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PETITIONER: ANDHRA PRADESH STATE ROAD TRANSPORTCORPORATION

       Vs.

RESPONDENT: THE INCOME-TAX OFFICER AND ANR.

DATE OF JUDGMENT: 05/03/1964

BENCH: GAJENDRAGADKAR, P.B. (CJ) BENCH: GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. SHAH, J.C. AYYANGAR, N. RAJAGOPALA SIKRI, S.M.

CITATION:  1964 AIR 1486            1964 SCR  (7)  17  CITATOR INFO :  RF         1975 SC1331  (110,171,179)  F          1982 SC 697  (21A)  RF         1986 SC1054  (1,11)  F          1988 SC1708  (13)  RF         1988 SC1737  (50)  D          1989 SC1713  (10)

ACT: Income-tax-Income   of  State  Road  Transport   Corporation whether  income of the State-Whether exempt-Constitution  of India, Art. 289-Income-tax Act, 1922 (11 of 1922), s. 22.

HEADNOTE: The  Income-tax Officer (respondent No.(1) served  a  notice under  s. 22 of the Income-tax Act on the  appellant.   Upon the receipt of the notice, the appellant appeared before the Income-tax  Officer.   The  appellant  pleaded  before   the Income-tax  Officer  that it did not fall under any  of  the five  categories of assessees under s. 3 of  the  Income-tax Act.  The appellant also raised the contention that it was a local   authority   exempt  from  income-tax.    All   these contentions  were  rejected  by respondent No.  1  with  the result  that  the impugned orders of assessment came  to  be passed. The appellant filed Writ Petitions before the High Court  in which it challenged the impugned orders of assessment passed by  respondent No. 1. In its Writ Petitions,  the  appellant claimed  an  ,order,  writ or  other  appropriate  direction quashing  the assessment orders passed by respondent No.  1. The  High  Court dismissed these writ petitions.   The  High Court held that the appellant could not claim the  exemption under   Art.  289(1)  because  it  was  not  a   state-owned Corporation.   The  High Court granted a  certificate  under Art. 133 of the Constitution and hence the appeal. Held:     (i) Art. 289 of the Constitution consists of three clauses.   The  first clause confers  exemption  from  union taxation on the property and income of a State. Clause (2) then provides that the income from trade or busi- ness  carried  on  by the Government of a State  or  on  its

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behalf which would not have been taxable under cl. (1),  can be  taxed,  provided  a law is made by  Parliament  in  that behalf.  In other words cl. (2) is an exception to cl. (1). Clause  (3) then empowers Parliament to declare by law  that any  trade or business would be taken out of the purview  of cl.  (2)  and  restored to the area covered by  cl.  (1)  by declaring  that the said trade or business is incidental  to the  ordinary functions of Government.  In other words,  cl. (3) is an exception to the exception prescribed by cl. (2). (ii) A  trading  activity  carried  on  by  the  corporation (appellant)  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 because   according  to  statute  the  Corporation   has   a personality of its own and this personality is distinct from that of the State or other shareholders. All  the  relevant  provisions  of  the  impugned  Act  also emphatically  bring  out  the separate  personality  of  the Corporation.   Section 30 of the Act also does  not  suggest that the income of the 18 Corporation  is  the income of the State.  All  that  s.  30 requires  is that a part of that income may be entrusted  to the  State  Government  for  a  specific  purpose  of   road development.  Therefore, the income derived by the appellant from its trading activity cannot be said to be the income of the State either under cl. (1) or cl. (2) of Art. 289. The  American doctrine of the immunity of State agencies  or instrumentalities  from Federal taxation has no  application to the present case. Akadasi Padhan v. State of Orissa [1963] Supp. 2 S.C.R. 691, distinguished. Mark Graves, John J. Merrill and John P. Hennessy v.  People of  the  State  of  New York  Upon  the  Relation  of  James B.O’keefe,  83  Law.  Ed. 927 and Clallan County  v.  United States of America, 68 Law Ed. 328, no application. State of West Bengal v. Union of India [1964] 1 S.C.R.  371, relied on. M’Culloch  v. Maryland, (1819) 4 Wheat 316, Bank of  Toronto v.  Lambe (1887) 12 A.C. 575 and Webb v. Outrim [1907]  A.C. 81, referred to. Tamlin v. Hansaford, [1950] K.B. 18, relied on. (iii)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.  There is no repugnancy  between the charging section of the Income-tax Act and ss. 29 and 30 of  the  Act.  All that ss. 29 and 30 of  the  impugned  Act purport  to do is to provide for the administration  of  the funds vesting in the Corporation and their disposal.   These provisions  are not inconsistent with the liability  to  pay tax which is imposed by the Income-tax Act.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos.475-478  of 1963. Appeal  from  the order dated July 14, 1961  of  the  Andhra Pradesh High Court in Writ Petition Nos. 516 to 519 of 1960. D.   Narsaraju,  Advocate-General,  Andhra  Pradesh,  P.  R. Ramchandra Rao and T. V. R. Tatachari, for the appellant (in

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all the appeals). K.   N.  Rajagopala Sastri, Gopal Singh and R. N.  Sachthey, for the respondents (in all the appeals). Rajeshwari Prasad and S. P. Varma, for Intervener No. 1  (in all the appeals). B.   Seri, S. C. Bose and P. K. Bose, for Intervener No. 2 (in all   the appeals). M.   C. Setalvad, S. C. Bose and P. K. Bose, for Intervener No. 3 (in all the appeals). 19 March  5.  1964. The judgement of the  Court  was  delivered by--- GAJENDRAGADKAR,  C.J.-These  four appeals arise  from  four, writ  petitions filed by the appellant, the  Andhra  Pradesh State  Road  Transport  Corporation, in the  High  Court  of Andhra  Pradesh  against  the Income-tax  Officer,  and  the Appellate  Assistant Commissioner of Income-tax,  Hyderabad, respondents 1 and 2 respectively, in which it claimed a writ of 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. 13,60.963.86 nP. has  been imposed  for the period 11-1-1958 to the 31-3-1958, and  for the  latter  year, a tax of Rs. 34,44,430.48  nP.  has  been levied for the period 1-4-1958 to 31-3-1959.  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  (No.  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  depart- ment of the Government of Hyderabad and after integration of Hyderabad with Andhra Pradesh, it was run by the  Government of  Andhra  Pradesh.  During the whole of this  period,  the road transport was treated as exempt from income-tax.  After the  appellant Corporation was, however, formed the  Income- tax  Department  took the view that the income made  by  the appellant was liable to tax, and so, a notice under s. 22 of the  Income-Tax Act was served on the appellant on the  29th January,  1959.  In pursuance of the proceedings which  were taken  after service of the notice, the impugned  orders  of assessment  were passed.  Before the Income-tax Officer,  it was  urged by the appellant that since the appellant was  an independent body carrying on the business of road transport, it  did  not  fall  Linder any of  the  five  categories  of assessees  under s. 3 of the Income-tax Act; it was  neither an individual, nor a Hindu undivided family, nor a firm, nor a  company,  nor an association of persons, and  as  it  was outside the said five categories of assessees, no tax  could be  levied against it.  It was further argued that  the  net income  of  the appellant ultimately goes to  the  State  of Andhra  Pradesh under s. 30 of the Act, and is such  it  was immune from Union taxation under 20 Art.  289 of the Constitution.  Yet, another contention  was raised  in  support  of the plea that the  noice  issued  by respondent  No.  1    was invalid,  and  that  was  that the

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appellant was a local authority exempt from income-tax.  All these  contentions were rejected by respondent No.  1,  with the result that the impugned orders of assessment came to be passed.   It  is  the  validity of  these  orders  that  the appellant challenged before the Andhra Pradesh High Court. The  High Court has held that the appellant is not a  State- owned Corporation and that it is not carrying on business on behalf  of  the Government.  It has also observed  that  the trade  or business which the appellant was carrying  on  was not incidental to the ordinary functions of government,  and since no declaration had been made to that effect under Art. 289(3),  the appellant could not rely on Art.  289(1).   The contention  that the appellant was a local  authority  which was  urged  before  the High Court  was  rejected,  and  the argument that the charging section of the Income-tax Act was repugnant  with the material provisions of the Act, such  as sections  28,  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 assess- ment  has  been passed by respondent No. 1, is  exempt  from Union  taxation under Art. 289(1) of the  Constitution,  and that  raises the question about the construction and  effect of the provisions of the three clauses of Art. 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 or any income accruing or arising in connection therewith. (3)  Nothing  in  clause  (2) shall apply to  any  trade  or business,  or  to  any class of  trade  or  business,  which Parliament  may  by  law declare to  be  incidental  to  the ordinary functions of government." 21 The  learned  Advocate-General concedes that  the  transport activity  carried on by the appellant is strictly not  inci- dental to the ordinary functions of government.  It is  true that in a modern democratic Welfare State, Government has to undertake  several  economic activities some  of  which  are trade  activities, while others are  commercial  activities, because  the  pursuit  of the  welfare  policies  inevitably requires that Government should help the process of economic improvement  of  its  citizens.   However  desirable   these socioeconomic  activities may be and however legitimate  may be  the attempt of the State Government to  undertake  them, there is no denying the fact that the ordinary functions  of the  Government to which clause (3) of Art. 289 refers  must be  distinguished from these socioeconomic activities.   The Advocate-General,  however,  urges  that  though  the  trade activities of the appellant may thus be distinguishable from the ordinary functions of Government, they are  nevertheless included in Art. 289(1) and income derived by the  appellant from the said activities falls within the protection of Art. 289(1). This argument proceeds on the assumption that clause (2)  of Art.  289  is an exception or proviso to clause (1)  and  as such,  whatever is included in clause (2) must be deemed  to

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have  been  included  also in  clause  (1);  otherwise,  the proviso  cannot be logically explained.  It is  because  the trading  or  commercial activities of the  government  of  a State  to  which  the said  clause  refers  were  originally included  in clause (1) that it became necessary to  provide by clause (2) that the said trading or commercial activities carried on by the Government of a State would not claim  the benefit of exemption prescribed by clause (1).  That is  how the  Advocate-General seeks to include trading  or  business activities  mentioned in cl. (2) in cl. (1)  itself.   Logi- cally, no exception can be taken to this approach. The next stage in the argument urged by the Advocate-General is  that  clause (2) is wide enough to include  the  trading activities  carried on by the appellant and as a  result  of the  width of its scope, the appellant’s activities  can  be treated  as  the  commercial 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 22 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-controlle. 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  Andhra Pradesh, and it is with this postulate  that  the argument  reverts to clause (1) of Art. 289 and  urges  that the   income  received  by  the  appellant  in  respect   of commercial  activities  carried on by it on  behalf  of  the Government of Andhra Pradesh is exempt from Union taxation. In  support  of  this  argument,  the  Advocate-General  has relied. on a recent decision of this Court in Akadasi Padhan v. State of Orissa & Others(1) In that case, this Court  had occasion to consider the scope and effect of the  provisions contained  in  Art. 19(6).  It will be  recalled  that  Art. 19(6)  authorrises the State, inter (ilia, to make  any  law relating to the carrying on by the State or by a Corporation owned  or controlled by the State, of any  trade,  business, industry  or service, whether to the exclusion, complete  or partial, of citizens or otherwise.  One of the points  which fell  to  be considered in the Akadasi Padhan case  was  the effect  of the words "a law relating to the carrying  on  by the  State  of  any trade or business."  Dealing  with  this question,  this Court held that though normally,  the  trade specified  in  the clause would be carried on by  the  State departmentally  or  with the assistance of  public  servants appointed in that behalf, there may be cases of some  trades or business in which it would be open to the State to employ the  services of agents, provided the agents work on  behalf of  the  State and not for themselves.   Relying  upon  this decision,  the Advocate-General argues that when clause  (2) of  Art. 289 refers to trade or business carried on by  tile Government of a State, it includes trade or business carried

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on  by  the  Government either departmentally  or  with  the assistance  of agents appointed in that behalf, and  so,  be argues  that  these two categories of carrying  on  business having been included in the first part, what the second part is intended to cover is trade or business carried on by  the Government  of  a  State through the  instrumentality  of  a corporation  like  the  appellant,  and  so.  the  trade  or business  carried on by the appellant is trade  or  business carried  on  on behalf of the Government of  Andhra  Pradesh within the meaning of Art. 289(2) and that makes the  income earned out of the said trade or business income of the State under Art. 289(1). (1) [1963] Supp. 2 S.C.R. 691. 23 In substance, this argument is really based on the  American doctrine  of  the  immunity of  State  agencies  or  instru- mentalities  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 Advocate-General,   since   Art.  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  Upon  the Relation of James B. O’keefe(1).  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 difference whether  the operation was carried on by the State departmentally or with the assistance of a corporation. In  Clallan County v. United States of America, (2)  it  was held by the Supreme Court of America that a State cannot tax the  property  of  a corporation organised  by  the  Federal government  to  produce  material  for  war  purposes,   the property  of which is conveyed to it by, or bought with  the money  of,  the  United  States, and  used  solely  for  the purposes  of  its  creation.  Holmes J.  who  delivered  the opinion  of the Court emphasised the fact that in  the  case before the Court not only the agent was created, but all the agent’s property was acquired and used for the sole  purpose of  producing a weapon for the war.  "This is not  like  the case of a corporation," added the learned Judge, "having its own  purposes  as well as those of the  United  States,  and interested in profit on its own account.  The  incorporation and  formal erection of a new personality was only  for  the convenience of the United States, to carry out its ends, and so, it is unnecessary to consider whether the fact that  the United  States  owned all the stock and  furnished  all  the property  to  the  corporation, taken by  itself,  would  be enough to bring the case within the policy of the rule  that exempts property of the United States." 83 Law.  Ed. 927. 68 Law.  Ed. 328, 331. 24 Both these decisions would not assist us in determining  the

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question as to whether the income received by the  appellant is  the  income of the State of Andhra  Pradesh  within  the meaning of Art. 289(1), because the decision of the  problem raised before us by the appellant must be reached not on any academic  considerations  of the claims for  exemption  from taxation which the State instrumentalities can put  forward, but  on  the construction of Art. 289 itself.   Art.  289(1) exempts  from  Union taxation the property and income  of  a State,  and the Advocate-General can succeed only if  he  is able  to establish that the income derived by the  appellant in  respect of which the impugned assessment order has  been passed is the income of the State of Andhra Pradesh.  There- fore,  the  American doctrine on which strong  reliance  was placed by the Advocate-General would be of no assistance  to his  case.   If  the  trading activity  carried  on  by  the appellant is sought to be brought into Art. 289(1) solely as a  result  of the construction of Art. 299(2), the  test  on which  the validity of the Advocate-General’s argument  must necessarily be judged, is whether or not the requirement  of Art.  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  instru- mentalities.   The  said  doctrine  has  been  categorically rejected  by this Court in State of West Bengal v. Union  of India(1) 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,(2)  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. Lambel(3) and Webb v. Outrim(4)  and  has practically been given up  even  in  the United  States."  Thus,  it is necessary to  revert  to  the construction  of Art. 289 in deciding whether the  appellant is right in claiming immunity from Union taxation. We  have  already  seen  that Art.  289  consists  of  three clauses, the first clause confers exemption from Union  tax- ation  on  the property and income of a State.   In  Special Reference  No. 1 of 1962.  In re.  Sea Customs  Act  (1878), Section (1) [1964] 1 S.C.R. 371. 407.    (3) (1887) 12 A.C. 575. (2)  (1819) 4 Wheat, 316 at p. 436. (4) [1907] A.C. 81 25 20(2),(1)  a Special Bench of this Court by a majority as  e that the immunity granted to the States in respect of  Union taxation,  under  Art. 289(1) does not extend to  duties  of customs  including  export duties or duties of  excise.   In that  case, the question which directly arose for  decisions was  to  determine  the scope and effect of  the  nature  of taxation  from  which  exemption could  be  claimed  by  the property and income of a State under Art. 289(1).  With that aspect  of the matter, however, we are not concerned in  the present appeals. The  scheme of Art. 289 appears to be that  ordinarily,  the income  derived by a State both from governmental  and  non- governmental  or commercial activities shall be immune  from income-tax levied by the Union, provided, of course, the in- come in question can be said to be the income of the  State. This general proposition flows from clause (1).

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Clause  (2)  then provides an exception and  authorises  the Union  to impose a tax in respect of the income  derived  by the Government of a State from trade or business carried  on by  it,  or on its behalf; that is to say, the  income  from trade or business carried on by the Government of a State or on its behalf which would not have been taxable under clause (1),  can be taxed, provided a law is made by Parliament  in that behalf.  If clause (1) had stood by itself, it may  not have been easy to include within its purview income  derived by a State from commercial activities, but since clause (2), in terms, empowers Parliament to make a law levying a tax on commercial activities carried on by or on behalf of a State, the  conclusion  is inescapable that these  activities  were deemed to have been included in cl.(1) and that alone can be the  justification for the words in which cl. (2)  has  been adopted  by  the  Constitution.  It is plain  that  cl.  (2) proceeds  on  the  basis that but  for  its  provision,  the trading  activity which is covered by it would have  claimed exemption  from Union taxation under cl. (1).  That  is  the result of reading clauses (1) and (2) together. Clause  (3) then empowers Parliament to declare by law  that any  trade or business would be taken out of the purview  of cl.  (2)  and  restored to the area covered by  cl.  (1)  by declaring  that the said trade or business is incidental  to the  ordinary functions of government.  In other words,  cl. (3) is an exception to the exception prescribed by cl.  (2). Whatever  trade or business is declared to be incidental  to the  ordinary  functions of government, would  cease  to  be governed  by  cl. (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 Art. 289. (1)  [1964] 3 C.S.R. 787. 26 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 cl. (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 the State.  If a trade  or  business  is carried   on  by  a  State  through  its  agents   appointed exclusively  for  that purpose, and the agents carry  it  on entirely  on  behalf  of  the State and  not  on  their  own account,  there would be no difficulty in holding  that  the income made from such trade or business is the income of the State.   But  difficulties arise when we  are  dealing  with trade or business carried on by a corporation established by a  State  by  issuing  a  notification  under  the  relevant provisions  of the Act.  The corporation, though  statutory, has  a  personality  of  its own  and  this  personality  is distinct  from that of the State or other shareholders.   It cannot  be said that a shareholder owns the property of  the corporation  or  carries  on the  business  with  which  the corporation  is concerned.  The doctrine that a  corporation has  a separate legal entity of its own is so firmly  rooted in  our  notions derived from common law that it  is  hardly necessary to deal with it elaborately; and so, prima  facie, the  income  derived  by  the  appellant  from  its  trading activity cannot be claimed by the State which is one of  the shareholders of the corporation. It  may  that the statute under which the  notification  has been  issued  constituting  the  appellant  corporation  may

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provide  expressly  or  by necessary  implication  that  the income derived by the corporation from its trading  activity would  be  the  income of the State.  The  doctrine  of  the separate entity or personality of the corporation is  always subject to the exceptions which statutes may create, and  if there is a statutory provision which clearly indicates  that despite  the  concept  of the separate  personality  of  the corporation,  the  trade  carried on by it  belongs  to  the shareholders who brought the corporation into existence  and the income received from the said trade likewise belongs  to them,  that  would  be another matter.   It  would  then  be possible to hold that as a result of the specific  statutory provisions the income received from the trade carried on  by the  corporation  belongs  to  the  shareholders  who   have constituted  the said corporation, and so, we must  look  to the Act to determine whether the income in the present  case can be said to be the income of the State of Andhra Pradesh. In  this connection, we may usefully refer to  the  observa- tions made by Lord Denning in Tamlin v. Hansaford: (1).  "In 27 the eye of the law," said Lord Denning, "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, Po 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  Corpora- tions.  Section 3 authorises the State Government to issue a notification  in  the Official Gazette establishing  a  Road Transport Corporation for the whole or any part of the State under such     name as may be specified in the notification, after taking into   account   considerations  specified   by clauses (a), (b) and (c).      Section  4  then provides that  every  corporation shall be a body     corporate by the name notified under  s. 3  having perpetual succession and a common seal, and  shall sue  or be sued by the said name.  Section 5 deals with  the constitution of Road Transport Corporation; sub-section  (3) provides   for  the  representation  both  of  the   Central Government and of the State Government in the Corporation in such proportion as may be agreed to by both the  Governments and   of   nomination  by  each  Government   of   its   own representatives  therein;  it  also  contemplates  that   if capital  is raised by the issue of shares to other  parties, provision  has  to be made for the  representation  of  such shareholders.   Section  17 authorises  the  appointment  of Advisory  Councils.  Section 18 prescribes the general  duty of the corporation.  Section 23(1) provides for the  capital of  the  corporation; under this  sub-section,  the  capital contributed   by  the  Central  Government  and  the   State Government  is in the proportion of I : 3.  Sub-section  (3) authorises  the division of the capital of  the  corporation into  such  number  of shares as the  State  Government  may

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determine-, and it provides that the number of shares  which shall  be  subscribed by the State Government,  the  Central Government and other parties shall also be determined by the State   Government   in  consultation   with   the   Central Government.  This provision contemplates the possibility  of other  shareholders  joining the State  Government  and  the Central  Government.  Section 24 permits additional  capital of the corporation to be raised.  Section 25 requires that 28 the  share  of the corporation shall be  guaranteed  by  the State Government as to the payment of the principal and  the payment  of the annual dividend at such minimum rate as  may be fixed by the State Government.  Section 26 confers powers of  borrowing on the corporation.  Section 27 constitutes  a fund  of  the  Corporation.  Section  28  provides  for  the payment  of interest and dividend.  Section  29(1)  requires the Corporation to make such provisions for depreciation and for  reserve  and other funds as the State  Government  may, from time to time, direct.  Section 29(2) provides that  the management  of the said funds, the sums to be  carried  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  provi- sion is made as required by sections 28 and 29, the Corpora- tion  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; s. 33 with accounts and audit; and s. 34  provides  that  the  directions  issued  by  the   State Government after consultation with the Corporation shall  be followed   by  the  Corporation,  and  it  adds  that   such directions   may  include  instructions  relating   to   the recruitment,  conditions  of  service and  training  of  its employees, wages to be paid to the employees, reserves to be maintained  by  it and disposal of its  profits  or  stocks. Under Section 38, power is conferred on the State Government to  supersede  the Corporation for reasons specified  by  s. 38(1).  On supersession, all property vested in the Corpora- tion  vests during the period of supersession, in the  State Government;  that is the effect of s. 38(2)(c).  Section  39 deals  with the liquidation of a Corporation and clause  (2) of  this  section  provides  that  in  the  event  of   such liquidation,  the assets of the Corporation,  after  meeting the liabilities, if any, shall be divided among the  Central and the State Government and such other parties, if any,  as may  have  subscribed to the capital in  proportion  to  the contribution  made by each of them to the total  capital  of the  Corporation.  That, in brief, is the position  ,of  the relevant provisions of the Act. 29 There is no doubt that the bulk of the capital is contribut- ed  by  the State Government and a small proportion  by  the Central  Government,  and  in that sense,  the  majority  of

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shares, are at present owned by the State Government.  There is also no doubt that the Corporation is a  State-controlled corporation in the sense that at all material stages and  in all material particulars, the activity of the Corporation is controlled  by,  the  State-, but it  is  clear  that  other citizens  may be admitted to the group of shareholders,  and from  that point of view, the Act contemplates  contribution of  the capital for the Corporation not only by the  Central and  the State Governments, but also by the  citizens.   The main  point which we are examining at this stage is: is  the income  derived by the appellant from its trading  activity, income of the State under Art. 289(1)?  In our opinion,  the answer  to this question must be in the negative.  Far  from making  any  provision which would make the  income  of  the Corporation  the  income  of the  State,  all  the  relevant provisions  emphatically 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.   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  s.  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,  s.  39(2)  which  deals  with  the distribution  of assests in case of liquidation, brings  out the  same  feature.   It has been urged  before  us  by  the Advocate-General   that  s.  50  contemplates   that   after provision  is  made as required by sections 28  and  29  and funds  are utilised as prescribed by s. 30, the balance  has to be given to the State Government for the purpose of  road development,  and that, it is suggested, indicates that  the income  belongs to the State Government.  This  argument  is clearly not well-founded.  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 s. 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 s.  30 requires  is that a part of that income may be entrusted  to the 30 State Government for a specific purpose of road  developmen- nt  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.  Therefore, we are satisfied that the income derived  by the appellant from its trading activity cannot be said to be the  income of the State under Art. 289(1), and if  that  is so,  the  fact that the trading activity carried on  by  the appellant  may  be covered by Art. 289(2), does  not  really assist  the  appellant’s case.  Even if a  trading  activity falls under cl. (2) of Art. 289, it can sustain a claim  for exemption  from Union taxation only if it is shown that  the

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income derived from the said trading activity is the  income of  the  State.   That is how ultimately, the  crux  of  the problem  is to determine whether the income in  question  is the  income  of  the  State, and on  this  vital  test,  the appellant fails. There  is one more point which was faintly argued before  us by the learned Advocate-General.  He frankly told us that he did  not  propose  to  challenge  the  correctness  of   the conclusion recorded by the High Court that the appellant  is not  a local authority; but he was not prepared to  give  up his contention that there is repugnancy between the charging section of the Income-tax Act and sections 29 and 30 of  the Act.   He suggested that in view of the repugnancy on  which he  relied,  the  Act which is Act No.  64  of  1950  should prevail  over  the Income Tax Act which is an  enactment  of 1922.  None of the assumptions made by the learned Advocate- General  in  support of this plea can be said to  be  valid. Though the original Income-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- General, no doubt, attempted to derive some support 31 to  his  argument  by relying on section  43  of  the  State Financial  Corporations Act 1951), as well as s. 43  of  the Damodar alley Corporation Act, 1948 (No. 14 of 1948).   Sec- tion 43 which occurs in both the said Acts provides that the Corporation  shall  be  liable to pay any  taxes  on  income levied  by the Central Government in the same manner and  to the  same extent as a company.  It is urged that  where  the legislature  wanted  to  provide for the  liability  of  the Corporation to pay the taxes on income levied by the Central Government,  it has made specific provisions in that  behalf and  since  no such provision has been made in the  Act,  it follows that the legislature intended that no tax should  be levied  on the income earned by the Corporation  established under  the Act.  We do not think there is any  substance  in the  argument.   The  whole  object  which  section  43   is presumably  intended to achieve is to provide that  the  tax should  be  levied on the basis that the  Corporation  is  a company and nothing more.  If no such provision was made  in the  Act,  that  has  no bearing on  the  liability  of  the Corporation to pay the tax on its income.  Therefore, we are satisfied  that  the High Court was right in  rejecting  the argument that by virtue of the repugnancy between the mater- ial  provisions of the Act and the charging section  of  the Income Tax Act, it should be held that the appellant was not liable to pay tax on its income.

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The  result  is,  the appeals fail and  are  dismissed  with costs.  One hearing fee. Appeals dismissed. 32