1963 (4) TMI 89 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of the Pepsu Road Transport Corporation is exempt from Union tax under Article 289 of the Constitution.
2. Whether the Pepsu Road Transport Corporation is a taxable entity.
3. Whether the Pepsu Road Transport Corporation qualifies as a charitable institution under Section 4(3)(i) of the Income-tax Act.
4. Whether the Pepsu Road Transport Corporation can be considered a local authority within the meaning of Section 4(3)(i) of the Income-tax Act.

Detailed Analysis:

1. Exemption under Article 289 of the Constitution:
The petitioner contended that the income of the corporation is the income of the Punjab State and hence exempt from Union tax under Article 289 of the Constitution. The counsel relied on Article 289(1), which exempts the property and income of a State from Union taxation unless Parliament provides otherwise. The petitioner argued that the corporation is an agent of the State, citing various legal precedents, including Rai Sahib Ram Jawaya Kapur v. State of Punjab and Montreal v. Montreal Locomotive Works Ltd. However, the court concluded that the corporation is not merely an agent of the State but a separate legal entity with its own personality. The court emphasized that the corporation has perpetual succession, can sue and be sued, and is bound by all laws in force, including the Income-tax Act. Therefore, the income of the corporation is not exempt under Article 289.

2. Taxable Entity:
The petitioner argued that it is neither an association of persons nor an individual and thus cannot be subjected to the impugned levy. The court referred to the Andhra Pradesh S.R.T. Corporation case and other legal precedents to conclude that the corporation is a taxable unit. The court held that the term "individual" in Section 3 of the Income-tax Act has a wider meaning and includes entities like the petitioner. The court also considered the possibility of the petitioner being an "association of persons" or a "company" and concluded that the petitioner can reasonably be described as an "individual" and is therefore a taxable unit.

3. Charitable Institution under Section 4(3)(i) of the Income-tax Act:
The petitioner claimed to be a charitable institution established by the State Government for providing utility service to the public, trade, and industry. The court examined Section 30 of the Road Transport Corporations Act, which provides for the disposal of net profits for the provision of amenities to passengers, welfare of labor, and road development. However, the court concluded that the corporation is not established for any religious or charitable purpose. The court emphasized that exemptions from taxes should be determined by the income-tax authorities and not by the writ court. The court also noted that the burden of proving the claim for exemption lies on the assessee and that exemptions should be construed liberally in favor of the revenue.

4. Local Authority under Section 4(3)(i) of the Income-tax Act:
The petitioner half-heartedly suggested that it is a local authority, but this contention was not persisted in. The court did not consider this argument in detail and dismissed it.

Conclusion:
The petition was dismissed, with the court holding that the Pepsu Road Transport Corporation is a taxable entity and not exempt from Union tax under Article 289 of the Constitution. The court also concluded that the corporation does not qualify as a charitable institution under Section 4(3)(i) of the Income-tax Act and is not a local authority within the meaning of the same section. The court emphasized that claims for exemption should be determined by the income-tax authorities and not by the writ court.