1983 (3) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of the Andhra Pradesh State Civil Supplies Corporation Ltd. is exempt from Union taxation u/s 289(1) of the Constitution of India.

Summary:

Issue 1: Exemption from Union Taxation u/s 289(1) of the Constitution of India

The primary question in this writ petition is whether the income of the Andhra Pradesh State Civil Supplies Corporation Ltd. (the Corporation) is exempt from Union taxation under Article 289(1) of the Constitution of India. The Corporation, incorporated under the Companies Act, claims immunity from income tax, asserting it is an instrumentality of the State.

The court examined the Corporation's structure and control, noting that the entire share capital is held by the State Government, and the Government exercises deep and pervasive control over its operations. The board of directors and managing director are appointed by the Government, and the Corporation's activities are directed by the Government. These factors satisfy the tests laid down by the Supreme Court to determine whether an entity is an instrumentality of the State.

However, the court clarified that being an instrumentality of the State does not equate to being the State itself. The definition of "State" in Article 12 of the Constitution, used in the context of fundamental rights, is inclusive and broader than the definition in Article 289(1). The court emphasized that an agency or instrumentality of the State is distinct from the State itself.

Under the Income Tax Act, a "company" includes any Indian company or body corporate, and a State undertaking incorporated under the Companies Act is not excluded from this definition. The Corporation's income is distinct from the State's income, as evidenced by Article 6 of the Corporation's articles of association, which states that the income belongs to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, Government of Andhra Pradesh.

The court referred to the Supreme Court's decision in A.P. State Road Transport Corporation v. ITO, which held that the income derived from trading activities by a State-owned corporation is not immune from income tax under Article 289 of the Constitution. The court also cited the Bombay High Court's decision in Vidarbha Housing Board v. ITO, which rejected a similar claim for immunity from Union taxation.

In conclusion, the court held that the Corporation, despite being an instrumentality of the State, is not exempt from Union taxation under Article 289(1) of the Constitution. The writ petition was dismissed, and the claim for immunity from taxation was rejected.