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TMI Blog1986 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Andhra and thereafter by the Government of Andhra Pradesh. Daring the whole of this period, the income made from road transport was exempt from income-tax. After the respondent-corporation was formed, the Income-tax Department took the view that the income of the respondent-corporation was liable to income-tax and assessed the respondent-corporation to income-tax for the assessment years 1958-59 and 1959-60. The respondent-corporation thereupon filed a writ petition in the Andhra Pradesh High Court contending that the property owned by it and the income earned by it were the property and income of a State exempted from Union taxation under article 289(1) of the Constitution. This contention was rejected and the writ petitions were dismissed by the High Court. Appeals filed by the respondent corporation in this court were also dismissed. The judgment of this court is reported as Andhra Pradesh State Road Transport Corporation v. ITO [1964] 52 ITR 524. After referring to the various provisions of the RTC Act, this court held (p. 535) : " Far from making any provision which would make the income of the corporation the income of the State, all the relevant provisions emphatic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the assessee's income for the assessment years 1960-61 and 1961-62 was exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act, 1922, and for the assessment year 1962-63 under section II of the Income-tax Act, 1961 ? " The High Court answered the above question in favour of the respondent-corporation and against the Department and on an application made by the appellant, the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, granted under section 261 of the 1961 Act a certificate of fitness for appeal to this court. Section 4(3)(i) of the 1922 Act, omitting what is not relevant for our purpose, provided as follows: " (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them : (i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes or relate to anything done within the taxable territories, and in the case of property so held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of general public utility and hence charitable in character even though the activity of publication of the newspaper was carried on on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit-making as its predominant object, but even so its was held by the judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of 'charitable purpose'. The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. Bat where the predominant object of the activity is to carry out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a view to advance an object of general public utility because their primary or dominant purpose was to promote and protect industry, trade and commerce either generally or in certain commodities, even though some benefit through some of their activities did accrue to their members which was regarded as incidental and this court held that the income derived from diverse sources by these institutions (rental income from property in the case of Andhra Chamber of Commerce and income from annual subscriptions collected from its members and commission of a certain percentage of the value of licences for import of foreign yarn and quotas for purchase of indigenous yarn obtained by the assessee from its members in the case of Surat Art Silk Cloth Manufacturers Association) was exempt from tax liability under section I of the Act. " It was contended, on behalf of the appellant, that the respondent-corporation was not entitled to any exemption as claimed by it, because its activities were carried on for profit as shown by sections 22, 23 and 28 of the RTC Act. In fairness to learned counsel for the appellant, it must be stated that in view of the judgment of the judicial Committee of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares as may be authorised in that behalf by the State Government. Under sub-section (3) of section 23, the shares are to be subscribed by the Central Government, the State Government and other parties including persons whose undertakings have been acquired by the corporation and under sub-section (6), a corporation may, at any time, with the previous approval of the State Government, redeem the shares issued to the other parties in such manner as may be prescribed. Under section 24, if after the issue of such shares, the corporation requires additional capital, it may, with the previous approval of the State Government, raise such additional capital by the issue of new shares and the provisions of section 23 apply to such issue. Under section 25, the shares of a road transport corporation are to be guaranteed by the State Government both as to the payment of the principal and the annual dividend at such minimum rate as may be fixed by the State Government by a notification published in the Official Gazette at the time of issuing the shares. Section 26 authorises a road transport corporation, with the previous approval of the State Government, to borrow money in the open market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation was one of general public utility. What was submitted was that such activity was carried on for profit as shown by section 22 under which the respondent-corporation was enjoined to act on business principles. It was further submitted that the respondent-corporation could issue shares even to the members of the public and that dividend would be paid to the shareholders and, therefore, profit would be made from the activity of the respondent-corporation by its owners, namely, the shareholders. We are unable to accept these submissions. The submission founded upon section 22 is based upon a misunderstanding of what that section provides. A road transport corporation cannot be expected or be required to run at a loss. It is not established for the purpose of subsidising the public in matters of transportation of passengers and goods. The objects for establishing a road transport corporation are those set out in section 3 of the RTC Act which we have already reproduced above. Section 18 shows that it is the duty of a road transport corporation to provide, secure and promote the provision of an efficient, adequate, economical and properly co-ordinated system of road transport ..... X X X X Extracts X X X X X X X X Extracts X X X X
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