Kerala High Court
The Food Corporation Of India vs The Angamali Municipality And Anr., ... on 25 March, 1994
Equivalent citations: AIR1995KER94, AIR 1995 KERALA 94, 1994 KERLJ(TAX) 307 (1994) 1 KER LT 977, (1994) 1 KER LT 977
ORDER T.L. Viswanatha Iyer, J.
1. The petitioner in these two petitions under Article 226 of the Constitution is the Food Corporation of India. It challenges the levy of property tax/ building tax under the Kerala Municipalities Act, 1960 (Act 14 of 1961) and the Kerala Panchayats Act 32 of 1960 on buildings belonging to it. I shall state the facts in O.P. No. 5346 of 1992 which relates to the buildings belonging to the petitioner in the Angamaly Municipality, the facts in the other case being similar, the only difference being that the buildings are in Thikkedi Panchayat governed by the Kerala Panchayats Act.
2. The petitioner which is a body Corporate established under the Food Corporations Act, 37 of 1964, has constructed buildings for its purposes within the limits of the Angamaly Municipality. It is not in dispute that the buildings and the land on which they stand, belong to the petitioner. The petitioner had paid the property tax due to the Municipality up to and inclusive of the year 1990-91 without demur, but when demand was raised for the tax for the year 1991-92 as per Ext. P4 series of notices, petitioner objected, and after an appeal to the Municipal Council was rejected for non-compliance with the mandatory condition of payment of the tax due at the rate prevailing in the previous year, for maintaining the appeal, petitioner filed the writ petition challenging the very levy of property tax on its buildings by the Municipality, on the ground that it is violative of Article 285 of the Constitution of India. The petitioner's case is that is a part of the Union Government, its properties are the properties of the Union and therefore beyond the pale of taxation by the State or any authority within the State by virtue of Article 285(1) of the Constitution of India. To adopt the phraseology used by counsel, the petitioner is an "affair of the Union" and not merely one of its instrumentalities, its activities being geared to achieve certain social welfare measures of the Union, including proper distribution of food grains. The question is whether Article 285( 1) confers immunity from State or Municipal taxation on the buildings constructed by, and belonging to, the petitioner.
3. Article 285(1) reads:
"285. Exemption of property of the Union from State taxation: -- (1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or any authority within a State".
4. There is no case for the respondent Municipality that Parliament has enacted any law as envisaged in Article 285(1). Their contention is that the immunity from tax under the said Article is available only to property of the Union, and not to property of its instrumentalities, or entities, which have a separate juristic personality of their own. The question is which of these contentions is correct for which it is necessary to understand the precise nature of the Constitution of the petitioner Corporation. I shall refer to some of the provisions of the Food Corportion Act (the Act) under which it is established.
5. The preamble to the Act states that it is intended to provide for the establishment of Food Corporations for the purpose of trading in foodgrains and other foodstuffs and for matters connected therewith and incidental thereto. Section 3 provides that the Central Government shall establish for the purposes of the Act, a Corporation known as the Food Corporation of India with effect from such date as it may, by notification in the official gazette, specify in that behalf. Sub-section (2) states that the Corporation shall be a body corporate with the aforesaid name, having perpetual succession, and a common seal, with power, subject to the provisions of theAct, to acquire, hold and dispose of property, and to contract, and to sue, and be sued, by that name. Section 5 deals with the capital of the Corporation. The original capital shall be a sum not exceeding one hundred crores of rupees as the Central Government may fix. But the Central Government may from time to time increase the capital to such extent and in such manner as it may determine. The capital may be provided by the Central Government from time to time after due appropriation made by Parliament by law for the purpose and subject to such terms and conditions as may be determined by the Government. Section 6 deals with the Management of the Corporation and Subsection (2) thereof says that the Board of Directors shall act on business principles in discharging its functions, having regard to the interests of the producer and the consumer besides being guided by such instructions on questions of policy as may be given to it by the Central Government. Section 7 deals with the constitution of the Board of Directors, the members of which except one, shall all be appointed by the Central Government.
6. I shall now turn to Section 26 which requires the Food Corporation of India to prepare a statement of programme of its activities for the ensuing year as well as a financial estimate in respect thereof before the commencement of each year, and to submit it to the Central Government for approval within the period specified.
7. Section 33 deals with the application of surplus profits of the Food Corporation and it requires the Food Corporation to establish a reserve fund to which shall be credited every year such portion of its annual net profits as the Corporation may think fit. After making such provision for the reserve fund, and for bad and doubtful debts, depreciation in assets, and the other matters mentioned, the balance of the annual net profits shall be paid to the Central Government. Section 34(3) states that the auditors of the Food Corporation shall be appointed by it annually from among the list of auditors approved by the Central Government, on the advice of the Comptroller and Auditor-General of India.
Section 35 requires the Corporation to submit to the Central Government an annual report on its working and affairs. The Central Government shall on receipt of such report, cause such report and the audit report made under Section 34 together with any comments thereon by the Comptroller an Auditor General of India to be laid before both Houses of Parliament. The next important section to which reference as to be made is Section 42 which lays down that for the purposes of the Income-tax Act, 1961 or any other enactment for the time being in force relating to income-tax, super tax or any other tax on income, profits or gains, the Food Corporation shall be deemed to be a company within the meaning of the Income-tax Act, 1961 and shall be liable to tax accordingly on its income, profits and gains. Section 43 provides that the provisions relating to the winding up of companies or corporations shall not apply to the Food Corporation and that it shall not be placed in liquidation except by an order of the Central Government and in such manner as that Government may direct. The only other section requiring advertance is Section 45 which empowers the Food Corporation to make regulations to provide for all matters for which provision is necessary or exepedient for the purpose of giving effect to the provisions of the Act.
8. It is the case of the petitioner, with reference to these provisions, that the Food Corporation is the Central Government itself in one of its many manifestations. Particular reference is made to the fact that even its finances are provided and controlled by the Central Government, as also the further provision to make over the surplus profits to the Central Government. On the other hand, counsel for the Municipality stressed on the fact that the petitioner Food Corporation is a body corporate with a soul of its own, with power to acquire, hold and dispose of property, with a management policy of its own, based on commercial principles, which is made liable for even payment of income-tax under Section 42. It is stated, for these reasons that whatever may be the control exercised by the Central Government, the petitioner is an entity quite different from the Union Government not entitled to the benefits of Article 285( 1) in relation to its property.
9. I heard counsel for the petitioner Sri. Jayakumar, as also counsel for the Angamali Municipality and the Thikkodi Panchayat. I had also the benefit of hearing Sri P.O. Chacko and Sri. K.P.G. Menon, counsel appearing for the Corporations of Kochi and Calicut, who appeared in the related writ petitions, which were heard along with these two cases, but in respect of which I am passing separate orders referring them to A Division Bench for hearing because of some other questions arising therein.
10. Section 3(2) provides that the Food Corporation of India (hereinafter referred to as the Corporation) shall be body corporate with perpetual succession and a common seal, with power to acquire, hold and dispose of property. It is quite clear from this provision that the Corporation has a distinct personality of its own, apart from the Central Government, and that any property held by it is its own. The property does not vest in the Central Government. It is liable to be held and dealt with by the Corporation without reference to the Central Government at all. The precise nature of the Corporation was considered by the Supreme Court in State of Punjab v. Raja Ram, AIR 1981 SC 1694, where the question was whether the Corporation was a Government department as contended by it, or a "company" falling within Section 3(e) of the Land Acquisition Act 1894. After a conspectus of the various provisions of the Food Corporation Act, the Supreme Court held that the Corporation was not a Government department. A Government department has to be an organisation which is not only completely controlled and financed by the Government, but has also no identity of its own. The money earned by such a department goes to the exchequer of the Government, and losses incurred by the department are losses of the Government. The Corporation on the other hand is an autonomous body capable of acquiring, holding and disposing of property, and having the power to contract. It may also sue and sued in its own name and the Government does not figure in any litigation to which it is a party. It is true that its original share capital is provided by the Central Government and that many of the members of its Board of Directors are appointed by that Government. But the Act has given the Corporation an individuality, apart from the Government, so that it cannot be equated with the Central Government though it may be an agency or instrumentality thereof. It was accordingly held that the Corporation was a "company", and therefore compliance with the provisions of Chapter VI of the Land Acquisition Act was necessary in order to lawfully acquire any land for its purposes.
11. The Supreme Court had occasion to deal with Government companies incorporated under the Companies Act and the claim for immunity from taxation under Article 285 in the decision in Western Coalfields Ltd. v. Special Area Development Authority, AIR 1982 SC 697. The question was whether property tax was leviable by a local authority on the lands and buildings belonging to the two companies incorporated under the Companies Act; but the share capital of which was wholly contributed by the Government of India. In that context, it was held that, as companies incorporated under the Companies Act, they had a distinct corporate personality of their own distinct from the Government of India. Their property was their own and it vested in them. Therefore their property was not immune from Municipal taxation. The Supreme Court observed that the Government of India only owned the share capital while the lands and buildings were vested in and owned by, the Companies. Reliance was placed on the observations in Rustom Cavasjee Cooper v. Union of India, AIR 1970 SC 564 that property of the Company was not the property of the shareholders to hold that the contribution of the share capital in is entirely by the Government of India did not imply that the properties were owned by the Government. The decision in Heavy Engineering Mazdoor Union v. State of Bihar, AIR 1970 SC 82, a case under the Industrial Dispute Act, is to the like effect.
12. The Orissa High Court had earlier held likewise in Western Coal Fields Ltd. v. Notified area Council, AIR 1981 Orissa 18. The company concerned was the Western Coalfields Ltd. itself, which figured before the Supreme Court in the case already referred to, though that case arose from Madhya Pradesh in similar circumstances. The Orissa High Court dealt with the same question of immunity of its properties from taxtion under Article 285 of the Constitution of India and negatived it. After referring to the decision in Sukhdev Singh v. Bhagatram, AIR 1975 SC 1331 and Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628, Ranganath Misra, C.J., as he then was, observed for the court that a company incorporated under the Companies Act is different from the State, though it is wholly owned by it.
13. The same ratio governed the decision of the same court in another case Paradip Port Trust v. Notified Area Council, AIR 1990 Orissa 145, which related to the lands and buildings which belonged to the Central Government and which vested in the Paradip Port Trust, under Section 29 of the Major Port Trusts Act, 1963. The court held that by such vesting the Union Government had ceased to be the owner of the properties and therefore the Port Trust cannot claim immunity for them from levy of tax based on Article 285 of the Constitution. I may however mention that the Gujarat High Court took a different view about the scope of Section 29 of the Major Port Trusts Act in State of Gujarat v. Board of Trustees of the Port of Kandla, (1979) 20 Guj LR 732 : (1979 Tax LR NOC 109) and held that the vesting contemplated thereunder was only of purposes of administration and that the land and buildings continued to belong to the Central Government; thereby attracting the immunity under Article 285 of the Constitution. It is noteworthy however that the difference of opinion turned on the interpretation of Section 29 of the Major Port Trusts Act, whether it vested the properties on the Port Trusts or not and not on any question of principles relating to Article 285.
14. In International Airport Authority of India v. Municipal Corporation, AIR 1991 Delhi 302, a view similar to that of the Orissa High Court in Paradip Port Trust case (AIR 1990 Orissa 145) was taken in relation to properties of the Central Government which had vested in the International Airport Authority of India under the International Airport Authority Act, 1971.
15. A case directly in point relating to the properties of the Food Corporation of India itself is that of the Madhya Pradesh High Court in Administrator, Municipal Council, Durg v. Additional Property Tax Commissioner, Madhya Pradesh, 1980 Jab LJ 202, the Court holding that the properties of the Corporation are not exempted from taxation under Article 285 of the Constitution. Though not exactly in point a position analogous to this arose for consideration in Andhra Pradesh State Road Transport Corporation v. Income-tax Officer, AIR 1964 SC 1486, a case which arose under Article 289 of the Constitution. The question was whether the income of the Andhra Pradesh State Road Transport Corporation was exempt from tax under Article 289 as income of a State. Negativing the claim Gajendragadkar, C.J. held that the scheme of Article 289 appeared to be that ordinarily the income derived by a State both from governmental and non-governmental or commercial activities shall be immune from income-tax levied by the Union, but when the commercial activity in question was carried on by a Corporation, the same principle could not be applied. The Corporation though statutory, had a personality of its own which was distinct from that of the State, or the other share-holders. A share-holder does not own the property of the Corporation, nor does he carry on the business with which the Corporation is concerned. The income derived by the Road Transport Corporation from its trading activity is therefore not income of the State, exempt from taxation under Article 289.
16. I may conclude my reference to the authorities by referring to the observations of Lord Denning in Tamlin v. Hannaford, (1950) 1 KB 18, which appear to be apt in the circumstances:
"In the eye of the law, the Corporation is its own master and is answerable as fully as any other person or Corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt are public purposes, but it is not a Government department nor do its powers fall within the province of Government,"
17. It is evident from these decisions that the Food Corporation, though a statutory Corporation, is distinct and different from the Union Government, though the Union Government provided the capital for its working, and though it may be an instrumentality of the State for the purpose of Part III of the Constitution. The statute establishing it has itself imparted it with a distinct legal personality, apart from the Government with separate Management on business principles. The properties are owned by it and not by the Central Government. Its affairs, funds and properties are managed by itself and its income is subject to assessment to income-tax. The Central Government is not answerable for its liabilities, nor are its employees, officers of the Government. The Corporation is not therefore a department of the Central Government as contended. (The decision of the Andhra Pradesh High Court rendered on June 12, 1979, in M.N.N. Pillaiv. P.V.R. Kutty Menon, (1979) 2 APLJ (HC) 269 turned on the meaning of the expression "affairs of the Union" in Section 197(1) of the Cr.P.C. and does not in any manner advance the case of the petitioner). If that were the intention, there was no necessity for constituting a separate Corporation at all. The very purpose of constituting the Corporation appears to have been to afford flexibility in its Management on business principles, subject of course to the parament interests of the producer and the consumer. The properties of the Corporation are not therefore immune from tax under Article 285(1) of the Constitution.
18. This is sufficient to dispose of these two writ petitions, in which all the buildings concerned belong to the petitioner Food Corporation, and in respect of which the petitioner has been withholding payment of the property/building tax due to the Municipality and the Panchayat. The refusal to pay the tax demanded from the petitioner is not warranted by Article 285(1) of the Constitution of India.
19. The writ petitions are therefore dismissed. There will be no order as to costs.