COMMISSIONER OF INCOME TAX(TDS) KANPUR AND ANR. versus CANARA BANK on 2 July 2018

SUPREME COURT REPORTS

[2018] 7 S.C.R.

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COMMISSIONER OF INCOME TAX(TDS)

KANPUR AND ANR.

v.

CANARA BANK

B(Civil Appeal No. 6020 of 2018)

JULY 02, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Income Tax Act, 1961 – s.194A(3)(iii)(f) – Notification issuedCunder – Payment of interest to State Industrial DevelopmentAuthority – Exemption from deduction of tax at source – Benefit of,when available – New Okhla Industrial Development Authority(NOIDA) constituted under the 1976 Act – Respondent-Bank paidinterest to NOIDA in form of FDs/Deposits, however, did not deducttax at source – Assessing Officer holding that the respondent wasDassessee in default, issued demand notice – Bank filed appeal beforeCommissioner of Income Tax (Appeals) placing reliance uponnotification dtd. 22.10.1970 issued u/s.194A(3)(iii)(f) – Plea ofappellant-Revenue that NOIDA is not entitled for the benefit ofnotification dtd. 22.10.1970 as under the said notification only aECorporation established by Central, State or Provincial Act is entitledfor the benefit, however, NOIDA is not established by the 1976 Actrather it is established under the 1976 Act – Held: Section194A(3)(iii) uses both the expressions “by or under” – In DalcoEngineering case, Supreme Court held that the phrase establishedby or under the Act is a standard term used in several enactments toFdenote a statutory corporation established or brought into existenceby or under the statute – Ratio laid down in Dalco Engineering casefully covers the present case – Further, the composition of NOIDAis statutorily provided by s.3 of 1976 Act itself, hence, it has beenconstituted by the Act itself and is covered by notification dtd.G22.10.1970 – High Court did not commit any error in dismissingthe appeal filed by the appellant – Uttar Pradesh Industrial AreaDevelopment Act, 1976– s.3– State Financial Corporation Act,1951– Interpretation of Statutes.

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Words & Phrases – ‘Corporation’, ‘Statutory Corporations’and ‘Non-Statutory Corporations’ – Meaning of.

Words & Phrases – Expression ‘by or under’ – Meaning of.

Dismissing the appeals, the Court

HELD: 1.1 A Corporation is an artificial being which is alegal person. It is a body/corporate established by an Act ofParliament or a Royal Charter. It possesses properties and rightswhich are conferred by the Charter constituting it expressly orincidentally. Corporations which are instrumentalities of theGovernment are subject to the limitation as contained in theConstitution. Whereas the statutory corporations owe theirexistence from “by or under” statute, the non-statutory bodiesand corporations are not created by or under statute rather aregoverned by a statute. [Paras 12, 17][875-F-G; 879-H; 880-B]

“ESTABLISHED BY A CENTRAL, STATE ORPROVINCIAL ACT”

1.2 Section 194A(3)(iii) clauses (b), (c) and (d) of the IncomeTax Act, 1961 refer to expression “established”. In sub-clause(b) expression used is “established by or under a Central, Stateor Provincial Act”, in sub-clause (c) the expression used is“established under the Life Insurance Corporation Act” and insub-clause (d) expression used is “established under the UnitTrust of India Act”. The Section thus uses both the expressions“by or under”. [Para 19][879-E-F]

1.3 In Dalco Engineering case Supreme Court held thatthe phrase established by or under the Act is a standard termused in several enactments to denote a statutory corporationestablished or brought into existence by or under the statute.Referring to provisions of The State Financial Corporations Act,1951 which provides for establishment of various financialcorporations under the Act, it was held that such FinancialCorporations are established by an Act or under an Act. Oncomparing the provisions of Section 3 of Uttar Pradesh IndustrialArea Development Act, 1976 with those of The State FinancialCorporations Act, 1951, it is clear that the establishment ofCorporation in both the enactments is by a notification by State A

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[2018] 7 S.C.R.

AGovernment. In the present case, notification has been issued inexercise of power of Section 3 of 1976 Act and the Authority(NOIDA) has been constituted. The ratio laid down in DalcoEngineering that establishment of various financial corporationsunder State Financial Corporation Act, 1951 is establishment ofa Corporation by an Act or under an Act, fully covers the presentBcase and there is no doubt that the Authority (NOIDA) have beenestablished by the 1976 Act and it is clearly covered by theNotification dated 22.10.1970. The very preamble of the 1976Act reads “an Act to provide for the Constitution of an Authorityfor the development of certain areas in the State into industrialCand urban township and for masses connected through with”.Further, the composition of the Authority (NOIDA) is statutorilyprovided by Section 3 of 1976 Act itself, hence, there is no denyingthat Authority (NOIDA) has been constituted by the Act itself.The High Court did not commit any error in dismissing the appealfiled by the Revenue. [Paras 23, 25, 28 and 30][881-D-E;D883-G-H; 885-E; 887-D-E]Sukhdev Singh and Others v. Bhagatram Sardar SinghRaghuvanshi and Another (1975) 1 SCC 421 : [1975]3 SCR 619 – followed.

S.S. Dhanoa vs. Municipal Corporation, Delhi andEOthers (1981) 3 SCC 431 : [1981] 3 SCR 864;Executive Committee of Vaish Degree College, Shamliand Others v. Lakshmi Narain and Others (1976) 2 SCC58 : [1976] 2 SCR 1006; Dalco Engineering PrivateLimited v. Satish Prabhakar Padhye and Others (2010)F4 SCC 378 : [2010] 4 SCR 15 – relied on.RBI vs. Peerless General Finance & Investment Co. Ltd.(1987) 1 SCC 424: [1987] 2 SCR 1; Dartmouth Collegev. Woodward, NH 4 Wheat 518, 636:4 L Ed 629 –referred to.GHalsbury’s Laws of England Fifth Edition, Vol. 24 –referred to.Case Law Reference[1981] 3 SCR 864relied onPara 14[1987] 2 SCR 1referred toPara 15

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COMMISSIONER OF INCOME TAX(TDS) KANPUR v.CANARA BANK

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6020of 2018.

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From the Judgment and Order dated 04.04.2016 of the High Courtof Allahabad in ITA No. 64 of 2016.

WITH

C.A. Nos. 6064, 6056, 6058, 6055, 6060, 6057, 6054, 6066, 6065,6059, 6053, 6052, 6051, 6063, 6062, 6061 of 2018, 5378, 5374 of 2017,6023, 6021, 6031, 6025, 6022, 6034, 6027, 6048, 6026, 6028, 6032, 6029,6036, 6024, 6033, 6039, 6038, 6037, 6046, 6043, 6040, 6030, 6045, 6042,6041, 6047, 6049, 6044, 6035, 6050, 6069, 6068, 6067 and 6070 of 2018

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K. Radhakrishnan, Balbir Singh, Adarsh B. Dial, Sr. Advs., H. R.Rao, D. L. Chidananda, Arijit Prasad, Shekhar Vyas, Deepak Prakash,Mrs. Anil Katiyar, Jasmeet Singh, Naman Joshi, Ms. Ruhsheet J. Saluja,Hemant Jain, S. N. Tayagrajan, R. S. Saluja, Maninder Singh, Ms. RubalMaini, Sandeep Chilana, Nitesh Shrivastava, Mohd. Raiz, Prabhu DayalChilana, Ms. Seema Joshi, SARC & Associates, Ms. Ananya DattaMajumdar, Rajiv Nanda, Ms. Sumati Anand, Pankaj Garg, Milind Garg,A. S. M. Tripathi, S. K. Jha, Mehvish Hameed, Suvidutt M. S., Ms. ArtiSingh, Ms. Pooja Singh, Mrs. Anil Katiyar, Ravi Prakash Mehrotra,Debesh Panda, Neil Chatterjee, V. D. Verma, Ravindra Kumar, Ms.Kavita Jha, Ms. Devika Jain, Debal Banerji, Ms. Meera Mathur, Advs.for the appearing parties.

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The Judgment of the Court was delivered by ASHOK BHUSHAN, J. 1. Leave granted.

2. These appeals question the Division Bench judgment dated04.04.2016 of the Allahabad High Court, by which judgment IncomeTax Appeals filed by the Revenue has been dismissed affirming theorder of the Income Tax Appellate Tribunal. The common questions offacts and law are involved in these appeals and it is sufficient to referthe facts and pleadings in Civil Appeal No.... 2018 arising out of SLP(C)3168 of 2017, Commissioner of Income Tax(TDS), Kanpur and Anr. vs.

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ACanara Bank wherein the judgment of the High Court dated 04.04.2016in ITA No. 64 of 2016 has been questioned.

3. The New Okhla Industrial Development Authority (NOIDA),hereinafter referred to as “Authority” has been constituted by Notificationdated 17.04.1976 issued under Section 3 of the Uttar Pradesh IndustrialBArea Development Act, 1976 hereinafter referred to as “1976 Act”.The Canara Bank, respondent No. 3 is the banker of the Authority. Therespondent Bank made a payment of Rupees Twenty Crores Ten Lakhsas interest to Authority in form of FDs/Deposits for the financial year2005-06. The Canara Bank, however, did not deduct tax at source underSection 194A of the Income Tax Act, 1961 hereinafter referred to asC“IT Act, 1961”.

4. Notices were issued by the appellant to Canara Bank askingfor information pertaining to interest paid to the Authority on its deposits.Notices were also issued by the appellant to the Bank for showing causefor not deducting tax at source. A writ petition had been filed by theDNOIDA being Writ Petition No.1338/2005 challenging the notices issuedto the Authority as well as its bankers. Assessment proceeding couldnot proceed due to certain interim directions passed by the High Court inthe above writ petition. The writ petition was ultimately dismissed by theHigh Court on 28.02.2011 holding that the Authority is not a local authorityEwithin the meaning of Section 10(20) of IT Act, 1961 and its income isnot exempt from tax. The Assessing Officer thereafter proceeded topass an order under Section 201(1)/201(1A) read with Section 194A ofthe IT Act, 1961 dated 28.02.2013.

5. Income Tax Authority held that the respondent Bank is assesseeFin default. The default was computed and demand notice as per Section156 of the IT Act, 1961 was issued. Penalty proceeding was also separatelyinitiated. The Canara Bank aggrieved by the order of the AssessingOfficer dated 28.02.2013 filed an appeal before the Commissioner ofIncome Tax (Appeals). Before the Commissioner, the bank relied onNotification dated 22.10.1970 issued under Section 194A(3)(iii)(f) ofGthe IT Act, 1961. The Appellate Authority vide its judgment dated02.12.2013 allowed the appeal setting aside the order of the AssessingOfficer. The Revenue aggrieved by the judgment of the AppellateAuthority filed an appeal before the Income Tax Appellate Tribunal.The Tribunal also held that payment of interests by the banks to the H

State Industrial Development Authority does not require any deductionat source in terms of Section 194A(3)(iii)(f).

6. The Revenue aggrieved by the order of the Tribunal filed anappeal under Section 260A of the Act before the High Court. TheDivision Bench of the High Court vide its judgment dated 04.04.2016has dismissed the appeal. The Division Bench came to the followingconclusions while dismissing the appeal:

“We have, therefore, no manner of doubt from a reading of theprovisions of the Industrial Area Development Act that the NOIDAhas been constituted by the State Act and, therefore, entitled toexemption of payment of tax at source under section 194-A(1) ofthe Act.

The decision of the Division Bench of this Court in New OkhlaIndustrial Development Authority (supra), on which reliance hasbeen placed by learned counsel for the appellants, would, therefore,not come to the aid of the appellants as it was restricted to theissue as to whether NOIDA would be a local authority or not anddid not deal with the issue involved in this appeal as to whetherthe NOIDA is a Corporation established by a State Act.

We therefore, answer the question of law framed by us in negativeand hold that NOIDA is a Corporation established by Uttar PradeshIndustrial Area Development Act, 1976. “

7. Shri K. Radhakrishnan, learned senior advocate appearing forthe appellants challenging the Division Bench judgment of the High Courtcontends that Authority is not entitled for the benefit of Notification dated22.10.1970 issued under Section 194A (3)(iii)(f). It is submitted that underthe above notification only a Corporation established by Central, Stateor Provincial Actis entitled for the benefit. Authority is not a Corporationestablished by the State Act rather Authority is a Corporation which isestablished under 1976 Act. He submitted that there is a vast differencebetween a body established by an Act and a body established under anAct. The provisions of Section 194A have to be strictly construed andbenefit can be extended only when a body falls expressly within thebenefit of exemption. In the exceptions carved out under Section 194A(3)there is homogeneity in the group. The legislature when used a wordwith a limitation the same has to be read in the entire phrase and onlysuch corporations are entitled for the exemption which are established A

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Abya Central, State or Provincial Act. It is submitted that words have tobe construed, in accordance with the intention and use of the word asper the Notification dated 22.10.1970, normally indicate that for purposesof claiming exemption the corporation has to be established by a Central,State or Provincial Act. The corporations established under an Actfallin a different category and are not entitled for exemption. He hasBsubmitted that CIT Appeals, Income Tax Tribunal as well as High Courterred in not correctly construing the Notification dated 22.10.1970 andhad wrongly extended benefit under Section 194(3)(iii)(f).

8. Learned senior counsel appearing for the different banks haverefuted the above submissions of learned senior counsel for theCappellants. It is submitted that Section 3 of 1976 Act provides that “theState Government may by notification, constitute for the purpose of thisAct, an authority to be called (Name of the area) Industrial DevelopmentAuthority, for any Industrial Development Area”. It is submitted thatAuthority is established under the 1976 Act. Referring to provisions ofDState Bank of India Act, 1955, Life Insurance Corporation of India Act,1956, it is submitted that statute provides for establishing of the corporationby virtue of a notification by the Central Government. It is submittedthat in similar manners Authority has been established by issuing anotification, hence, Authority has to be treated as established by the1976 Act. Alternatively, it is submitted that the legislature has used theEwords “by and under” interchangeably which is clear from the provisionsof Section 194A(3)(iii)(c) and Section 194A((3)(iii)(d). In the Section194A(3)(iii), itself differentiation in “by and under” has been done away,with that the Authority established by 1976 Act is clearly covered by theNotification dated 22.10.1970. The Notification dated 17.04.1976

Festablishing Authority fulfills the mandate of “by” hence it is clearlyentitled for the benefit of the Section 194A(3)(iii).

9. Learned counsel for the parties have placed reliance on variousjudgments of this Court, which shall be referred to while considering thesubmissions in detail.G10. We have considered the submissions of the learned counselfor the parties and perused the record. Present set of appeals relates toSection 194A of the IT Act, 1961. It is useful to extract provisions of194A which is to the following effect:

“194A. Interest other than “Interest on securities”.-(1) Any person,Hnot being an individual or a Hindu undivided family, who is

responsible for paying to a resident any income by way of interestother than income [by way of interest on securities], shall at thetime of credit of such income to the account of the payee or at thetime of payment thereof in cash or by issue of a cheque or draftor by any other mode, whichever is earlier, deduct income-taxthereon at the rates in force:

[Provided that an individual or a Hindu undivided family, whosetotal sales, gross receipts or turnover from the business orprofession carried on by him exceed the monetary limits specifiedunder clause (a) or clause (b) of section 44AB during the financialyear immediately preceding the financial year in which such interestis credited or paid, shall be liable to deduct income-tax under thissection.]

[Explanation.-For the purposes of this section, where any incomeby way of interest as aforesaid is credited to any account, whethercalled “Interest payable account” or “Suspense account” or byany other name, in the books of account of the person liable topay such income, such crediting shall be deemed to be credit ofsuch income to the account of the payee and the provisions of thissection shall apply accordingly.]

(2) [***]

(3) The provisions of sub-section (1) shall not apply -

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(iii) to such income credited or paid to- (a) any banking company to which the Banking RegulationAct, 1949 (10 of 1949), applies, or any co-operative societyengaged in carrying on the business of banking (including aco-operative land mortgage bank), or (b) any financial corporation established by or under a Central,State or Provincial Act, or

(c) the Life Insurance Corporation of India established underthe Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust ofIndia Act, 1963 (52 of 1963), or A

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A(e) any company or co-operative society carrying on the businessof insurance, or (f) such other institution, association or body [or class of institutions,associations or bodies] which the Central Government may, forreasons to be recorded in writing, notify in this behalf in the OfficialBGazette;”

11. In the present case notification on which reliance has beenplaced by the respondent is Notification dated 22.10.1970 issued underSection 194A(3)(iii)(f), hence, it is necessary to refer to the entireNotification dated 22.10.1970 which is to the following effect:C“Notification No. S.O. 3489 [No. 170 (F.No.12/164/68-ITCC/ITJ).], Dated 22.10.1970

In pursuance of sub-clause(f) of clause (iii) of sub-section (3) ofsection 194A of the Income Tax Act, 1961 (43 of 1961), the CentralGovernment hereby notify the following for the purposes of theDsaid sub-clause:-

(i) any corporation established by a Central, State or ProvincialAct;

(ii) any company in which all the shares are held (whether singlyor taken together) by the Government or the Reserve Bank ofEIndia or a Corporation owned by that Bank; and

(iii) any undertaking or body, including a society registered underthe Societies Registration Act, 1860 (21 of 1860), financed whollyby the Government. “

F12. Before we proceed to examine rival contentions of the parties,it is necessary to ascertain the concept of a Corporation. A Corporationis an artificial being which is a legal person. It is a body/corporateestablished by an Act of Parliament or a Royal Charter. It possessesproperties and rights which are conferred by the Charter constituting itexpressly or incidentally. Halsbury’s Laws of England Fifth Edition,GVol. 24 defines the Corporation as follows:

“301. Corporations and unincorporated associations. A corporationmay be defined as a body of persons (in the case of a corporationaggregate) or an office (in the case of a corporation sole) whichis recognised by the law as having a personality which is distinct H

from the separate personalities of the members of the body or thepersonality of the individual holder for the time being of the officein question. There are many associations and bodies of personswhich are not corporations. Unincorporated associations do nothave legal personality, may not sue or be sued in their own namenor (unless their purposes are charitable) may property be heldfor their purposes otherwise than by virtue of a contract betweenthe members for the time being. “

13. “Corporation aggregate”, has further been defined byHalsbury’s Laws of England, Fifth Edition, Vol. 24 to the followingeffect:

“312. Meaning of ‘Corporation aggregate’. A corporation aggregatehas been defined as a collection of individuals united into onebody under a special denomination, having perpetual successionunder an artificial form, and vested by the policy of the law withthe capacity of acting in several respects as an individual,particularly of taking and granting property, of contractingobligations and of suing and being sued, of enjoying privileges andimmunities in common and of exercising a variety of political rights,more or less extensive, according to the design of its institution, orthe powers conferred on it, either at the time of its creation or atany subsequent period of its existence. “

14. This Court in S.S. Dhanoa vs. Municipal Corporation, Delhiand Others (1981) 3 SCC 431 had elaborately considered the conceptof Corporation. This Court referred and relied the definition of Corporationas given by Chief Justice Marshall in celebrated case of DartmouthCollege v. Woodward, NH 4 Wheat 518, 636:4 L Ed 629. It is usefulto extract paragraph Nos. 8 and 9 of the judgment which are as follows:

“8. A corporation is an artificial being created by law having alegal entity entirely separate and distinct from the individuals whocompose it with the capacity of continuous existence andsuccession, notwithstanding changes in its membership. In addition,it possesses the capacity as such legal entity of taking, holdingand conveying property, entering into contracts, suing and beingsued, and exercising such other powers and privileges as may beconferred on it by the law of its creation just as a natural personmay. The following definition of corporation was given by ChiefJustice Marshall in the celebrated Dartmouth College case:

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AA corporation is an artificial being, invisible, intangible, and existingonly in contemplation of law. Being the mere creature of law, itpossesses only those properties which the charter of its creationconfers upon it, either expressly or as incidental to its veryexistence. These are such as are supposed best calculated toeffect the object for which it was created. Among the mostBimportant are immortality, and, if the expression may be allowed,individuality; properties, by which a perpetual succession of manypersons are considered as the same, and may act as a singleindividual. They enable a corporation to manage its own affairs,and to hold property, without the perplexing intricacies, theChazardous and endless necessity, of perpetual conveyances forthe purpose of transmitting it from hand to hand. It is chiefly forthe purpose of clothing bodies of men, in succession, with thesequalities and capacities, that corporations were invented, and arein use. By these means, a perpetual succession of individuals arecapable of acting for the promotion of the particular object, likeDone immortal being.

The term “corporation” is, therefore, wide enough to includeprivate corporations. But, in the context of clause Twelfth ofSection 21 of the Indian Penal Code, the expression ‘corporation’must be given a narrow legal connotation.”E

“9. Corporation, in its widest sense, may mean any association ofindividuals entitled to act as an individual. But that certainly is notthe sense in which it is used here. Corporation established by orunder an Act of Legislature can only mean a body corporate whichowes its existence, and not merely its corporate status, to the Act.FFor example, a Municipality, a Zilla Parishad or a Gram Panchayatowes its existence and status to an Act of Legislature. On theother hand, an association of persons constituting themselves intoa company under the Companies Act or a society under theSocieties Registration Act owes its existence not to the Act ofGLegislature but to acts of parties though, it may owe its status asa body corporate to an Act of Legislature.”

15. Before us, there is no issue that the Authority is not aCorporation. It is also not contended before us that Authority is not astatutory corporation. What is contended before us is that Authority havingHnot been established by a Central, State or Provincial Actis not covered by Notification dated 22.10.1970 hence, not eligible for the benefit. Theprovision of Section 194A and the notification issued by CentralGovernment under 194A(3)(iii)(f) falls for consideration. We maybeneficially notice a principle of statutory interpretation which needs tobe applied while interpreting the above provisions of IT Act, 1961. ThisCourt in RBI vs Peerless General Finance & Investment Co. Ltd.,(1987) 1 SCC 424, laid down the following in paragraph No. 33:

“ 33. Interpretation must depend on the text and the context. Theyare the bases of interpretation. One may well say if the text is thetexture, context is what gives the colour. Neither can be ignored.Both are important. That interpretation is best which makes thetextual interpretation match the contextual. A statute is bestinterpreted when we know why it was enacted. With thisknowledge, the statute must be read, first as a whole and thensection by section, clause by clause, phrase by phrase and wordby word. If a statute is looked at, in the context of its enactment,with the glasses of the statute-maker, provided by such context,its scheme, the sections, clauses, phrases and words may takecolour and appear different than when the statute is looked atwithout the glasses provided by the context. With these glasseswe must look at the Act as a whole and discover what eachsection, each clause, each phrase and each word is meant anddesigned to say as to fit into the scheme of the entire Act. No partof a statute and no word of a statute can be construed in isolation.Statutes have to be construed so that every word has a place andeverything is in its place. It is by looking at the definition as awhole in the setting of the entire Act and by reference to whatpreceded the enactment and the reasons for it that the Courtconstrued the expression “Prize Chit” in Srinivasa and we findno reason to depart from the Court’s construction.”

16. A Constitution Bench of this Court in Sukhdev Singh andOthers vs. Bhagatram Sardar Singh Raghuvanshi and Another,(1975) 1 SCC 421 had occasion to consider the nature and characterof Corporation including its early history. Justice Mathew, deliveringhis concurrent opinion noted that Corporations in 17[th], 18[th] and 19[th]Centuries were far more like the bodies corporate we call “publicauthorities” today. In paragraph Nos. 83, 86 and 87 following has beenlaid down:

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A“83. The chartered corporations of the 17th, 18th and 19thcenturies were expected, perhaps required, to perform statedduties to the community like running a ferry, founding a colony orestablishing East Indian trade. Performance of these functionsand securing whatever revenue the enterprise made to the Crownwere the primary reasons why a charter was granted. CorporationsBin early English law were in fact, and in legal cognizance, a deviceby which the political State got something done. They were farmore like the bodies corporate we call “public authorities” today.Few in the 17th or 18th century would have disputed that such acorporation was an agency of the State.”

C86. The public corporation, therefore, became a third arm of theGovernment. In Great Britain, the conduct of basic industriesthrough giant corporations is now a permanent feature of publiclife.

87. A public corporation is a legal entity established normally byDParliament and always under legal authority, usually in the formof a special statute, charged with the duty of carrying out specifiedgovernmental functions in the national interest, those functionsbeing confined to a comparatively restricted field, and subjectedto control by the Executive, while the corporation remains juristicallyEan independent entity not directly responsible to Parliament. Apublic corporation is not generally a multipurpose authority but afunctional organisation created for a specific purpose. It hasgenerally no shares or shareholders. Its responsibility generally isto Government. Its administration is in the hands of a Boardappointed by the competent Minister. The employees of publicFcorporation are not civil servants. It is, in fact, likely that in duecourse a special type of training for specialized form of publicservice will be developed and the status of the personnel of publiccorporation may more and more closely approximate to that ofcivil service without forming part of it. Insofar as publicGcorporations fulfil public tasks on behalf of Government, they arepublic authorities and as such subject to control by Government.”

17. One more principle which was reiterated by this Court in aboveConstitution Bench judgment is that Corporations which areinstrumentalities of the Government are subject to the limitation asHcontained in the Constitution. The Corporations which were under consideration in the above case, namely, Life Insurance Corporation ofIndia, Oil and Natural Gas Commission, Industrial Finance Corporationwere held to be constituted within the meaning of Article 12 of theConstitution. Two categories of Corporations have been noticed i.e.statutory corporations and non-statutory corporations. Whereas, thestatutory corporations owe their existence from “by or under” statute,non-statutory bodies and corporations are not created by or under statuterather are governed by a statute.

“ESTABLISHED BY A CENTRAL, STATE ORPROVINCIAL ACT”

18. The appellant on the one hand submits that the Authority hasnot been established by 1976 Actrather it has been established underthe 1976 Act, hence it is not covered by Notification dated 22.10.1970whereas the respondent submits that Authority has been established bythe 1976 Act hence, it fulfills the condition as enumerated underNotification dated 2.10.1970. Alternatively, it is submitted that words“by and under” have been interchangeably used in the IT Act, 1961 andthere is no difference, even if, the Authority is established under the1976 Act.

19. Section 194A(3)(iii) clauses (b), (c) and (d) refer to expression“established”. In sub clause (b) expression used is “established by orunder a Central, State or Provincial Act”, in sub clause (c) the expressionused is “established under the Life Insurance Corporation Act” and insub clause (d) expression used is “established under the Unit Trust ofIndia Act”. The Section thus uses both the expressions “by or under”.The expression established by or under an Act have come forconsideration before this Court on several occasions. In this context, itshall be useful to refer to few judgments of this Court. In SukhdevSingh (supra), the Court had occasion to consider the status of companyincorporated under the Companies Act. The Court held that Companyincorporated is not a Company created by the Companies Act. Inparagraph No. 25 following was held:

“25……A company incorporated under the Companies Act is notcreated by the Companies Act but comes into existence inaccordance with the provisions of the Act. It is not a statutorybody because it is not created by the statute. It is a body createdin accordance with the provisions of the statute.”

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A20. Mathew J., writing concurrent opinion while discussing thepublic corporation held that such corporations are created by State. InExecutive Committee of Vaish Degree College, Shamli and Othersvs. Lakshmi Narain and Others, (1976) 2 SCC 58, the question forconsideration fell as to whether the Executive Committee of a degreecollege is a statutory body. Contention before the Court was that theBExecutive Committee was the statutory body since it was affiliated tothe Agra University which was established by the statute. The ExecutiveCommittee was further covered by the statute framed by the AgraUniversity. In the above context, this Court held that there is a cleardistinction between a body which is created by the Statute and a bodyCwhich having been come into existence is governed in accordance withthe provisions of the statute. In paragraph No. 10 following was held:

“10..........It is, therefore, clear that there is a well markeddistinction between a body which is created by the statute and abody which after having come into existence is governed inDaccordance with the provisions of the statute. In other words theposition seems to be that the institution concerned must owe itsvery existence to a statute which would be the fountainhead of itspowers. The question in such cases to be asked is, if there is nostatute would the institution have any legal existence. If the answeris in the negative, then undoubtedly it is a statutory body, but if theEinstitution has a separate existence of its own without anyreference to the statute concerned but is merely governed by thestatutory provisions it cannot be said to be a statutory body..........”

21. Again in S.S.Dhanoa (supra), this Court had occasion toconsider a Registered Society which was a body/corporate. The questionFwas as to whether the State Body /corporate is a Corporation within themeaning of Clause Twelfth of Section 21 of the IPC (Indian Penal Code).This Court again held that expression Corporation means a Corporationcreated by the legislature. In paragraph No. 7 following was held:

“7………In our opinion, the expression ‘corporation’ must, in theGcontext, mean a corporation created by the legislature and not abody or society brought into existence by an act of a group ofindividuals. A cooperative society is, therefore, not a corporationestablished by or under an Act of the Central or State Legislature.”

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22. Further noticing the distinction between Corporation establishedby or under Act or body created by or under Act, following was held inparagraph No. 10:

“10. There is a distinction between a corporation established byor under an Act and a body incorporated under an Act. Thedistinction was brought out by this Court in Sukhdev Singh v.Bhagatram Sardar Singh Raghuvanshi. It was observed: [SCCp. 435: SCC (L&S) p. 115, para 25]

“A company incorporated under the Companies Act is notcreated by the Companies Act but comes into existence inaccordance with the provisions of the Act.”

There is thus a well-marked distinction between a body createdby a statute and a body which, after coming into existence, isgoverned in accordance with the provisions of a statute..........”

23. Another judgment which had occasion to consider theexpression established by or under the Act is a judgment of this Court inDalco Engineering Private Limited vs. Satish Prabhakar Padhyeand Others (2010) 4 SCC 378. The Court had occasion to examinethe provision of Section 2k, of the Persons with Disabilities (EqualOpportunities, Protection of Rights and Full Participation) Act, 1995,specifically expression “establishment” means a Corporation establishedby or under Central, Provincial or State Act. This Court held that thephrase established by or under the Act is a standard term used in severalenactments to denote a statutory corporation established or brought intoexistence by or under the statute. On Company it was held that thecompany is not established under the Companies Act and an incorporatedcompany does not “owe” its existence to the Companies Act. Inparagraph No. 20 following has been laid down:

“20. A “company” is not “established” under the Companies Act.An incorporated company does not “owe” its existence to theCompanies Act. An incorporated company is formed by the actof any seven or more persons (or two or more persons for aprivate company) associated for any lawful purpose subscribingtheir names to a memorandum of association and by complyingwith the requirements of the Companies Act in respect ofregistration. Therefore, a “company” is incorporated and registeredunder the Companies Act and not established under the Companies AB

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AAct. Per contra, the Companies Act itself establishes the NationalCompany Law Tribunal and the National Company Law AppellateTribunal, and these two statutory authorities owe their existenceto the Companies Act.”

24. This Court further elaborating the expression held that whenBthe expression used is “established by or under the Act”, the emphasizeshould be on the word “established” in addition to the words “by orunder”. It is useful to refer to what has been said in paragraph Nos. 21and 22 of the judgment which is to the following effect:

“21. Where the definition of “establishment” uses the term “aCcorporation established by or under an Act”, the emphasis shouldbe on the word “established” in addition to the words “by or under”.The word “established” refers to coming into existence by virtueof an enactment. It does not refer to a company, which, when itcomes into existence, is governed in accordance with the provisionsof the Companies Act. But then, what is the difference betweenD“established by a Central Act” and “established under a CentralAct”?

22. The difference is best explained by some illustrations. Acorporation is established by an Act, where the Act itselfestablishes the corporation. For example, Section 3 of the StateEBank of India Act, 1955 provides that a bank to be called StateBank of India shall be constituted to carry on the business ofbanking. Section 3 of the Life Insurance Corporation Act, 1956provides that

3. Establishment and incorporation of Life InsuranceFCorporation of India.—(1) With effect from such date as theCentral Government may, by notification in the Official Gazette,appoint, there shall be established a Corporation called the LifeInsurance Corporation of India.

State Bank of India and Life Insurance Corporation of India areGtwo examples of corporations established by “a Central Act”.”

25. This Court has also referred to provisions of The State FinancialCorporations Act, 1951 which provides for establishment of variousfinancial corporations under the Act. It is useful to refer to definition offinancial corporation as contained in Section 2(b) which is to the followingHeffect:

“2(b) Financial Corporation means a Financial Corporationestablished under Section 3 and includes a Joint FinancialCorporation established under Section 3A;”

26. Section 3 deals with establishment of State FinancialCorporation which provides as follows:

“3. Establishment of State Financial Corporations.: (1) The StateGovernment may, by notification in the Official Gazette, establisha Financial Corporation for the State under such name as may bespecified in the notification.

(2) The Financial Corporation shall be a body corporate by thename notified under sub-section (1), having perpetual successionand a common seal, with power, subject to the provisions of thisAct, to [acquire, hold and dispose of] property and shall by thesaid name sue and be sued. “

27. This Court clearly in above case, Dalco Engineering (supra)has held that such Financial Corporations are established by an Act orunder an Act. In paragraph No. 23 of the judgment following has beenheld:

“23. We may next refer to The State Financial Corporations Act,1951 which provides for establishment of various financialcorporations under that Act. Section 3 of that Act relates toestablishment of State Financial Corporations and provides that“the State Government may, by notification in the Official Gazette,establish a financial corporation for the State under such name asmay be specified in the notification” and such financial corporationshall be a body corporate by the name notified. Thus, a StateFinancial Corporation is established under a Central Act.Therefore, when the words “by and under an Act” are precededby the words “established”, it is clear that the reference is to acorporation established, that it is brought into existence, by an Actor under an Act. In short, the term refers to a statutory corporationas contrasted from a non-statutory corporation incorporated orregistered under the Companies Act.”

28. Now, we revert back to the provisions of 1976, Act. The verypreamble of that Act reads “an Act to provide for the Constitution of anAuthority for the development of certain areas in the State into industrialand urban township and for masses connected through with”.

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A29. Thus, the Act itself provides for constitution of an authority.Section 2(b) of the 1976 Act defines Authority as authority constitutedunder Section 3 of the Act. Section 3 which is very relevant for thepresent case is as follows:

“3. (1) The State Government may, by notification, constitute forBthe purposes of this Act, An authority to be called (Name of thearea) Industrial Development Authority, for any industrialdevelopment area.

(2) The Authority shall be a body corporate.(3) The Authority shall consist of the following :–C(a) The Secretary to the MemberGovernment, Uttar Pradesh,Industries Department Chairmanor his Nominee not belowthe rank ofDJoint Secretary-ex-official.

(b) The Secretary to the MemberGovernment, Uttar Pradesh,Public works Departmentor his nominee not belowEthe rank of JointSecretary ex-official.

(c) The Secretary to the MemberGovernment, Uttar Pradesh,FLocal Self-Governmentor his nominee not belowthe rank of joint Secretary-ex official.

(d) The Secretary to theGovernment, Uttar Pradesh,MemberGFinance Member Departmentor his nominee not below the rank of Joint Secretary-ex official.

(e) The Managing Director,U.P. State IndustrialMemberDevelopment Corporation-exofficial.

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(f) Five members to be nominated MemberBby the State Governmentby notification.

(g) Chief Executive Officer.MemberSecretary

(4) The headquarters of the Authority shall be at such place asmay be notified by the State Government.

(5) The procedure for the conduct of the meetings for the Authorityshall be such as may be prescribed.

(6) No act or proceedings of the Authority shall be invalid byreason of the existence of any vacancy in or defect in theconstitution of the Authority.”

30. When we compare the provisions of Section 3 of 1976 Actwith those of The State Financial Corporations Act, 1951, it is clear thatthe establishment of Corporation in both the enactments is by a notificationby State Government. In the present case, notification has been issuedin exercise of power of Section 3, the Authority has been constituted. Itis useful to extract paragraph No. 2 of the Notification dated 12.04.1976:

“2. The Governor is hereby further pleased, in exercise of thepowers under Section 3 of the said Act, to constitute, in respect ofthe above-mentioned Industrial Development Area, for thepurposes of the said Act, an Authority to be called the ‘NewOkhla Industrial Development Authority’, consisting of thefollowing, namely, C

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(i) Secretary to the Government,

Uttar Pradesh,Industries Department, Member ChairmanEx officio (Under Clause(a))

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(x) District Magistrate, Bulandshahr, Ex-officio Member (Nominated under Clause(f))

(xi) Chief Executive Officer

Member Secretary

(Under Clause (g))”

31. This Court having already laid down in Dalco Engineering(supra) that establishment of various financial corporations under StateFinancial Corporation Act, 1951 is establishment of a Corporation by anAct or under an Act. We are of the view that the above ratio fullycovers the present case and we have no doubt that the Authority havebeen established by the 1976 Act and it is clearly covered by theNotification dated 22.10.1970. It is further relevant to note that compositionof the Authority is statutorily provided by Section 3 of 1976 Act itself,hence, there is no denying that Authority has been constituted by Actitself.

32. In view of what has been said above, we are of the view thatHigh Court did not commit any error in dismissing the appeal filed by theRevenue. In result, all the appeals are dismissed.

Divya Pandey

Appeals dismissed.

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