Law: Income Tax Act, 1922

Section: 2,2(5A),2(9)

[Income Tax Act, 1922 (XI of 1922)]........Sections 2(5A), 2(9) (after amendment in 1963), 10-Taxable entity-Corporation set up by Central Government under an enactment-Entire share capital of corporation held by Government and management controlled through its appointed Directors having Wide discretionary power of management, framing of schemes for establishment of industries and acting on commercial consideration-Property acquired owned by corporation and entitled to borrow moneys required for development of industries-Directors and officers paid out of corporation's revenue--Corporation whether functioning as a department of Government or as' its agent or instrumentality-Held no-Corporation whether exempt from income tax-Held no-Veil of incorporation-Whether Court entitled to lift the veil of incorporation to pay regard to substance and reality behind legal fiction-Held yes. The main question, which is one of fact, is whether the business of the Corporation was being carried on by or on behalf of the Central Government as a Department or as its agent or instrumentality. Now, it is well settled that in certain exceptional cases, including for tax purposes, the Court is entitled to lift the veil of incorporation and pay regard to the substance and reality behind the legal fiction. On the examination of the provisions of the Pakistan Development Corporation Act, under which the Corporation was set up, we have reached the conclusion that there is no force in the contention that the Corporation was functioning as a Department of Government or as its agent or instrumentality. Despite the fact that the capital was wholly owned by the Government and its management controlled through its appointed directors, the Corporation retained an appreciable decree of independence and freedom of action within the controlled sphere. Section 5 of the P.I.D.C. Act vests in the Board of Directors wide discretionary power of management and is required to act on commercial considerations: Section 14 of the Act gives the Corporation wide discretion in the matter of framing schemes for establishment of industries. The property which the Corporation acquires is its own property. Its…

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