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Petitioner: PEPSU ROAD TRANSPORT CORPORATION, PATIALA VS Respondent: INCOME-TAX OFFICER AND ANOTHERHonorable Justice INDBR DEV DUAS. M. Sikri,D. N. Awasthy and H. R. Mahajan
1964 P T D 356
1964 P T D 356
[Punjab Chandigarh (India)]
Before Mehar Singh and Inder Dev Dua, JJ
PEPSU ROAD TRANSPORT CORPORATION, PATIALA
Versus
INCOME‑TAX OFFICER AND ANOTHER
Civil Writ No, 287 of 1961, decided on 24th April 1963.
Road Transport Corporations‑ Whether Department or agent of State‑Whether "individual "‑Whether income liable to be assessed to income‑tax‑Obligation to deliver net income to State Government for road transport‑Whether creates trust for charitable purpose‑Road Transport Corporations Act, 1950, Ss. 3 & 30‑Indian Income‑tax Act, 1922, S. 4(3)(i).
The Pepsu Road Transport Corporation which was established by the State of Pepsu under section 3 of the Road Transport Corporations Act, 1950, is not a department of the State or an agent of the State Government to carry on the business of road transport on behalf of the State, but a separate legal entity and its income is liable to be assessed to income‑tax under the Indian Income‑tax Act, 1922, as the income of an individual.
Though there is an obligation on the part of the Corporation under section 30 of the Road Transport Corporations Act to hand over the balance of the net profits after making provision for the expenses mentioned therein to the State Government for purposes of road transport, this does not mean that the corporation has been established for any religious or charitable purpose, with the result that the whole of its income cannot be considered to fall within section 4(3)(i) of the Income‑tax Act. In so far as the claim in regard to the remainder of net profits which have to be made over to the State Government for the purpose of road development was concerned, it should be made to the assessing authorities in accordance with the machinery provided by the Income‑tax Act and the writ jurisdiction of the High Court cannot be permitted to be invoked for this purpose.
Abraham (C. A.) v. Income‑tax Officer, Kottayam (1961) 41 I T R 425 ; Andhra Pradesh State Road Transport Corporation v. Income‑tax Officer (1963) 47 I T R 101 ; Bank Voor Handel En Scheepvaart v. Administrator of Hungarian Property (1954) 1 All E R 969 ; Bar Council v. Commissioner of Income‑tax (1949) 17 I T R 452 ; Chartiable Gadodia Swadeshi Stores v. Commissioner of Income‑tax (1944) 12 I T R 385 ; Commissioner of Income‑tax v. Ahmedabad Mill Owners' Association (i 939) 7 I T R 369 ; Commis sioner of Income‑tax v. Bar Council, Madras (1943) 11 I T R 1 ; Commissioner of Income‑tax v. Dwarkanath Harischandra (1938) A I R 1938 Bom. 353 ; Commissioner of Income‑tax v. Lakshmidas Devidas (1938) A I R 1938 Born. 41 ; Commissioner of Income‑tax v. Radhaswami Satsang Sabha (1954) 25 I T R 472 ; Commissioner of Income‑tax v. Salem District Urban Bank Ltd. (1940) 8 I T R 269 ; Commissioner of Income‑tax v. Vyas and Dhotiwalla (1959) 35 I T R 55 ; Corporation of Calcutta v. Governors of St. Thomas School, Calcutta (1949) A I R 1949 F C 121 ; Ganpatrai Sagarmal v. Commissioner of Income‑tax (1963) 47 I T R 625 ; Halifax v. Halifax Harhour Commissioners (1935) 1 D L R 657 ; Hugh's Settlement Ltd. v. Commissioners of Inland Revenue (1938) 22 T C 281 ; Jiwan Singh & Sons v. Excise and Taxation Officer (1960) 62 P L R 562 ; Kondala Rao v. Andhra Pradesh State Road Transport Corporation (1 961) A I R 1961 S C 82 ; Montreal v. Montreal Locomotive Works Ltd. (1947) 1 D L R 161 ; New Model .industries v. State of Punjab (C W No. 1542 of 1961, decided on February 14, 1963) ; Prafulia Kumar Sen v. Calcutta State Transport Corporation (063) A I R 1963 Cal. 116 ; Punjab Province v. Federation of Pakistan (1957) 32 I T R 198 ; Punjab Woollen Textiles Mills v. Assessing Authority (19 ' 0) 62 P L R .122 ; Quebec Liquor Commission v. Moore (1924) 4 D L R 901 ; Raja P. C. Lall Chaudhary v. Commissioner of Income‑tax (1957) 3l I T R 226 ; Ram Jawaya Kapur v. State of Punjab (1955) 2 S C R 225 ; Recorder's Court v. Canadian Broadcasting Corporation (1941) 2 D L R 551 ; Regina Industries Ltd. v. City of Regina (1949) Canada Law Reports 345 ; Subodh R rnjan Ghosh v. Sindri Fertilisers and Chemicals Ltd. (1957) A I R 195? Pat. 10; Tamlin v. Hannaford (1949) 2 All E R 327 ; Trustees of Sir Currimbhoy Ibrahim Baronetcy Trust v. Commissioner of Income‑tux (1931) 5 I T C 484; Trustees of Sir Currimbhnv Ibrahim Baronetcy Trust v. Commissioner of Income‑tax (1934) 2 I T R 1x8 (P C) and In re : Trustees of the Tribune (1939) 7 I T R 415 (P C) ref.
S. M. Sikri, Advocate‑General and Dharam Chand for Petitioner.
D. N. Awasthy and H. R. Mahajan for Respondents.
JUDGMENT
INDBR DEV DUA, J.‑--- This is an application under Article 226 of the Constitution by the Pepsu Road Transport Corporation for quashing the assessment order dated January 31, 1961, passed by the Income‑tax Officer, respondent No. 1.
According to the allegations in the writ petition, the petitioner‑corporation was established on January 7, 1956, under section j of the Road Transport Corporations Act, 1950 (herein after called the Act), vide Annexure "B". This Act had come into force in the State of Patiala and East Punjab States Union on March 10, 1955, vide Annexure "A". The petitioner corporation was reconstituted on October 29, 1956, vide Annexure "C", and subsequently tire Provincial Transport Controller, Punjab, was appointed a member in place of the Joint Provincial Transport Controller. The objects for establishing the petitioner‑corporation are stated to have been laid down in section 3 of the Act and its general duty in section 18. The petitioner took over with effect from October 1'6, 1956, the undertaking from the Pepsu Roadways which had been operating departmentally the road transport services under the policy of nationalisation of road transport followed by the Pepsu Government. The terms and condition; of this transfer are contained in Annexure "ID". On taking over this undertaking, the capital investment was raised to Rs. 25 lakhs, out of which Rs. 5 lakhs was contributed by the Northern Railway. The Income‑tax Officer, respondent No. 1, served on the petitioner corporation notices for submission of returns under sections 22(2) and 38 of the Income‑tax Act for the years 1957‑58 to 1960‑61. The jurisdiction of respondent No. 1 to assess the petitioner-corporation was questioned by the latter, but the returns for the three years 1957‑58 to 1959‑60 were forwarded under protest in pursuance of the notices. The Income‑tax Officer did not agree with the objection and made assessment under the Income‑tax Act for the year 1957‑58 which is the subject‑matter of challenge in the present writ proceedings.
On behalf of the petitioner, Shri Sikri, the learned Advocate --General, has raised four points. According to the first objection the income of the corporation is stated to be the income of the Punjab State and, therefore, exempt from the Union tax under Article 289 of the Constitution. According to the second objection, the petitioner is not a taxable entity and, therefore, cannot be subjected to the impugned levy. Without prejudice to these two objections, the third objection is based on section 4(3) i) of the Income‑tax Act and the petitioner claims to be a charitable institution established by the State Government for providing utility service to the public, trade and industry in general within the section. And lastly, the petitioner claims to be a local authority within the meaning of section 4(3)(i) of the Income‑tax Act and, therefore, exempt from taxation.
While developing the first point the learned counsel, to begin with, has referred us to Article 289(1) of the Constitution according to which the property and income of a State is exempt from Union taxation. It is submitted that until Parliament by law so provides, as contemplated by sub‑Article (2) of this Article, the income of a State must be held exempt from the operation of the Indian Income‑tax Act. The counsel then drew our attention to Article ~98 according to which the executive power of a State extends to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose. After referring to these articles the counsel has placed reliance on Rai Sahib Ram Jawaya Kapur v. State of Punjab ((1955) 2 S C R 225) which, according to the counsel, clearly lays down that the Government can carry on a business through an undertaking. In the reported case, the Government had started publishing, printing and selling text‑books for educational institutions and challenge to this power was repelled. The counsel then relied on a decision of the Privy Council in a case from Canada in Montreal v. Montreal Locomotive Works Ltd. ((1947) 1 D L R 161). Reliance has been placed on the observations of Lord Wright at pages 169 and 170. In that case, a commercial corporation sold its property to the Crown (Dominion) under a contract by which it agreed to construct thereon at the expense and subject to the direction and control of the Crown, a new plant for the production of war material, the title to be in the Crown and provision was matte for possible repurchase by the corporation of its property. By a further contract the corporation agreed to manage and operate the plant for a fee in respect of each item produced, provision being made whereby the corporation in incurring costs and expenses in carrying out its duties would not have to resort to its own funds. In each contract the corporation's obligations were referred to as "for and on behalf of the Government and as its agent". On these facts it was held that on a proper construc tion of the contracts (under which it appeared that all land, plant and materials involved in the operation of the factory belonged to the Crown and that the corporation took no risk of loss and was under no liability save for bad faith or wanton neglect, and that the fees it received were for management services), the corporation was an agent of the Crown rather than an independent contractor and hence was not assessable either for occupant or business taxes. Now the position there was clearly different from the position in the case before us. Reference by the counsel has, however, been made to certain observations of Lord Wright at pages 169 and 170 and it has been stressed that the tests which the Judicial Committee laid down are helpful and those tests show that in the case before us also the State is the owner and that the petitioner‑corporation is merely an agent of the State. In my opinion, the real determining factor by the Judicial Committee is stated at page 170 where it is stated that the factory, the land on which it was built, the plant and machinery were all the property of the Government which had them appropriated or constructed for the very purpose of making the military vehicles and that the materials were the property of the Government and so were the vehicles themselves at all stages up to completion. The respondent in that case had supplied no funds and taken no financial risk and no liability, with the significant exception of bad faith or wanton neglect and that every other risk had been taken by the Government. The widest powers of management and administration entrusted to the respondent were all completely subjected to the Government's control. A "fee" was payable in respect of each completed vehicle but on considering the whole plan the fee was solely as a reward for personal services in managing the whole undertaking. These observations reflect the considerations which weighed with the Judicial Committee in coming to the conclusion it did. Quebec Liquor Commission v. Moore ((1924) 4 D L R 901), is a judgment of the Supreme Court of Canada to which our attention has next been drawn. According to the head-note of that decision, a person who assumes temporary control of another's servants may be liable for their acts to the exclusion of the real employer, but the mere giving of directions to close windows which necessitated dismantling a scaffolding, does not make the giver of such directions responsible for an accident caused by the negligence of the workmen in taking down the scaffolding. This is apparently unhelpful. Some observations in the body of the judgment relied upon for showing that there is nothing to prevent the Crown being served by a corporation and nothing to prevent such a corporation claiming the same immunity as an individual too are of no particular assistance in determining whether in the case before us the corporation is merely an agent of the State in doing the transport business. The following three cases from Canada were also cited but they are also of little practical assistance in construing the statute with which we are concerned in the case in hand:
(1) Recorder's Court v. Canadian Broadcasting Corpora tion (1941) 2 D L R 551;
(2) Halifax v. Halifax Harbour Commissioners (1935) 1 D L R 657 and
(3) Regina Industries Limited v. The City of Regina (1947) Canada Law Reports 345.
The Canadian Broadcasting Corporation's case it may however, be stated also contains a dissenting judgment by one of the three learned Judges constituting the Bench. After citing these decisions, the petitioner's learned counsel took us through the various provisions of the Road Transport Corporations Act (Act 64 of 1950). This Act was brought on the statute book in December 1950, in order to provide for the incorporation and regulation of road transport corporations. Section 3 which provides for the establishment of road transport corporations in the States lays down that the State Government having regard to‑(a) the advantages offered to the public, trade and industry by the development of road transport; (b) the desirability of co‑ordinating any form of road transport with any other form of transport; (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, may, by notification in the official Gazette, establish a Road Transport Corporation for the whole or any part of the State under such name as may be specified in the notification. Under section 4 every corporation is to be a body corporate by the name notified under section 3 having perpetual succession and a common seal, and is capable of suing or being sued by the said name. Subject to the rules made under the Act, a corporation, according to section 5, consists of a Chairman and such number of other members as the State Government may think fit to appoint, and one of such members may, if considered fit, be appointed as vice‑Chairman. Rule making power is conferred by section 44 and under section 5(3) the rules shall provide for the representation both of the Central Government and of the State Government concerned in the corporation in such proportion as may be agreed to by both the Governments and of nomination by each Government of its own representative therein, and where the capital of a corporation is raised by the issue of shares to other parties under section 23(3), provision has also to be made for the representation of such shareholders in the corporation including the manner in which the representatives are to be elected by them. Under section 7 the Chairman or any other member of the Corporation can resign his office by giving notice in writing to the State Government and on such resignation being accepted by that Government he is to be deemed to have vacated his office. Section 8 empowers the State Government to remove from office the Chairman or any other member in certain circumstances. No member nominated by the Central Government is, however, removable without the concurrence of that Government. Under section 10 a corporation may associate with itself, for any particular purpose in a manner determined by regulations, any person whose assistance or advice it may desire and the person so associated has a right to take part in the relevant discussion of the corporation but can have no right to vote at the meetings. Section 11 provides for meetings of corporation and section 12 for appointment of committees and delegation of functions. Under section 14 every corporation has to have a chief executive officer or general manager and a chief accounts officer appointed by the State Government. Other officers and servants may, however, be appointed by the corporation. The chief executive officer or general manager is, as provided by section 15, the executive head of the corporation and all other officers and servants of the corporation are subordinate to him. No person having any share or interest in any contract by or on behalf of a corporation or in any other transport undertaking can become or remain an officer or servant of the corporation (vide section 16). The State Government is also empowered by section 17 after ascertaining the views of the corporation to constitute by notification one or more advisory councils consisting of such number of persons on such terms and for the purpose of advising the corporation on such matters as may be specified in the notification. Sections 18 to 21 fall under Chapter III which deals with the power and duties of corporations. Section 18 lays down the general duties of corporations according to which a corporation has a general duty so as to exercise its powers as progressively to provide, 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 or in any extended area. Section 19 deals with the‑‑ powers of a corporation and is divided into six sub sections. Subsection (1) confers on corporations power:
(a) to operate road transport services in the State and in any extended area;
(b) to provide for any ancillary service ;
(c) to provide for its employees suitable conditions of service, etc. ;
(d) to autborise the issue of passes to its employees and other persons; and
(e) to authorise the grant of refund in respect of unused tickets and confessional passes.
Subsection (2) enlarges the scope of subsection (1) by providing for some subsidiary or ancillary powers being included in the powers conferred by subsection (i). Subsection (3) lays down a limitation in respect of certain powers which can be authorised only with the previous approval of the State Government. Subsection (4) lays down that except as otherwise provided by the Act nothing in the foregoing provisions should be construed as authorising the corporation to disregard any law for the time being in force. Subsection (5) deals with the employer or the employees of undertakings acquired by corporations and according to subsection (6) section 19 is not to limit the powers conferred on it by or under the succeeding provisions of the Act. Section 20 contemplates extension of the road transport services to areas of other States with the permission of the State Government and section 21 provides for carriage of mails if required by the Central Government. Chapter IV (sections 22‑32) deals with finance, accounts and audit. Section 22 enjoins the corporation to act on business principles. Under section 23 the Central Government and the State Government may provide capital in agreed proportion on terms and conditions consistent with the Act to be determined by the State Government with the previous approval of the Central Government. In case of failure of such provision, the corporation is empowered on being authorised by the State Government to raise capital by issuing shares, the number of shares to be determined by the State Government, but the contribution of the State Government, the Central Government and other parties is to be determined by the State Government in consultation with the Central Government; the approval of shares is controlled by the rules made under the Act and the corporation can with the previous approval of the State Government redeem the shares of parties other than the two Governments. Additional capital can also be similarly raised with the previous sanction of the State Government: vide section 24. Under section 25 the shares of a corporation are to be guaranteed by the State Government as to the payment of principal and annual dividend at the minimum rate fixed by it. Borrowing power is conferred by section 26 but to raise working capital, previous approval of the State Government is required whereas for expenditure of a capital nature previous approval of the Central Government is also necessary. Section 27 creates a fund of the corporation to which all receipts of and payments to the corporation must go and the money belonging to that fund is to be deposited in the Reserve Bank of India or with its agents or invested in the securities approved by the State Government. Section 28 provides for payment of interest on capital provided by the two Governments at a rate to be fixed by the State Government in consultation with the Central Government; such interest is to be deemed to be a part of the expenditure of the corporation. Payment of dividend on shares issued is similarly provided by subsection (2), the rate to be fixed by the corporation subject to general limitations imposed by the State Government in consultation with the Central Government. Under section 29 the State Government can provide for depreciation, reserve and other funds but the monies of the fund cannot be utilized for purposes other than those for which the fund was created without the previous approval of the State Government. Then comes section 30 which deserves to be reproduced in its entirety, for, very strong reliance has been placed on this section by the petitioner's learned counsel in support of his contention:
30. 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.
Section 31 confers power on a Corporation to spend such sums a3 it may think fit on objects authorised under the Act and the same is payable out of the Corporation fund as expen diture. Under section 32 annual budget is to be submitted to the State Government for approval. Re-appropriation from one head to another within the grant is permissible subject to the restrictions specified by the State Government and the expenditure under individual heads may also be exceeded under prescribed limits and conditions. Section 33 provides for keeping of accounts as prescribed by the State Government in consultation with the. Controller and Auditor‑General of India to be annually audited by the latter or his nominee just like Government accounts. Accounts certified by the officer auditing the same with his report is to be laid before the State Legislature. Chapter V contain: miscellaneous provisions and section 34 with which this chapter begins provides for directions by the State Government after consulting the corporation to be obeyed by the latter in the performance of its statutory duties and under section 35 every corporation has to furnish returns and statistics, etc., to the State Government. The Corporation is also required to submit annual report of its functions, including on its policy and prog ramme, to the Central and State Governments and the latter is enjoined to lay this report before the State Legislature. Section 36 empowers the State Government to order inquired into the activities of the corporation and as a result of such inquiries the State Government may under section 37 direct for administering by taking over of such part of the undertaking of the corporation as may be specified; the notification containing such directions with details is also to be laid before the State Legislature. Section 28 empowers the State Government in case of default on the part of the corporation with previous approval of the Central Government to supersede the corporation but before doing so reasonable notice of show‑cause against it has to be given to the corporation concerned. Upon the publication of notification of superseding, all property vested in the corporation during the period of super-session is to vest in the State Government. The period of supersession may be extended or…
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