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TMI Blog1964 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... prohibition restraining them from collecting any tax, or taking any proceedings under the Indian Income-tax Act against them. In its writ petitions, the appellant further claimed an order, writ, or other appropriate direction quashing the assessment orders passed by respondent No. 1 on the 29th February, 1960, for the years 1958-59 and 1959-60. For the first year, a tax of Rs. 13,60,963.86nP. has been imposed for the period January 11, 1958, to March 31, 1958, and for the latter year, a tax of Rs. 34,44,430.48 nP. has been levied for the period April 1, 1958, to March 31, 1959. After hearing the parties, the High Court has dismissed the appellant's writ petitions with costs. The appellant then applied for and obtained a certificate from the High Court and it is with the said certificate that these four appeals have been brought to this court. It appears that the appellant was established under the Road Transport Corporations Act, 1950 (64 of 1950) (hereinafter called the Act), by a notification issued by the Andhra Pradesh Government and it has been functioning with effect from the 11th January, 1958. Before the formation of the appellant Corporation, the road transport was a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 29 and 30, was also held to be without any substance by the High Court. Thus, since none of the arguments urged by the appellant before the High Court was accepted, the writ petitions filed by it were dismissed. The main point urged before us by the learned Advocate-General of Andhra Pradesh on behalf of the appellant is that the income in respect of which the impugned order of assessment has been passed by respondent No.1, is exempt from Union taxation under article 289(1) of the Constitution, and that raises the question about the construction and effect of the provisions of the three clauses of article 289. Let us, therefore, read the said article : " 289. (1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities carried on by the Government of Andhra Pradesh itself. It will be noticed that clause (2) refers to a trade or business of any kind carried on by or on behalf of the Government of a State. The argument is that the first part of the clause refers to the trade or business carried on by the Government and that means, carried on by the Government either departmentally or by agents appointed by the Government in that behalf. Whether the department carried on the business or an agent specifically and exclusively appointed for that purpose carries it on, it is the business carried on by the State. The latter part of the clause refers to trade or business carried on on behalf of the Government of a State and it is suggested that this part of the clause is intended to take in trade or business carried on by a Corporation like the appellant which is either State-owned or State-controlled. The appellant Corporation, says the Advocate-General, is undoubtedly State-controlled and he would suggest that it is also owned by the State of Andhra Pradesh. Therefore, the commercial activity carried on by the appellant must be deemed to be an activity carried on on behalf of the State of An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talities from Federal taxation. When this doctrine was accepted by American decisions, it was normally confined to such State agencies as were concerned with functions which were essentially governmental in character. But, says the AdvocateGeneral, since article 289(2) takes in trade activities carried on by a corporation like the appellant, the question as to whether the trade is a function which is essentially governmental in character is irrelevant. In support of his contention, the Advocate-General has relied upon two American decisions : first of these is the decision in the case of Mark Graves, John J. Merrill and John P. Hennessy v. People of the State of New York. In that case Stone J., who spoke for the Supreme Court of America, has observed that when the national government lawfully acts through a corporation which it owns and controls, those activities are governmental functions entitled to whatever tax immunity attaches to those functions when carried on by the government itself through its departments. In other words, this observation shows that the court was inclined to take the view that for the purpose of claiming exemption from taxation, it did not make a material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Advocate-General's argument must necessarily be judged, is whether or not the requirement of article 289(1) is satisfied and that requirement clearly is that the income like the property for which exemption from Union taxation is claimed must be the income or property of a State. Besides, there is another reason why the Advocate-General cannot derive any assistance from the American doctrine of the exemption from taxation in regard to State instrumentalities. The said doctrine has been categorically rejected by this court in State of West Bengal v. Union of India. Speaking for the majority of the court, Sinha C. J. observed that "it was futile to attempt the resuscitation of the now exploded doctrine of the immunity of instrumentalities which originating from the observations of Marshall C. J. in M'Culloch v. Maryland, has been decisively rejected by the Privy Council as inapplicable to the interpretation of the respective powers of the States and the Centre under the Canadian and Australian Constitutions (vide Bank of Toronto v. Lambe and Webb v. Outrim) and has practically been given up even in the United States." Thus, it is necessary to revert to the construction of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (3) then empowers Parliament to declare by law that any trade or business would be taken out of the purview of clause (2) and restored to the area covered by clause (1) by declaring that the said trade or business is incidental to the ordinary functions of government. In other words, clause (3) is an exception to the exception prescribed by clause (2). Whatever trade or business is declared to be incidental to the ordinary functions of government, would cease to be governed by clause (2) and would then be exempt from Union taxation. That, broadly stated, appears to be the result of the scheme adopted by the three clauses of article 289. Reading the three clauses together, one consideration emerges beyond all doubt and that is that the property as well as the income in respect of which exemption is claimed under clause (1) must be the property and income of the State, and so, the same question faces us again : is the income derived by the appellant from its transport activities the income of the State ? If a trade or business is carried on by the State departmentally and income is derived from it, there would be no difficulty in holding that the said income is the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, " the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government." These observations tend to show that a trading activity carried on by the corporation is not a trading activity carried on by the State departmentally, nor is it a trading activity carried on by a State through its agents appointed in that behalf. That takes us to the provisions of the Act which will assist us in determining the question as to whether the income in question can legitimately be held to be the income of the State of Andhra Pradesh. The Act was passed to provide for the incorporation and regulation of Road Transport Corporations. Section 3 authorises the State Government to issue a notification in the Official Gazette establishing a Road Transport Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time to the credit thereof and the application of the moneys comprised therein shall-be determined by the corporation. There is a proviso to this sub-section which prohibits the utilisation of these funds for any purpose other than that for which it was created without the previous approval of the State Government. Section 30 deals with the disposal of net profits : it says that after provision is made as required by sections 28 and 29, the Corporation may utilise such percentage of its net annual profits as may be specified in this behalf by the State Government for the purposes therein specified, and it adds that out of the balance, such amount as may, with the previous approval of the State Government and the Central Government be specified in this behalf by the corporation, may be utilised for financing the expansion programmes of the corporation and the remainder, if any, shall be made over to the State Government for the purpose of road development. Section 31 gives power to the corporation to spend such sums as it thinks fit on objects authorised by the Act. Section 32 deals with the budget, section 33 with accounts and audit; and section 34 provides that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be made as a result of the trading activity would be the profit and loss of the corporation. There is no provision in the Act which has attempted to lift the veil from the face of the corporation and thereby enable the shareholders to claim that despite the form which the organisation has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own. Section 28 which provides for the payment of interest clearly brings out the duality between the corporation on the one hand and the State and Central Governments on the other. Take, for instance, the case of supersession of the corporation authorised by section 38. Section 38(2)(c) emphatically brings out the fact that the property really vests in the corporation, because it provides that during the period of supersession, it shall vest in the State Government. Similarly, section 39(2) which deals with the distribution of assets in case of liquidation, brings out the same feature. It has been urged before us by the Advocate-General that section 30 contemplates that after provision is made as required by sections 28 and 29 and funds are utilised as prescribed by section 30, the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act was passed in 1922, as is well-known, every year a fresh Finance Act is passed and it is by virtue of such successive Finance Acts that income-tax is assessed from year to year, and so, the argument that the Act on which the appellant relies is later in point of time must fail. Besides, there is really no repugnancy at all. Basing himself on the provisions of sections 29 and 30, the Advocate-General contends that these two provisions show that the Act did not contemplate the payment of income-tax. This argument is entirely misconceived. It is hardly necessary for the Act to make a provision that tax, if chargeable, would be paid. In fact, the Companies Act, which deals with companies, does not make such a specific provision, though no one can seriously suggest that there would be repugnancy between the provisions of the Companies Act and the Income-tax Act. All that sections 29 and 30 purport to do is to provide for the administration of the funds vesting in the corporation and their disposal. It is clearly far-fetched, if not fantastic, to suggest that these provisions are inconsistent with the liability to pay tax which is imposed by the Income-tax Act. The Advocate-Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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