Companies Act Case Law Electronics Corporation Of India Ltd. Vs Secretary,Revenue Department,Govt.Of Andhra Pradesh And Ors.

CASE NO.:
Appeal (civil) 142 of 1983

PETITIONER:
ELECTRONICS CORPORATION OF INDIA LTD.

RESPONDENT:
SECRETARY,REVENUE DEPARTMENT,GOVT.OF ANDHRA PRADESH AND ORS.

DATE OF JUDGMENT: 05/05/1999

BENCH:
S.P.BHARUCHA & B.N.KIRPAL & S.RAJENDRA BABU & S.S.M.QUADRI & M.B.SHAH

JUDGMENT:
JUDGMENT

 
DELIVERED BY:
S.P.BHARUCHA,J.

 

S.P.BHARUCHA, J. :
Under challenge is the principal judgment and order
dated 30th July, 1982 of the High Court of Andhra Pradesh in
the case of Electronics Corporation of India Ltd. (Civil
Appeal No.142 of 1983) and the orders following the
principal judgment and order in the cases of M/s. Parel
Investment and Trading Co. Limited (Civil Appeal No.3937-38
of 1990) and Hindustan Shipyard Ltd. (Civil Appeal
Nos.3939-41 of 1990 and 3393 of 1991).
It is enough to set out the facts pertaining to Civil
Appeal No.142 of 1983 filed by the Electronics Corporation
of India Ltd. (the appellant company) in as much as the
same issue of law is involved in all the appeals and all the
appellants are companies registered under the Companies Act.

The Andhra Pradesh Non Agricultural Lands Assessment
Act, 1963 (the Act) defined owner to include any person
for the time being receiving or entitled to receive whether
on his own account or as agent, or trustee, guardian,
manager, receiver for another person or for any religious,
educational or charitable purpose, rent or profits from the
non agricultural land or for the structure constructed on
such land, in respect of which the word is used.
Consequent upon amending Act 28 of 1974, with effect from
1st July, 1974, the definition of owner was amended and
the following, so far as is relevant here, was added: and
also includes in respect of the land owned by the State
Government or the Central Government (i) the lessee, if the
land has been leased out by that Government for any
commercial, industrial or other non agricultural purpose
……… Section 3 is the charging section of the Act and
provides for the levy of assessment on non agricultural
land, to be paid by the owner of such land. Section 12 of
the Act sets out the categories of land to which the Act
does not apply. Prior to amending Act 28 of 1974, the Act
did not apply to land owned by the State Government or the
Central Government. Thereafter, it did not apply to land
owned by the State Government or the Central Government
other than (i) the land leased out for any commercial,
industrial or other non agricultural purpose ……….

In 1963 the State of Andhra Pradesh had granted a
large area of land to the Department of Atomic Energy of the
Central Government. In 1964 the Department of Atomic Energy
gave 220.25 acres (the said land) thereout to the
appellant company. On 1st October, 1978, the first
respondent issued to the appellant company notices of demand
for non-agricultural assessment on the said land under the
Act. For the period 1970-71 to 1973-74 the sum demanded was
Rs.1,91,189.68. For the period 1974-75 to 1978-79 the sum
demanded was Rs.11,98,826.32.

The appellant company filed a writ petition in the
High Court of Andhra Pradesh impugning the said notices of
demand. The contention of the appellant company in the writ
petition, as set out in the judgment and order under appeal,
was that it was the lessee of the said land which belonged
to the Union of India and, since the property of the Union
of India could not, by virtue of Article 285 of the
Constitution, be taxed by a State legislature, the Act did
not apply to the said land and, accordingly, no demand
thereunder could be made upon the petitioner, which is a
lessee of the Union of India. It is stated that an area of
approximately 1,000 acres was granted by the State
Government to the Department of Atomic Energy, Government of
India, and that the Department of Atomic Energy, in turn,
leased out an extent of 280.25 acres to the petitioner
corporation for establishing its plant and machinery. It is
further contended that out of the extent granted to the
petitioner an extent of 29 acres is covered by buildings, an
extent of 12 acres by roads, and the rest of the area is
meant for future expansion. It is also submitted that an
extent of 14.25 acres is being used for agricultural
purposes.

The response on behalf of the State Government to the
writ petition was contained in an affidavit made by N.
Janakiramulu. The tenor of the affidavit was that the Act
had been amended by Act 28 of 1974 and that, thereby, the
appellant company had become liable to pay non agricultural
assessment upon the said land.

The High Court, by the principal judgment and order
(which is reported in AIR 1983 AP 239), held that Article
285 was not attracted and that the State Government was
entitled to levy and collect the non agricultural assessment
from the appellant company so long as it continued to be a
lessee of the Central Government in respect of the said
land. It clarified that the assessment could be levied only
upon land which was actually used for any of the specified
purpose, namely, commercial, industrial or any other
non-agricultural purpose, including residential purpose.
What extent of the said land was so used and what was the
appropriate rate applicable was a matter for the assessing
authority to decide. The appellant company was permitted to
file an appeal to the appellate authority under the Act
against the impugned demands, wherein it would be open to
the appellant company to establish the actual extent of land
used for the aforesaid purposes. The applicable rate could
also be ascertained in such appeal.

It is against the principal judgment and order that
all the appeals are really directed.

The first submission of Mr. Adhyaru, counsel for the
appellant company, was that, in fact, the appellant company
was not a lessee of the Union of India in respect of the
said land and that there was no lease in its favour. The
submission is quite the reverse of the case of the appellant
company in its writ petition. It is, therefore, an
impermissible submission, and we indicated to learned
counsel when he made it that we declined to entertain it.

Article 285(1) of the Constitution of India, upon
which reliance has been placed by the learned counsel for
the appellant company, reads thus :

285(1) The property of the Union shall, save in so
far as Parliament may by law otherwise provides, be exempt
from all taxes imposed by a State or by any authority within
a State.
In learned counsels submission, the property of the
appellant company was the property of the Union of India in
as much as the appellant company was a Government company,
its shares being wholly owned by the Union of India. The
said land was, therefore, the property of the Union of India
and the legislature of the State of Andhra Pradesh was
barred by the provisions of Article 285 from imposing any
tax, including non-agricultural assessment, on the property
of the Union of India. Learned counsel supported the
submission by reference to Article 265, which provides that
no tax shall be levied or collected except by authority of
law, and to Article 366(28), which says that taxation
includes the imposition of any tax or impost, whether
general or local or special, and tax shall be construed
accordingly.

Learned counsel then referred to Article 289 which
deals with the exemption of property and income of a State
from Union taxation and reads thus :

289(1) The property and income of a State shall be
exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from
imposing, or authorising the imposition of, any tax to such
extent, if any, as Parliament may by law provide in respect
of a trade or business of any kind carried on by, or on
behalf of, the Government of a State, or any operations
connected therewith, or any property used or occupied for
the purposes of such trade or business, or any income
accruing or arising in connection therewith.

(3) Nothing in clause (2) shall apply to any trade or
business, or to any class of trade or business, which
Parliament may by law declare to be incidental to the
ordinary functions of Government.
Our attention was drawn by learned counsel to the
judgment of this Court on Article 289, namely, New Delhi
Municipal Council vs. State of Punjab & Ors. 1997(7) SCC
339. In construing Article 289, reference was made to
Article 285 and it was said in the majority judgment that
Article 285 imposed a ban, which was absolute and emphatic
and there was no way in which a State Legislature could levy
a tax upon the property of the Union of India. Article 289
was different by reason of clauses 2 and 3 thereof.

In the next case cited by learned counsel, namely, Air
India Statutory Corporation & Ors. vs. United Labour Union
& Ors., 1997(9) SCC 377, this Court was dealing with which
was the appropriate Government in relation to an
establishment pertaining to an industry carried on by or
under authority of the Central Government and it was held
that the statutory corporation, Air India, was such a
industry and the appropriate Government for the purposes
of the Contract Labour (Regulation and Abolition) Act, 1970,
was the Central Government. Reliance was placed by learned
counsel upon the propositions enunciated in paragraph 26 of
the majority judgment, thus:

(1) The constitution of the corporation or
instrumentality or agency or corporation aggregate or
corporation sole is not of sole material relevance to decide
whether it is by or under the control of the appropriate
Government under the Act.

(2) If it is a statutory corporation, it is an
instrumentality or agency of the State. If it is a company
owned wholly or partially by a share capital, floated from
public exchequer, it gives indicia that it is controlled by
or under the authority of the appropriate Government.
In our view, neither has Article 285 any application
to these appeals nor are we concerned with whether or not
the appellants are controlled by or under the authority of
the Central Government.

With effect from 1st July, 1974, Section 12 of the Act
was amended so that it now applied to land which was owned
by the Central or a State Government and was leased out for
any commercial, industrial or other non-agricultural
purpose. With effect from that date, by reason of the
amendment of Section 2(j), an owner included a lessee of
land owned by the Central or a State Government if the land
was leased out by such Government for a commercial,
industrial or other non- agricultural purpose. By virtue of
Section 3, the obligation to pay non-agricultural assessment
on the leased land lay upon the owner lessee.

It is the case of the appellant company in its writ
petition that it is the lessee of the Department of Atomic
Energy of the Union of India in respect of the said land.
The said land, therefore, is of the ownership of the Central
Government and, being leased out to the appellant company
for an industrial and commercial purpose, is land to which
the Act applies. By virtue of the amended definition of
owner under Section 2(j) of the Act, the appellant company
is the owner of the said land and, by virtue of Section 3,
is liable to pay non-agricultural assessment thereon.

A clear distinction must be drawn between a company
and its shareholder, even though that shareholder may be
only one and that the Central or a State Government. In the
eye of the law, a company registered under the Companies Act
is a distinct legal entity other than the legal entity or
entities that hold its shares.

In Western Coalfields Limited vs. Special Area
Development Authority, Korba & Anr., 1982(1) SCC 125, this
Court reviewed earlier judgments on the point. It held that
even though the entire share capital of the appellant before
it had been subscribed by the Government of India, it could
not be predicated that the appellant itself was owned by the
Government of India. Companies, it was said, which are
incorporated under the Companies Act, have a corporate
personality of their own, distinct from that of the
Government of India. The lands and the buildings in
question in that matter were vested in and owned by the
appellant. The Government of India only owned the share
capital.

In Rustom Cavasjee Cooper vs. Union of India, 1970(1)
SCC 248, it was held, A company registered under the
Companies Act is a legal person, separate and distinct from
its individual members. Property of the company is not the
property of the shareholders. A shareholder has merely an
interest in the company arising under its Articles of
Association, measured by a sum of money for the purpose of
liability, and by a share in the distributed profit.

In Heavy Engineering Mazdoor Union vs. State of
Bihar, 1969(1) SCC 765, this Court held that an incorporated
company has a separate existence and the law recognises it
as a juristic person, separate and distinct from its
members.
We are, in the premises, left in no doubt that the
State Government was entitled to levy non-agricultural
assessment upon the said land and recover it from the
appellant company.

Learned counsel then submitted that, in any event, the
recovery of non agricultural assessment in respect of the
said land could not have been effected from the appellant
company by reason of the application of the principle of
promissory estoppel. In this behalf he referred to a letter
dated 7th February, 1967 addressed by the Under Secretary to
the Government of India to the Secretary of the Government
of Andhra Pradesh, Industries Department, in regard to the
transfer of land to the Department of Atomic Energy for the
location of the Electronics Plant and other plants. The
letter stated that it had been agreed by the State
Government that this land would be exempt from the levy of
tax under the Act irrespective of whether the plants are
managed departmentally or through a Public Section
Undertaking. The letter requested that notifications
exempting the lands already handed over to the Department of
Atomic Energy or to be handed over in future from levy of
tax under Andhra Pradesh Act 14 of 1963, while vesting in
the Department of Atomic Energy or in public sector projects
would also require to be issued. The issuance of the same
was, therefore, requested. In reply, the Deputy Secretary
of the Government of Andhra Pradesh, Industries Department,
stated on 17th October, 1967 that no separate notification
is required exempting the land given to the Atomic Energy
Department for establishment of Atomic Energy Complex at
Hyderabad from payment of non-agricultural assessment under
the A.P. Non- Agricultural Assessment Act so long as the
units are run by the Government of India in Public Sector.
It was contended by learned counsel that the appellant
company had acted upon this promise. Accordingly, the State
Government was bound by its promise and was estopped from
going back upon it.

There are two short answers to this contention. In
the first place, there can be no estoppel against a statute.
In the second place, the letter dated 17th October, 1967
needs to be carefully read. It says that no notification
was required for exempting the land from payment of
non-agricultural assessment so long as the units are run by
the Government of India in Public Sector. The appellant
company is a separate and distinct legal entity that runs
its own industry. The letter dated 17th October, 1967
cannot be read as promising exemption to companies, though
their shares be held wholly by the Union of India.

Mr. Dholakia, learned counsel for M/s. Parel
Investment and Trading Co. Limited (appellant in Civil
Appeal Nos.3937-38 of 1990), adopted the submissions
aforementioned. He submitted that Article 285 was intended
to protect public revenues; the shares of the appellant
companies being fully owned by the Central Government, their
funds were public revenues. It was, therefore, necessary to
read down the provisions of Section 2(j) and Section 12 of
the Act to exclude therefrom all but private owners and
lessees of land. The question of reading down comes in if
it is found that these provisions are ultra vires as they
stand. We have held that these provisions are not ultra
vires because Article 285 does not apply when the property
that is to be taxed is not of the Union of India but of a
distinct and separate legal entity. Each of the appellants
being companies registered under Companies Act, they are
entities other than the Union of India. The question of
reading down does not, therefore, arise.

The discussion so far relates to demands for
non-agricultural assessment subsequent to 12th July 1974,
when the amendments made by Act 28 of 1974 in the Act came
into effect. The defence to the writ petition filed by the
appellant company was, as we have already stated,
exclusively based upon the amendments made by Act 28 of 1974
in the Act. These amendments have no retrospective effect.
No demand for non-agricultural assessment could, therefore,
have been made upon the appellant companies for any period
prior to 12th July, 1974. To this extent, the demands are
quashed.

In regard to demands for non-agricultural assessment
subsequent to 12th July, 1974, which are upheld, the
appellant companies shall be at liberty to file appeals
within 8 weeks from the date of this order, wherein it will
be open to them to establish the actual extent of the land
that was used at the relevant time for commercial,
industrial or other non-agricultural purposes. Only upon
such land can non-agricultural assessment be levied. What
the applicable rate should be can also be canvassed and
decided in such appeals.

To the extent aforestated, the appeals succeed and are
allowed. Orders on the appeals accordingly. No order as to
costs.

 

 

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