RAWALPINDI: In a landmark judgment, the Lahore High Court (LHC) has ruled that profit-making subsidiaries of charitable trusts are not exempt from Zakat deduction. The LHC’s Rawalpindi Bench gave this ruling while dismissing a petition filed by Fauji Foundation’s educational entity Foundation University . The plea challenged the deduction of Zakat from its investments in National Saving Certificates. The bench, led by Justice Jawad Hassan, held that the university does not qualify for exemption as a charitable institution under the Zakat and Ushr Ordinance 1980 . Justice Hassan ruled that the university, despite being established under the Foundation University Ordinance 2002 and sponsored by the Fauji Foundation, functions as an independent body corporate with financial autonomy, making it liable to compulsory Zakat deduction. The university had approached the court through counsel Sayyid Murtaza Ali Pirzada, seeking to set aside a letter issued by the Ministry of Religious Affairs on April 24, 2018, which held the institution liable to pay Zakat on its investments. The petitioner argued that as the university was sponsored by Fauji Foundation — a trust established under the Charitable Endowment Act 1890 — and reinvested its surplus funds to provide quality education, it should be exempt from Zakat. Assistant Attorney General (AAG) Barrister Zain Mansoor, who appeared on the state’s behalf, opposed the petition, contending that the Zakat and Ushr Ordinance contains a comprehensive mechanism defining assets and institutions liable to Zakat. He argued that the university’s statutory status neither exempts it from the operation of the law nor alters the character of its accounts attracting Zakat. The court observed that Section 3(2) of the Foundation University Ordinance 2002 explicitly defines the university as a “body corporate” with perpetual succession and power to acquire, hold and dispose of property. Justice Hassan noted that such attributes establish the university as an independent juristic person, separate from the federal or provincial government. “The preamble to the statute situates the establishment of the petitioner university within the broader framework of national interest, but that alone does not confer charitable status for fiscal purposes,” the judgment stated. The court further examined the university’s powers under its governing statute, which include the authority to enter into agreements, charge fees, create posts, appoint staff and invest funds. “The university operates on a revenue-generating model rather than a pure charitable basis. Though chartered and sponsored by Fauji Foundation, the record of the Higher Education Commission unequivocally classifies it as a private sector university,” the judgment noted. Referring to Section 1(2) of the Zakat Ordinance, the court held that any company, association of persons, or body of individuals — whether incorporated or not — with majority shares owned by Muslim citizens of Pakistan, is liable to Zakat. The court further observed that the university, as a body corporate, squarely falls within the definition of “person” under the ordinance. The judgment extensively relied on Supreme Court precedents, including Liaqat National Hospital versus Province of Sindh, which held that registration under a charitable law does not automatically confer tax exemption, and institutions charging fees while providing some charity operate with a duality of function, irreconcilable with exclusivity demanded by fiscal statutes. The court also considered Pakistan Telecommunication Employees Trust versus Federation of Pakistan , which laid down a two-limbed test requiring registration as a charitable organisation and approval by revenue authorities for exemption. Justice Hassan noted that despite repeated directions issued on Dec 8, 2020, Feb 17, 2022, April 4, 2024, and Nov 19, 2024, the university failed to place on record any document establishing its status as a charitable institution or pointing to any specific provision granting exemption from Zakat liability. The court also rejected the petitioner’s reliance on Administrator General Zakat versus Pakistan Insurance Corporation, distinguishing it on facts as that case involved a statutory corporation wholly owned by the federal government, unlike Foundation University, which operates independently. Amicus Curiae Nisar A Mujahid, appointed by the court to assist in the matter, submitted that the university does not qualify as a charitable institution under the ordinance, as educational advancement alone does not confer charitable status without fulfilment of statutory conditions. “The petitioner university has failed to demonstrate any illegality in the impugned letter warranting interference by this court in its constitutional jurisdiction,” the judgment concluded, dismissing the petition with no order as to costs. The verdict upholds the compulsory Zakat deduction from the university’s investments in National Saving Certificates, affirming the position taken by the Ministry of Religious Affairs.