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CASE NO.: Appeal (civil)  142 of 1983

PETITIONER: ELECTRONICS CORPORATION OF INDIA LTD.

RESPONDENT: SECRETARY,REVENUE DEPARTMENT,GOVT.OF ANDHRA PRADESH AND ORS.

DATE OF JUDGMENT: 05/05/1999

BENCH: S.P.BHARUCHA & B.N.KIRPAL & S.RAJENDRA BABU & S.S.M.QUADRI & M.B.SHAH

JUDGMENT: JUDGMENT

DELIVERED BY: S.P.BHARUCHA,J.  

S.P.BHARUCHA, J.  :

     Under  challenge  is the principal judgment and  order dated 30th July, 1982 of the High Court of Andhra Pradesh in the  case  of Electronics Corporation of India Ltd.   (Civil Appeal  No.142  of  1983)  and   the  orders  following  the principal  judgment  and order in the cases of  M/s.   Parel Investment and Trading Co.  Limited (Civil Appeal No.3937-38 of   1990)  and  Hindustan   Shipyard  Ltd.   (Civil  Appeal Nos.3939-41 of 1990 and 3393 of 1991).       It  is enough to set out the facts pertaining to Civil Appeal  No.142 of 1983 filed by the Electronics  Corporation of  India Ltd.  (the appellant company) in as much as  the same issue of law is involved in all the appeals and all the appellants are companies registered under the Companies Act.

     The  Andhra Pradesh Non Agricultural Lands  Assessment Act, 1963 (the Act) defined owner to include any person for  the time being receiving or entitled to receive whether on  his  own  account  or as agent,  or  trustee,  guardian, manager,  receiver for another person or for any  religious, educational  or charitable purpose, rent or profits from the non  agricultural  land or for the structure constructed  on such   land,  in  respect  of   which  the  word  is  used. Consequent  upon  amending Act 28 of 1974, with effect  from 1st  July,  1974, the definition of owner was amended  and the  following, so far as is relevant here, was added:  and also  includes  in  respect of the land owned by  the  State Government  or the Central Government (i) the lessee, if the land  has  been  leased  out  by  that  Government  for  any commercial,  industrial  or other non  agricultural  purpose .........  Section 3 is the charging section of the Act and provides  for  the  levy of assessment on  non  agricultural land, to be paid by the owner of such land.  Section 12 of the  Act  sets out the categories of land to which  the  Act does  not apply.  Prior to amending Act 28 of 1974, the  Act did  not apply to land owned by the State Government or  the Central  Government.   Thereafter, it did not apply to  land

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owned  by  the  State Government or the  Central  Government other  than  (i)  the land leased out for  any  commercial, industrial or other non agricultural purpose ..........

     In  1963  the  State of Andhra Pradesh had  granted  a large area of land to the Department of Atomic Energy of the Central Government.  In 1964 the Department of Atomic Energy gave  220.25  acres  (the  said   land)  thereout  to  the appellant   company.   On  1st   October,  1978,  the  first respondent issued to the appellant company notices of demand for  non-agricultural assessment on the said land under  the Act.  For the period 1970-71 to 1973-74 the sum demanded was Rs.1,91,189.68.   For the period 1974-75 to 1978-79 the  sum demanded was Rs.11,98,826.32.

     The  appellant  company filed a writ petition  in  the High  Court of Andhra Pradesh impugning the said notices  of demand.  The contention of the appellant company in the writ petition, as set out in the judgment and order under appeal, was  that it was the lessee of the said land which  belonged to  the Union of India and, since the property of the  Union of  India  could  not,  by  virtue of  Article  285  of  the Constitution,  be taxed by a State legislature, the Act  did not  apply  to  the said land and,  accordingly,  no  demand thereunder  could  be made upon the petitioner, which is  a lessee  of the Union of India.  It is stated that an area of approximately   1,000  acres  was   granted  by  the   State Government to the Department of Atomic Energy, Government of India,  and  that the Department of Atomic Energy, in  turn, leased  out  an  extent of 280.25 acres  to  the  petitioner corporation for establishing its plant and machinery.  It is further  contended  that  out of the extent granted  to  the petitioner an extent of 29 acres is covered by buildings, an extent  of  12 acres by roads, and the rest of the  area  is meant  for  future expansion.  It is also submitted that  an extent  of  14.25  acres  is  being  used  for  agricultural purposes.

     The  response on behalf of the State Government to the writ  petition  was  contained in an affidavit  made  by  N. Janakiramulu.   The tenor of the affidavit was that the  Act had  been  amended by Act 28 of 1974 and that, thereby,  the appellant  company had become liable to pay non agricultural assessment upon the said land.

     The  High  Court, by the principal judgment and  order (which  is  reported in AIR 1983 AP 239), held that  Article 285  was  not  attracted and that the State  Government  was entitled to levy and collect the non agricultural assessment from  the appellant company so long as it continued to be  a lessee  of  the  Central Government in respect of  the  said land.  It clarified that the assessment could be levied only upon  land which was actually used for any of the  specified purpose,  namely,  commercial,  industrial   or  any   other non-agricultural  purpose,  including  residential  purpose. What  extent  of the said land was so used and what was  the appropriate  rate applicable was a matter for the  assessing authority to decide.  The appellant company was permitted to file  an  appeal  to the appellate authority under  the  Act against  the  impugned demands, wherein it would be open  to the appellant company to establish the actual extent of land used  for the aforesaid purposes.  The applicable rate could also be ascertained in such appeal.

     It  is  against the principal judgment and order  that

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all the appeals are really directed.

     The  first submission of Mr.  Adhyaru, counsel for the appellant  company, was that, in fact, the appellant company was  not  a lessee of the Union of India in respect  of  the said  land  and that there was no lease in its favour.   The submission is quite the reverse of the case of the appellant company  in  its  writ  petition.    It  is,  therefore,  an impermissible  submission,  and  we   indicated  to  learned counsel when he made it that we declined to entertain it.

     Article  285(1)  of  the Constitution of  India,  upon which  reliance  has been placed by the learned counsel  for the appellant company, reads thus :

     285(1)  The  property of the Union shall, save in  so far  as Parliament may by law otherwise provides, be  exempt from all taxes imposed by a State or by any authority within a State.

     In  learned counsels submission, the property of  the appellant  company was the property of the Union of India in as  much as the appellant company was a Government  company, its  shares  being wholly owned by the Union of India.   The said land was, therefore, the property of the Union of India and  the  legislature  of the State of  Andhra  Pradesh  was barred  by  the provisions of Article 285 from imposing  any tax,  including non-agricultural assessment, on the property of  the  Union  of  India.  Learned  counsel  supported  the submission  by reference to Article 265, which provides that no  tax shall be levied or collected except by authority of law,  and  to  Article 366(28), which says  that  taxation includes  the  imposition  of  any tax  or  impost,  whether general  or  local  or special, and tax shall  be  construed accordingly.

     Learned  counsel  then referred to Article  289  which deals  with the exemption of property and income of a  State from Union taxation and reads thus :

     289(1)  The  property and income of a State shall  be exempt from Union taxation.

     (2) Nothing in clause (1) shall prevent the Union from imposing,  or authorising the imposition of, any tax to such extent,  if any, as Parliament may by law provide in respect of  a  trade  or business of any kind carried on by,  or  on behalf  of,  the  Government of a State, or  any  operations connected  therewith,  or any property used or occupied  for the  purposes  of  such  trade or business,  or  any  income accruing or arising in connection therewith.

     (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.

     Our  attention  was  drawn by learned counsel  to  the judgment  of  this Court on Article 289, namely,  New  Delhi Municipal  Council vs.  State of Punjab & Ors.  1997(7)  SCC 339.   In  construing  Article 289, reference  was  made  to Article  285  and it was said in the majority judgment  that Article  285 imposed a ban, which was absolute and emphatic

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and there was no way in which a State Legislature could levy a  tax upon the property of the Union of India. Article 289 was different by reason of clauses 2 and 3 thereof.

     In the next case cited by learned counsel, namely, Air India Statutory Corporation & Ors.  vs.  United Labour Union &  Ors., 1997(9) SCC 377, this Court was dealing with  which was   the  appropriate  Government  in  relation   to   an establishment  pertaining  to an industry carried on by  or under  authority of the Central Government and it was  held that  the  statutory  corporation,  Air India,  was  such  a industry  and the appropriate Government for the  purposes of the Contract Labour (Regulation and Abolition) Act, 1970, was  the Central Government.  Reliance was placed by learned counsel  upon the propositions enunciated in paragraph 26 of the majority judgment, thus:

     (1)   The   constitution  of   the   corporation   or instrumentality  or  agency  or   corporation  aggregate  or corporation sole is not of sole material relevance to decide whether  it  is by or under the control of  the  appropriate Government under the Act.

     (2)  If  it  is  a statutory  corporation,  it  is  an instrumentality  or agency of the State.  If it is a company owned  wholly or partially by a share capital, floated  from public  exchequer, it gives indicia that it is controlled by or under the authority of the appropriate Government.

     In  our view, neither has Article 285 any  application to  these  appeals nor are we concerned with whether or  not the  appellants are controlled by or under the authority  of the Central Government.

     With effect from 1st July, 1974, Section 12 of the Act was  amended so that it now applied to land which was  owned by  the Central or a State Government and was leased out for any   commercial,  industrial  or   other   non-agricultural purpose.   With  effect  from that date, by  reason  of  the amendment  of Section 2(j), an owner included a lessee  of land  owned by the Central or a State Government if the land was  leased  out  by  such   Government  for  a  commercial, industrial or other non- agricultural purpose.  By virtue of Section 3, the obligation to pay non-agricultural assessment on the leased land lay upon the owner lessee.

     It  is  the case of the appellant company in its  writ petition  that it is the lessee of the Department of  Atomic Energy  of  the Union of India in respect of the said  land. The said land, therefore, is of the ownership of the Central Government  and,  being leased out to the appellant  company for  an industrial and commercial purpose, is land to  which the  Act  applies.  By virtue of the amended  definition  of owner under Section 2(j) of the Act, the appellant company is  the owner of the said land and, by virtue of Section  3, is liable to pay non-agricultural assessment thereon.

     A  clear  distinction must be drawn between a  company and  its  shareholder, even though that shareholder  may  be only one and that the Central or a State Government.  In the eye of the law, a company registered under the Companies Act is  a  distinct legal entity other than the legal entity  or entities that hold its shares.

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     In  Western  Coalfields  Limited   vs.   Special  Area Development  Authority, Korba & Anr., 1982(1) SCC 125,  this Court reviewed earlier judgments on the point.  It held that even though the entire share capital of the appellant before it  had been subscribed by the Government of India, it could not be predicated that the appellant itself was owned by the Government  of  India.   Companies, it was said,  which  are incorporated  under  the  Companies Act,  have  a  corporate personality  of  their  own,  distinct   from  that  of  the Government  of  India.   The  lands  and  the  buildings  in question  in  that  matter were vested in and owned  by  the appellant.   The  Government of India only owned  the  share capital.

     In Rustom Cavasjee Cooper vs.  Union of India, 1970(1) SCC  248,  it  was  held, A company  registered  under  the Companies  Act is a legal person, separate and distinct from its  individual members.  Property of the company is not the property  of the shareholders.  A shareholder has merely  an interest  in  the  company  arising under  its  Articles  of Association,  measured by a sum of money for the purpose  of liability, and by a share in the distributed profit.

     In  Heavy  Engineering  Mazdoor Union  vs.   State  of Bihar, 1969(1) SCC 765, this Court held that an incorporated company  has a separate existence and the law recognises  it as  a  juristic  person,  separate  and  distinct  from  its members.

     We  are,  in the premises, left in no doubt  that  the State  Government  was  entitled  to  levy  non-agricultural assessment  upon  the  said  land and recover  it  from  the appellant company.

     Learned counsel then submitted that, in any event, the recovery  of  non agricultural assessment in respect of  the said  land  could not have been effected from the  appellant company  by  reason of the application of the  principle  of promissory estoppel.  In this behalf he referred to a letter dated 7th February, 1967 addressed by the Under Secretary to the  Government of India to the Secretary of the  Government of  Andhra Pradesh, Industries Department, in regard to  the transfer of land to the Department of Atomic Energy for the location  of  the Electronics Plant and other  plants.  The letter  stated  that  it  had   been  agreed  by  the  State Government  that this land would be exempt from the levy  of tax  under  the Act irrespective of whether the plants  are managed   departmentally  or  through   a   Public   Section Undertaking.   The  letter  requested  that  notifications exempting the lands already handed over to the Department of Atomic  Energy  or to be handed over in future from levy  of tax  under  Andhra Pradesh Act 14 of 1963, while vesting  in the Department of Atomic Energy or in public sector projects would  also require to be issued. The issuance of the  same was,  therefore, requested.  In reply, the Deputy  Secretary of  the Government of Andhra Pradesh, Industries Department, stated  on 17th October, 1967 that no separate notification is  required  exempting the land given to the Atomic  Energy Department  for  establishment of Atomic Energy  Complex  at Hyderabad  from payment of non-agricultural assessment under the  A.P.   Non- Agricultural Assessment Act so long as  the units  are run by the Government of India in Public Sector. It  was  contended  by learned counsel  that  the  appellant company had acted upon this promise.  Accordingly, the State

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Government  was  bound by its promise and was estopped  from going back upon it.

     There  are  two short answers to this contention.   In the first place, there can be no estoppel against a statute. In  the  second place, the letter dated 17th  October,  1967 needs  to  be carefully read.  It says that no  notification was  required  for  exempting  the   land  from  payment  of non-agricultural assessment so long as the units are run by the  Government  of India in Public Sector.  The  appellant company  is  a separate and distinct legal entity that  runs its  own  industry.   The letter dated  17th  October,  1967 cannot  be read as promising exemption to companies,  though their shares be held wholly by the Union of India.

     Mr.   Dholakia,  learned  counsel   for  M/s.    Parel Investment  and  Trading  Co.  Limited (appellant  in  Civil Appeal  Nos.3937-38  of  1990),   adopted  the   submissions aforementioned.   He submitted that Article 285 was intended to  protect  public revenues;  the shares of  the  appellant companies being fully owned by the Central Government, their funds were public revenues.  It was, therefore, necessary to read  down the provisions of Section 2(j) and Section 12  of the  Act  to  exclude therefrom all but private  owners  and lessees  of land.  The question of reading down comes in  if it  is  found that these provisions are ultra vires as  they stand.   We  have held that these provisions are  not  ultra vires  because Article 285 does not apply when the  property that  is  to be taxed is not of the Union of India but of  a distinct  and separate legal entity.  Each of the appellants being  companies  registered under Companies Act,  they  are entities  other  than the Union of India.  The  question  of reading down does not, therefore, arise.

     The   discussion  so  far   relates  to  demands   for non-agricultural  assessment  subsequent to 12th July  1974, when  the amendments made by Act 28 of 1974 in the Act  came into  effect.  The defence to the writ petition filed by the appellant   company   was,  as  we  have   already   stated, exclusively based upon the amendments made by Act 28 of 1974 in  the Act.  These amendments have no retrospective effect. No  demand for non-agricultural assessment could, therefore, have  been made upon the appellant companies for any  period prior  to 12th July, 1974.  To this extent, the demands  are quashed.

     In  regard to demands for non-agricultural  assessment subsequent  to  12th  July,  1974,  which  are  upheld,  the appellant  companies  shall  be at liberty to  file  appeals within  8 weeks from the date of this order, wherein it will be  open to them to establish the actual extent of the  land that  was  used  at  the   relevant  time  for   commercial, industrial  or  other non-agricultural purposes.  Only  upon such  land can non-agricultural assessment be levied.   What the  applicable  rate  should be can also be  canvassed  and decided in such appeals.

     To the extent aforestated, the appeals succeed and are allowed.  Orders on the appeals accordingly.  No order as to costs.