TMI Blog1986 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... "). Prior to the establishment of the respondent-corporation, road transport in the State of Andhra Pradesh was a department of the Government, being run by the Government of Hyderabad prior to the formation of the State of Andhra and thereafter by the Government of Andhra Pradesh. Daring the whole of this period, the income made from road transport was exempt from income-tax. After the respondent-corporation was formed, the Income-tax Department took the view that the income of the respondent-corporation was liable to income-tax and assessed the respondent-corporation to income-tax for the assessment years 1958-59 and 1959-60. The respondent-corporation thereupon filed a writ petition in the Andhra Pradesh High Court contending that the property owned by it and the income earned by it were the property and income of a State exempted from Union taxation under article 289(1) of the Constitution. This contention was rejected and the writ petitions were dismissed by the High Court. Appeals filed by the respondent corporation in this court were also dismissed. The judgment of this court is reported as Andhra Pradesh State Road Transport Corporation v. ITO [1964] 52 ITR 524. After refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration, the Tribunal, by a common order made in all the three appeals before it, stated a case and referred the following question of law to the High Court: " Whether, on the facts and in the circumstances of the case, the assessee's income for the assessment years 1960-61 and 1961-62 was exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act, 1922, and for the assessment year 1962-63 under section II of the Income-tax Act, 1961 ? " The High Court answered the above question in favour of the respondent-corporation and against the Department and on an application made by the appellant, the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, granted under section 261 of the 1961 Act a certificate of fitness for appeal to this court. Section 4(3)(i) of the 1922 Act, omitting what is not relevant for our purpose, provided as follows: " (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them : (i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o overcoming the decision of the Privy Council in the Tribune's case [1939] 7 ITR 415 (PC), where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character even though the activity of publication of the newspaper was carried on on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit-making as its predominant object, but even so its was held by the judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of 'charitable purpose'. The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch must not involve the carrying on of any activity for profit. And, applying these tests, trading bodies like Andhra Chamber of Commerce and Surat Art Silk Cloth Manufacturers Association have been held to be institutions constituted with a view to advance an object of general public utility because their primary or dominant purpose was to promote and protect industry, trade and commerce either generally or in certain commodities, even though some benefit through some of their activities did accrue to their members which was regarded as incidental and this court held that the income derived from diverse sources by these institutions (rental income from property in the case of Andhra Chamber of Commerce and income from annual subscriptions collected from its members and commission of a certain percentage of the value of licences for import of foreign yarn and quotas for purchase of indigenous yarn obtained by the assessee from its members in the case of Surat Art Silk Cloth Manufacturers Association) was exempt from tax liability under section I of the Act. " It was contended, on behalf of the appellant, that the respondent-corporation was not entitled to any exemption as claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be agreed to by both the Governments. Under sub-section (2) of section 23, where the capital of a road transport corporation is not provided by the Central Government or the State Government, such corporation may raise such capital by the issue of shares as may be authorised in that behalf by the State Government. Under sub-section (3) of section 23, the shares are to be subscribed by the Central Government, the State Government and other parties including persons whose undertakings have been acquired by the corporation and under sub-section (6), a corporation may, at any time, with the previous approval of the State Government, redeem the shares issued to the other parties in such manner as may be prescribed. Under section 24, if after the issue of such shares, the corporation requires additional capital, it may, with the previous approval of the State Government, raise such additional capital by the issue of new shares and the provisions of section 23 apply to such issue. Under section 25, the shares of a road transport corporation are to be guaranteed by the State Government both as to the payment of the principal and the annual dividend at such minimum rate as may be fixed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce shall be made over to the State Government for the purpose of road development" by the Road Transport Corporations (Amendment) Act, 1959 (Act No. 28 of 1959). It was not disputed that the object of the activity carried on by the respondent-corporation was one of general public utility. What was submitted was that such activity was carried on for profit as shown by section 22 under which the respondent-corporation was enjoined to act on business principles. It was further submitted that the respondent-corporation could issue shares even to the members of the public and that dividend would be paid to the shareholders and, therefore, profit would be made from the activity of the respondent-corporation by its owners, namely, the shareholders. We are unable to accept these submissions. The submission founded upon section 22 is based upon a misunderstanding of what that section provides. A road transport corporation cannot be expected or be required to run at a loss. It is not established for the purpose of subsidising the public in matters of transportation of passengers and goods. The objects for establishing a road transport corporation are those set out in section 3 of the RT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due as a debt. That the activity of the respondent-corporation is not carried on with the object of making profit is made abundantly clear by the provisions of section 30 under which, prior to the amendment of that section by the Amendment Act of 1959, the balance of income left, after utilisation of the net profits for the purpose set out in section 30, was to be made over to the State Government for the purpose of road development and after the Amendment Act of 1959 is to be utilised for financing the expansion programmes of the respondent-corporation and the remainder, if any, is to be made over to the State Government for the purpose of road development. As pointed out by this court in Andhra Pradesh Road Transport Corporation v. ITO [1964] 52 ITR 524 (SC), the amount handed over to the State Government does not become a part of the general revenues of the State but is impressed with an obligation that it should be utilised only for the purpose for which it is entrusted, namely, road development. It is not and cannot be, disputed that road development is an object of general public utility. For the reasons given above., we hold that the respondent-corporation was entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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