TMI Blog1983 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... evelop, counsel and finance production, purchase, storage, processing, movement, transport, distribution and sale of foodgrains, foodstuffs and any other essential commodities and articles, to establish laboratories for the purpose of ensuring quality control, to train personnel in the technique of quality control, and to provide services and assistance of all kinds for the said purchases including capital credit, means, resources, technical and managerial services, advice and assistance." The other objects incidental or ancillary to the attainment of the main objects, inter alia, include formulation and execution of projects and management and administration of such projects, including shops, establishments or rice mills, flour mills or any other processing or manufacturing facilities which, in the opinion of the company, is essential for the furtherance of the objects of the company. The authorised capital of the company which is fixed at Rs. 3,00,00,000 is divided into 30,000 shares of Rs. 1,000 each under art. 5(a) of the articles of association and under art. 5(b) the capital is entirely contributed by the State Government. In art. 6, it is laid down that no part of the fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self in the matter of its liability to pay tax on the income earned by it; it claims immunity from payment of income-tax. Mr. P. Ramachandra Reddy, the learned counsel appearing for the petitioner, referred to several decisions to contend that this Corporation is an instrumentality of the State. In particular, he relied upon what the Supreme Court stated in Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628, Som Prakash Rekhi v. Union of India [1981] 51 Comp Cas 71 ; AIR 1981 SC 212 and A.P.S.R.T.C.V. ITO [1964] 52 ITR 524; 34 Comp Cas 473 (SC), to contend that this Corporation satisfies all the indicia enunciated by the Supreme Court to hold that it is an instrumentality of the State. Mr. Sreerama Rao, the learned counsel appearing for the Revenue, sought to contend that the Corporation may be dealing in commodities which are essential to the community, the production, supply and distribution of which may be one of the essential duties discharged by a welfare State, but still it is the activity of a company and not that of a State. It is carrying on business like any other company and merely because the business which it is carrying on is a bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government and are under the control of the Government. The board of directors are required to carry out the directions issued by the Government from time to time in the management of the affairs of the company. Even the auditors may be appointed by the Central Government and not by the board of directors in their own discretion. It may not engage in any business other than what is directed to be undertaken by the Government and that too within the main objects enumerated in the memorandum of association. The degree of control exercised by the Government is all pervasive. Though it may not have monopoly status in dealing with commodities essential to the life of the community, the Government has absolute power under the provisions of the Essential Commodities Act and the orders issued thereunder to pass appropriate orders and create a monopoly in such essential commodities. There is no such monopoly at present, but there is the authority vested in the Government to create such a monopoly consistent with the provisions of art. 19 of the Constitution and the State Government which owns the company may discharge these functions through the instrumentality of this Corporation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory of India which are under the control of the Government of India are also included in the definition of " State ". A State owned Corporation incorporated especially by or under a statute, a company registered under the Companies Act or firm registered under the Partnership Act may be legal personalities competent to discharge functions in their own right. As to how far they satisfy the tests enunciated by the Supreme Court in this behalf would depend upon several factors. But none the less these entities or authorities which satisfy these tests by themselves would not be a " State " but only instrumentalities or agencies of the State. An agency or instrumentality of a State is an entity different from the State itself. Agency implies that there is a principal. Instrumentality implies that there is some other authority which uses this person as an instrument through which it acts. There is a clear distinction between the principal and the agent and the State and its instrumentality. For securing the fundamental rights to every citizen, the founding fathers thought it necessary to ensure that the State does not trample upon these rights guaranteed by the Constitution by resorting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fund under the Department of Civil Supplies, Government of Andhra Pradesh. The fact that this amount is said to belong to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, does not establish that it is the income of the Department. The income of the company being distinct from the income of the State, immunity from taxation provided under art. 289(1) of the Constitution is not attracted. In A.P. State Road Transport Corporation v. ITO [1964] 52 ITR 524; 34 Comp Cas 473 (SC), the Supreme Court, dealing with the claim of the A.P.S.R.T.C., constituted under the notification issued by the Government of Andhra Pradesh in 1950, that the income derived from its trading activities is immune from liability of income-tax under art. 289 of the Constitution on the ground that its trading activities are carried out by and on behalf of the State, held that though the majority of the shares are owned by the Andhra Pradesh Government and its activities are controlled by the State, the Corporation has a separate personality of its own. The trading activities of the Corporation and the profit and loss arising therefrom are the profit and loss of the Corporation. The income der ..... X X X X Extracts X X X X X X X X Extracts X X X X
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