Ladies and gentlemen I have been given the onerous task to explain the scope, mechanism of taxation and other relevant matters of the entities such as Registered and Unregistered Firms, Co-ownership, Association of persons, Co-operative Societies, Societies, Trusts, and Local Authorities etc. Before dilating on the subject, it is to be kept in mind that there is plethora of judicial decisions in which the superior courts have deliberated on the issues of taxation and other matters of above mention entities. It has been observed that after the promulgation of the Income Tax Ordinance, 2001, there is a general impression that the judicial decisions given by considering the provisions of Repealed Income Tax Ordinance, 1979 have become redundant, which trend in my humble opinion is too precarious. Starting our discussion, firstly we have to examine the scope of the charging section and then proceed further. Section 4 of the Income Tax Ordinance, 2001, the charging section, stipulates that subject to the provisions of the Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in Division-I or II of Part-I of the First Schedule, as the case may be, on every person who has taxable income for the year. Thus, the charge is founded on section 4 which is income tax liability on a person in relation to his income. The tax is not imposed on income generally; it is imposed on the income of a person that may be any natural person or an artificial person as defined in the existing statute. The above opinion of mine gets support from the judgments of Hon'ble Supreme Court of Pakistan in the case of Ibrahim Ishaq Johri vs. the Commissioner of Income Tax (West), Karachi (A) (1993 SCMR 287,) which was subsequently, reaffirmed in case of M/s. Ellahi Cotton Mills Limited and others versus the Federation of Pakistan (B) (reported as PLD 1997 SC 582 ). The relevant portion of dicata of the Hon'ble Supreme court in the latter case is reproduced for convenience.

"…….income tax is a tax on a person in relation to his income. It is a tax imposed upon a person (natural or artificial) in relation to his income."

What is the connotation of word "person" in law would be an interesting discussion. The scholars of modern jurisprudence have written scores of treatises on the nature of a personality used in legal diction. In law there are two kinds of persons, the natural and artificial. The Natural person is without doubt a human being or more precisely an individual. Salmond in his treatises JURISPRUDENCE has written that "personality is a wider and vaguer term in humanity and in the law this coincidence between the class of persons and that of human being is still more marked". According to him so far as the legal theory is concerned, a person is any being whom the law regards as capable of rights and duties. Any being that is so capable is a person whether a human being or not and no being that is not so capable is not a person even though he be a man. The persons are the substance of which rights and duties are the attributes. It is only in this respect that persons possess juridical significance and this is the exclusive point of view from which personality receives legal recognition.(C) ( 1973) 27 TAX 149 Haripur Rosin & Turpentine Factory Ltd, Lahore Vs. Commissioner of Income Tax, North Zone (West Pakistan), Lahore) Therefore, a person, may be defined for the purposes of the law as any being to whom the law attributes a capability of interest and, therefore of rights, of acts and therefore, of duties. In the modern jurisprudence, persons are defined are in two kinds, distinguishable as natural and legal persons. A natural person is a being to whom the law attributes personality in accordance with the reality and truth, whereas, the legal persons are beings, real or imaginary to whom the law attributes personality by way of fiction.(D) (Jurisprudence by Sir John Salmond, Ninth Edition at page 416, 417 & 418). It may be stated at this juncture that legal persons being the arbitrary creations of the law may be of as many kinds as the law pleases, which are actually recognized by the adopted system of law. Few examples of such persons are Corporations or Bodies Corporate. Some of the authors of modern jurisprudence have also analyzed what part the term "Person" plays in relation to statutory provisions. The concept "Person" focuses larger principles of jural relations, but it allocates relationship differently in different cases.
The concept of legal personality is not so limited in its application and, there are, at least three distinct varieties. They are distinguished by reference to the different kinds of things, which the law selects for personification. In the first class of the legal persons, it consists of Corporation which is a group or series of persons which by a fiction is regarded and treated as itself a person. Individuals, who thus, form the corpus of the legal persons, are termed as its members. The second class is that in which the corpus or object selected for personification is not a group or series of persons but an institution. It may be stated that the law may, if it pleases, regard a Church, a Mosque, a Hospital, a Library or a University as a person meaning thereby that it may attribute the personality not to any group of persons connected with the institution but to the institution itself. The third kind of legal persons is that in which the corpus is some Fund or Estate devoted to special uses, such as Charitable Fund, Trusts, Societies etc. The law may prefer the process of incorporation, but if the law chooses to personify at all, it personifies, not the fund or the estate, but the body of persons who administer it. It has been the opinion of the Jurists that personifying of the body of the persons, which are engaged to administer such funds, trusts etc. may also be equally expedient and it is also opinion of the Jurists that such choice of personification of the corpus shall be of the law. Keeping in view the above discussion, let us now examine the statutory provisions, which deal with the persons under the Income Tax Ordinance, 2001. Here, I would respectfully submit that I have confined my discussion to the persons defined under the Income Tax Ordinance, 2001 other than the individuals and companies according to scope of the subject assigned to me today. However, where-ever, it has been deemed necessary, appropriate references and discussions have been made. The term "Person" has been defined under Clause 42 of Section 2, which by legislation by reference refers to section 80. It would be beneficial to reproduce the section 80 for the convenience.

SECTION 2.

(42) "person" means a person as defined in section 80;

SECTION 80

80. Person.

(1) The following shall be treated as persons for the purposes of this Ordinance, namely:-

(a) An individual;

(b) a company or association of persons incorporated, formed, organised or established in Pakistan or elsewhere; (c) the Federal Government, a foreign government, a political subdivision of a foreign government, or public international organisation.

(2) For the purposes of this Ordinance -

(a) "association of persons" includes a firm, a Hindu undivided family, any artificial juridical person and any body of persons formed under a foreign law, but does not include a company; (b) "company" means - (i) a company as defined in the Companies Ordinance, 1984 (XLVII of 1984); (ii) a body corporate formed by or under any law in force in Pakistan; (iii) a modaraba; (iv) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies; (v) a trust, a co-operative society or any other society established or constituted by or under any law for the time being in force or a finance society; (vi) a foreign association, whether incorporated or not, which the Central Board of Revenue has, by general or special order, declared to be a company for the purposes of this Ordinance; (vii) a Provincial Government; or (viii) a local authority in Pakistan; (c) "firm" means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all; (d) "trust" means an obligation annexed to the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust; and (e) "unit trust" means any trust under which beneficial interests are divided into units such that the entitlements of the beneficiaries to income or capital are determined by the number of units held. It will be observed that Section 80 has classified the persons for the purposes of the Ordinance into three broader categories, namely: (a) Individual

(b) A company or association of persons incorporated, formed, organized or established in Pakistan or elsewhere; (c) The Federal Government, a foreign government, a political subdivision of a government or public International Organization.

Clause (b) is relevant for today's discussion. For bringing more clarity, an attempt has been made to define the terms "company" and association of persons". Before I discuss the concept regarding "Association of Persons" , let me say few words about the definition of term "Company" , which in my opinion is very important and quite relevant. The company as defined under Sub-Clause (b) of Sub-Section 2 of Section 80 means; a) a company as defined in the Companies Ordinance, 1984. b) a body corporate formed by or under any law in force in Pakistan c) a modaraba d) a body incorporated by or under the law of a country out side Pakistan relating to incorporation of companies e) a trust, a co-operative society or a finance society or any other society established or constituted by or under any law for the time being in force.
f) a foreign association, whether incorporated or not, which the Central Board of Revenue has, by general or special order declared to be a company for the purposes of Ordinance g) a Provincial Government h) a local authority in Pakistan. The first clause referred above is referring the definition of a Company as defined under the Companies Ordinance, 1984 by legislation by reference. The term "Company" has been defined under clause (7) of Section 2 of the Companies Ordinance, 1984. The other kinds and types of companies have also been defined under clause 2, 8, 9, 18, 20, 23, 28 and 30 of Section 2 of the said Ordinance.. The second clause (b) refers to such body corporate which are formed by or under any law in force in Pakistan. It will be recalled that under the Repealed Income Tax Ordinance, 1979, the departmental officers started charging tax under Section 80 D on the societies and other entities by bringing them within the folds of term "body corporate". It was the judgment of learned Tribunal reported in (1998) 78 Tax 71 (Trib) which resolved the issue by interpreting the statutory provisions of Section 2 (16) and 2 (32). In the said decision, the learned Tribunal after considering the relevant provisions held that a society is a body Corporate. However, since the society was not formed by or under any law, it was held that it cannot be considered within the definition of Body Corporate formed by or under any law. The relevant passage from the said decision is reproduced for convenience.(E)

50. From the above discussion we are of the considered opinion that whenever the Legislature has used the words, formed, established, or created by or under the law it refers to the body corporate formed, established or created directly by the Legislature under the law enacted by it and, therefore, such expression shall not include a body corporate owing its existence to any instrument such as memorandum and articles of association and the registration thereof. In the case of societies registered under the Societies Registration Act they are formed under section 1, of the said Act with a memorandum of association and filing the same with the Registrar of Joint Stock Companies and the registration thereof under section 3 of the said Act. It is, therefore, held that although a society registered under the Societies Registration Act is a body corporate but it is not a company as defined under section 2(16) (b) because such society is not formed by or under any law for the time being in force but is a body corporate which is constituted under an instrument and is registered in pursuance of the provisions contained in the Societies Registration Act, 1860.

It may be stated that the view of the learned Tribunal has been recently approved by Hon'ble High Court of Sindh in the case of the Commissioner of Income Tax Versus M/s Spring Field Secondary School, Karachi.(F) 2003PTD1264. In the said judgment, judgment of Hon'ble high Court of Lahore in the case of The Commissioner of Income Tax Vs. M/s Engineering Co-operative Housing Society, Lahore (G) (2000 PTD 3388) has been referred and agreed upon. It is therefore, submitted that only such body corporate come within the definition of the "company" which are formed by or under any law.

Clause ( c ) refers to a Modaraba. Although the definition clause does not refers to the law regulating Modarabas, however, according to the well settled principle of interpretation, we can safely refer the definition from the Statutory provisions of Modaraba (Flotation and Control) Ordinance, 1980. However, it is suggested to clarify the definition, the legislature may in its power amend the definition by referring to the Modaraba (Flotation and Control Ordinance, 1980, as it has been done under Clause 23 of Section 2 of the Companies Ordinance, 1984. . Clause (d) refers to those bodies incorporated which are incorporated by law outside Pakistan. Clause (e) speaks of such trust, co-operative societies or a finance society or any other society established or constituted by or under any law for the time being in force. Here also, the purpose is to include only such trusts, Co-operative societies and kinds of societies which are formed by a particular statutory provision. The discussion we had while discussing clause (b) will apply mutates mutandis. Clause (f) refers to foreign associations whether incorporated or not and which are recognized by general or special order by the Central Board of Revenue as company for the purposes of Ordinance. Clause (g) refers to the Provincial Government Clause (f) refers to a Local Authority in Pakistan. The term has not been defined under the Income Tax Ordinance, 2001. However the said term has been define under Clause 28 of Section 3 of the General Clauses Act, 1897 which have to be considered while interpreting and dilating upon its concept. Clause 23 of Section 3 of General Clauses Act, 1897 reads as under: "Local Authority shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government, with the control or management of a municipal or local fund. I hope I have not strayed from the main subject in hand, i.e. to explain the scope and mechanism of taxation and relevant matters of the entities such as Registered and Unregistered Firms, Co-ownership, and Association of persons, Co-operative Societies, Societies, Trusts, and Local Authorities etc. Now if we peruse the definition of Association of Persons under the new dispensation a major change will be observed. The Firm, a Hindu Undivided Family, any artificial juridical person and any body of person form under a foreign law but other than a company has been brought within the folds of the term Association of Persons. Thus distinction between a registered firm and unregistered firm has been done away. Under clause-C of Sub-Section (2) of Section 80, the term "Firm" has been defined and in fact if I am permitted to say that said definition has been borrowed from Section 4 of the Partnership Act, 1932.