it as a body corporate which is not wholly owned, directly or indirectly, by the Federal Government. This provision further empowers the Petitioner University to enter into agreements and collaborations with domestic and international institutions, thereby situating it within a global academic framework. Its authority extends to the creation of posts, appointment of staff, and prescription of terms and conditions of service, reflecting complete control over its internal governance. Importantly, the University is vested with financial powers to receive property, grants, donations, endowments, and other contributions, and to manage and invest such funds as it deems fit. It may also demand and collect fees, institute scholarships and awards, and undertake all acts necessary to advance its objectives. Mere sponsored by Fauji Foundation which is a trust established under the Charitable Endowment Act, 1890 does not mean that the Petitioner University is wholly owned by the Federal Government. The Petitioner University is managed by the Board which is free to take decisions by simple majority, and just because some of the members of the Board are appointed by the Federal Government, one cannot conclude that the Petitioner University is owned by the Federal Government. Moreso, the Petitioner University enjoys independent operations and vested with powers to charge substantial fees from students, generate revenues by maintaining significant cash reserves and investment and thus operates on revenue generating model rather than pure charitable basis; though chartered and sponsored by the Fauji Foundation, the record of the Higher Education Commission unequivocally classifies it as a private sector university.

12. In view of above, it is held that the Petitioner University is a body corporate established under the Ordinance of 2002 and by virtue of such incorporation, it squarely falls within the definition of person under Section 3 of the Ordinance .

13. Learned counsel for the Petitioner University put much emphases that the Petitioner University being a charitable institution, does not fall within the purview of the Ordinance and therefore, cannot be subjected to payment or deduction of zakat on National Saving Certificates under Section 1(2) of the Ordinance . The said provision of law declares as follows:

(1) This Ordinance may be called the Zakat and Ushr Ordinance, 1980.

(2) It extends to the whole of Pakistan, but as regards recovery of Zakat and Ushr, applies only to Muslim citizens of Pakistan and a company, or other association of persons, or body of individuals, whether incorporated or not, majority of the shares of which is owned, or the beneficial ownership of which is held, by such citizens."

14. It is evident from subsection (2) of Section 1 of the Ordinance that a company or other association of persons or body of individuals, that has the majority of its shares owned by or its beneficial ownership held by Muslim citizens of Pakistan, is liable to the charge and collection of Zakat under the provisions of the Ordinance . The Ordinance provides for compulsory deduction and collection of zakat from specified assets, subject to such exemptions as are expressly provided therein. The Ordinance further draws a distinction between individual beneficiaries entitled to exemption and institutions or bodies corporate and does not grant a general exemption to all charitable or non-profit entities unless such exemption is specifically recognized by law. The concept of a charitable institution under Pakistani law is not defined by mere organisational form or the benevolent intent of its founders, but is determined by a rigorous examination of its actual activities, the exclusive application of its assets, and its compliance with prescribed statutory conditions. The Supreme Court of Pakistan has, across a series of authoritative pronouncements, constructed a coherent and demanding legal framework that separates institutions genuinely devoted to public welfare from those that merely invoke the language of charity without fulfilling its substance. Guidance can be sought from the case reported in Liaquat National Hospital v. Province of Sindh etc (2019 SCMR 865). The facts of the said case was that Liaqat National Hospital being registered under the Societies Registration Act, 1860, claimed exemption from property tax under Section 4(f) of the Sindh Urban Immoveable Tax Act, 1958. Initially, the Excise and Taxation Department granted exemption but later it was withdrawn after reviewing audit accounts. It was argued on behalf of the Hospital that it was a charitable institution as profits were reinvested and services were subsidized for needy patients. The department found that only small amounts were spent on charity whereas the hospital charged high fees and engaged in commercial activities. In this case, the Supreme Court held that registration of a body under the Societies Registration Act, 1860 does not, ipso facto, confer upon it the status of a charitable institution for the purposes of tax exemption. Rather, to qualify for the exemption envisaged under section 4(f) of the Sindh Urban Immovable Property Tax Act, 1958, an institution must satisfy the competent authority that its immovable property is used exclusively for public charitable purposes . The Court further underscored that a hospital which levies full fees from paying patients while extending discounts or rebates to the indigent operates simultaneously in a commercial and a charitable domain, and such duality of function is irreconcilable with the exclusivity demanded by the statute. Equally, the fact that the profits of an organisation are not distributed amongst its members was held to be insufficient, standing alone, to establish its charitable character; the critical inquiry must focus on how the funds are actually applied, not merely on the absence of profit distribution. Reinforcing this principle, the Court reaffirmed the settled canon of fiscal interpretation that the burden of proof lies squarely upon the claimant to bring itself within the four corners of the exemption clause . In the context of the Ordinance , the Supreme Court of Pakistan in the case of Pakistan Telecommunication Employees' Trust v. Federation of Pakistan etc (PLD 2017 SC 718) articulated a two-limbed test for an institution to qualify as exempt from the definition of sahib-e-nisab under Section 2(xxiii)(i); first, the institution must be registered as a charitable or social welfare organisation under a relevant law; and second, it must be approved by the Central Board of Revenue for the purposes of section 47 of the Income Tax Ordinance, 1979. The Supreme Court held that Pakistan Telecommunication Employees Trust ("the Trust") was not registered as a charitable or social welfare organization under any relevant law. Besides the Trust was not involved in any social welfare or charitable activity, rather it only provided pension to the retiring employees of the erstwhile Pakistan Telephone and Telegraph Department. Pakistan Telecommunication Employees Trust was not a trust that fell within the provisions of section 2(xxiii)(i) of the Zakat and Ushr Ordinance, 1980, and was thus not excluded from the definition of sahib-e-nisab . Section 3(1) of the Ordinance deals with charge and collection of zakat which reads as under:

3. Charge and collection of Zakat. (1) Subject to the other provisions of this Ordinance, Zakat in respect of assets mentioned in the First Schedule shall be charged and collected, on compulsory basis, for each Zakat year, at the rates and in the manner specified therein, and as may be prescribed, from every person who is on the Valuation Date, and for the whole of the preceding Zakat year been, sahib-e-nisab.

15. The aforementioned section is the charging provision according to which zakat is to be compulsorily charged and collected for each zakat year in respect of the assets mentioned in the First Schedule from every person who: (i) is, on the Valuation Date, and for the whole of the preceding zakat year been, sahib-e-nisab, and (ii) owns or possesses such assets on the Valuation Date. Under Section 2(xxiii), sahib-e-nisab means a person who owns or possesses assets not less than nisab and this definition specifies only one qualification of a 'Sahib-e-Nisab' however excludes certain other entities from the status of Sahib-e-Nisab mentioned under Section 2(xxiii)(a) to (n) of the Ordinance whereas Section 1(2) of the Ordinance enumerates certain other attributes of a person that complete the definition of 'Sahib-e-Nisab'. These are that the person must be a Muslim citizen of Pakistan or in the case of an artificial juristic person when it has its majority equity owned by Muslim citizens of Pakistan. Aptly, the Ordinance is a special law enacted to regulate the collection and distribution of Zakat. The liability to Zakat attaches to prescribed assets held by persons or institutions defined under the law, subject to only those exemptions that are expressly provided under Section 24 of the Ordinance . The nature or character of the Petitioner University whether statutory, chartered, public service, or otherwise does not by itself create immunity unless such immunity is grounded in the statute which the Petitioner University has failed to bring on record. Under the law, where the legislature intended exemption, it has done so explicitly; absence of such expression must be construed as deliberate. In the impugned letter, the Respondent No.1 observed that the exemption on Foundation University s Fund does not fall/cover under section 2(xxii) a to n of the Zakat and Ushr Ordinance, 1980 so the request is rejected . It is pertinent to mention here that reliance placed by the Petitioner University on Administrator General Zakat, Central Zakat Administration, Islamabad v. Pakistan Insurance Corporation through Secretary and others (PLD 2016 SC 448) is misconceived and not relevant to the facts of this case as in the said case, the Pakistan Insurance Corporation (a statutory corporation) was held exempted from payment of zakat being not covered within the definition of Sahib-e-Nisab under Section 2(xxiii)(a) of the Ordinance as majority ownership lied with the Federal Government which itself is expressly excluded from Sahib-e-Nisab.

16. During the pendency of this petition, the Petitioner University was asked to place on record its status as a charitable institution and its beneficial ownership vide orders dated 08.12.2020, 17.02.2022, 04.04.2024, 19.11.2024 however, the Petitioner University has neither been able to place on record any specific document nor pointed out any specific provision in its parent statute or in the Ordinance granting exemption from Zakat liability.

17. The upshot of above discussion is that the Petitioner University has failed to demonstrate any illegality in the impugned letter warranting interference by this Court in its constitutional jurisdiction. As a result whereof this petition fails and is accordingly dismissed. No order as to cost.

MH/F-11/L Petition dismissed.