9911796707
TMI Blog1964 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 13,60,963.86nP. has been imposed for the period January 11, 1958, to March 31, 1958, and for the latter year, a tax of Rs. 34,44,430.48 nP. has been levied for the period April 1, 1958, to March 31, 1959. After hearing the parties, the High Court has dismissed the appellant's writ petitions with costs. The appellant then applied for and obtained a certificate from the High Court and it is with the said certificate that these four appeals have been brought to this court. It appears that the appellant was established under the Road Transport Corporations Act, 1950 (64 of 1950) (hereinafter called the Act), by a notification issued by the Andhra Pradesh Government and it has been functioning with effect from the 11th January, 1958. Before the formation of the appellant Corporation, the road transport was a department of the Government of Hyderabad and after integration of Hyderabad with the Andhra Pradesh, it was run by the Government of Andhra Pradesh. During the whole of this period, the road transport was treated as exempt from income-tax. After the appellant Corporation was, however, formed, the income-tax department took the view that the income made by the appellant was lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of assessment has been passed by respondent No.1, is exempt from Union taxation under article 289(1) of the Constitution, and that raises the question about the construction and effect of the provisions of the three clauses of article 289. Let us, therefore, read the said article : " 289. (1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of Government." The learned Advocate-General concedes that the transport activity carried on by the appellant is strictly not incidental to the ordinary functions of Government. It is true that in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents appointed by the Government in that behalf. Whether the department carried on the business or an agent specifically and exclusively appointed for that purpose carries it on, it is the business carried on by the State. The latter part of the clause refers to trade or business carried on on behalf of the Government of a State and it is suggested that this part of the clause is intended to take in trade or business carried on by a Corporation like the appellant which is either State-owned or State-controlled. The appellant Corporation, says the Advocate-General, is undoubtedly State-controlled and he would suggest that it is also owned by the State of Andhra Pradesh. Therefore, the commercial activity carried on by the appellant must be deemed to be an activity carried on on behalf of the State of Andhra Pradesh, and it is with this postulate that the argument reverts to clause (1) of article 289 and urges that the income received by the appellant in respect of commercial activities carried on by it on behalf of the Government of Andhra Pradesh is exempt from Union taxation. In support of this argument, the Advocate-General has relied on a recent decision of this court in Akada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which is essentially governmental in character is irrelevant. In support of his contention, the Advocate-General has relied upon two American decisions : first of these is the decision in the case of Mark Graves, John J. Merrill and John P. Hennessy v. People of the State of New York. In that case Stone J., who spoke for the Supreme Court of America, has observed that when the national government lawfully acts through a corporation which it owns and controls, those activities are governmental functions entitled to whatever tax immunity attaches to those functions when carried on by the government itself through its departments. In other words, this observation shows that the court was inclined to take the view that for the purpose of claiming exemption from taxation, it did not make a material difference whether the operation was carried on by the State departmentally or with the assistance of a corporation. In Clallam County v. United States of America, it was held by the Supreme Court of America that a State cannot tax the property of a corporation organised by the Federal Government to produce material for war purposes, the property of which is conveyed to it by, or boug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an doctrine of the exemption from taxation in regard to State instrumentalities. The said doctrine has been categorically rejected by this court in State of West Bengal v. Union of India. Speaking for the majority of the court, Sinha C. J. observed that "it was futile to attempt the resuscitation of the now exploded doctrine of the immunity of instrumentalities which originating from the observations of Marshall C. J. in M'Culloch v. Maryland, has been decisively rejected by the Privy Council as inapplicable to the interpretation of the respective powers of the States and the Centre under the Canadian and Australian Constitutions (vide Bank of Toronto v. Lambe and Webb v. Outrim) and has practically been given up even in the United States." Thus, it is necessary to revert to the construction of article 289 in deciding whether the appellant is right in claiming immunity from Union taxation. We have already seen that article 289 consists of three clauses, the first clause confers exemption from Union taxation on the property and income of a State. In Special Reference No. 1 of 1962 in In re Sea Customs Act, 1878, Section 20(2), a Special Bench of this court by a majority has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be incidental to the ordinary functions of government, would cease to be governed by clause (2) and would then be exempt from Union taxation. That, broadly stated, appears to be the result of the scheme adopted by the three clauses of article 289. Reading the three clauses together, one consideration emerges beyond all doubt and that is that the property as well as the income in respect of which exemption is claimed under clause (1) must be the property and income of the State, and so, the same question faces us again : is the income derived by the appellant from its transport activities the income of the State ? If a trade or business is carried on by the State departmentally and income is derived from it, there would be no difficulty in holding that the said income is the income of the State. If a trade or business is carried on by a State through its agents appointed exclusively for that purpose, and the agents carry it on entirely on behalf of the State and not on their own account, there would be no difficulty in holding that the income made from such trade or business is the income of the State. But difficulties arise when we are dealing with trade or business carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , are public purposes, but it is not a government department nor do its powers fall within the province of government." These observations tend to show that a trading activity carried on by the corporation is not a trading activity carried on by the State departmentally, nor is it a trading activity carried on by a State through its agents appointed in that behalf. That takes us to the provisions of the Act which will assist us in determining the question as to whether the income in question can legitimately be held to be the income of the State of Andhra Pradesh. The Act was passed to provide for the incorporation and regulation of Road Transport Corporations. Section 3 authorises the State Government to issue a notification in the Official Gazette establishing a Road Transport Corporation for the whole or any part of the State under such name as may be specified in the notification, after taking into account considerations specified by clauses (a), (b) and (c). Section 4 then provides that every corporation shall be a body corporate by the name notified under section 3 having perpetual succession and a common seal, and shall sue or be sued by the said name. Section 5 deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is made as required by sections 28 and 29, the Corporation may utilise such percentage of its net annual profits as may be specified in this behalf by the State Government for the purposes therein specified, and it adds that out of the balance, such amount as may, with the previous approval of the State Government and the Central Government be specified in this behalf by the corporation, may be utilised for financing the expansion programmes of the corporation and the remainder, if any, shall be made over to the State Government for the purpose of road development. Section 31 gives power to the corporation to spend such sums as it thinks fit on objects authorised by the Act. Section 32 deals with the budget, section 33 with accounts and audit; and section 34 provides that the directions issued by the State Government after consultation with the corporation shall be followed by the corporation, and it adds that such directions may include instructions relating to the recruitment, conditions of service and training of its employees, wages to be paid to the employees, reserves to be maintained by it and disposal of its profits or stocks. Under section 38, power is conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 28 which provides for the payment of interest clearly brings out the duality between the corporation on the one hand and the State and Central Governments on the other. Take, for instance, the case of supersession of the corporation authorised by section 38. Section 38(2)(c) emphatically brings out the fact that the property really vests in the corporation, because it provides that during the period of supersession, it shall vest in the State Government. Similarly, section 39(2) which deals with the distribution of assets in case of liquidation, brings out the same feature. It has been urged before us by the Advocate-General that section 30 contemplates that after provision is made as required by sections 28 and 29 and funds are utilised as prescribed by section 30, the balance has to be given to the State Government for the purpose of road development, and that, it is suggested, indicates that income belongs to the State Government. This argument is clearly not well-founded. When we are deciding the question as to whether the income derived by the corporation is the income of the State, the provision made by section 30 for making over to the State Government the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -General contends that these two provisions show that the Act did not contemplate the payment of income-tax. This argument is entirely misconceived. It is hardly necessary for the Act to make a provision that tax, if chargeable, would be paid. In fact, the Companies Act, which deals with companies, does not make such a specific provision, though no one can seriously suggest that there would be repugnancy between the provisions of the Companies Act and the Income-tax Act. All that sections 29 and 30 purport to do is to provide for the administration of the funds vesting in the corporation and their disposal. It is clearly far-fetched, if not fantastic, to suggest that these provisions are inconsistent with the liability to pay tax which is imposed by the Income-tax Act. The Advocate-General, no doubt, attempted to derive some support to his argument by relying on section 43 of the State Financial Corporations Act, 1951 (63 of 1951), as well as section 43 of the Damodar Valley Corporation Act, 1948 (14 of 1948). Section 43 which occurs in both the said Acts provides that the corporation shall be liable to pay any taxes on income levied by the Central Government in the same manner and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
