Andhra Pradesh State Road Transport Corporation v. The Income-Tax Officer And Anr

Section: CONCLUSION ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION THE INCOME-TAX OFFICER AND ANR. [P. B. GAJENDRAGADKAR, C. J., K. N. WANCHOO, J.C. SHAH, N. RAJAGOPALA AYYANGAR ANDS. M. SIKRI JJ.] Income-tax-Income of State Road Transport Corporation whether income of the State-Whether exempt-Constitution of India, Art. 289-Income-tax Act, 1922 (11 of 1922), s. 22. The Income-tax Officer (respondent No. 1) served a notice under s. 22 of the Income-tax Act on the appellant. Upon the receipt of the notice, the appellant appeared before the Income-tax Officer. The appellant pleaded before the Income-tax Officer that it did not fall under any of the five categories of assessees under s. 3 of the Income-tax Act. The appellant also raised the contention that it was a local authority exempt from income-tax. All these contentions were rejected by respondent No. 1 with the result that the impugned orders of assessment came to be passed. The appellant filed Writ Petitions before the High Court in which it challenged the impugned orders of assessment passed by respondent No. 1. In its Writ Petitions, the appellant claimed an order, writ or other appropriate direction quashing the assess-ment orders passed by respondent No. 1. The High Court dismiss.. ed these \vrit petitions. The High Court held that the appellant could not claim the- exemption under Art. 289(1) because it was not a state-owned Corporation. The High Court grante-d a certi-ficate under Art. 133 of the Constitution and hence the appeal. Held: (i) Art. 289 of the Constitution cons'sts of three clauses. The first clause confers exemption from union taxation on the property and income of a State. Clause (2) then provides that the income from trade or busi-ness carried on bv the Government of a State or on its behalf which would not have been taxable under cl. (1), can be taxed, provided a I aw is made by Parliament in that behalf. In other words cl. (2) is an exception to cl. (1 ). Clause (3) then empowers Parliament to declare by law that any trade or business would be taken out of the purview of cl. (2) and restored to the area covered by cl. (1) by declaring that the said trade or business is incidental to the ordinarv func-tions of Government. In other words, cl. (3) is an exception to the exception prescribed by cl. (2). (ii) A trading activity carried on by the corporation (ap.J)el-Iant) is not a trading activity carried on by the State department-~lly, nor is it a trading activity carried on by a State through its agents appointe-d in that behalf because according to statute the Corporation has a personalitv of its own and this personality i• distinct from that of the State or other shareholders. · Ali the relevant provisions of the impugned Act also emphati-cally bring out the separate personality of the Corporation. Sec-tion 30 of the Act also does not suggest that the income of the March 5 Corporation is the income of the State. All that s. 30 requires is Andhra Pradesh that a part of that income may be entrusted to the State Gov-State Road Tra"8porternment for a specific purpose of road development. Therefore, Oorporation the income derived by the appellant from its trading activity Th 1 v. T cannot be said to be the income of the State either under cl (1) o.ffic,;".':J.'An:" or cl. (2) of Art. 289. The American doctrine of the immunity of State agencies or instrumentalities from Federal taxation has no application to the present case. Akadasi Padhan v. State of Orissa [1963) Supp. 2 S.C.R. 691, distinguished. Mark Graves, John J. Merrill and John P. Hennessy v. People of the State of New York Upon the Relation of James B.O'ke~fe, 83 Law. Ed. 927 and Clallan County v. United States of America, 68 Law Ed. 328, no application. State of West Bengal v. Union of India [1964) 1 S.C.R. 371, relied on. M'Culloch v. Maryland, (1819) 4 Wheat 316, Bank of Toronto v. Lambe "(1887) 12 A.C. 575 and Webb v. Outrim [1907) A.C. 81, referred to. Tamlin v. Hansaford, (1950] K.B. 18, relied on. (iii) It is hardly necessary fur 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. There is no repugnancy between the charg-ing section of the Income-tax Act and ss. 29 and 30 of the Act. All that ss. 29 and 30 of the impugned Act purport to do is to provide for the administration of the funds vesting in the Corporation and their disposal. These provisions are not inconsistent with the liability to pay tax which is imposed by the Income-tax Act. C!vrL APPELLATE JURISDICTION: Civil Appeals Nos.475-478 of 1963. Appeal from the order dated July 14, 1961 of the Andhra Pradesh High Court in Writ Petition Nos. 516 to 519 of 1960. D. Narsaraju, Advocate-General, Andhra Pradesh, P. R. Ramchandra Rao and T: V. R. Tatachari, for the appellant (in all the appeals). K. N. Rajagopala Sastri, Gopal Singh and R. N. Sachthey, for the respondents (in all the appeals). Rajeshwari Prasad and S. P. Varma, for lhtervener No. 1 (in all the appeals). B. Sen, S. C. Bose and P. K. Bose, for Intervener No. 2 (in all the appeals). , M. C. Setalvad, S. C. Bose and P. K. Bose, for Intervener No. 3 (in all the appeals). March 5, 1964. The judgment of the Court was delivered 1964 by-- Andhra Praduh Road Cor~llan GAJENDRAGADKAR, C.J .-These four appeals arise from four State Road Tr~nsporl writ petitions filed by the appellant, the Andhra Pradesh State Cor~llan Road Transport Corporation, in the High Court of Andhra The Incom< Tax . Pradesh against the Income-tax Officer, and the Appellate Officer and Anr. ~ Assistant Commissioner of Income-tax, Hyderabad, respon- Gajendragadl«w, c.J. dents l and 2 respectively, in which it claimed a writ of pro hi-bition restraining them from collecting any tax, or taking any proceedings under the Indian Income Tax Act against them. In its writ petitions, the appellant further claimed an order, writ, or other appropriate direction quashing the assessment orders passed by respondent No. l on the 29th February, 1960. for the years 1958-59 and 1959-60. For the .first year, a tax of Rs. 13,60,963.86 nP. has been imposed for the period 11-1-1958 to the 31-3-1958, and for the latter year, a tax of Rs. 34,44,430.48 nP. has been levied for the period 1-4-1958 to 31-3-1959. After hearing the parties, the High Court has dis-missed 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. 478/ 1963 It appears that the appellant was established under the Road Transport Corporations Act, 1950 (No. 64 of 1950) (hereinafter called the Act) by a notification issued by the Andhra Pradesh Government arid it has been functioning with effect from the 11th January, 1958. Before the formation of the appellant Corporation, the road transport was a depart-ment of the Government of Hyderabad and after integration of Hyderabad with 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 liable to tax, and so, a notice under s. 22 of the Income-Tax Act was served on the appellant on the 29th January, 1959. In pursuance of the proceedings which were taken after service of the notice, the impugned orders of assessment were passed. Before the Income-tax Officer, it was urged by the appellant that since the appellant was an inde-~ndent body carrying on the business of road transport, it did not fall under any of the five categories of assessees under s. 3 of the T ncome-tax Act; it was neither an individual nor a Hindu undivided family, nor a firm, nor a company, ~or an association of persons, and as it was outside the said five cate-gories of assessees, no tax could be levied against it. It was further argued that the net income of the appellant ultimately goes to the State of Andhra Pradesh under s. 30 of the Act a.nd as such it was immune from Union taxation unde; 1964 Art. 289 of the Constitution. Yet, another contention was raised Andhra Prwleah in support of the plea that the noice issued by respondent No. 1 State Road T~"'P"'' was invalid, and that was that the appellant was a local autho-Corporation rity exempt from income-tax, All these contentions were re-T1" 1.,;;,., Tar jected by respondent No. 1, with the result that the impugned Officer and Anr. orders of assessment came to be passed. It is the validity of Gajendraqwlkar, c.J. these orders that the appellant challenged before the Andhra · Pradesh High Court. The High Court has held that the appellant is not a State-owned Corporation and that it is not carrying on business on behalf of the Government. It has also observed that the trade or business which the appellant was carrying on was not inci-dental to the ordinary functions of government, and since no declaration had been made to that effect under Art. 289(3), the appellant could not rely oh Art. 289(1). The contention that the appellant was a local authority which was urged before the High Court was rejected, and the argument that the charg-ing section of the Income-tax Act was repugnant with the matedal provisions of the Act, such as sections 28, 29 and 30, was also held to be without any substance by the High Court. Thus, since none of the arguments urged by the appellant be-fore the High Court was accepted, the writ petitions filed by it were dismissed. The main point urged before us by the learned Advocate-General of Andhra Pradesh on b~half of the appellant is that the income in respect of which th~ impugned order of assess· ment has been passed by respondent No. I. is exempt from Union taxation under Art. 289(]) of the Constitution, and that raises the question about the construction and effect df the provisions of the three clauses of Art. 289. Let us. thirefore. / read the said article: · "289. (I) The property and income of a State shall be exempt from Union taxation. (2! Nothing in clause (I) 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 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 trans-1964 port activity carried on by the appellant is strictly not inci-Andhra Pradesh dental to the ordinary functions of government. It is true that State Road T~118pQt1 in a modern democratic Welfare State, Government has to c ... poration undertake several economic 'activities some of which are trade The 1:;,,., T"" activities, while others are commercial activities, because the Officer and Anr. pursuit of the welfare policies inevitably .req.uires that Gove~n- Gajendragadkar, c.J. ment should help the process of economic IIllprovement of its citizens. However desirable these socio-economic activities may be and however legitimate may be the attempt of the State . Government to undertake them, there is no denying the fact that the ordinary functions of the Government to which clause (3) of Art. 289 refers must be distin$uished from these socio-economic activities. The Advocate-General, however, urges that though the trade activities of the appellant may thus be distinguishable from the ordinary functions of government, they are nevertheless included in Art. 289(1) and income deriv-ed by the appellant from the said activities falls within the protection of Art. 289(1). This argument proceeds on the assumption that clause (2) • of Art. 289 is an exception or proviso to clause (!) and as such, whatever is included in clause (2) must be deemed to have been included also in clause (I); otherwise, the proviso cannot be logically explained. It is because the trading or commercia:I activities of the government of a State to which the said clause refers were originally included in clause (l) that it became necessary to provide by clause (2) that the said trading or com-mercial activities carried op by the Government of a State would not claim the benefit of exemption prescribed by clause (1). That is how the Advocate-General seekS to include trading or business activities mentioned in cl. (2) in cl. (I) itself. Logl-cally, no exception can be taken to this approach. The next stage in the argument urged by the Advocate-General is that clause (2) is wide enough to include the trading activities carried on by the appellant and as a result of the width of its scope, the appellant's activities can be treated as the commercial activities carried on by the Government of Andhra Pradesh itself. It will be noticed that clause (2) refers to a trade or business of any kind carried on by or on behalf of. the Government of a State. The argument is that the first part of the clause refers to the trade or business carried on by the Government and that means, carried on by the Government either departmentally or by agents appointed by the Govern-ment 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 22 SUPREME COURT REPORTS [1964]