ISLAMABAD: The Supreme Court has held that the pension fund being managed by the Pakistan Telecommunication Employees Trust (PTET) is liable to deduction of zakat.

A three-judge bench, headed by Chief Justice Mian Saqib Nisar, which had taken an appeal filed by the trust, held that the organisation was not a trust that fell within the provision of the Zakat and Ushr Ordinance 1980 and thus not excluded from the definition of sahib-i-nisab.

The PTET, which manages the Pakistan Telecommunication Corporation Employees Pension Fund, has invested in different banks and schemes, but the Zakat and Ushr Department deducted zakat in terms of Section 3 of the 1980 ordinance.

The trust, through Advocate Hamid Khan, had challenged the deduction in the Islamabad High Court on the grounds that the trust was not sahib-i-nisab and, therefore, it could not be made subject to compulsory deduction of zakat. But the high court had in October 2012 rejected the trust’s petition.

Says PTET is not a trust that falls within provision of Zakat and Ushr Ordinance

After a detailed hearing, the Supreme Court held that the trust was sahib-i-nisab and that the pension fund was an asset owned and possessed by the appellant. Therefore, the appellant was liable to compulsory payment of zakat under Section 3 of the ordinance, the verdict explained.

Referring to the arguments that deducting zakat from the appellant will amount to double taxation as zakat will subsequently be deducted from the person who eventually receives the pension if he is sahib-i-nisab, the verdict said this prospect was simply misconceived.

Under the ordinance, the court said, zakat was collected once a year and if in one year it was deducted from the appellant and subsequently an employee/pensioner was determined to be entitled to pension for the next year, it was only he who would be liable to pay zakat upon the amount held by him and not the appellant which had ceased to hold and possess such amount. Therefore, there was no possibility of double taxation and this argument too, was rejected, it said.

About the pleadings that zakat is payable on assets and not liabilities and that the pension fund is entirely a liability, the court observed that acceptance of this contention would mean that all banks and financial institutions, which held non-charitable funds and endowments, would also be exempt from zakat for the mere reason that such funds and endowments were liabilities held for the depositor, account holder or beneficiary. This would be ludicrous.

“Therefore, we do not find any force in this argument which is hereby repelled. In fact, the balance sheet of the appellant reflects that upon investment of the amounts in the pension fund, the appellant has earned a certain amount of income. This negates the argument that the pension fund is a liability,” the verdict explained.

Referring to the arguments that zakat does not apply to the appellant as it is not sahib-i-nisab in terms of the ordinance being a charitable trust meant for social welfare of the employees of the company, the Supreme Court held that the institution, fund, trust, endowment or society was exempt from deduction of zakat in terms of the ordinance only if it met two criteria: (a) it is registered as a charitable organisation under the Societies Registration Act, 1860, or as a company under Section 26 of the Companies Act, 1913, or registered or approved as a charitable or social welfare organisation under any other law for the time being in force; and (b) it is approved by the Federal Board of Revenue for the purposes of Section 47 of the Income Tax Ordinance, 1979.

The verdict said the appellant during the hearing candidly conceded that it was not registered as a charitable or social welfare organisation under any relevant law. Yet, it added, the appellant argued that the trust had been created for a public purpose, namely to pay pension to the government employees of the Pakistan Telephone and Telegraph Department which later became the employees of the company and, therefore, it should be exempted from the deduction of zakat.

But the court said it did not find that the appellant was involved in any social welfare or charitable activity, rather it only provided pension to the retiring employees of the erstwhile department.

“In this regard, this court held that the pension was not bounty, but a right acquired in consideration of past service. The right to pension is a well-earned right subject to fulfillment of the conditions provided in the law,” the verdict said.

Published in Dawn, August 8th, 2017