ANDHRA PRADESH STATE CIVIL SUPPLIES CORPORATION LIMITED Vs. COMMISSIONER OF INCOME TAX ANDHRA PRADESH

JUDGEMENT

(1.) The short question that falls for consideration in this writ petition is whether the income of the Andhra Pradesh State Civil Supplies Corporation Ltd., is exempt from Union taxation under art. 289(1) of the Constitution of India. The Andhra Pradesh State Civil Supplies Corporation Ltd. (hereinafter referred to as "the Corporation") is incorporated under the Companies Act under Certificate of Incorporation No. 1832 of 1974-75. It is incorporated as a private limited company as stated in art. 2(a) of the articles of association. As per the memorandum of association, the Corporation is described as a State Government undertaking. The main object of this company is stated in clause III(A) of the memorandum of association. It reads thus :

(2.) The other objects incidental or ancillary to the attainment of the main objects, inter alia, include formulation and execution of projects and management and administration of such projects, including shops, establishments or rice mills, flour mills or any other processing or manufacturing facilities which, in the opinion of the company, is essential for the furtherance of the objects of the company. The authorised capital of the company which fixed at Rs. 3,00,00,000 is divided into 30,000 shares of Rs. 1,000 each under art. 5(a) of the articles of association and under art. 5(b) the capital is entirely contributed by the State Government. In art. 6, it is laid down that no part of the funds of the Company shall be employed in the purchase of or in loans upon the security of the companys shares. All income of the company shall belong to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, Government of Andhra Pradesh. Transfer of shares is restricted under art. 22. They may be transferred only to a person approved by the Government. The Commissioner of Civil Supplies, Andhra Pradesh, shall be the ex-officio chairman of the board of directors of the company so long as he holds the office of Commissioner. Under art. 74, the directors including the vice chairman and managing director and additional managing directors, if and/or allowance as the Government may from time to time determine. The period during which the chairman and the vice chairman and managing director may hold office is determined by the Government. Even the strength of the board of directors may be reduced or increased by the Government from time to time under art. 73. The Government has the power to remove any director including the Chairman, deputy chairman, if any, and the vice chairman and managing director from office at any time in their absolute discretion. The Government is also vested with the power to fill up any vacancies in the office of the directors caused by the removal, resignation, death or otherwise. While the general power of the company is vested in the directors as laid down in art. 75, the board of directors is required to carry out such directives as may be issued by the Government from time to time as laid down in art. 122. Some of the decisions of the board require the prior approval of the Government as envisaged in art. 87. The Government has absolute discretion to appoint whomsoever it chooses as the managing director as laid down in art. 77. The Central Government is given the authority to appoint auditors of the company on the advice of the Comptroller and Auditor-General of India. Thus, the total capital of the company is to contributed by the State Government and the company shall be wholly owned by the State Government as expressly declared in clause V of the memorandum of association. The Corporation so registered under the Companies Act claims that it is an instrumentality of the State and as such entitled to all immunities and privileges as the State itself in the matter of its liability to pay tax on the income earned by it; it claims immunity from payment of income-tax.

(3.) Mr. P. Ramachandra Reddy, the learned counsel appearing for the petitioner, referred to several decisions to contend that this Corporation is an instrumentality of the State. In particular, he relied upon what the Supreme Court stated in Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628, Som Prakash Rekhi v. Union of India [1981] 51 Comp Cas 71; AIR 1981 SC 212 and A.P.S.R.T.C., v. ITO [1964] 52 ITR 524; 34 Comp Cas 473 (SC), to contend that this Corporation satisfies all the indicia enunciated by the Supreme Court to hold that it is an instrument ality of the State.