Constitutional tax immunity for statutory corporation income denied where the business income belongs to the corporation, not the State.

Income derived by a separate statutory corporation from its transport business was not the income of the State under Article 289(1), because the corporation had its own legal personality and its profits and losses belonged to it; mere State control or transfer of surplus to the State did not confer constitutional immunity from Union taxation. The Road Transport Corporations Act, 1950 also did not create any exemption or repugnancy with the Income-tax Act, 1922, since its fund-management provisions operated independently of the charging provisions. The corporation therefore remained liable to income-tax and its challenge to assessment failed.

---

---

Issues: (i) Whether the income derived by a State Road Transport Corporation from its transport activities was the income of the State and therefore exempt from Union taxation under Article 289(1) of the Constitution of India. (ii) Whether the provisions of the Road Transport Corporations Act, 1950 were repugnant to the charging provisions of the Income-tax Act, 1922 so as to exclude liability to income-tax.

Issue (i): Whether the income derived by a State Road Transport Corporation from its transport activities was the income of the State and therefore exempt from Union taxation under Article 289(1) of the Constitution of India.

Analysis: Article 289(1) exempts only the property and income of a State. Clause (2) permits taxation of trade or business carried on by or on behalf of the Government of a State, while clause (3) operates only where Parliament declares a trade or business to be incidental to the ordinary functions of Government. The Corporation was constituted as a separate statutory body with its own legal personality. The Act showed that the undertaking was run by the Corporation itself, with profits and losses belonging to it, and not as a department of the State. The fact that the State controlled the Corporation or that a portion of its profits was ultimately made over to the State for road development did not make the Corporation's income the income of the State. The exemption under Article 289(1) could be claimed only if the income itself belonged to the State.

Conclusion: The income of the Corporation was not the income of the State and was not exempt under Article 289(1); the claim failed against the assessee.

Issue (ii): Whether the provisions of the Road Transport Corporations Act, 1950 were repugnant to the charging provisions of the Income-tax Act, 1922 so as to exclude liability to income-tax.

Analysis: Sections 29 and 30 of the Act dealt only with the administration and disposal of the Corporation's funds and did not exempt the Corporation from taxation. There was no inconsistency between those provisions and the liability imposed by the Income-tax Act. The absence of an express provision like those found in some other enactments did not create immunity from tax. The Act and the Income-tax Act operated in different fields and were not repugnant to each other.

Conclusion: There was no repugnancy and the Corporation remained liable to income-tax; the issue was decided against the assessee.

Final Conclusion: The Corporation was held taxable on its income and its challenge to the assessments failed in substance.

Ratio Decidendi: Income derived by a separate statutory corporation is not the income of the State for Article 289(1) unless the governing statute clearly so provides; mere State control or appropriation of surplus to a State purpose does not confer constitutional tax immunity.

---