The Lahore High Court has ruled that profit making subsidiaries of charitable trusts are not automatically exempt from Zakat, in a significant judgment involving Foundation University Islamabad. The decision clarifies the scope of the Zakat and Ushr Ordinance and reinforces mandatory compliance for revenue generating institutions.
The case was filed by the university, which is sponsored by the Fauji Foundation. The institution argued that its charitable background entitled it to exemption from Zakat deductions, particularly on financial instruments such as National Saving Certificates. However, the court examined the university’s structure and financial model before reaching its conclusion.
In its ruling, the court observed that Foundation University operates as an independent corporate entity with administrative and financial autonomy. It generates revenue through tuition fees and other academic services. On this basis, the bench held that a profit oriented operational model cannot claim blanket immunity from Zakat simply due to affiliation with a charitable trust.
The judgment stressed that registration as a charitable organization does not itself ensure exemption under the law. Instead, the nature of activities and financial operations must be assessed. If an entity functions commercially and earns profits, it falls within the ambit of compulsory Zakat deductions.
Legal experts believe the verdict may have wider implications for other private subsidiaries linked to welfare foundations. Institutions operating under charitable umbrellas but running on self sustaining business models may now need to review their financial compliance with Zakat regulations.
