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PETITIONER: COMMISSIONER OF INCOME-TAX ANDHRA PRADESH, HYDERABAD.

       Vs.

RESPONDENT: ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION, HYDERABAD.

DATE OF JUDGMENT07/03/1986

BENCH: MADON, D.P. BENCH: MADON, D.P. TULZAPURKAR, V.D.

CITATION:  1986 AIR 1054            1986 SCR  (1) 570  1986 SCC  (2) 391        1986 SCALE  (1)353

ACT:      Indian  Income  Tax  Act,  1922  -  Section  4(3)(i)  & Explanation and  Income Tax Act, 1961 - Sections 2 (15) & 11 - Road  Transport  Corporation  -  Whether  engaged  in  the advancement of  an object  of general  public  utility,  not involving carrying  on of  activity  for  profit  -  Whether exempt from income tax.      Road Transport Corporation Act, 1950.      Sections 22,  23, 28 and 30 - Andhra Pradesh State Road Transport Corporation  - Activities  of - Whether carried on for  profit  -  Income  tax  -  Whether  entitled  to  claim exemption.

HEADNOTE:      The Respondent, the Andhra Pradesh State Road Transport Corporation, is  a Road  Transport  Corporation  established under s.3 of the Road Transport Corporation Act, 1950. Prior to the  establishment of  the  Respondent-Corporation,  road transport in the State of Andhra Pradesh was a department of the Government,  being run  by the  Government of  Hyderabad prior to the formation of the State of Andhra and thereafter by the  Government of  Andhra Pradesh.  During 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  filed writ petitions in the 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, but the same were dismissed by the High Court. Appeals filed  by the  Respondent-Corporation in  this Court were also dismissed. 571      Thereafter the  Respondent-Corporation filed returns in respect of the assessment years 1960-61, 1961-62 and 1962-63 showing its  income as  ’Nil’. In  respect of the assessment years 1960-61  and 1961-62 it claimed exemption from income- tax under  s.4(3)(i) of the Income-tax Act, 1922. In respect of the  assessment year  1962-63 it  claimed exemption under

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s.11 of the Income-tax Act, 1961. The Respondent-Corporatios claim for  exemption was rejected by the Income-tax Officer. The appeals filed by the Respondent-Corporation were allowed by the  Appellate Assistant  Commissioner but in the appeals filed by  the Department  before  the  Income-tax  Appellate Tribunal, the  order of the Income-tax Officer was restored. In the  reference, the  High Court held that the Respondent- Corporation was entitled to the exemptions claimed.      In the  appeals to  this Court  by the  Revenue, it was contended 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 Road Transport Corporation Act.      Dismissing the appeals, ^      HELD :  1. The  respondent Corporation  was entitled to the exemption claimed by it both under the Income-tax Act of 1922 and of 1961. [584 F]      2. The  object  of  the  activity  carried  on  by  the respondent  Corporation  undisputedly  was  one  of  general public utility. [582 G]      3. 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 set out in s.3 of the Road Transport Corporation Act. 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 services  in the State. No activity can be carried on efficiently,  properly, adequately or economically unless it is  carried on  business principles.  If an  activity  is carried on  business principles,  it would usually result in profit, but it is not possible so to 572 carry on a charitable activity that the expenditure balances the income  and there is no resultant profit, for to achieve this would  not only  be difficult  of practical realisation but would  reflect unsound  principles of  management.  What s.22 does  when it  states that  it  shall  be  the  general principle of  a Road  Transport Corporation that in carrying on its  undertakings it  shall act on business principles is to emphasize  the objects  set out  in s.3  for which a Road Transport Corporation  is established  and to  prescribe the manner in  which the general duty of the Corporation set out in s.18 is to be performed. [583 B-F]      4. The  test is "what is the pre-dominant object of the activity -  Whether it  is to carry out a charitable purpose or to  earn profit ?" If the pre-dominant object is to carry out a charitable purpose and not to earn profit, the purpose would not  lose its charitable character merely because some profit arises from the activity. [583 F-G]      5. The  activity of  the Respondent-Corporation  is not carried  on  with  the  object  of  making  profit  is  made abundantly clear by the provisions of s.30 under which prior to the  amendment of  that section  by the  Amendment Act of 1959, the  balance of  income left, after utilisation of the net profits for the purposes set out in s.30, was to be made over to  the  State  Government  for  the  purpose  of  road development and  after the  Amendment Act  of 1959  is to be utilised for  financing  the  expansion  programmes  of  the Respondent-Corporation and  the remainder,  if any, is to be made  over  to  the  Government  for  the  purpose  of  road development. The  amount handed over to the State Government

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does not  become a  part of the general revenue of the State but is  impressed with  an  obligation  that  it  should  be utilised only for the purpose of road development. [584 B-D]      Andhra Pradesh  State  Road  Transport  Corporation  v. Income-tax  Officer,  B-1  B-Bard,  Hyderabad  and  Another, [1964] 52  I.T.R. 524,  535-36; = [1964] 7 S.C.R. 17, 29-30, Additional Commissioner  of Income-Tax, Gujarat v. Surat Art Silk Cloth  Manufactures Association,  [1980] 121  I.T.R. 1, 25-26, S.C.,  Commissioner  of  Income-tax,  Bombay  v.  Bar Council of Maharashtra, [1981] 130 I.T.R. 28, 33-34, (S.C.), relied upon  and In re The Trustees of the ’Tribune’, [1939] 7 I.T.R. 415 P.C. referred to, 573

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 216 to 218 (NT) of 1973.      From the Judgment and Order dated 3rd December, 1971 of the Andhra Pradesh High Court in R.C. No. 14 of 1970.      S.T. Desai and Miss A. Subhashini for the Appellant.      F.S. Nariman, B. Parthasarthy and T.A. Ramachandran for the Respondent.      O.P. Rana,  G.S. Chatterjee,  S.K. Dholakia, C.S.S. Rao and Raju Ramachandran for the Interveners.      The Judgment of the Court was delivered by      MADON, J.  The above  three Appeals  have been filed by certificate granted  by the  Andhra Pradesh High Court under section  261  of  the  Income-tax  Act,  1961,  against  the judgment of  that High Court in an income-tax reference. The Respondent,  the   Andhra  Pradesh   State  Road   Transport Corporation, is  a Road  Transport  Corporation  established with effect  from January  11, 1958,  by the State of Andhra Pradesh by a notification issued under section 3 of the Road Transport Corporations  Act,  1950  (Act  No.  64  of  1950) (hereinafter referred  to in  short as "the RTC Act"). Prior to the  establishment of  the  Respondent  Corporation  road transport in the State of Andhra Pradesh was a department of the Government,  being run  by the  Government of  Hyderabad prior to the formation of the State of Andhra and thereafter by the  Government of  Andhra Pradesh.  During 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 Respon- 574 dent Corporation  in this  Court were  also  dismissed.  The judgment of  this Court  is reported as Andhra Pradesh State Road Transport  Corporation v.  Income-tax Officer,  B-1  B- Ward, Hyderabad and Anr., [1964] 52 I.T.R. 524, 535-36; s.c. [1964] 7  S.C.R. 17,  29-30. After  referring to the various provisions of the RTC Act, this Court held :           "Far from  making any  provision which  would make           the income  of the  corporation the  income of the           State, all  the relevant  provisions  emphatically

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         bring  out   the  separate   personality  of   the           corporation and  proceed on  the  basis  that  the           trading activity is run by the corporation and the           profit and  loss that would be made as a result of           the trading  activity would be the profit and loss           of the corporation. . . . When we are deciding the           question as  to whether  the income derived by the           corporation  is  the  income  of  the  State,  the           provision made  by section  30 for  making over to           the State  Government the  balance that may remain           as indicated  therein, is  of no  assistance.  The           income  is   undoubtedly   the   income   of   the           Corporation. All  that section 30 requires is that           a part  of that  income may  be entrusted  to  the           State Government  for a  specific purpose  of road           development. It  is not  suggested or  shown  that           when such  income is  made over  to the  State, it           becomes a  part of  the  general  revenue  of  the           State. It  is income  which is  impressed with  an           obligation and  which can be utilised by the State           Government only for the specific purpose for which           it is entrusted to it."      Having failed  in its  contention that  its income  was exempt  from   income-tax  under   Article  289(1)   of  the Constitution, the  Respondent Corporation  filed returns  in respect of  the assessment years 1960-61, 1961-62, and 1962- 63,  showing   its  income  as  "Nil".  In  respect  of  the assessment years  1960-61 and 1961-62, which are the subject of Civil Appeals Nos. 216 and 217 (NT) of 1973 before us, it claimed exemption  from income-tax under section 4(3) (i) of the Indian  Income-tax Act, 1922 (hereinafter referred to as "the 1922  Act"). In respect of the assessment year 1962-63, which is  the subject  of Civil  Appeal No. 218 (NT) of 1973 before us, it claimed 575 exemption under  section 11  of  the  Income-tax  Act,  1961 (hereinafter referred  to as "the 1961 Act"). The Respondent Corporation’s  claim  for  exemption  was  rejected  by  the Income-tax Officer,  Company Circle,  Hyderabad. The appeals filed by  the Respondent  Corporation were  allowed  by  the Appellate Assistant  Commissioner  of  Income-tax,  D-Range, Hyderabad, but  the appeals  filed by  the Department before the Income-tax  Appellate Tribunal,  Hyderabad  Bench,  were allowed and  at the  instance of  the Respondent Corporation the Tribunal by a common order made in all the three appeals before it  stated a case and referred the following question of law to the High Court:           "Whether, on the facts and in the circumstances of           the case, 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 Income-tax Act,           1922, and  for the assessment years 1962-63, under           section 11 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

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         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  as relate  to  anything  done           within the taxable territories, and in the case of           property so held in part only for such purposes, 576           the  income  applied  or  finally  set  apart  for           application thereto :           Provided that such income shall be included in the           total income-           x      x         x         x           (b) in  the case  of income  derived from business           carried on  on behalf of a religious or charitable           institution, unless  the income  is applied wholly           for the purposes of the institution and either-           (i) the  business is  carried on  in the course of           the actual  carrying out  of a  primary purpose of           the institution, or           (ii) the  work in  connection with the business is           mainly  carried   on  by   beneficiaries  of   the           institutions;           x      x         x         x      In  this   sub-section  ’charitable  purpose’  includes relief of  the poor,  education,  medical  relief,  and  the advancement of  any other  object of general public utility, but nothing  contained in  clause (i)  or clause  (ii) shall operate to  exempt from the provisions of this Act that part of the  income from  property held  under a  trust or  other legal obligation  for private  religious purposes which does not enure for the benefit of the public".      The material provisions of section 11(1)(a) of the 1961 Act are as follows :           "11. Income  from property  held for charitable or           religious purposes.-           (1) Subject  to the  provisions of  sections 60 to           63, the  following income shall not be included in           the total  income of  the  previous  year  of  the           person in receipt of the income-           (a) income derived from property held under trust 577           wholly for  charitable or  religious purposes,  to           the extent to which such income is applied to such           purposes in India . . . ."      Clause (15)  of the  section 2  of the 1961 Act defines the expression  charitable purpose.  This definition  is  as follows :           "(15) ’charitable  purpose’ includes relief of the           poor,   education,   medical   relief,   and   the           advancement of  any other object of general public           utility not  involving  the  carrying  on  of  any           activity for profit".      The difference  between the  1922 Act  and the 1961 Act with respect of the definition of the expression ’charitable purpose"  was  thus  stated  by  this  Court  in  Additional Commissioner of  Income-Tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association,  [1980] 121 I.T.R. 1, 25-26, s.c. :           "It is  obvious that  the exclusionary  clause was           added with  a view  to overcoming  the decision of           the Privy  Council in the Tribune’s case, (1939) 7           I.T.R. 415 (PC), where it was held that the object           of  supplying  the  community  with  an  organ  of

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         educated  public   opinion  by  publication  of  a           newspaper was  an object 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 it  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 578           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.  But  where  the  predominant           object  of  the  activity  is  to  carry  out  the           charitable purpose  and not  to  earn  profit,  it           would not  lose  its  character  of  a  charitable           purpose merely because some profit arises from the           activity. The exclusionary clause does not require           that the  activity must  be carried  on in  such a           manner that  it does  not result in any profit. It           would indeed be difficult for persons in charge of           a trust or institution to so carry on the activity           that the expenditure balances the income and there           is no  resulting profit.  That would  not only  be           difficult of  practical realisation but would also           reflect unsound principles of management."      The position  as stated  above in  the above  case  was reiterated by  this Court  in  Commissioner  of  Income-tax, Bombay v.  Bar Council of Maharashtra, [1981] 130 I.T.R. 28, 33-34, S.C. In that case this Court said :           "It may  be noticed  that whereas  any  object  of           general  public   utility  was   included  in  the           definition of  ’charitable purpose’  in  the  1922           Act,  the  present  definition  has  inserted  the           restrictive words  ’not involving  the carrying on           of any  activity  for  profit’  which  qualify  or           govern the last head of charitable purpose. In CIT           v. Andhra  Chamber of  Commerce, [1965]  55 I.T.R.           722, a  case decided  by this Court under the 1922           Act, where the restrictive words were absent, this           court laid  down that  if the  primary or dominant           purpose of  a trust or institution was charitable,           any other  object which  by itself  might  not  be           charitable  but  which  was  merely  ancillary  or           incidental to  the  primary  or  dominant  purpose           would not  prevent the  trust or  institution from           being a  valid charity.  After the addition of the           restrictive words  in the  definition in  the 1961           Act, this court in Addl. CIT v. Surat 579           art Silk  Cloth Manufacturers  Association  [1980]

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         121 I.T.R.  1 affirmed  that the aforesaid test of           primary  or   dominant  purpose   of  a  trust  or           institution still holds good, that the restrictive           words qualify  ’object’ and not the advancement or           accomplishment thereof  and that  the true meaning           of the restrictive words was that when the purpose           of a  trust or  institution was the advancement of           an object  of general  public utility  it was that           object of  general  public  utility  and  not  its           accomplishment or  carrying  out  which  must  not           involve  the  carrying  on  of  any  activity  for           profit. And,  applying these tests, trading bodies           like Andhra Chamber of Commerce and Surat Art Silk           Cloth Manufacturers  Association have been held to           be institutions constituted with 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 s. 11 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 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  the Privy Council in In re The Trustees of The ’Tribune’, [1939]  7 I.T.R.  415 P.C.  in which  it was held that where an activity carried on with the object of general public utility  did not  cease to be charitable in character even though it was carried 580 on on  commercial lines  with the  object of earning profit, the concentration of the attack was on the exemption claimed in respect  of the assessment year 1962-63 which was covered by the 1961 Act. The above contention entails an examination of the  relevant provisions  of the RTC Act. The objects for which a Road Transport Corporation is established by a State Government are set out in section 3. These objects are :           (a) the  advantages offered  to the  public, trade           and industry by the development of road transport;           (b) the  desirability of co-ordinating any form or           road transport  with any  other form of transport;           and           (c) the  desirability of  extending and  improving           the facilities  for road transport in any area and           of providing an efficient and economical system of           road transport service therein. These were,  therefore, the objects for which the Respondent Corporation was established. Section 18 reiterates the above objects. It provides as follows :           "18. General duty of Corporation.-           It shall  be the  general duty of a Corporation so

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         to exercise its powers as progressively to provide           or  secure   or  promote   the  provision   of  an           efficient, adequate,  economical and  properly co-           ordinated system of road transport services in the           State or  part  of  the  State  for  which  it  is           established and in any extended area:           x      x         x         x Section  19  enumerates  the  powers  of  a  Road  Transport Corporation.  They   include  the   power  to  operate  road transport services in the State and in any extended area and to provide for any ancillary service. Section 22 provides as follows :           "22. General principle of Corporation’s finance.- 581           It shall be the general principle of a Corporation           that in  carrying on  its undertaking it shall act           on business principles." Under sub-section  (1) of  section 23, the capital of a Road Transport Corporation  is to  be  provided  by  the  Central Government and  the State  Government in  such proportion as may be  agreed to by both the Governments. Under sub-section (2) of  section 23,  where the  capital of  a Road Transport Corporation is not provided by the Central Government or the State Government, such Corporation may raise such capital by the issue  of shares  as may be authorized 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  notification published in the Official Gazette at the time of issuing the shares. Section  26 authorizes a Road Transport Corporation, with the  previous approval  of  the  State  Government,  to borrow money  in the open market for purposes of raising its working capital  or for meeting any expenditure of a capital nature.  Section  27  provides  that  every  Road  Transport Corporation is  to have its own fund and all receipts of the Corporation are  to be  carried thereto  and all payments by the Corporation are to be made therefrom, and that except as otherwise directed  by  the  State  Government,  all  moneys belonging to  that fund  are to  be deposited in the Reserve Bank of  India or  with the  agents of  the Reserve  Bank of India or  invested in  such securities as may be approved by the State  Government. Under section 28 where the capital of a Road  Transport Corporation  is provided  by  the  Central Government and the State Government, the Corpo- 582 ration is  to pay  interest on  such capital  and where  the Corporation has  raised its capital by issue of shares it is to pay  dividend on  such shares  at such  rate as may, from time to  time, be  fixed by  the Corporation, subject to any general limitations  which  may  be  imposed  by  the  State Government in  consultation with the Central Government, and such interest  and dividend are to be deemed to be a part of

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the expenditure  of the  Corporation. Section 30 provides as follows :           "30. Disposal of net profits.-           After making provision for payment of interest and           dividend under  section 28  and for  depreciation,           reserve  and  other  funds  under  section  29,  a           Corporation may utilise such percentage of its net           annual profits  as may be specified in this behalf           by the  State  Government  for  the  provision  of           amenities  to   the  passengers   using  the  road           transport services,  welfare of labour employed by           the Corporation and for such other purposes as may           be prescribed  with the  previous approval  of the           Central Government,  (and 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.)" The bracketed  portion in section 30 was substituted for the words "and  the balance  shall be  made over  to  the  State Government for  the purpose of road development" by the Road Transport Corporation  (Amendment) Act,  1959 (Act No. 28 of 1959).      It was  not disputed  that the  object of  the activity carried on  by the Respondent Corporation 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 583 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 run at a  loss.  It  is  not  established  for  the  purpose  of subsidizing 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  services in  the State.  No activity  can be carried on efficiently, properly, adequately or economically unless it  is carried  on  on  business  principles.  If  an activity is  carried on  on business  principles,  it  would usually result  in profit,  but as pointed out by this Court in the  Surat Art Silk Cloth Manufacturers Association Case, it is not possible so to carry on a charitable activity that the  expenditure   balances  the  income  and  there  is  no resultant profit,  for to  achieve this  would not  only  be difficult of practical realization but would reflect unsound principles of  management. What  section 22, therefore, does when it  states that  it shall be the general principle of a Road  Transport   Corporation  that   in  carrying   on  its undertakings it  shall act  on  business  principles  is  to emphasize the  objects set out in section 3 for which a Road Transport Corporation  is established  and to  prescribe the

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manner in  which the general duty of the Corporation set out in  section  18  is  to  be  performed.  It  is  now  firmly established by  decisions of  this Court  in the  Surat  Art Cloth Manufacturers  Association Case and the Bar Council of Maharashtra Case  that the test is "What is the pre-dominant object of  the activity  - whether  it is  to  carry  out  a charitable purpose  or to  earn profit?" If the pre-dominant object is  to carry out a charitable purpose and not to earn profit, the  purpose would not lose its charitable character merely because some profit arises from the activity. 584      There is no factual foundation for the submission based upon section  23(2) and  other sections of the RTC Act which empower  a   Road  Transport  Corporation  to  issue  shares including issuing shares to members of the public and to pay dividend thereon. It is an admitted position, as pointed out by the  High Court  in its  judgment under  Appeal, that  no share capital  has been  raised under  section 23(2) and the entire capital  has been  provided by  the Government  under section 23(1)  and the  Government  is  only  paid  interest thereon under  section 28(1)  just as interest would be paid on any  money due  as a  debt.  That  the  activity  of  the Respondent Corporation  is not carried on with the object of making profit  is made abundantly clear by the provisions of section 30  under which  prior  to  the  amendment  of  that section by  the Amendment Act of 1959, the balance of income left, after  utilization of the net profits for the purposes set out  in section  30, was  to be  made over  to the State Government for the purpose of road development and after the Amendment Act  of 1959  is to  be utilized for financing the expansion programmes  of the  Respondent Corporation and the remainder,  if  any,  is  to  be  made  over  to  the  State Government for  the purpose  of road development. As pointed out  by   this  Court   in  Andhra  Pradesh  Road  Transport Corporation v. Income-tax Officer, B-I B-Ward, Hyderabad and Anr. the amount handed over to the State Government does not become a  part of  the general  revenue of  the State but is impressed with an obligation that it should be utilized only for the  purpose for  which it  is entrusted,  namely,  road development. It  is not,  and cannot  be, disputed that road development is an object of general public utility.      For  the   reasons  given   above,  we  hold  that  the Respondent Corporation was entitled to the exemption claimed by it both under the 1922 Act and the 1961 Act.      In the  result, these  Appeals fail  and are  dismissed with costs. A.P.J.                                    Appeals dismissed. 585