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TMI Blog2006 (6) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... rstly we take up the appeal and cross objection filed by the assessee. 3. The relevant facts are that the assessee is a company incorporated under the Companies Act, 1956 and is a Corporation of the U.P. Govern-ment. It is engaged in construction of Government building. Six of the shareholders/subscribers to the Memorandum and Articles of Association were senior Government officials. The entire subscribed/paid up share capital was paid by the State Government. The shareholders of the assessee-corporation are senior officials and they are stated to be benamidars of the State Government, who, on their transfer from the assessee, automatically transfers the shares to the new officers. The dividends for the shares are paid to the State Government. The Chairman, Managing Director and Directors of the assessee are completely bound by the directions of the State Government on question of policy etc. Therefore, it is only the State Government which is acting/working through the agency of the assessee-corporation. It was contended that the assessee-corporation is a State and claimed that its income is exempted from Income-tax Act under Article 289 of the Constitution of India. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Government might give in writing to them from time to time. He submitted that the State Government is the regulator in regard to functioning of the assessee-corporation. He submitted that the assessee-corporation has been incorporated to carry out business or its related activities for and on behalf of the State Government. He submitted that merely because an independent personality has been incorporated under the Companies Act to carry out business on behalf of the State Government could not mean that it seizes to be State and it can be denied exemption of its income from Article 289 of the Constitution of India. During the course of hearing, attention of the ld. authorized representative of the assessee was drawn to the decision of the jurisdictional High Court in the case of U.P. Forest Corporation [Writ petition No. 4424 of 1987] wherein their Lordships have held that the U.P. Forest Corporation could not claim exemption under Article 289 of the Constitution of India as exemption being given to the State and not to extended arm of the State. It may be stated that the U.P. Forest Corporation was constituted under the U.P. Forest Corporation Act and in the said case it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered Article 289 of the Constitution of India as also Article 12 of the Constitution of India. We have also perused Memorandum and Articles of Association of the assessee-corporation. There is no dispute to the fact that the assessee-corporation has been incorporated under the Companies Act, 1956 and all the shareholders and subscribers to the Memorandum of Association are Senior Government Officials of the U.P. State Government. We also agree with the ld. authorized representative of the assessee that the initial subscribed and paid up capital of the assessee-corporation and also subsequent enhancement till assessment year under consideration was paid by the State Government only. We also agree with the ld. authorized representative of the assessee that the Chairman, Managing Director and Board of Directors of the assessee-corporation are appointed/constituted by the State Government. However, it is relevant to state that provisions of the Companies Act, 1956 are applicable in regard to their appointment and as such the State Government has to comply with the provisions of the Companies Act. We also agree with the ld. authorized representative of the assessee that the Board of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-article (2) authorizes Parliament to impose tax in respect of a trade or business carried on by or on behalf of the State Government. Further, clause ( 3 ) of the said Article 289 of the Constitution of India empowers Parliament to declare by law that any of trade or business would be taken out of the purview of clause ( 2 ) and be restored to the area covered by clause ( 1 ) by declaring that trade or business is incidental to the ordinary function of the Government. In other words, clause ( 3 ) of Article 289 is an exemption to the exemption prescribed by clause ( 2 ) of Article 289. Thus, Article 289(3) contemplates that a trade or business may be incidental to the ordinary function of Government and when the State engages in any such trade or business, the income or profit therefrom is exempted from taxation. By that, it means that if Parliament by law declares any such trade or business to be incidental to the ordinary functions of Government, it shall not be liable to be taxed by the union. Therefore, unless a trade or business is incidental to the ordinary functions of Government or has been declared to be so by the Parliament, the income of that trade or business will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pradesh Government could claim immunity from liability to Income-tax on its income derived from its trading activities under Article 289 of the Constitution of India on the ground that its trade activities were carried on by or on behalf of the Government of State. It was held by their Lordships of the Apex Court that the income derived by the Corporation from its activities could not be said to be income of the Andhra Pradesh State under Article 289 of the Constitution, as the State Corporation had a separate personality of its own, the trading activities are the trading activities of the Corporation and the profits and loss arising therefrom are profit and loss of the Corporation. We are of the considered view that the above cited decision of the Hon ble Allahabad High Court in the case of U.P. Forest Corporation ( supra ) and the decision of the Apex Court in the case of Andhra Pradesh State Road Transport Corpn. ( supra ) surely apply to the case of the assessee before us. The Corporation when it is assessed to tax, it pays tax of its own liability and not on behalf of the agent or its shareholders. Therefore, the assessee-corporation could not claim immunity from taxatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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