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Calcutta State Transport Corporation v. Commissioner Of Income-Tax, West Bengal-Iv.
Factual and Procedural Background
The present reference arises under section 256(1) of the Income-tax Act, 1961, initiated by the assessee, Calcutta State Transport Corporation, in relation to assessment year 1962-63 (previous year 1961-62). The Corporation was established by a Government of West Bengal notification dated 10 June 1960 and commenced functioning from 15 June 1960 under the Road Transport Corporations Act, 1950, as amended by the West Bengal Amendment of 1959.
For assessment year 1961-62 the assessee had been assessed to income-tax in the status of an individual and that assessment became final. In assessment year 1962-63 the Income-tax Officer again assessed the assessee as an individual. The assessee challenged both the assessment and the status on appeal. The Appellate Assistant Commissioner confirmed the Income-tax Officer's order. On further appeal, the Tribunal held that although the assessee was an authority legally entitled to control or manage its own fund under section 27 of the Road Transport Corporations Act, 1950, that fund was not a “local fund” within the meaning of section 3(31) of the General Clauses Act, despite a State notification under rule 11 of the West Bengal State Road Transport Corporations Rules, 1960. The Tribunal concluded that the assessee was not a “local authority” and therefore its income was not exempt under section 10(20) of the Income-tax Act.
Separately, the assessee claimed deductions for contributions to Employees' contributory provident and gratuity funds. The Income-tax Officer disallowed the deductions on the ground the funds were not approved under the Act; the Appellate Assistant Commissioner upheld the disallowance on the ground there was no irrevocable trust. The Tribunal found no irrevocable trust and that mere investment of amounts in Government securities did not strip the assessee of proprietary rights; hence the deductions were disallowed.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is not a “local authority” as contemplated by section 2(31)(vi) of the Income-tax Act, 1961?
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is not entitled to an allowance for its contribution to the Employees' provident and gratuity funds?
Arguments of the Parties
Assessee's Arguments (Mr. S. Mitra)
- The assessee was a statutory corporation established under the Road Transport Corporations Act, 1950 and the Road Transport Corporations (West Bengal Amendment) Act, 1959, and governed by West Bengal rules of 1960 (notably sections 23, 27 and 32 of the central Act and rules 11–18 of the State rules).
- Under section 27 the corporation has its own fund; rule 11 allowed the fund to be specially notified as a “local fund” under S.R. 439 of the Treasury Rules (West Bengal). On that basis the assessee satisfied the tests of a “local authority” and thus its income should be exempt under section 10(20) of the Income-tax Act.
- On the deductions issue, the contributions to Employees' provident and gratuity funds were laid out wholly and exclusively for the purpose of the business and so should be allowed as business expenditure; cited authorities (including decisions from High Courts and the Supreme Court) were relied upon to support this submission.
- Invoked precedents and statutory provisions to distinguish adverse authorities, and referred to Privy Council dicta (Ogden Industries) urging care in confining judicial observations to precise factual contexts.
Revenue's Arguments (Mr. S. Sen)
- The decisions cited by the assessee (including High Court and Supreme Court authorities) are binding and support the position that the corporation is not a “local authority” for purposes of exemption under the Income-tax Act; the Court should follow those precedents.
- Cited authorities addressing the meaning of “authority”, “local authority” and the scope of article 12 of the Constitution (including Kartick Chandra Nandi and Rajasthan State Electricity Board v. Mohan Lal) to show statutory corporations that do not exercise governmental/quasi-governmental regulatory powers may not qualify as “local authority” for varied statutory contexts.
- On the funds/deduction point, relied on the factual finding of absence of any irrevocable trust; mere investment in Government securities does not convert the fund into an irrevocable trust or extinguish proprietary rights, so the claimed deduction must be disallowed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Andhra Pradesh State Road Transport Corporation v. Income-tax Officer [1963] 47 ITR 101 (AP) | Whether a State Road Transport Corporation with state-wide operations is a “local authority”; effect of Government notification declaring funds as a local fund. | Court noted the High Court's view (based on concession) that a corporation with operational jurisdiction across the State is excluded from “local authority”; government declaration of fund for remittance advantages does not make it a local authority. The Calcutta Bench relied on the case distinctions in addressing the local authority point. |
| Andhra Pradesh State Road Transport Corporation v. Income-tax Officer [1964] 52 ITR 524 (SC) | Further consideration of the local authority question and related contentions; Supreme Court noted concession that corporation was not a local authority. | The Supreme Court recorded the concession that the appellant was not a local authority and considered other contentions; the Calcutta Bench treated the concession and High Court reasoning as instructive in construing “local authority”. |
| Valjibhai Muljibhai Soneji v. State of Bombay AIR 1963 SC 1890 | Meaning of “local authority” (as defined in section 3(31) of the General Clauses Act) and whether a State Transport Corporation is a local authority for purposes of the Land Acquisition Act. | The Supreme Court held the State Transport Corporation was not a “local authority”; the Calcutta Bench relied on that principle that an entity must be an “authority” and show control/management of a local fund before qualifying as a local authority. |
| Ogden Industries Ply. Ltd. v. Heathar Doreen Lucas [1970] AC 113 (PC) | Judicial statements on statutory construction must be confined to precise issues; caution not to treat judicial remarks as supplanting statutory text. | Quoted by the assessee to urge careful reliance on prior observations; the Court noted the citation but applied independent statutory construction and precedent analysis. |
| Kartick Chandra Nandi v. West Bengal Small Industries Corporation Ltd. AIR 1967 Cal 231 | Interpretation of “authority” and “local authority” in article 12 and related contexts; tests for being an “authority”. | The Court relied on the tests articulated in this decision (e.g., power to make rules/bye-laws, exercise governmental-type powers) and found those tests not satisfied by the assessee. |
| Rajasthan State Electricity Board v. Mohan Lal AIR 1967 SC 1857 | Scope of “other authorities” in article 12; rejects rigid ejusdem generis approach and recognises statutory authorities with quasi-governmental powers as within article 12. | Court considered the decision to clarify that “authority” can be wide, but distinguished the present assessee because it did not exercise quasi-governmental powers or statutory regulatory powers; used the reasoning to show the assessee fails the “authority” test. |
| Commissioners of Inland Revenue v. Forth Conservancy Board [1931] 16 TC 103 (HL) | English law observations on why rating authorities' income were exempt from taxation (historical/contextual background). | Cited for observation only; the Court found the English decision not materially helpful given factual and legal differences between jurisdictions. |
| Official Liquidator v. Mysore State Electricity Board ILR 1961 Mys 434 | Whether State Electricity/Housing Boards are “local authorities” within the General Clauses Act. | Noted as a decision where the Mysore High Court held such Boards were not local authorities; used as supporting judicial authority for the proposition that statutory corporations may not qualify as local authorities. |
| Commissioner of Income-tax v. Myore Spinning & Manufacturing Co. Ltd. [1970] 78 ITR 4 (SC) | Permissibility of certain employer contributions being allowed as business expenditure (context of employees' funds). | Cited by the assessee on the deductions issue, but the Court observed the facts in that Supreme Court case differed from the present facts and therefore it did not resolve the issue in favour of the assessee here. |
| Madho Mahesh Sugar Mills (P.) Ltd. v. Commissioner Of Income-Tax [1973] 92 ITR 503 (All) | Whether actuarially ascertained liability for gratuity is a present liability and allowable as business expenditure. | Cited by the assessee for the deductibility principle; the Court noted the case but held on the present facts (no irrevocable trust) the Tribunal's conclusion in favour of revenue stands. |
| India United Mills Ltd. v. Commissioner of Income-tax [1975] 98 ITR 426 (Bom) | Cases on deductibility of employer contributions / nature of liabilities to employees. | Cited by the assessee; the Court recorded the citation but held the factual finding—absence of irrevocable trust—decisive against the assessee. |
| Commissioner of Income-tax v. High Land Produce Co. Ltd. [1976] 102 ITR 803 (Ker) | Case law touching on employer contributions and related tax consequences. | Cited by the assessee; the Court stated these decisions did not advance the assessee's position given the particular factual findings in the instant case. |
| Nambooripad v. Cochin Devaswom Board AIR 1956 Trav-Coch 19; University Of Madras v. Shantha Bai AIR 1954 Mad 67; Sarangapani v. Madras Port Trust AIR 1961 Mad 234; Kishan Singh v. State of Punjab AIR 1961 Punj 1; S.K. Mukherjee v. Chemicals and Allied Products AIR 1962 Cal 10; Mohan Lal v. State AIR 1966 Raj 1; Paramatma v. Chief Justice AIR 1964 Raj 13; Devadas v. Karnatak Engineering College AIR 1964 Mys 6 | Authorities addressing the scope of “authority”/“other authorities” (particularly in article 12 contexts) and tests for constitutional/statutory authority status. | Cited within the Court's discussion of what constitutes an “authority” or “other authority”; the Court used the principles distilled from these authorities to conclude the assessee did not satisfy the tests for being an “authority” for the purposes relevant to the Income-tax Act exemption. |
Court's Reasoning and Analysis
The Court's analysis proceeded in two main steps corresponding to the two questions referred.
Step 1 — Meaning and application of “local authority” for s.10(20) exemption:
- The Income-tax Act does not define “local authority”; consequently the Court applied the definition in section 3(31) of the General Clauses Act, 1897, which defines “local authority” as a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund.
- The Court observed (drawing on Valjibhai Muljibhai Soneji and other authorities) that before an entity can be a “local authority” it must first be shown to be an “authority”. Because the General Clauses Act does not itself define “authority”, the Court examined judicial interpretations and tests developed in earlier cases (for example, whether the body exercises quasi-governmental or governmental powers, can issue enforceable directions, can make regulations with force of law, or otherwise possesses attributes of public authority).
- Applying those tests to the Calcutta State Transport Corporation, the Court found the assessee to be a juristic person with independent legal existence, but that it did not exercise quasi-governmental or governmental powers: it had no power to issue enforceable directions punishable by law, no statutory power to make regulations or bye-laws with force of law, and many internal matters remained in the absolute control of the State.
- Therefore the assessee did not satisfy the “authority” element and could not qualify as a “local authority” under section 2(31)(vi) read with section 10(20) of the Income-tax Act. The Court noted that, although the fund had been notified by the State under S.R. 439 as a “local fund”, the effect and purpose of that notification was unclear and was insufficient to convert the corporation into a “local authority” where the “authority” element was absent.
Step 2 — Deductibility of contributions to provident and gratuity funds:
- The factual finding by the Tribunal (accepted by the Court) was that the employees' provident and gratuity funds were not constituted by any irrevocable trust; only some money was set apart by investing in Government securities.
- The Tribunal held, and the Court agreed, that mere investment in Government securities did not amount to divesting proprietary rights or creating an irrevocable trust. Consequently, the payments did not constitute an irrevocable expenditure within the meaning invoked and were not deductible.
- The Court noted the cases cited by the assessee on deductibility and actuarially ascertained liabilities but concluded that the particular factual finding—absence of irrevocable trust—was decisive and required answering the question in favour of the revenue.
Throughout its reasoning the Court referred to and applied relevant statutory provisions (Income-tax Act sections 2(31)(vi) and 10(20); General Clauses Act s.3(31); constitutional interpretive principles) and prior judicial authorities to test whether the assessee met legal criteria for being an “authority” and/or having a “local fund”, and whether the funds in question met the legal character needed for the claimed deductions.
Holding and Implications
Holding: The Court answered both referred questions in the affirmative and in favour of the Revenue. In other words, the Tribunal was correct in holding that the assessee is not a “local authority” within section 2(31)(vi) read with section 10(20) of the Income-tax Act, 1961, and the Tribunal was correct in holding that the assessee was not entitled to an allowance for its contributions to the Employees' provident and gratuity funds.
Implications:
- Direct effect on the parties: The assessee's claim for exemption under section 10(20) is rejected; the assessment treating the assessee in the status of an individual stands. The claimed deductions for contributions to the employees' provident and gratuity funds are disallowed on the facts found (absence of irrevocable trust).
- The Court's decision rested on statutory interpretation of “local authority” via the General Clauses Act and on the factual finding as to the nature of the funds; the opinion does not assert the creation of any new broad precedent beyond applying existing tests and authorities to the facts of this case.
- No order as to costs was made in the reference.
The Judgment of the Court was delivered by
Dipak Kumar Sen, J.:— This reference under section 256(1) of the Income-tax Act, 1961, is at the instance of the Calcutta State Transport Corporation, the assessee. The assessment year involved is 1962-63, the relevant previous year being the financial year 1961-62. The facts found or admitted in the statement of the case and the annexures thereto are as follows:
By a notification dated the 10th June, 1960, issued by the Government of West Bengal, under the Road Transport Corporations Act, 1950, as amended by the Road Transport. Corporations (West Bengal Amendment) Act, 1959, the assessee was established and commenced functioning with effect from the 15th June, 1960.
2. In the assessment year 1961-62, the assessee was assessed to Income-tax for the first time in the status of an individual. This assessment was not disputed and became final. In the assessment year 1962-63, relevant in this reference, the Income-tax Officer again assessed the assessee in the same status. This time, the assessee challenged the assessment as also the status as determined by the Income-tax Officer and went up on appeal. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.
3. In further appeal to the Tribunal, it was claimed by the assessee that it was a local authority within the meaning of Section 2(31)(vi) of the Income-tax Act, 1961, and as such its income was exempt from income-tax under section 10(20) of the Act.
4. The Tribunal found that the assessee was an authority and legally entitled to the control or management of its own fund created under section 27 of the Road Transport Corporations Act, 1950. The Tribunal, however, held that the fund controlled by the assessee was not a “local fund” within the meaning of section 3(31) of the General Clauses Act in spite of the notification issued under rule 11 of the West Bengal State Road Transport Corporations Rules, 1960.
5. The Tribunal observed that under the notification of the Government of West Bengal dated the 10th June, 1960, the area of the operations of the assessee comprising of Calcutta and its suburbs could not also be termed as local as each suburb had its own local character.
6. In the premises, it was held by the Tribunal that the assessee was not a “local authority” and its income could not be exempt under section 10(20) of the Act.
7. The assessee had also claimed deductions for contributions made to its Employees' contributory provident fund and gratuity fund. The Income-tax Officer disallowed such claims for deduction on the ground that the funds in question were not approved in accordance with the provisions of the Act. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer on the ground that there was no irrevocable trust in respect of the said funds.
8. The Tribunal found that in the absence of an irrevocable trust the assessee had not lost its proprietary rights over Such funds and mere investment of the said funds in Government securities was not by itself sufficient to entitle the assessee to claim deduction.
9. From the order of the Tribunal the following questions have been referred to us:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is not a ‘local authority’ as contemplated by section 2(31)(vi) of the Income-tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the T???ibunal is right in holding that the assessee is not entitled to an allowance for its contribution to the Employees' provident and gratuity funds?”
10. It will be convenient to set out here some of the relevant statutory provisions placed before the authorities below. Section 2(31)(vi) of the Income-tax Act, 1961, reads as follows:
“In this Act, unless the context otherwise requires,—
‘person’ includes—……
(vi) a local authority.”
11. Section 10(20) of the said Act provides as follows:
“In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—…
(20) the income of a local authority which is chargeable under the head ‘interest on securities’, ‘Income from house property’, ‘Capital gains’, or ‘income from other sources’ or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service within its own jurisdictional area.”
12. Article 367(1) of the Constitution reads as follows:
“367. (1) Unless the context otherwise requires, the General Clauses Act, 1897, shall, subject to any adaptations and modifications that may be made therein under article 372, apply for the interpretation of this Constitution as it applies for the interpretation of an Act of the Legislature of the Dominion of India.”
13. section 3(31) of the General Clauses Act (Central) is as follows:
“3. (31) ‘local authority’ shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund.”
14. Mr. S. Mitra, learned counsel for the assessee, has drawn our attention to various provisions of the Road Transport Corporations Act, 1950, The Road Transport Corporations (West Bengal Amendment) Act, 1959, and the West Bengal State Road Transport Corporations Rules, 1960. In particular, he has relied on sections 23, 27 and 32 of the Road Transport Corporations Act, 1950.
15. Section 23 provides for allotment of capital to road transport corporations by the Central and the State Government. The corporation is also empowered to raise capital by issuing shares on the authority of the State Government in consultation with the Central Government.
16. Section 27 authorises a corporation to have its own fund in which all amounts paid will be received by and from which all payments by a corporation will be made.
17. Section 32 provides for the budget of a corporation to be approved by the State Government which will be adhered to by the corporation.
18. Clause (a) of section 47B(1) and 47B(2) of the Road Transport Corporations (West Bengal Amendment) Act, 1959, relied on by Mr. Mitra contain further provisions for regulation and management of the properties and capital of such a corporation in West Bengal.
19. The relevant rules framed by the Government of West Bengal are rules 11, 12, 13, 14, 15 and 18. Rules 11 and 18 relate to the fund of a corporation and read as follows:
“11. Stale Transport Corporation fund.—(1) The Corporation shall??? a fund under section 27 called by such name as may be specified by the Corporation which may be specially notified as a local fund under S.R 439 of the Treasury Rules, West Bengal, volume I.
(2) Except as otherwise directed by the State Government and subject to the investment in securities as provided for in rule 23, the monies belonging to the said fund shall be deposited in the Reserve Bank of India, Calcutta, or with the agents of the Reserve Bank of India.”
“18. All monies received by the Corporation on account of its revenue receipts, loans or advances due to it shall without undue delay be credited to the fund referred to in sub-rule (1) of rule 11.”
20. Rules 12, 13, 14 and 15 regulate the controlled budget of a corporation and expenditure made by a corporation thereon.
21. On the strength of the aforesaid statutory provisions, Mr. Mitra contended that the assessee was not only an authority functioning directly under the control and guidance of the Government but was also entitled to the control and management of a local fund. The assessee according to him fulfilled all the tests of a local authority. Mr. Mitra drew our attention to a number of decisions of various High Courts and the Supreme Court. Many of the said decisions were not in the assessee's favour but he cited the same in order to distinguish them from the case before us in this reference. We deal with the decisions cited in their chronological order.
22. The first was the case of Andhra Pradesh State Road Transport Corporation v. Income-tax Officer [1963] 47 ITR 101 (AP). Mr. Mitra contended that in this case the learned Advocate-General of Andhra Pradesh appearing on behalf of the Andhra Pradesh State Road Transport Corporation conceded the point. The observations of the High Court, made on the basis of such concession (at page 109 of the report), read as follows:
“In our view, the provisions of section 4(3)(iii) of the Income-tax Act itself by the use of the words ‘within its own jurisdictional area’ excludes a corporation such as this which has operational jurisdiction in the whole of the State, from being a local authority. The expression ‘local authority’ has not been defined in the Income-tax Act, but clause (31) of section 3 of the General Clauses Act, inter alia, defines it as an authority with the control of or management of a municipality or local fund. It is submitted that since the Government has declared the funds of the corporation to be a local fund in its Notification G.O Ms. No. 522 dated May 16, 1958, the corporation is a local authority. As pointed out by the Income-tax Officer, the declaration of the Government is specifically for the purposes of free remittance facilities under the remittance facilities scheme of the Reserve Bank of India and not for all purposes. It is an advantage given to this corporation, but that by itself does not in any view of the matter make it a local authority.”
23. The next decision cited was in the above case in appeal before the Supreme Court, Andhra Pradesh State Road Transport Corporation v. Income-tax Officer, reported in [1964] 52 ITR 524 (SC). It was again not contended before the Supreme Court that the Corporation was a local authority. The argument proceeded on another basis. The Supreme Court noted the concession (at page 536 of the report) as follows:
“There is one more point which was faintly argued before us by the learned Advocate-General. He frankly told us that he did not propose to challenge the correctness of the conclusion recorded by the High Court that the appellant is not a local authority; but he was not prepared to give up his contention that there is repugnancy between the charging section of the Income-tax Act and sections 29 and 30 of the Act.”
24. The next decision was in the case of Valjibhai Muljibhai Soneji v. State of Bombay reported in AIR 1963 SC 1890. In this case the Supreme Court did consider the meaning of the expression “local authority”. The dispute before the Supreme Court arose in a suit where the owners challenged the proceedings initiated by the Government of Bombay to acquire their land for the purpose of constructing a bus depot and office and other buildings for the State Transport Corporation. The relevant section of the Land Acquisition Act in question provided as follows:
“Subject to the provisions of Part VII of this Act, when the appropriate Government is satisfied, after considering the report, if any, made under section 5A, sub-section (2), that any particular land is needed for a public purpose, or for a company, a declaration shall be made to that effect under the signature of a Secretary to such Government or of some officer duly autho???ised to certify its orders:
Provided that no such declaration shall be made unless the compensation to be awarded for such property is to be paid by a company or wholly or partly out of public revenues or some fund controlled or managed by a local authority.”
25. One of the points urged before the Supreme Court was that the said section of the Land Acquisition Act could only apply if the State Transport Corporation was held to be a local authority. The Supreme Court did not accept that the State Transport Corporation was a local authority and observed as follows (at page 1894 of the report):
“The expression ‘local authority’ is not defined in the Land Acquisition Act but is defined in section 3(31) of General Clauses Act, 1897, as follows:
‘Local authority’ shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund.
The definition given in the General Clauses Act, 1897, govern all Central Acts and Regulations made after the commencement of the Act… The definition given in section 3(31) will, therefore, hold good for construing the expression “local authority” occurring in the Land Acquisition Act…
It will be clear from the definition that unless it is shown that the State Transport Corporation is an ‘authority’ and is legally entitled to or entrusted by the Government with control or management of a local fund it cannot be regarded as a local authority. No material has been placed before us from which it could be deduced that the funds of the corporation can be regarded as local funds. It was no doubt submitted by the learned Attorney-General that the corporation was furnished with funds by the Government for commencing its business; but even if that were so, it is difficult to appreciate how that would make the funds of the corporation local funds…
Section 29 of the Bombay State Road Transport Act, 1950, provides that the Corporation shall for all purposes be deemed to be a local authority. But the definition contained in this Act cannot override the definition contained in the General Clauses Act of 1897 which alone must apply for construing the expression occurring in a Central Act like the Land Acquisition Act unless there is something repugnant in the subject or context. Though land acquisition is now in the Concurrent List and, therefore, the State can legislate, the Bombay Act not having received the President's assent cannot prevail against the meaning of the expression ‘local authority’ in that Act. No repugnancy is pointed out. …Moreover, since section 41 of the Central Act provided that a corporation shall be deemed to be a local authority within the meaning of the Motor Vehicles Act, 1939, and not within the meaning of any other law, the provisions of section 29 of the Bombay Act could in no circumstances be said to survive. In view of all this the learned Attorney-General did not press his argument on the point further.”
26. Mr. Mitra contended that this decision of the Supreme Court was limited and was only in the context of the Land Acquisition Act. In view of the special rules promulgated by the Government of West Bengal he submitted that there was sufficient material in the instant case to hold that the fund of the corporation was a local fund.
27. Lastly, Mr. Mitra cited a recent decision of the Privy Council in the case of Ogden Industries Ply. Ltd. v. Heathar Doreen Lucas reported in [1970] AC 113 (PC) containing observations of Lord Upjohn relating to construction and interpretation of statutes at page 127 of the report as follows:
“…….in a common law system of jurisprudence which depends largely upon judicial precedent and the earlier pronouncements of judges, the greatest possible care must be taken to relate the observation of a judge to the precise issues before him and to confine such observations, even though expressed in broad terms, to the general compass of the facts before him, unless he makes it clear that he intended his remarks to have a wider ambit….
These general principles are particularly important when questions of construction of statutes are in issue.
It is quite clear that judicial statements as to the construction and intention of an Act must never be allowed to supplant or supersede its proper construction and courts must beware of falling into the error of treating the law to be that laid down by the judge in construing the Act rather than found in the words of the Act itself.
No doubt a decision on particular words binds inferior courts on the construction of those words on similar facts but beyond that the observations of judges on the construction of statutes may be of the greatest help and guidance but are entitled to no more than respect and cannot absolve the court from its duty of exercising an independent judgment.”
28. Mr. S. Sen, learned counsel for the revenue, contended, on the other hand, that the decisions cited on behalf of the assessee were binding and ought to be followed in the instant case. In addition he cited certain other decisions:
The first was Kartick Chandra Nandi v. West Bengal Small Industries Corporation Ltd. reported in AIR 1967 Cal 231. The proceedings were under article 226 of the Constitution and an order of the managing director of the West Bengal Small Industries Corporation Ltd. was sought to be impugned. It was contended that the corporation in question was a legal entity separate from the State. This contention was sought to be repelled by article 12 of the Constitution which reads as follows:
“In this part, unless the context otherwise requires, ‘the State’ includes the Government and Parliament of India and the Government and the legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.”
29. It was urged that the corporation was an authority under the control of the Government. In his judgment D. Basu J. construed the expressions “authority” and “local authority”. He observed as follows (page 233):
“The expression ‘local authorities’……partakes of the features which characterise the Government and Legislature of the Union and a State, though in a limited way, inasmuch as a local authority, such as a municipality, exercises governmental powers within a local area and also legislative powers, though of a subordinate nature, within the limits imposed by the statute which creates the municipality.
The residuary expression “other authorities” comes after “local authorities”. It is to be noted that the word “authority ‘is common to both “local” and “other bodies” referred to by the definition. The dictionary meaning of the word “authority” is a person or body exercising power or having a legal right to command and be obeyed (Webster's Dictionary; Odham's Dictionary). From this, it has been held that the word “authority”, in article 12, refers to persons or bodies having the power to make rules, bye-laws, etc., having the force of law: Nambooripad v. Cochin Devaswom Board AIR 1956 Trav-Coch 19, 21 and also the power to enforce them: University Of Madras v. Shantha Bai AIR 1954 Mad 67. The possession of these powers brings the “other authorities” on the same platform with the Government and legislature of the Union or a State or a local authority, such as a municipality and like bodies which come within the definition of the expression “local authority” in section 3(31) of the General Clauses Act, 1897, which has been imported to interpret the ex-pression “local authority” in article 12: cf. Sarangapani v. Madras Port Trust AIR 1961 Mad. 234, 239; Kishan Singh v. State of Punjab AIR 1961 Punj 1, 3 [FB]. Though there has been some controversy as to whether the expression “other authorities” must be interpreted ejusdem generis with the expression “local authority” (University Of Madras v. Shantha Bai AIR 1954 Mad 67) or it would comprise other statutory bodies which do not discharge functions similar to that of a local self-government organ, e.g, a State Electricity Supply Board (Mohan Lal v. State AIR 1966 Raj 1, 5) or a Devaswom Board (Nambooripad v. Cochin Devaswom Board AIR 1956 Trav-Coch 19, 21), there is an agreement on the following points:
(i) In order to constitute an ‘other authority’ within the meaning of article 12, the body must be a body created by statute and having the power to make regulations having the force of law (Paramatma v. Chief Justice, AIR 1964 Raj 13, 15; Nambooripad v. Cochin Devaswom Board AIR 1956 Trav-Coch 19, 21 or exercising statutory powers as a ‘public authority’ (S.K Mukherjee v. Chemicals and Allied Products AIR 1962 Cal 10, 12; Mohan Lal v. State AIR 1966 Raj 1).
(ii) A non-statutory body, such as a company (S.K Mukherjee's case AIR 1962 Cal 10); or a State-aided educational institution (Devadas v. Karnatak Engineering College AIR 1964 Mys 6, 11) and exercising no statutory powers, cannot come within the definition of ‘State’ in article 12”.
30. Mr. Sen next cited a decision of the Supreme Court in the case of Rajasthan State Electricity Board v. Mohan Lal reported in AIR 1967 SC 1857. In a proceeding under articles 226 and 227 of the Constitution in the High Court of Rajasthan, it was contended by the Board that it was not a State as defined in article 12 of the Constitution and, therefore, not amenable to the jurisdiction of the High Court under article 226 or 227.
31. In its majority judgment the Supreme Court laid down the law as follows (pages 1862, 1863):
“The High Courts fell into an error in applying the principle of ejusdem generis when interpreting the expression ‘other authorities’ in article 12 of the Constitution, as they overlooked the basic principle of interpretation that, to invoke the application of ejusdem generis rule, there must be a distinct genus or category running through the bodies already named………
In article 12 of the Constitution, the bodies specifically named are the executive Governments of the Union and the State, the Legislatures of the Union and the States, and local authorities. We are unable to find any common genus running through these named bodies, nor can these bodies be placed in one single category on any rational basis. The doctrine of ejusdem generis could not, therefore, be applied to the interpretation of the expression ‘other authorities’ in this article.
The meaning of the word ‘authority’ given in Webster's Third New International Dictionary, which can be applicable, is a public administrative agency or corporation having quasi-governmental powers and authorised to administer a revenue-producing public enterprise. This dictionary meaning of the word ‘authority’ is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out govermental or quasi-governmental functions. The expression ‘other authorities’ is wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Govenment of India; and we do not see any reason to narrow down this meaning in the context in which the words ‘other authorities’ are used in article 12 of the Constitution ………
These decisions of the court support our view that the expression ‘other authorities’ in article 12 will include all constitutional or statutory authorities on whom powers are conferred by law. It is not at all material that some of the powers conferred may be for the purpose of carrying on commercial activities………The State, as defined in article 12, is thus comprehended to include bodies created for the purpose of promoting the educational and economic interests of the people. The State, as constituted by our Constitution, is further specifically empowered under article 298 to carry on any trade or business. The circumstance that the Board under the Electricity Supply Act is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the Board must be excluded from the scope of the word ‘State’ as used in article 12. On the other hand, there are provisions in the Electricity Supply Act which clearly show that the powers conferred on the Board include power to give directions, the disobedience of which is punishable as a criminal offence……The Board was clearly an authority to which the provisions of Part III of the Constitution were applicable.”
32. Mr. Sen has also cited two other decisions. The first case is Commissioners of Inland Revenue v. Forth Conservancy Board reported in [1931] 16 TC 103 (HL) and was cited only for certain observation appearing in the judgment of Lord Buckmaster at page 117. Lord Buckmaster analysed the position as obtaining in England as to why the income of the rating authorities in England were exempted from taxation. Mr. Mitra has rightly distinguished this case on facts as also on the difference in law as obtaining in the two countries. It does not appear to us that the decision in [1931] 16 TC 103 (HL) is of any assistance to us in this case.
33. We also note the last decision cited by Mr. Sen reported in ILR 1961 Mys 434 (Official Liquidator v. Mysore State Electricity Board). In this decision the Mysore High Court held that neither the Mysore State Electricity Board nor the Mysore Housing Board were local authorities within the meaning of the General Clauses Act. The Mysore High Court was considering the question in the background of the Companies Act.
34. We have carefully considered the respective contentions of the parties and the various decisions cited before us. In order to succeed in this reference the assessee has to come within the definition of a “local authority” in section 2(31)(vi) read with section 10(20) of the Income-tax Act, 1961. It is to be noted that the Income-tax Act, 1961, does not define a local authority, and, therefore, in interpreting the expression recourse has to be taken to the definition of the expression as in the General Clauses Act. section 3(31) of the General Clauses Act has been noted above. It is clear that a municipal committee or a district board or a body of port commissioners come squarely within this definition of a local authority. But the position as regards “other authorities” is not so clear. Such “other authorities” in order to qualify as a “local authority” must be legally entitled to or entrusted by the Government with the control or management of local fund. As indicated in Valjibhai Muljibhai Soneji v. State of Bombay AIR 1963 SC 1890, the assessee has first to be shown to be an “authority” before it can claim to be a “local authority”. As the General Clauses Act does not provide the definition of “authority”, we are left with the judicial decisions interpreting and construing this expression. In view of the law laid down by this court and the Supreme Court in the decisions considered earlier it does not appear to us that the assessee in the instant case satisfies the test and can be stated to be an “authority” within the meaning of the expression as laid down in the above decisions. The assessee cannot be said to exercise quasi-governmental or governmental powers or perform governmental or quasi-governmental functions. No direction can be issued by the assessee which may be enforced with punishment. As such, the assessee cannot be said to be an “authority”. The assessee also does not exercise any particular statutory power. There is no right vested in the assessee to command and be obeyed. The assessee also has no power to make regulations, rules or bye-laws having the force of law and the tests laid down in the case of West Bengal Small Industries Corporation AIR 1967 Cal 231 are not satisfied.
35. Even if we assume that the assessee is an “authority” under section 3(31) of the General Clauses Act, it is still to be seen whether the assessee is entitled to or entrusted by the Government with a local fund.
36. It is not in dispute that the assessee has a fund. The question is whether this is a local fund within the meaning of the said section of the General Clauses Act. Again, a difficulty arises as the Act has not defined or stated what is a local fund. No doubt, under the relevant rule, viz., S.R 439 of Treasury Rules, West Bengal, promulgated by the Government of West Bengal, the fund in the control of the assessee has been notified as a local fund. But what is the effect or the purpose of such notification is not clear. The rule No. S.R 439 reads as follows:
“The expression ‘local fund’ denotes:
(i) revenues administered by bodies which by law or rule having the force of law come under the control of the Government, whether in regard to the proceedings generally, or to specific matters such as the sanctioning of their budgets, sanction to the creation or filling up of particular appointments, the enactments of leave, pension or similar rules;
(ii) the revenue of any body which may be specially notified by the Government as such.”
37. As the matter can be decided on the point that the assessee is not an authority within the meaning of section 3(31) of the General Clauses Act, further discussion as to the nature or character of a local fund may not be necessary. It is clearly seen that the assessee is a juristic person duly incorporated and having independent legal existence, but apart from certain functions which it is permitted to carry out within the framework of the statute and the rules, no authority has been conferred upon it. The authority even in respect of its internal matters are in the absolute control of the State.
38. For the reasons stated above, we answer question No. 1 in the affirmative and in favour of the revenue.
39. Now, to come to question No. 2, Mr. Mitra, learned counsel for the assessee, contended that the expenditure which the assessee has incurred towards its contribution to the Employees' provident and gratuity funds has been laid out wholly and exclusively for the purpose of the business of the assessee and ought to be allowed in computing the income of the assessee.
40. In support of his contentions, Mr. Mitra cited a decision of the Supreme Court which was also cited before the Tribunal. This case is of Commissioner of Income-tax v. Myore Spinning & Manufacturing Co. Ltd. reported in [1970] 78 ITR 4 (SC).
41. The facts before the Supreme Court were different from the facts before us in the instant case.
42. Mr. Mitra also cited a decision of the Allahabad High Court in the case of Madho Mahesh Sugar Mills (P.) Ltd. v. Commissioner Of Income-Tax. reported in [1973] 92 ITR 503 (All). It was held in this case that the liability for payment of gratuity ascertained on actuarial calculations was a liability in praesenti and was capable of ascertainment and could be a permissible business expenditure.
43. The above decisions and two other cases cited by Mr. Mitra reported respectively in India United Mills Ltd. v. Commissioner of Income-tax [1975] 98 ITR 426 (Bom) and Commissioner of Income-tax v. High Land Produce Co. Ltd. [1976] 102 ITR 803 (Ker) do not advance the matter any further.
44. It has been found as a fact that the funds were not constituted by any irrevocable trust but some money was set apart by investing the same in Government securities. The Tribunal concluded that only by reason of the fact the money was so invested it could not be said that the assessee lost all proprietary rights upon the funds. In that view it cannot be said that there was any irrevocable expenditure within the meaning of section 10(2)(xv) of the Act. No other ground was canvassed nor any other question was raised before the Tribunal. On such facts as found, this question must be answered in favour of the revenue.
45. Accordingly, we answer question No. 2 also in the affirmative. There will be no order as to costs.
Deb, J.:— I agree.
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