Supreme Court of India
COMMISSIONER OF INCOME -TAX ANDHRA PRADESH, HYDERABAD.versusANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION, HYDERABAD.
- Citation
- 1986 INSC 29
- Decided
- 7 March 1986
- Disposal
- Dismissed
Holding
The Andhra Pradesh State Road Transport Corporation is entitled to income‑tax exemption under both the 1922 and 1961 Acts because its activity is primarily a charitable public‑utility purpose, not a profit‑making enterprise.
Summary
The Andhra Pradesh State Road Transport Corporation (APSRTC), a statutory corporation created under the Road Transport Corporation Act, 1950, claimed exemption from income tax for the assessment years 1960-61, 1961-62 and 1962-63 under section 4(3)(i) of the Income‑Tax Act, 1922 and section 11 of the Income‑Tax Act, 1961. The Revenue argued that the corporation’s activities were carried on for profit, as indicated by sections 22, 23 and 28 of the RTC Act, and therefore the income was taxable. The Court examined the statutory objects of a road‑transport corporation, the definition of "charitable purpose" and the test of the predominant object of the activity. It held that the corporation’s purpose was the provision of an efficient, economical road‑transport system – a general public utility – and that profit was incidental, not the dominant aim. Consequently, the corporation’s income qualified as charitable and was exempt under both Acts. The appeals of the Revenue were dismissed.
Issues considered
- The applicability of section 4(3)(i) of the Income‑Tax Act, 1922 to the corporation’s income.
- The applicability of section 11 of the Income‑Tax Act, 1961 to the corporation’s income.
- Whether the activities of a Road Transport Corporation are carried on for profit or for a charitable/public‑utility purpose.
- The interpretation of "charitable purpose" under the Income‑Tax statutes, especially the test of the predominant object of the activity.
- Whether the corporation’s income is the income of the State under Article 289(1) of the Constitution.
Legislation cited
- Income Tax Act, 1922s. 4(3)(i)
- Income Tax Act, 1961s. 11, s. 2(15)
- Road Transport Corporation Act, 1950s. 18, s. 22, s. 23, s. 28, s. 3, s. 30
- Road Transport Corporation (Amendment) Act, 1959
Subjects
income‑tax exemptioncharitable purposepublic utilityroad transport corporationbusiness principlessection 4(3)(i)section 11Road Transport Corporation ActArticle 289(1)profit vs charitable
Judgment
570
COMMISSIONER OF INCQ1E-TAX
ANDHRA PRADESH, HYDERABAD.
A v.·
ANDHRA PRADESH STATE ROAD TRANSPORT
CORPORATION, HYDERABAD.
MARCH 7 , 1986
[V.D. TULZAPURKAR AND D.P. MADON, JJ.]
B
Indian Income Tax .'\ct, 1922 - Section 4(3)(i) & to:'
Explanation and Income Tax Act, 1961 - Sections 2 (15) & 11 -
Road Transport Corporation Whether engaged in the
advancement of an object of general public utility, not
involving carrying on of activity for profit - Whether exempt
C from income tax.
Road Transport Corporation Act, 1950.
Sections 22, 23, 28 and 30 - Andhra Pradesh State Road
Transport Corporation - Activities of - Whether carried on for }
D profit - Income tax - Whether entitled to claim exemption. ~
The Respondent, the Andhra Pradesh State Road Transport
Corporation, is a Road Transport Corporation established under
s.3 of the Road Transport Corporation Act, 1950. Prior to the
establishment of the Respondent-Corporation, road transport ln
E the State of Andhra Pradesh was a department of the
Government, being run by the Government of Hyderabad prior to
the formation of the State of Andhra and thereafter by the
Government of Andhra Pradesh. During the whole of this period,
the income made from road transport was exempt from
income-tax. After the Respondent-corporation was formed, the
F Income-tax Department took the view that the income of the
Respondent-Corporation was liable to income-tax and assessed
the Respondent-corporation to income-tax for the assessment
years 1958-59 and 1959-60.
The Respondent-Corporation filed writ petitions in the
G High Court contending that the property owned by it and the
income earned by it were the property and income of a State .)..
exempted from Union taxation under Article 289( 1) of the
Constitution, but the same were disudssed by the High Court.
Appeals filed by the Respondent-corporation in this Court were
also disudssed.
H
C.I.T. v. STATE 571
Thereafter the Respondent-corporation filed returns in A
- respect of the assessment years 1960-61, 1961-62 and 1962-63
_ ·showing its income as 'Nil'. In respect of the assessment
years 1960-61 and 1961-62 it claimed exemption from income-tax
under s.4(3)(i) of the Income-tax Act, 1922. In respect of the
assessment year 1962-63 it claimed exemption under s.ll of
the Income-tax Act, 1961. The Respondent-corporatio$ claim B
for exemption lias rejected by the Income-tax Officer. The
appeals filed by the Respondent-corporation were allowed by
_ the Appellate Assistant Commissioner but in the appeals filed
:;\ by the Department before the Income-tax Appellate Tribunal,
the order of the Income-tax Officer was restored. In the
reference, the High Court held that the Respondent-corporation
was entitled to the exemptions claimed. c
In the appeals to this Court by the Revenue, it was
contended that the Respondent-corporation was not entitled to
any exemption as claimed by it because its activities were
carried on for profit as shown by sections 22, 23 and 28 of
· 1 the Road Transport Corporation Act. o
-\
Dismissing the appeals,
HELD : 1. The respondent Corporation was entitled to the
exemption claimed by it both under the Income-tax Act of 1922
and of 1961. l584 F] E
2. The object of the activity carried on by the respon-
dent Corporation undisputedly was one of general public
utility. [582 GJ
.. :'- 3. A Road Transport-Corporation cannot be expected or 9e F
required to run at a loss. It is not established for the
purpose of subsidising the public in matters of transportation
of passengers and goods. The objects for establishing a Road
Transport Corporation are set out in s.3 of the Road Transport
Corporation Act. Section 18 shows that it is the duty of a
Road Transport Corporation to provide, secure and pr~sote the G
provision of an efficient, adequate, economical and properly
~co-ordinated system of road transport services in the S~ate.
No activity can be carried on efficiently, properly, ade-
quately or economically unless it is carried on business prin-
ciples. If an activity is carried on business principles, it
would usually result in profit, but it is not possible so to H
572 SUPREME COURT REPORTS [1986] 1 S.C.R.
A
carry on a charitable -activity that the expenditure balances_--
the income and there is no resultant profit, for to achieve ---.
this would not only be difficult of practical realisation but
would reflect unsound principles of management. What s.22 does
when it states that it shall be the general principle of a
Road Transport Corporation that in carrying on its undertak-
B ings it shall act on business principles is to emphasize the
objects set out in s.3 for which a Road Transport Corporation
is established and to prescribe the manner in which the J.~
general duty of the Corporation set out in s.l8 is to be
performed. {583 B-F]
c 4. The test is "what is the pre-dominant object of the
activity - Whether it is to carry out a charitable purpose or
to earn profit ?" If the pre-dominant object is to carry out a
charitable purpose and not to earn profit, the purpose would
not lose its charitable character merely because some profit
arises fro~ the activity. [583 F-G]
r
-
D }..
5. The activity of the Respondent~rporation is not
carried on with the object of making profit is made abundantly
clear by the provisions of s.30 under which prior to the
amendment of that section by the Amendment Act of 1959, the
balance of income left, after utilisatiotl of the net profits
E for the purposes set out in s.30,_ was to be made over to the
State Government for the purpose of road development and after
the Amendment Act of 1959 is to be utilised-for financing the
expansion programmes of the Respondent-corporation and the
remainder, if any, is to be made over to the Government for .
the purpose of road development. The amunt handed over to the..,._ ..,
F State Government does not become a part of the general revenue 1
of the State but is impressed with an obligation that it
should be utilised only for the purpose of road development.
[584 B-D]
ADdhra Pradesh State load Trauport Corporation v.
G I.ncoe-ta Officer, B-1 B-Vard, llyderabad aDd Auotber, [1964] .,
52 I.T.R. 524, 535-36; • [1964] 7 S.C.R. 17, 29-30, Additioaal ~
eo.dasicmer of In.cc.e-'lu, GUjarat v. Surat Art Sillt Cloth·-:i-.....;
Maaufaetures Association, [1980] 121 I.T.R. 1, 25-26, S.C.,
eo.Lssioner of liu:oE-ta, :ao.bay v. Bar Council of l-:,..
Mabara~htra, [1981] 130 I.T.R. 28, 33-34, (S.C.), relied upon
and In re 'lbe 'huteu of the 'Tribune', [1939] 7 I. T.R. 415 ~
H
P.C. referred to,
C.I.T. v. STATE [MADON, J] 573
A
~~ CIVIL APPELLATE JURISDICTION Civil Appeal Nos. 216 to
· 218 (NT) of 1973.
From the Judgment and Order dated 3rd Dece~ber, 1971 of
the Andhra Pradesh High Court in R.C. No. 14 of 1970.
B
S.T. Desai and Miss A. Subhashini for the Appellant.
~;. F.S. Nariman, B. Parthasarthy and T.A. Ramachandran for
the Respondent.
O.P. Rana, G.S. Chatterjee, S.K. Dholakia, C.S.S. Rao
and Raju Ramachandran for the Interveners. C
The Judgment of the Court was delivered by
MADON, J. The above three Appeals have been filed by
certificate granted by the Andhra Pradesh High Court under
~ section 261 of the Income~tax Act, 1961, against the judgment D
of that High Court in an income-tax reference. The Respondent,
the Andhra Pradesh State Road Transport Corporation, is a Road
Transport Corporation established with effect from January 11,
1958, by the State of Andhra Pradesh by a notification issued
under section 3 of the Road Transport Corporations. Act, 1950
(Act No. 64 of 1950) (hereinafter referred to in short as "the E
RTC Act"). Prior to the establishment of the Respondent Corpo-
ration road transport in the State of Andhra Pradesh was a
department of the Government, being run by the Government of
. Hyderabad prior to the formation of the State of Andhra and
-. ~ th~reafter by the Government of Andhra Pradesh. During the
whole of this period the income made from road transport was F
exempt from income tax. After the Respondent Corporation was
formed, the Inco~~E-tax Department took the view that the
income of the Respondent Corporation was liable to income-tax
and assessed the Respondent Corporation to income-tax for the
assessment years· 1958-59 and 1959-60. The Respondent Corpora-
tion thereupon filed a writ petition in the Andhra Pradesh G
High Court contending that the property owned by it and the
.aJ income earned by it were the property and income of a State
- exempted from Union taxation under Article 289(1) of the Cons-
titution. This contention was rejected and the writ petitions
were dismissed by ~he High Court. Appeals filed by the Respon-
H
.574 SUPREME COURT REPORTS [1986] 1 S.C.R •
A
dent Corporation in this Court were also dismissed. The judg-"'-_
ment of this Court is reported as Aodhra Pradesh State Road ·
Transport Corporation v. Income-tax Officer, B-1 B-ward,
Hyderabad and Aor., [1964] 52 I.T.R. 524, 535-36; s.c. [1964]
7 S.C.R. 17, 29-30. After referring to the various provisions
of the RTC Act, ·this Court held
B
"Far from making any provision which would make the
income of the corporation the income of the State, ~ ~ .
all the relevant provisions emphatically bring out
the separate _personality of the corporation and
proceed on the basis that the trading activity is
c run by the corporation and the profit and loss that
would be made as a result of the trading activity
would be the profit and loss of the corporation. •
•• When we are deciding the question as to whether
the income derived by the corporation is the income
of th( State, the provision made by section 30 for ..,.,
D
making over to the State Govt~rnment the balance._
that may remain as indicated therein, is of no
assistance. The income is undoubtedly the income of
the Corporation. All that section 30 requires is
that a part of that income may be entrusted to the
State Government for a specific purpose of road
E
development. It is not suggested or shown that when
such income is made over to the State, it becomes a
part of the general revenue of the State. It is
incoroo which is impressed with an obligation and
which can be utilised by the State Government onl~
for the specific purpose for which it is entrusted; ~
F
to it."
Having failed in its contention that its income was
exempt from income-tax under Article 289(1) of the Constitu-
tion, the Respondent Corporation filed retu~s in respect of
the assessroont years 1960-61, 1961-62, and 1962-1)3, showing
G its income as "Nil". In respect of the assessment years
1960-61 and 1961-62, which are the subject of Civil Appeals...-.'
Nos. 216 and 217 (NT) of 1973 before us, it claimed exemptio~
from income-tax under section 4(3) (i) of the Indian Income- ....
tax Act, 1922 (hereinafter referred to as "the 1922 Act"). In
respect of the assessment year 1962- 63, which is the subject
H
of Civil Appeal No. 218 (NT) of 1973 before us, it claimed
C.I.T. v. STATE [MADON, J] 575
A
~exemption under section 11 of the Income-tax Act, 1961
(hereinafter referred to as ''the 1961" Act"). The Respondent
Corporation's claim for exemption was rejected by the Income-
tax Officer, Company Circle, Hyderabad. The appeals filed by
the Respondent Corporation were allowed by the Appellate
Assistant Commissioner of Income-tax, D-Range, Hyderabad, but B
the appeals filed by the Department before the Income-tax
Appellate Tribunal, Hyderabad Bench, were allowed and at the
-~nstance of the Respondent Corporation the Tribunal by a
common order made in all the three appeals before it stated a
case and referred the following question of law to the Hi:gh
.C ourt:
''Whether, on the facts and in the circumstances of
c
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 lnco~-tax Act,
1922, and for the assessment years 1962-63, under
section 11 of the Income-tax Act, 1961." D
The High Court answered the above question in favpur of the
Respondent Corporation and against the Department and on an
application made by the Appellant, the Commissioner of Income-
Tax, Andhra Pradesh, Hyderabad, granted under section 261 of
the 1901 Act a certificate of fitness for appeal to this E
Court.
Section 4(3)(i) of the 1922 Act, omitting what is not
~elevant for our purpose, provided as follows :
, '
"(3) Any income, profits or gains falling within F
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 G
obligation who~ly for religious or charitable
p\lrposes, 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, H
576 SUPREME COURT REPORTS [1986] 1 s.c.R~
A
the income applied or finally set apart· fof~
application thereto .~
Provided that such income shall be included in the
total income--
B X X X X
(b) in the case of income derived from busines4'-
carried on on behalf of a religious or charitable
institution, unless the income is applied wholly
for the purposes of the institution a~d either-
c
(i) the business is carried on in the course of the
actual carrying out of a primary purpose of tl1c
institution, or
(H) the work in connection with the business i!J..
0 mainly carri~d on by beneficiaries of the institu~
tions;
X X X X
In this sub-section 'charitable purpose' includ~·s relief
E of the poor, education, medical relief, and the advancement of
any other object of general public utility, but nothing
contained in clause (i) or clause (ii) shall operate to exempt
from the provi~ions of this Act that part of the ~ncome from ,
property held under a trust or other legal obU.gation fqr
private religious purposes which does not enure for the ben~~·•
F fit of the public".
The material provisions of section ll(l)(a) of the 1961
Act are as follows :
"11. Income from property held for charitable or
G religious purposes.-
t-:
(1) Subject to the provisions of sections 60 to 63,
the following income shall not be included in th·~
total income of the previous year of the person in
receipt of the income-
H (a) income derived from property held under trust
C.I.T. v. STATE [MADON, J] 577
wholly for charitable or religious purposes, to the A
extent to which such income is applied to such
purposes in India • • • • "
Clause (15) of the section 2 of the 1961 Act defines the
expression charitable p~rpose. This definition is as follows :
B
"(15) 'charitable purpose' includes relief of the
poor, education, medical relief, and the advance-
ment of any other object of general public utility
not involving the carrying on of any activity for
profit 11 •
The difference between the 1922 Act and the 1961 Act with c
respect of the definition of the .expression 'charitable
purpose" was thus stated by this ~Court in Additional
Coumissioner of lncoue-Tax, Gujarat v. Surat Art Silk Cloth
~~ufacturers Association, [1980] 121 I.T.R. l, 25-26, s.c. :.
'
.-l,
"It is obvious that the exclusionary dause was D
added with a view to overcoming the decision of the
Privy Council in. the Tribune's case, (1939) 7
I. T.R. 415 (PC), whet;.e it was held that the object
of supplying the community with an organ of educa-
ted public opinion by publication of a newspaper
was an object of general public utility and hence E
charitable in character even though the activity of
publication of , the newspaper was carried on on
commercial lines wich the object of earning profit.
The publication of the newspaper was an activity
( engaged in by the trust for the purpose of carrying
out its charitable purpose and on the facts it was F
clearly an activity which had profit-making as its
predominant object, but even so it was held by the
Judicial Committee that since the: purpose served t
was an object of general public utility, it was a
charitable purpose. It is ~lear from the speech of
the Finance Minister that it was with a view to G
setting at naught this decision that the ex-
clusionary clause was added in the de Einition of
'charitable purpose'. The test which has,
thecefore, now to be applied is whether the predo-
minant object of the activity involved in carrying
H,
578 SUPREME COURT REPORTS [ 1986 ] 1 S. C•R.
A out the object of general public utility is to~·
subserve the charitable purpose or to earn profit.
Where profit-making is the predominant object of
the activity, the purpose, though an object of
general public utility, would cease to be a chari-
table purpose. But where the predominant object of
the activity is to carry out the chgritable purpose
B and not to earn profit, it would not lose its
character of a charitable purpose merely becaus~
some profit arises from the activity. The exclu-
sionary clause does not require that the activity
liJJSt be carried on in such a manner that it does
not result in any profit. It would indeed be di~fi
c cult for persons in charge of a trust or institu-
tion to so carry on the activity that the expendi-
ture balances the income and there is no resulting
profit. That would not only be difficult of practi-
cal realisation but would also reflect unsoundr
principles of management." •-
D
The position as stated above in the above case was
reiterated by this Court in Comadssiooer of Income-tax, Bombay
v. Bar Council of Mabarashtra, [ 1981] 130 I. T. R. 28, 33-34,
S.C. In that case this Court said :
E "It may be noticed that whereas any object of
general public Ut·ility was included in the
definition of 'charitable purpose' in the 1922 Act,
the present definition has inserted the restrictiv~
words 'not involving the carrying on of any
activity for profit' which qualify or govern the
I
F last head of charitable purpose. In CIT v. Andhra ·
Chamber of Commerce, [1965] 55 I.T.R. 722, a case
decided by this Court under the 1922 Act, where the
• restrictive words were absent, this court laid down
that if the primary or dominant purpose of a trust
or institutiGm was charitable, any other object
G which by itself might not be charitable but whid~_,.--
was merely ancillary or incidental to the primary
or dominant purpose would not prevent the trust or
institution from being a valid charity. After the
addition of the restrictive words in~he definition
in the 1961 Act, this court in Addl. CIT v. Surat
C.I.T. v. STATE [MADON, J} 579
A
art Silk Cloth Manufacturers Association [1980] 121
I.T.R. 1 affirmed that the aforesaid test of
primary or dominant purpose of a trust or
institution still holds good, that the restrictive
words qualify 1 object 1 and not the advancement or
accomplishment thereof and that the true meaning of. B
the restrictive words was that when the purpose of
a trust or institution was the advancement of an
object of general public utility it was that object
of general public utility and not its accomplish-
ment or carrying out which tDJSt not involve the.
carrying on of any activity for profit. And, apply-
ing these tests, trading bodies like Andhra Chamber c
of Commerce and Surat Art Silk Cloth Manufacturers
Association have been held to be institutions cons-
tituted with a view to advance an object of general
public utility because their primary or dominant
purpose was to promote and protect industry, trade
'"-I'· and commerce either generally or in certain commo- D
dities, even though some benefit through some of
their activities did accrue to their members Which
was regarded as incidental and this Court held that
the income derived from diverse sources by these
institutions (rental income from property in the
case of Andhra Chamber of Commerce and income from E
annual subscriptions collected from its members and
commission of a certain percentage of the value of
licences for import of foreign yam and quotas for
purchase of indigenous yarn obtained by the asses-
see from its members in the case of Surat Art Silk
Cloth Manufactuc-ers Association) was exempt from F
tax liability under s. 11 of the Act."
It was contended on behalf of the Appellant that the
Respondent Corporation was not entitled to any exemption as
claimed by it because its activities were carried on profit as
shown by sections 22, 23 and 28 of the RTC Act. In fairness to G
/"~,.learned Counsel for the Appellant it must be stated that in
·view of the Judgment of the Judicial Committee of the Privy
Council in In re 'Die Trustees of 'Die 'Tribune', [1939] 7
I. T.R. 415 P.C. in which it was held that where an activity
carried on with the object of general public utility did no~
cease to be charitable in character even though it was carried H
580 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
on on commercial lines with the object of earning profit, the ~
concentration of the attack was on the exemption claimed in
respect of the assessment year 1962-63 which was covered by ~··
the 1961 Act. The above contention entails an examination of
the relevant provisions of the RTC Act. The objects for which
a Road Transport Corporation is established by a State Govern-
B ment are set out in section 3. These objects are :
(a) the advantages offered to the public, ttade and j-
industry by the development of road transport;
(b) the desirability of co-ordinating any form or
c road transport with any other form of transport;
and
(c) the desirability of extending and improving the
facilities for road transport in any area and of
pro,.iding an efficient and economical system of ~
D road transport service therein. ,_
These were, therefore, the objects for which the Respondent
Corporation was established. Section 18 reiterates the above
objects. It provides as follows :
E "18. General duty of Corporation.-
It shall be the general duty of a Corporation so to
exercise its powers as progressively to provide or .\'P
secure or promote the provision of an efficient, '
adequate, economical and properly co-ordinated •
F system of road transport services in the State or
part of the State for which it is established and
in any extended area:
X X X X
G Section l9 enumerates the powers of a Road Transport
Corporation. They include the power to operate road transport 1---f
services in the State and in any extended area and to provide
for any ancillary service. Section 22 provides as follows :
I
"22. General principle of Corporation's finance.-
H
C.I.T. v. STATE [MAOON, J] 581
- It shall be the general principle of a Corporation
that in carrying on its undertaking it shall act on
busine~s principles."
A
Under sub-section· ( 1) of section 23, the capital of a Road
Transport Gorporation is to be provided by the Central B
Government and the State Government in such proportion as may
be agreed to by both the Governments. Under sub-section (2) of
~ section 23, where the capital of a Road Transport Corporation
II" is not provided by the Central Government or the State
Government, such Corporation may raise such capital by the
issue of shares as may be authorized in that behalf by the
State Government. Under sub-section (3) of section 23, the C
shares are to be subscribed by the Central Government the
State Government and other parties including persons whose
undertakings have been acquired by the Corporation and under
sub-section (6) a Corporation may at any time, with the
~ previous approval of the State Government, redeem the shares
~ issued to the other parties in such manner as may be D
prescribed. Under section 24, if after the issue of such
shares, the Corporation requires additional capital, it may,
with the previous.approval of the State Government, raise such
additional capital by the issue of new shares and the
provisions of section 23 apply to such issue. Under section
25, the shares of a Road Transport Corporation are to be E
guaranteed by the State Government both as to the payment of
the principal and the annual dividend at such minimum rate as
may be fixed by the State Government by notification published
t in the Official Gazette at the time of issuing the shares.
~ , Section 26 authorizes a Road Transport Co.rporation, with the
previous approval of .the State Government, to borrow money in F
the open market for purposes of raising its working capital or
for meeting any expenditure of a capital nature. Section 27
provides that every Road Transport Corporation is to have its
own fund and all receipts of the Corporation are to be carried
thereto and all payments by the Corporation are to be made
therefrom, and that except as otherwise directed by the State G
, ..~Government, all moneys belonging .to that fund are to be
' deposited in the Reserve Bank of India or with the agents of
the Reserve Bank of India or invested in such securities as
may be approved by the State Government. Under section 28
where the capital of a Road Transport Corporation is provided
by the Central Government and the State Government, the Corpo- H
582 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
ration is to pay interest on such capital and where the Corpo--~
ration has raised its capital by issue of shares it is to pay
dividend on such shares at such rate as may, from time to
time, be fixed by the Corporation, subject to any general
limitations which may be imposed by the State Government in
consultation with the Central Government, and such interest
B and dividend are to be deemed to be a part of the expenditure
of the Corporation. Section 30 provides as ·follows
c
''30. Disposal of net profits.-
After making provision for payment of interest and
dividend under section 28 and for depreciation,
reserve and other funds under section 29, a Corpo-
•
ration may utilise such percentage of its net
annual prof its as may be sped.f ied in this behalf
by the State Government for the provision of ame-
nities to the passengers using the road transport ,_
D services, welfare of labour employed by the Corpo- ~
ration and for such other purposes as may be pres-
cribed 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
E in this behalf by the Corporation, may be utilised
for financing the expansion programmes of the Cor-
poration and the remainder, if any, shall be made
over to the State Government for the purpose of
road development.)"
F The bracketed portion in section 30 was substituted for the ·
words "and the balance shall be made. over to the State
Government for the purpose of road development" by the Road
Transport Corporation (Amendment) Act, 1959 (Act No. 28 of
1959).
G It was not disputed that the object of the activity
carried on by the Respondent Corporation was one of general
public utility. What was submitted was that such activity was
carried on for profit as shown by section 22 under which the
Respondent Corporation was enjoined to act on business
principles. It was further submitted that the Respondent
H Corporation could issue shares even to the members of the
C.I.T. v. STATE [MADON, J] 583
A
• public and that dividend would be paid to the shareholders
and, therefore, profit would be made from the activity of the
Respondent Corporation by its owners, namely, the share-
holders. We are unable to accept these submissions.
The submission founded upon section 22 is based upon a B
misunderstanding of what that section provides. A road
Transport Corporation cannot be expected or be required run at
a loss. It is· not established for the purpose of subsfdizing
the public in matters of transportation of passengers and
goods. The objects for establishing a Road Transport Corpora-
tion are those set out in section 3 of the RTC Act which we
have already reproduce~above. Section 18 shows that it is the
duty of a Road Transport Corporation to provide, secure and
c
promote the provision of an efficient, adequate, economical
and properly co-ordinated system of road transport services in
the State. No activity can be carried on efficiently,
properly, adequately or economically unless it is carried on
on business principles. If an activity is carried on on
D
business principles, it would usually result in profit, but as
pointed out by this Court in the Surat Art Silk Cloth Haou-
fac•urers Assoei$tion Case, it is not possible so to carry on
a charitable activity that the expenditure balances the income
and there is no resultant profit, for to achieve this would
not only be difficult of practical realization but would
E
reflect unsound principles of management. What section 22,
therefore, does when it states that it shall be the general
principle of a Road Transport Corporation that in carrying on
t its undertakings it shall act on business principles is to
j emphasize. the objects set out in section 3 for which a Road
Transport Corporation is established and to prescribe the
F
manner in which the general duty of the Corporation set out in
section 18 is to be performed. It is now firmly established by
decisions of this Court in the Surat Art Cloth Manufacturers
Association Case and the Bar Council of Mabarashtra Case that
the test is '~t is the pre-dominant object of the activity
- whether it is to carry out a charitable purpose or to earn G
profit?'' If the pre-dominant object 1.s to carry out a
charitable purpose and not to earn profit, the purpose would
not lose its charitable character merely because some profit
arises from the activity.
H
584 SUPREME COURT REPORTS [1986] 1 S.C.R.
A There is no factual foundation for the submission based
upon section 23(2) and other sections of the RTC Act which
empower a Road Transport Corporation to issue shares including
issuing shares to members of the public and to pay dividend
thereon. It is an admitted position, as pointed out by the
High Court .in its judgment under Appeal, that no share ' capital
B has been raised under section 23(2) and the entire capital has
been provided by the Government under section 23( 1) and the
Government is only paid interest thereon under section 28(1)
just as interest would be paid on any money due as a debt.
That the activity of the Respondent Corporation is not carried
c on with the object of making profit is made abundantly clear
by the provisions of section 30 under .which prior to the
amendment of that section by the Amendment Act of 1959, the
balance of income left, after utilization of the net profits
for the purposes set out in section 30, was to be made over to
D the State Government for the purpose of road development and
after the Amendment Act of 1959 is to be utilized for
financing the expansion programmes of the Respondent
Corporation and the remainder, if any, is to be made over to
the State Government for the purpose of road development. As
pointed out by this Court in Aodhra Pradesh Road Traos{Jbrt
Corporation v. lncoE-tax Officer, B-1 &-Ward, Byderabad aod
Anr. the amount handed over to the State Government does not
become a part of the general revenue of the State but .is
impressed witn an obligation that it should be utilized only
for the purpose for which it is entrusted, namely, road .
development. It is not, and cannot be, disputed that road
F development is an object of general public utility.
For the reasons given above, we hold that the Respondent
Corporation was entitled to the exemption claimed by it both
under the 1922 Act and the 1961 Act.
G In the result, these Appeals fail and are dismissed with
costs.
A.P.J. Appeals dismissed.
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