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TMI Blog1963 (4) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... lishing the petitioner-corporation are stated to have been laid down in section 3 of the Act and its general duty in section 18. The petitioner took over with effect from October 16, 1956, the undertaking from the Pepsu Roadways which had been operating departmentally the road transport services under the policy of nationalisation of road transport followed by the Pepsu Government. The terms and conditions of this transfer are contained in annexure D . On taking over this undertaking, the capital investment was raised to ₹ 25 lakhs, out of which ₹ 5 lakhs was contributed by the Northern Railway. The Income- tax Officer, respondent No. 1, served on the petitioner-corporation notices for submission of returns under sections 22(2) and 38 of the Income-tax Act for the years 1957-58 to 1960-61. The jurisdiction of respondent No. 1 to assess the petitioner-corporation was questioned by the latter, but the returns for the three years 1957-58 to 1959-60 were forwarded under protest in pursuance of the notices. The Income-tax Officer did not agree with the objection and made assessment under the Income-tax Act for the year 1957-58 which is the subject-matter of challenge in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and control of the Crown, a new plant for the production of war material, the title to be in the Crown and provision was made for possible repurchase by the corporation of its property. By a further contract the corporation agreed to manage and operate the plant for a fee in respect of each item produced, provision being made whereby the corporation in incurring costs and expenses in carrying out its duties would not have to resort to its own funds. In each contract the corporation's obligations were referred to as for and on behalf of the Government and as its agent . On these facts it was held that on a proper construction of the contracts (under which it appeared that all land, plant and materials involved in the operation of the factory belonged to the Crown and that the corporation took no risk of loss and was under no liability save for bad faith or wanton neglect, and that the fees it received were for management services), the corporation was an agent of the Crown rather than an independent contractor and hence was not assessable either for occupant or business taxes. Now the position there was clearly different from the position in the case before us. Reference by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transport business. The following three cases from Canada were also cited but they are also of little practical assistance in construing the statute with which we are concerned in the case in hand: 1. Recorder's Court v. Canadian Broadcasting Corporation [1941] 2 D.L.R. 551 2. Halifax v. Halifax Harbour Commissioners [1935] 1 D.L.R. 657and 3. Regina Industries Limited v. The City of Regina 47] Canada Law Reports 345 The Canadian Broadcasting Corporation's case [1941] 2 D.L.R. 551 it may, however, be stated also contains a dissenting judgment by one of the three learned judges constituting the Bench. After citing these decisions, the petitioner's learned counsel took us through the various provisions of the Road Transport Corporations Act (Act 64 of 1950). This Act was brought on the statute book in December, 1950, in order to provide for the incorporation and regulation of road transport corporations. Section 3 which provides for the establishment of road transport corporations in the States lays down that the State Government having regard to--(a) the advantages offered to the public, trade and industry by the development of road transport; (b) the desirab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointment of committees and delegation of functions. Under section 14 every corporation has to have a chief executive officer or general manager and a chief accounts officer appointed by the State Government. Other officers and servants may, however, be appointed by the corporation. The chief executive officer or general manager is, as provided by section 15, the executive head of the corporation and all other officers and servants of the corporation are subordinate to him. No person having any share or interest in any contract by or on behalf of a corporation or in any other transport undertaking can become or remain an officer or servant of the corporation (vide section 16). The State Government is also empowered by section 17 after ascertaining the views of the corporation to constitute by notification one or more advisory councils consisting of such number of persons on such terms and for the purpose of advising the corporation on such matters as may be specified in the notification. Sections 18 to 21 fall under Chapter III which deals with the power and duties of corporations. Section 18 lays down the general duties of corporations according to which a corporation has a gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment, the Central Government and other parties is to be determined by the State Government in consultation with the Central Government; the approval of shares is controlled by the rules made under the Act and the corporation can with the previous approval of the State Government redeem the shares of parties other than the two Governments. Additional capital can also be similarly raised with the previous sanction of the State Government: vide section 24. Under section 25 the shares of a corporation are to be guaranteed by the State Government as to the payment of principal and annual dividend at the minimum rate of fixed by it. Borrowing power is conferred by section 26 but to raise working capital, previous approval of the State Government is required whereas for expenditure of a capital nature previous approval of the Central Government is also necessary. Section 27 creates a fund of the corporation to which all receipts of and payments to the corporation must go and the money belonging to that fund is to be deposited in the Reserve Bank of India or with its agents or invested in the securities approval by the State Government. Section 28 provides for payment of interest on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General of India to be annually audited by the latter or his nominee just like Government accounts. Accounts certified by the officer auditing the same with his report is to be laid before the State Legislature. Chapter V contains miscellaneous provisions and section 34 with which this chapter beings provides for directions by the State Government after consulting the corporation to be obeyed by the latter in the performance of its statutory duties and under section 35 every corporation has to furnish returns and statistics, etc., to the State Government. The Corporation is also required to submit annual report of its functions, including on its policy and programme, to the Central and State Governments and the latter is enjoined to lay this report before the State Legislature. Section 36 empowers the State Government to order inquiries into the activities of the corporation and as a result of such inquiries the State Government may under section 37 direct for administering by taking over of such part of the undertaking of the corporation as may be specified; the notification containing such directions with details is also to be laid before the State Legislature. Section 28 empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e constitution of the corporation, the accounts and particularly obligation to lay the budget and the annual accounts before the State Legislature, the inquiries, the borrowing power, payment of interest and dividend and regarding major expenditure, etc. Guarantee by the State Government with respect to the shares of the corporation is provided in section 25, making over of the remainder to the State Government under section 30 and exemption from the law relating to the liquidation under section 39 also, according to the counsel, support his contention. As against this, the respondent's learned counsel has submitted that the scheme of the Act clearly suggests that the corporation is not merely an agent of the State Government but a separate legal entity with a personality of its own and having perpetual succession, competent and entitled to hold property, sue and to be sued and is bound by all laws in force for the time being including law relating to income-tax, though like other statutory bodies its activities are controlled by the statutes creating it and the State Government along with the Central Government have been given wide powers and also subjected to certain oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 43, for the officers and servants of the corporation would automatically be public servants. Shri Awasthy then referred to Corporation of Calcutta v. Governors of St. Thomas' School, Calcutta A.I.R. 1949 F.C. 121, but that decision appears to me to be of little assistance and I need not discuss it. Subodh Ranjan Ghosh v. Sindri Fertilisers and Chemicals Ltd. A.I.R. 1957 Pat. 10 and Prafulla Kumar Sen v. Calcutta State Transport Corporation A.I.R. 1963 Cal. 116 also cited by the respondents relate to the applicability of article 311 of the Constitution. In the Patna case A.I.R. 1957 Pat. 10, Sindri Fertilizers was held to be a separate entity though completely owned by the Union Government and the company's servants were held not to be the servants of the Union Government. In the Calcutta case A.I.R. 1963 Cal. 116 the employees of the Calcutta State Transport Corporation were also held not entitled to the benefit of article 311. The proposition of law laid down in these two decisions has not been seriously contested on behalf of the petitioner but it is contended that the question of the applicability of article 311 calls for different considerations and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government though the Government may contribute its capital. It can sue and be sued in its name. It can borrow in its name and under section 31, it has power to spend such sums as it thinks fit on objects authorised under the Act. The mere fact that the State is given power to say that proportion or percentage should be set apart for depreciation, reserve and other funds, does not take it out of the category of assessees carrying on business, profession or vocation taxed under section 10 of the Income-tax Act in respect of profits or gains arising out of the trade or business carried on by it. The supervision of the Government by appointing chairman, and chief officers or by sanctioning the budget or having the accounts audited or directing the provision for depreciation and other funds does not make it a State owned corporation, nor can it be said that the income belongs to the State. It is thus clear that the corporation is not a State owned corporation nor is the corporation carrying on business on behalf of the Government. In this view of the matter, it is unnecessary to consider the further question whether the business of the Road Transport Corporation is incidental to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the making and prosecution of war and the making and implementing of treaties of peace and agreements with other States on the termination of hostilities, which functions were formerly the prerogative of the Crown. The case of Halifax Harbour Commissioners [1935] 1 D.L.R. 657 is also distinguishable, for, the question which precisely arose for consideration there is somewhat different. May be that some observations in the judgment could, if taken in isolation, be of some assistance to Shri Sikri but I do not think they can aptly be applied to the case in hand. As a result of the foregoing discussion I am inclined, as at present advised, to agree with the respondents' contention and hold that the corporation as contemplated by the Act cannot be held to be a department of the State in the sense that the State is its owner and its income is the income of the State and therefore exempt from the operation of the Income-tax Act. Shri Sikri's contention that even if every corporation under the Act may not as a matter of law be an agent of the State to attract exemption from the Income-tax Act for its income, the petitioner, on the facts disclosed, is certainly such an agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier case of 1932. After noticing the conflict Leach C.J. made the following instructive observations: While it is true that ordinarily in conversation the use of the word 'individual' would be taken to denote a person, the word has in fact a far wider meaning. The first definition of the word given in the Oxford Dictionary is: 'one in substance or essence; forming an indivisible entity; indivisible'. It is also defined as 'existing as a separate indivisible entity, numerically one, single'. If a corporate body created by a statute is an individual within the meaning of the section and I hold that it is--a cooperative society registered under the Co-operative Societies Act must fall within the same category. It is a corporate body and has perpetual succession. I consider that it is not reasonable to suppose that the legislature intended that there should be a difference in the meaning of the word 'individual' and the plural 'individuals'. If the word 'individual' includes a corporation, the words 'association of individuals' must embrace an association of corporate bodies, and therefore the assessee is an 'associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questioned by Shri Awasthy and it has in addition been submitted that being a foreign judgment it is not binding on this court. My attention has also been drawn to the fact that in the Bar Council case [1943] 11 I.T.R. 1 before the Madras High Court, the imposition of tax on the income of the council for the year 1940-41 was also the subject-matter of dispute with the result that that case was not concerned wholly with the assessment before 1939. Shri Awasthy has also relied on Income-tax Commissioner v. Laxmidas Devidas [1937] 5 I.T.R. 584 and Commissioner of Income-tax v. Dwarkanath Harischandra A.I.R. 1938 Bom. 353, but, in my opinion, these two decisions are of no direct assistance. Counsel has also relied on The Bar Council v. Commissioner of Income-tax [1949] 17 I.T.R. 452, where also the Bar Council was held to be assessable. I have considered the arguments addressed at the bar and after devoting my most earnest attention to the rival contentions, I am of the view that the petitioner is a taxable unit. According to section 3 of the Income- tax Act the total income of every individual, Hindu undivided family, company and local authority and of every firm and other asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l within the term association of persons , I am inclined to agree with the ratio of the Madras decisions mentioned above and hold that the petitioners can reasonably and without stretching the term be described to be an individual and, therefore, a taxable unit. This brings me to the next point, namely, whether the petitioner's income is exempt under section 4(3)(i) being income derived from the property held under trust or other legal obligation wholly for religious or charitable purposes. According to the petitioner's learned counsel there is a legal obligation imposed on the petitioner under section 30 of the Road Transport Corporations Act to hand over the remainder of the net profits after making provision for the purposes mentioned therein to the State Government for the purpose of road development. This purpose is, according to the counsel, a charitable purpose as defined in the Income-tax Act. In support of this contention, he has referred us to the Privy Council decision in In re Trustees of the Tribune [1939] 7 I.T.R. 415 (P.C.). In the reported case, running of a newspaper was held to be a charitable purpose. He has in addition relied on a decision of the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income must, according to this case, be held under trust or other obligation. I am not quite sure if the ratio of this case can fully apply to the case before us because before us is the case of a statutory corporation and, therefore, different considerations might well apply. The counsel has also relied on Ganpatrai Sagarmal (Trustees) for Charity Fund v. Commissioner of Income-tax [1963] 47 I.T.R. 625, where the Calcutta High Court held that it was not enough under section 4(3)(i), Income-tax Act, that the income from the property was held for charitable or religious purposes and that the property must itself be held under a trust or other similar obligation for religious or charitable purposes. This case is similar to that of Raja P.C. Lal [1957] 31 I.T.R. 226 and a question might well arise if its ratio can be considered to be fully applicable to the case of a statutory tribunal. Commissioner of Income-tax v. Vyas and Dhotiwala [1959] 35 I.T.R. 55 ; [1959] Suppl. 1 S.C.R. 39 also does not improve the position. In my view, however, in the present case, it is not possible to hold that the corporation has been established for any religious or charitable purpose, with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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