1971-VIL-317-AP-DT

Equivalent Citation: [1975] 100 ITR 392, 1975 CTR 43

ANDHRA PRADESH HIGH COURT

Date: 03.12.1971

ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION

Vs

COMMISSIONER OF INCOME-TAX, AP

BENCH

Judge(s)  : CHINNAPPA REDDY., A. D. V. REDDY

JUDGMENT

The judgment of the court was delivered by

A. D. V. REDDY J.---The Andhra Pradesh Road Transport Corporation established by a notification under the Road Transport Corporations Act, 1950 (Central Act LXIV of 1950), has been functioning with effect from January 11, 1958, providing road transport facilities to the general public in the State with a net work of bus routes and a fleet of buses plying thereon, with depots, workshops, equipment, tools, accessories, etc., for its maintenance. For the assessment years 1960-61, 1961-62 and 1962-63, the income of the Corporation was subject to tax under the relevant provisions of the Income-tax Acts of 1922 and 1961. On appeal the Appellate Assistant Commissioner held that the assessee could claim the benefit of the provisions of section 4(3)(i) of the Indian Income-tax Act of 1922 for the assessment years 1960-61 and 1961-62 and under section 11 of the Income-tax Act of 1961 for the assessment year 1962-63 and their income will be exempt from the tax. On appeal, the Tribunal held that the dominant motive of the assessee was to trade by running the transport service on business lines just as any other owner of a road transport service would do and, therefore, they would not attract the provisions of section 4(3)(i) of the Indian Income-tax Act, 1922, and section 11 of the Income-tax Act, 1961. Hence this reference.

The question referred to us for our decision is as follows :

" 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 Indian Income-tax Act of 1922, and for the assessment year 1962-63, under section 11 of the Income-tax Act, 1961 ? "

Though the assessee is the same, the question whether the assessee's income is exempt from tax for the assessment years 1960-61, 1961-62 and for assessment year 1962-63 have to be considered separately, as there has been a change in the law applicable to the assessments. The assessment for the first of the two years 1960-61 and 1961-62 is governed by the provisions of section 4(3)(i) of the Indian Income-tax Act, 1922, which reads as follows :

" 4. (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 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, the income applied or finally set apart for application thereto ........ "

In the closing part of section 4(3) it was provided that 'charitable purposes' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility ........ "

It has, therefore, to be seen for the first two years, viz., 1960-61 and 1961-62, whether the income of the assessee---Corporation falls under this provision.

Under the Income-tax Act of 1961, section 11(1) provides that the income of the assessee shall not be included in the total income of the previous year if its income is derived from property held under trust " wholly for charitable or religious purposes ...... " and the definition which was formerly found in section 4(3)(i) of the 1922 Act regarding charitable trusts and institutions has not been included in section 11(1) of 1961 Act, but finds a place in section 2 of the Act among the definitions. Under section 2(15) of the 1961 Act " charitable purposes " 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 words newly added being those extracted by us in italics). Therefore, on account of this difference, the assessment for the year 1962-63, has to be considered separately from the assessment for the years 1960-61 and 1961-62.

We have, however, first to consider whether the assessee is an institution created for any charitable purpose, which includes the advancement of any object of general public utility. The assessee in this case has been created under the provisions of a statute, i.e., the Road Transport Corporations Act, 1950. The objects of the assessee are those contained in the said Act. Under section 3 of the Act, a Road Transport Corporation may be established by 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 coordinating 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.

Section 18 again repeats the object by stating that the general duty of the Corporation is to exercise its powers so as to progressively provide or secure or promote the provision of, an efficient, adequate, economical and properly coordinated system of road transport service in the State.

Section 19 details, the powers of the Corporation for operating the road transport service. Section, 22 provides that the general principle of the Corporation should be that, in carrying on its undertaking, it shall act on business principles. Section 23, sub-section (1), relates to providing of capital to the Corporation that may be required by it for purpose of carrying on the undertaking by the State or Central Government. Under sub-section (2), if no such capital is provided, the Corporation, may raise, by issue of shares, such capital as may be authorised in this behalf by the State Government. Section 24 provides for raising of additional capital of the Corporation by the issue of new shares, in a case where the capital was made up of shares.

Section 27 provides for the deposit of all the funds of the Corporation in the Reserve Bank of India, or investing them in such securities as may be approved by the State Government. Section 28 provides for the payment of interest on the capital provided by the Government, where such capital was furnished under section 23(1) and payment of dividends in the case where the capital is raised by issuing shares. Under section 30, whatever money that remains after payment of interest or dividends and providing for depreciation reserve and other funds, the Corporation may set apart a certain percentage 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. Out of the balance, such amount as may be approved of by the State or Central Government, 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.

It can be seen from the above provisions that not only the dominant but the sole purpose of the assessee---Corporation is providing transport facilities to the public, trade and industry. This is, therefore, a public utility service and as such is for a charitable purpose.

There is room for contending that as the Act provides for raising the capital by issuance of shares and also for payment of dividends on those shares, there is a profit motive and as such it cannot be said that this is an enterprise meant only for a charitable purpose. But in the case of the assessee---Corporation we are dealing with, admittedly no share capital has been raised under the provisions of section 23(2) of the Road Transport Corporations Act, and the entire capital has been furnished by the State Government under section 23(1) and what the State Government is paid is only interest for the monies due, as if it were a debt under section 28(1) of the Act. Whatever balance is left over after meeting the expenses, as provided under section 30, are to be made over to the State Government for purposes of road development, which is again a benefit to the public. Therefore, there can be no doubt in this case that the assessee---Corporation is meant for the advancement of general public utility and as such is meant for a charitable purpose.

The decisions in In re Trustees of the Tribune , All India Spinners' Association v. Commissioner of Income-tax, Commissioner of Income-tax v. Breach Candy Swimming Bath Trust, all of the Privy Council, as well as the decisions in Commissioner of Income-tax v. Andhra Chamber of Commerce of the Supreme Court and Hyderabad Stock Exchange Ltd. v. Commissioner, of Income-tax of a Bench of this court, all help us to come to the same conclusion, that the assessee---Corporation caters for providing the general public with an efficient, adequate, economical and properly coordinated system of road transport services, and, as such, it is an enterprise of public utility. It was contended relying on the provisions of section 22 that as the general principle of the Corporation is that, in carrying on its undertaking, it shall act on the business principles, an element of profit is involved. But what is contemplated is running the enterprise on business lines with regard to the working of the various sections and not that it implies an element of profit motive. No doubt, as pointed out in the above cases, profit may result in the running of the enterprise, but as already stated, section 30,provides that the balance of the income by way of profit is again to be spent for a purpose of public utility, i.e., the development of roads. Therefore, we have no hesitation to find that the assessee is a public utility service and as such attracts the provisions of section 4(3)(i) of the Indian Income-tax Act, 1922, and its income is exempt from assessment under that Act for the years 1960-61 and 1961-62.

With regard to the assessment for the year 1962-63, different considerations arise, as there is a change in the provisions of the Act. What has now to be seen is whether the assessee---Corporation satisfies the provisions of section 2(15) of the 1961 Income-tax Act to claim exemption under section 11(1) of the Act. The relevant portion of the definition already extracted that applies to the assessee is the advancement of any other object of general public utility not involving the carrying on of any activity for Profit. The underlined portion is the one introduced by this new Act. It is one of the fundamental principles in legislation and the drafting of statutes that the provisions contained therein should be clear and cogent and, more so, with regard to the fiscal statutes which impose a burden on the public. But in this case, what we find is that the amendment, instead of being clear and cogent, is complicated and courts have taken different views in interpreting the same. In Commissioner of Income-tax v. Indian Chamber of Commerce the Kerala High Court, while dealing with the assessment of the Indian Chamber of Commerce, Cochin, the object of which was to promote and protect the trade, commerce and manufacture in India and was deriving certain income by the issuance of weighment certificates and also by conducting survey of the goods to be exported, held as follows :

" A plain reading of the section makes it clear that in order to take an object of general public utility outside the scope of the definition that object must involve the carrying on of any activity for profit. ' Involve ' means comprise or imply and it, therefore, follows that the object must imply the carrying on of an activity for profit ; it is not sufficient, we think, if there is some activity carried on which results in profit. There must be an activity in the form of business because the activity must be for profit and that activity for profit must be involved in the objects of general public utility ......"

On the circumstances of the case, they held :

" ......even when an activity is in furtherance of the objects of a trust and even if such activity results in profits, the definition will not be attracted unless the objects involve the carrying on of an activity for profit. The objects of this association (Chamber of Commerce) do not involve the carrying on of any activity for profit. What has been done by the Chamber has not been suggested to be not in furtherance of the objects of the Chamber. If in carrying on such objects there is resulting excess of income over expenditure that cannot be brought in as income liable to tax under the Act by virtue of section 11(1)(a) of the Act. "

The Calcutta High Court, while dealing with a similar situation also relating to the assessment of the Calcutta Chamber of Commerce in Commissioner of Income-tax v. Indian Chamber of Commerce , where also the objects were similar to those of the Kerala Chamber of Commerce and certain incomes were derived from weighment collections, measurement charges, arbitration fees and miscellaneous receipts, etc., held that an appropriate interpretation of section 2(15) of the Income-tax Act, 1961, is to consider the expression " not involving the carrying on of any activity for profit " as qualifying the expression " the advancement of any other object of general public utility " and not the other classes of charitable purpose mentioned in that section like relief of the poor, education, and medical relief and that as there are enterprises run by the assessee---company for profit, they do not conform to the definition under section 2(15) and cannot get the benefit of section 11(1) of the Income-tax Act, 1961. To the same effect is the decision of the Mysore High Court in Commissioner of Income-tax v. Sole Trustee, Loka Shikshana Trust dealing with a trust for helping directly or indirectly institutions calculated to educate people by spread of knowledge on all matters of general interest and welfare by publication of books pamphlets, running reading rooms and libraries, etc., which institution was deriving certain income from the publication of books and periodicals, it was held that, by reason of the income, the trust forfeited the benefit under section 11(1) of the Income-tax Act of 1961.

Examining the provisions of section 2(15) as well as sections 11 and 28 of the Income-tax Act of 1961, we are inclined to take a different view from the one taken by the Calcutta and Mysore High Courts. What we have under section 2(15) is an inclusive definition. It is, in fact, only illustrative of what is meant by " charitable purpose ". The illustrations given are : relief of the poor, education, medical relief and advancement of any other object of general public utility not involving the carrying on of any activity for profit. What was contained in section 4(3) of the Indian Income-tax Act of 1922 with regard to the public utility was the advancement of any other object of general public utility. There are no words to further qualify the term " public utility ". The scope of cases falling within that omnibus term has been elaborately discussed by the House of Lords in Inland Revenue Commissioners v. Baddeley. Viscount Simonds J. has this to say :

" ...while no comprehensive definition of legal charity has been given either by the legislature or in judicial utterance, there is no limit to the number and diversity of the ways in which man will seek to benefit his fellowmen. To determine, whether the privileges, now considerable, which are accorded to charity in its legal sense, are to be granted or refused in a particular case, is often a matter of great nicety, and I think that this house can perform no more useful function in this branch of the law than to discourage a further excess of refinement where already so many fine distinctions have been made."

" Object of public utility " is one of the categories of charity, as classified by Lord Macnaghten along with the other categories, relief of poverty advancement of education, etc., in Commissioners for Special Purposes of the Income-tax v. Pemsel , now incorporated in section 4(3) of the Indian

Income-tax Act, 1922, and section 2(15) of the Income-tax Act of 1961.

" Object of public utility " is a term of very wide import and may become applicable to a variety of cases. For instance, even till recently the railways and tramways in India were privately owned for purposes of profit, though they are institutions of general public utility. There are very many private owners of a fleet of buses, run for profit, though the service is for general public benefit and as such is a public utility service. Institutions like the private medical clinics though catering to a large public and as such public utility undertakings are run for gain. Therefore, there are very many associations, enterprises and institutions which serve the public though the objects of which are private gain. To avoid cases of this type claiming the benefit of the exemption, the wider scope of the definition has been narrowed down by the restrictive clause " not involving the carrying on of any activity for profit ". To go further and so interpret it as to embrace all public utility services acquiring some income indirectly would mean denying the benefit to an institution, though meant as a public utility with no profit motive, which gets some income in its ancillary activities. This interpretation will result in reducing the exemption sought to be given to a shadow and make the benefit sought to be granted illusory as a public utility concern which does not acquire some sort of income from its subsidiary activities is very rare. The clause " the advancement of any other object of general public utility," is correlated to the term "charitable purpose" which it seeks to illustrate and, therefore, should be read with and not independently of it. So read, it would mean that the purpose or object of the institution or concern should be public utility and not profit making. Therefore, if the object is not to make a gain but to serve the public as a public utility concern, it should fall within the definition. The object of the statute is obviously not to completely eschew or bar any business activity from a public utility concern in order to qualify it for the benefit under section 2(15) of the Income-tax Act, 1961, but only to restrict the benefit to those concerns whose object is not to make a profit but to be of utility to the public. As can be seen from section 11(4), which is in Chapter III relating to exemptions, " for the purposes of this section ", " property held under trust " includes a business undertaking so held ...... for charitable and religious purposes also ...... Section 28 in Chapter IV relating to computation of total income seeks to include income derived by a trade and by professional or similar associations. But, as can be seen from section 14 of the Act, this is subject to the other provisions of the Act, i.e., subject to the exemptions under section 11. Therefore, the interpretation of the clause relating to " general public utility not involving the carrying on of any activity for profit ", as stated by us, is in consonance with the other provisions of the Act.

The assessee in this case has no other income except what it gets by running the enterprise. Under section 30 of the Road Transport Corporations Act, after meeting its expenses as detailed in it, whatever is left has to be made over to the State Government for the purpose of road development, which is again an object of general public utility. The object of the assessee, as stated earlier, is to run the transport service by providing an efficient, adequate, economical and properly coordinated system of road transport for the benefit of the public. Therefore, under these circumstances, we hold that the assessee is an institution meant for the advancement of the object of general public utility, not involving the carrying on of any activity for profit and its income is exempt from assessment to tax under section 4(3)(i) of the Income-tax Act of 1922 and section 11 of the Income-tax Act of 1961.

The question referred to us is, therefore, answered in the affirmative and in favour of the assessee. The assessee will have its costs in this case. Advocate's fee, Rs. 250.

Question answered in the affirmative.

 

 

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