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TMI Blog1984 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... s functions, they being :---- (a) to undertake removal and disposal of trees and exploitation of forest resources entrusted to it by the State Government ; (b) to prepare projects relating to forestry within the State ; (c) to undertake research programmes relating to forest and forest products and render technical advice to State Government on matters relating to forestry ; (d) to manage, maintain and develop such forests as are transferred or entrusted to it by the State Government ; and (e) to perform such functions as the State Government may from time to time require. Section 15 of the 1974 Act enumerates the powers of the corporation. Section 16 of the 1974 Act empowers the corporation to undertake projects at the instance of others, with the previous approval of the State Government. Section 17 of the 1974 Act provides that the corporation will have its own fund which shall be local fund to which all moneys received by it shall be credited. Section 18 of the 1974 Act empowers it to borrow money subject to such conditions as the State Government may determine. Section 19 of the 1974 Act provides that the State Government shall make subventions to the corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted by the ITO on a total income of Rs. 39,58,920. 6. In appeal, the learned Commissioner (Appeals) originally passed a remand order dated 31-12-1979 in pursuance to which the remand report dated 17-1-1980 was submitted by the IAC (Assessment). The learned Commissioner (Appeals) upheld the ITO's finding that the corporation was not entitled to the exemption under section 10(20). However, he allowed some relief regarding certain disallowances and the claim of depreciation with which we are not concerned. The corporation had also filed a revised return on 20-1-1979 in the course of the proceedings under section 144B of the Act. Since the corporation's ground of appeal regarding the non-consideration by the ITO of this revised return had not been dealt with, the corporation moved an application before the learned Commissioner (Appeals) under section 154 of the Act. The learned Commissioner (Appeals), therefore, passed an order under section 154 on 20-3-1980. He held that the revised return was not valid as the original return had been filed under section 139(1) after the expiry of the time limits prescribed under sub-sections (1) and (2) of section 139. He, therefore, rejected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for discharging its functions Governmental as well as those incidental to Governmental functions. He also submitted that if the functions which were being carried on by the corporation had been carried out by a department of the Government, there would have been no tax and that, therefore, why would the State Government have invited taxation by constituting the corporation. Referring to section 3(3) of the 1974 Act, wherein it is provided that the corporation shall be a local authority, Shri Gupta argued that income was earned by the local authority, but that for the purposes of tax liability, it was State's income. Shri Gupta particularly relied upon the observations of the Supreme Court in the case of Vijay Bahadur Singh in para 3 at page 1237 to the effect that it was wholly State owned corporation and that its profits were in truth the profits of the State itself. On the other hand, Shri K.K. Roy, the learned departmental representative, submitted that though the definition of ' the State ' under article 12 of the Constitution of India included a local authority, that definition was confined to Part III of the Constitution of India and could not be imported for purposes of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the corporation is a local authority. The decision of the Supreme Court in the case of Patel Premji Jiva that the market committee constituted under Gujarat Agricultural Produce Markets Act, 1963, is a local authority would, therefore, not help us. Similar would be the position of the decision in the case of Mahavir where the mandi samity was held to be a local authority and the decision in the case of R. C. Jain where the Supreme Court held that the Delhi Development Authority was a local authority. However, in the latter case it was held by the Supreme Court that the local authorities must have separate legal existence as corporate bodies and that they must not be mere Governmental agencies but must be legally independent entities. Also not of assistance to us is the decision of the Hon'ble Supreme Court in the case of Andhra Pradesh State Road Transport Corpn. which was held to be not a local authority. In fact, under section 2(31)(vi) of the ' local authority ' is a distinct assessable entity which is included in the definition of ' person '. In the case of Kerala Financial Corpn. the word ' individual ' in section 3 of the Wealth-tax Act, 1957, was held to include a corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any kind carried on by or on behalf of the Government of a State or any operations connected therewith or any income accruing or arising in connection therewith. In the annual report of the corporation (November 1974 to September 1975), it is clearly mentioned that it is a commercial undertaking. In the advice dated 28-4-1975 of the legal remembrancer to the UP Government also it has been accepted as a trading corporation. Thus the decision of the Supreme Court in the case of Ramtanu Co-operative Housing Society Ltd. that the Maharashtra Development Corporation established under the Maharashtra Industrial Development Act, 1961, is not a trading corporation is not strictly relevant. It is not the case of the corporation that its trade or business has been declared by Parliament to be incidental to the ordinary functions of the Government. Therefore, in terms of article 289 there would be no bar to the imposition of income-tax under the Act, in respect of the trade and business carried on by the corporation even if it be on behalf of the U.P. Government. Therefore, article 289 also does not assist the corporation. 13. The cases of Thakar Das Bhargava and Imperial Chemical Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant factor to consider whether the administration is in the hands of a board of directors appointed by the department, though this consideration also may not be determinative because even where the directors are appointed by the Government, they may be completely free from governmental control in the discharge of their functions. In the present case, as we have already seen, there is no share capital since the corporation has been constituted as a local authority. The Supreme Court held that it was not possible to formulate an all inclusive or exhaustive test which would adequately answer this question and that there was no cut and dried formula which would provide the correct division of corporations into those which are instrumentalities or agencies of the Government and those which are not. Examining the matter further in paras 14 to 19 of the said decision, the Supreme Court observed that where the financial assistance of the State is so much as to meet almost the entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with the governmental character. It was also held that if the functions of the corporation were of public im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom were the profit and loss of the corporation. It was also held that the income derived by that corporation from its trading activities could not be said to be the income of the Andhra Pradesh State under article 289. In that case, before the formation of the corporation the road transport was a department of the Andhra Pradesh Government. Its net income went to the State under section 30 of the Road Transport Corporations Act. It was a trading corporation. In that case, the Advocate General had conceded that the transport activity carried on by the Andhra Pradesh State Road Transport Corporation was strictly not incidental to the ordinary functions of the Government. Under section 23(3) of the Road Transport Corporations Act, the State was one of the shareholders of the corporation and under section 23(1) the capital contribution by Central and State Government was in the proportion of 1:3. The Supreme Court referred to its own decision in the case of Akadasi Padhan v. State of Orissa AIR 1963 SC 1047 where it was held that there may be cases of some trades or business in which it would be open to the State to employ the services of the agents, provided the agents worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of forests and the better exploitation of forest produce and that its profits were in truth the profits of the State itself, was not made in the same context as in the cases of Andhra Pradesh State Road Transport Corpn. and Ramana Dayaram Shetty and, therefore, they do not help the corporation. The particular features of the present corporation are that it has been constituted as a local authority for which reason it is precluded from having a share capital. It can borrow money from the State Government and it can issue debentures or stock. It was launched with a loan of Rs. 15 lakhs from the Government. If it were an agency or instrumentality of the State Government, the question of borrowing any money could not have arisen. The corporation indisputably pays royalty to the State Government. The financial assistance given to the corporation is not in its entirety. There is also no extraordinary assistance referred to by the Supreme Court in the case of Ramana Dayaram Shetty. There is some control of the State Government over the corporation but the corporation is an autonomous body. The corporation cannot be said to enjoy State conferred or State protected monopoly status. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (Appeals), the assessment order passed by the ITO for the assessment year in question, the directions dated 22-9-1979 given by the IAC (Assessments) to the ITO order dated 27-1-1978 and of the Hon'ble High Court in the corporation's writ petition supra and para 2 of the order dated 21-2-1980 of the learned Commissioner (Appeals) impugned before us and submitted that the income-tax authorities as also the Hon'ble High Court had clearly held that the corporation was a local authority. Referring to section 10(20) of the 1961 Act and section 1(2) of the 1974 Act, read with this preamble, he pointed out that the jurisdictional area of the corporation was its territorial area. For this purpose, reference was also made by him to the decision of the Hon'ble Allahabad High Court in the case of City Board v. CIT [1962] 46 ITR 1214. He also submitted that the place where the supply of the commodity was made was relevant and not the fact that the corporation dealt with parties outside the State of U.P. In this connection reference was made by him to another decision of the Hon'ble Allahabad High Court in Municipal Board v. CIT [1951] 19 ITR 21. He also referred to sections 14 and 15 of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Hon'ble Andhra Pradesh High Court in Andhra Pradesh State Road Transport Corpn. v. ITO [1963] 47 ITR 101, wherein it had been held that the Andhra Pradesh State Road Transport Corporation constituted under the Road Transport Corporations Act was not a local authority and was not immune from taxation under the Indian Income-tax Act, 1922. Reference was also made by him to another decision of the Hon'ble Supreme Court in the case of Ishwari Khetan Sugar Mills (P.) Ltd. referred to by him earlier. Lastly, he referred to the corporation's reply for the assessment year 1978-79 filed before the IAC (Assessments). Summing up his arguments, Shri Roy submitted that the corporation was not entitled to the exemption under section 10(20). 18. We have considered the rival submissions as also the decisions referred to above. Firstly, the fact that the corporation is a local authority having been accepted by the income-tax authorities and by the Hon'ble High Court and there being an express provision in section 3(3) that the corporation shall, for all purposes, be a local authority, the department cannot be permitted to challenge this position before us and seek to argue that the corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, which provide for the functions and powers of the corporations, show that the territorial limit and the functions are inter-connected and that the operational area of the corporation may be larger than the forest area or the forest resources, the exploitation of which is entrusted by the State Government to the corporation. Therefore, the argument made on behalf of the revenue that the forest produce sold or supplied to outside UP, parties could not be said to be the income from trade or business accruing or arising within its own jurisdictional area, cannot be accepted. Having regard to the wordings and analysis of the provisions of section 10(20) extracted above, there is no room for importing any considerations of mutuality or absence of profit motive. The existence of a statutory duty on the part of the corporation to sell or supply forest produce can also not be insisted upon. It is sufficient if the local authority in question carries on trade or business in the supply of forest produce within its jurisdictional area. If such a thing happens as in this case, the income of the local authority which accrues or arises from such an activity would be exempt under section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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