Madhava Reddy, Actg. C.J.
1. The short question that falls for consideration in this writ petition is whether the income of the Andhra Pradesh State Civil Supplies Corporation Ltd., is exempt from Union taxation under art. 289(1) of the Constitution of India. The Andhra Pradesh State Civil Supplies Corporation Ltd. (hereinafter referred to as 'the Corporation') is incorporated under the Companies Act under Certificate of Incorporation No. 1832 of 1974-75. It is incorporated as a private limited company as stated in art. 2(a) of the articles of association. As per the memorandum of association, the Corporation is described as a State Government undertaking. The main object of this company is stated in clause III(A) of the memorandum of association. It reads thus :
'III(A) The main objects :
1. To engage in, promote, improve, develop, counsel and finance production, purchase, storage, processing, movement, transport, distribution and sale of foodgrains, foodstuffs and any other essential commodities and articles, to establish laboratories for the purpose of ensuring quality control, to train personnel in the technique of quality control, and to provide services and assistance of all kinds for the said purchases including capital credit, means, resources, technical and managerial services, advice and assistance.'
2. The other objects incidental or ancillary to the attainment of the main objects, inter alia, include formulation and execution of projects and management and administration of such projects, including shops, establishments or rice mills, flour mills or any other processing or manufacturing facilities which, in the opinion of the company, is essential for the furtherance of the objects of the company. The authorised capital of the company which fixed at Rs. 3,00,00,000 is divided into 30,000 shares of Rs. 1,000 each under art. 5(a) of the articles of association and under art. 5(b) the capital is entirely contributed by the State Government. In art. 6, it is laid down that no part of the funds of the Company shall be employed in the purchase of or in loans upon the security of the company's shares. All income of the company shall belong to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, Government of Andhra Pradesh. Transfer of shares is restricted under art. 22. They may be transferred only to a person approved by the Government. The Commissioner of Civil Supplies, Andhra Pradesh, shall be the ex-officio chairman of the board of directors of the company so long as he holds the office of Commissioner. Under art. 74, the directors including the vice chairman and managing director and additional managing directors, if and/or allowance as the Government may from time to time determine. The period during which the chairman and the vice chairman and managing director may hold office is determined by the Government. Even the strength of the board of directors may be reduced or increased by the Government from time to time under art. 73. The Government has the power to remove any director including the Chairman, deputy chairman, if any, and the vice chairman and managing director from office at any time in their absolute discretion. The Government is also vested with the power to fill up any vacancies in the office of the directors caused by the removal, resignation, death or otherwise. While the general power of the company is vested in the directors as laid down in art. 75, the board of directors is required to carry out such directives as may be issued by the Government from time to time as laid down in art. 122. Some of the decisions of the board require the prior approval of the Government as envisaged in art. 87. The Government has absolute discretion to appoint whomsoever it chooses as the managing director as laid down in art. 77. The Central Government is given the authority to appoint auditors of the company on the advice of the Comptroller and Auditor-General of India. Thus, the total capital of the company is to bcontributed by the State Government and the company shall be wholly owned by the State Government as expressly declared in clause V of the memorandum of association. The Corporation so registered under the Companies Act claims that it is an instrumentality of the State and as such entitled to all immunities and privileges as the State itself in the matter of its liability to pay tax on the income earned by it; it claims immunity from payment of income-tax.
3. Mr. P. Ramachandra Reddy, the learned counsel appearing for the petitioner, referred to several decisions to contend that this Corporation is an instrumentality of the State. In particular, he relied upon what the Supreme Court stated in Ramana Dayaram Shetty v. International Airport Authority of India, : (1979)IILLJ217SC , Som Prakash Rekhi v. Union of India : (1981)ILLJ79SC and A.P.S.R.T.C., v. ITO : 52ITR524(SC) to contend that this Corporation satisfies all the indicia enunciated by the Supreme Court to hold that it is an instrument ality of the State.
4. Mr. Sreerama Rao, the learned counsel appearing for the Revenue, sought to contend that the Corporation may be dealing in commodities which are essential to the community, the production, supply and distribution of which may be one of the essential duties discharged by a welfare State, but still it is the activity of a company and not that of a State. It is carrying on business like any other company and merely because the business which it is carrying on is a business in the commodities essential to the community, it does not amount to discharging a governmental function so as to make it an instrumentality of the State or a State itself. We think it unnecessary to refer in detail to the different stages through which this concept of the instrumentality of the State developed and took a concrete shape. These several decisions were referred to in Som Prakash Rekhi v. Union of India : (1981)ILLJ79SC and Justice Krishna Iyer, speaking for the majority, summarised the tests that may be applied to determine `whether a particular authority is an instrumentality of the State or not. They are (p. 92) :
'1. One thing is clear that if the entire share capital of the Corporation is held by Government, it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government.
2. Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.
3. It may also be a relevant factor..... whether the Corporation enjoys monopoly status which is State conferred or State protected.
4. If the functions of the Corporation are of public importance and closely related to governmental functions, it would be a relevant factor on classifying the Corporation as an instrumentality or agency of Government.
5. Specifically, if a department of Government is transferred to a Corporation, it would be a strong factor supportive of the inference of the Corporation being an instrumentality or agency of Government.'
5. We have referred in detail to the several clauses of the memorandum of association and the articles of association of the petitioner-company which unequivocally establish that it is a company, the share capital of which is wholly subscribed by the Government. That, according to the Supreme Court, goes a long way towards indicating that the Corporation is an instrumentality or agency of the Government. The second test of 'existence of deep and pervasive State control' which, according to the Supreme Court, gives an indication that the Corporation is a State agency or instrumentality, is also fully satisfied. All the shares are owned by the State Government and they cannot be transferred to anyone else. The board of directors and the managing director who manage the affairs of the company are appointed by the Government and are under the control of the Government. The the Government from time to time in the management of the affairs of the company. The board of directors in their own discretion. It may not engage in any business other than what is directed to be undertaken by the Government and that too within the main objects enumerated in the memorandum of association. The degree of control exercised by the Government is all pervasive. Though it may not have a monopoly status in dealing with commodities essential to the life of the community, the Government has absolute power under the provisions of the Essential Commodities Act and the orders issued thereunder to pass appropriate orders and create a monopoly in such essential commodities. There is no such monopoly at present, but there is the authority vested in the Government to create such a monopoly consistent with the provisions of art. 19 of the Constitution and the State Government which owns the company may discharge these functions through the instrumentality of this Corporation for which sufficient provision is made in the memorandum and articles of association. This al so gives an indication that it is an instrumentality of the State. The fourth test, that the functions of the Corporation are of such public importance and so closely related to governmental functions, in our view, must also be said to have been satisfied. While it is not obligatory upon the Government to discharge those functions, supply of essential commodities to the community at large at fair and equitable price is one of the importance governmental functions in a welfare State These functions were at one time discharged by the Civil Supplies Department as such. May be, all the functions discharged by the Department are not wholly transferred to the Corporation. But some of the functions discharged by it are certainly now discharged by the petitioner company. Thus, all the tests laid down by the Supreme Court are by and large fulfilled by this company and we have, therefore, no hesitation in holding that the Andhra Pradesh State Civil Supplies Corporation Ltd., is an instrumentality of the State. It is a State Government undertaking and an instrumentality of the State.
6. But that, in our view, does not conclude the matter in issue. All the decisions of the Supreme Court which have dealt with the question whether a particular authority is an agency or instrumentality of the State or not had to consider that matter in the context of fundamental rights enunciated in Part III of the Constitution which give a special connotation to the term 'the State'. It is an inclusive definition which reads thus :
'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 each of the States and all local or other authorities within the territory of India or under the control of the Government of India.'
7. The court had to consider whether any authority other than the State as such would also be deemed to be a 'State' within the managing of art. 12 when the complaint is that that authority has infringed any of the fundamental rights guaranteed to a citizen in Part III of the Constitution. The very fact that it is an inclusive definition shows that what is not in fact a 'State' for the purpose of Part III is deemed to be a State. So much so, local or other authorities in the territory of India which are under the control of the Government of India are also included in the definition of 'State.' A State owned Corporation incorporated especially by or under a statute, a company registered under the Companies Act or a firm registered under the Partnership Act may be legal personalities competent to discharge functions in their own right. As to how far they satisfy the tests enunciated by the Supreme Court in this behalf would depend upon several factors. But none the less these entities or authorities which satisfy these tests by themselves would not be a 'State' but only instrumentalities or agencies of the State. An agency or instrumentality of a State is an entity different from the State itself. Agency or instrumentality of a State is an entity different from the State itself. Agency implies that there is a principal. Instrumentality implies that there is some other authority which uses this person as an instrument through which it acts. There is a clear distinction between the principal and the agent and the State and its instrumentality. For securing the fundamental rights to every citizen, the founding fathers thought it necessary to ensure that the State does not trample upon these rights guaranteed by the Constitution by resorting to the establishment of agencies or instrumentalities of State and enunicated a wide and comprehensive definition of 'State' for the purpose of Part III of the Constitution.
8. Under the I.T. Act, a 'company' as defined in s. 2(17), inter alia, includes any Indian company, any body corporate incorporated by or under the laws of a country and any institution, association or body whether incorporated or not. A State undertaking incorporated under the Companies Act is not outside the definition of a 'company.' 'Person' defined under s. 2(31) includes a 'company.' Income derived by any 'person' is liable to charge of income-tax under s. 4 as laid down under the several provisions of the Act. The I.T.Act as such does not excluded the income of a 'company', which is a 'person' within the meaning of s. 2(31) read with s. 2(17) from liability of tax. The exemption is claimed by the petitioner-company not under any provision of the I.T.Act, but only under art. 289(1) of the Constituti on of India, which reads thus
'298(1). The property and income of a State shall be exempt from Union taxation.'
9. What is exempt from taxation is the income of a State and not the income of the instrumentality or agency of a State. That the income of this company is not the income of the State is clear even from art. 6 of the articles of association of the petitioner-company. It reads thus :
'6. No part of the funds of the company shall be employed in the purchase of or in loans the security of the company's shares. All income of the company shall belong to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, Government of Andhra Pradesh.'
10. If the income of the company were to be the income of the State itself, there was no necessity for such an article. Only because the income of the company is different from the income of the State, a specific provision is made declaring that it shall belong to the Price Equalisati on/Stabilisation Fund, Department of Civil Supplies, Government of Andhra Pradesh. Once it is the income of the company under the provisions of the I.T.Act, it is liable to tax and out of the gross income, after making allowance for such deductible expenditure as is permitted under the I.T.Act, the net amount shall be the income of the company. It is this income that is stated to belong to the Price Equalisation/Stabilisation Fund under the Department of Civil Supplies, Government of Andhra Pradesh. The fact that this amount is said to belong to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, does not establish that it is the income of the Department.
11. The income of the company being distinct from the income of the State, immunity from taxation provided under art. 289(1) of the Constitution is not attracted. In A.P. State Road Transport Corporation v. ITO : 52ITR524(SC) the Supreme Court, dealing with the claim of the A.P.S.R.T.C., constituted under the notification issued by the Government of Andhra Pradesh in 1950, that the income derived from its trading activities is immune from liability of income-tax under art. 289 of the Constitution on the ground that its trading activities are carried out by and on behalf of the State, held that though the majority of the shares are owned by the Andhra Pradesh Government and its activities are controlled by the State, the Corporation has a separate personality of its own. The trading activities of the Corporation and the profit and loss arising therefrom are the profit and loss of the Corporation. The income derived from its trading activities cannot be said to be the income of the Andhra Pradesh State under art. 289 of the Constitution.
12. The contention of the Corporation that, as in America, the instrumentality of the State also is exempt from taxation was rejected even in State of West Bengal v. Union of India, : 1SCR371 . Speaking for the majority, Sinha C J., made the following observations :
'It was futile to attempt the resuscitation of the now exploded doctrine of the immunity of instrumentalities which, originating from the observations of Marshall, C J., in McCulloch v. Maryland  4 Wheat 316 at page 436, has been decisively rejected by the Privy Council as inapplicable to the interpretation of the respective powers of the States and the Center under the Canadian and Australian Constitutions (vide Bank of Toronto v. Lambe  12 ACT 575 (PC) and Webb v. outrium  ACT 81 (PC) and has practically been given up even in the United States.' So on any general principle also unconnected with the construction of art. 289 of the Constitution, the Corporation cannot claim immunity from taxation as being an instrumentality of the State. Sri Sreerama Rao, the learned counsel for the Revenue, brought to our notice and relied upon the decision of the Bombay High Court in Vidarbha Housing Board v. ITO : 92ITR430(Bom) in which the claim of the Vidarbha Housing Board constituted under the Madhya Pradesh Housing Board Act, 1950, to immunity from Union taxation was rejected. Before a Bench of the Bombay High Court, it was contended for the Housing Board that the income and property of the Board were actually the income and property of the State Government, the Board being merely an agent through the instrumentality of which the State Government was discharging its functions pursuant to the directive principles of State policy contained in Part IV of the Constitution and as such the income which was sought to be brought under taxation was immune from Union taxation under art. 289(1). It was held that the provisions of the Madhya Pradesh Housing Board Act, 1950, clearly indicated that the Board, its property and income could not be regarded as property and income of the State Government, with the result that the immunity claimed by the petitioner-Board under art. 289(1) of the Constitution was clearly not available to it. Even where the authority or the company may be deemed to be an instrumentality of the State and, therefore, a 'State' within the meaning of art. 12, but incorporated under the Companies Act, such corporation has a distinct entity of its own. The fact that the shares of the company are wholly contributed and owned by the Government, does not make it a State within the meaning of art. 289(1) of the Constitution. Unless the authority or the company is a State, it cannot claim immunity from Union taxation under art. 289(1) of the Constitution. From the fact that it is an instrumentality of the State within the meaning of art. 12 of the Constitution, it does not necessarily follow that it is a 'State' within the meaning of art. 289 entitled to claim immunity from taxation.
13. For the foregoing discussion, the claim of the petitioner to immunity from Union taxation under art. 289(1) of the Constitution fails and is rejected. The writ petition, therefore, fails and is, accordingly dismissed. No costs. Advocate's fee Rs. 250.