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National Insurance Co. Ltd. Vs. the Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petition No. 125 of 1977
Judge
Reported in14(1978)DLT56; [1978]41STC30(Delhi)
ActsConstitution of India - Articles 226 and 285; Companies Act, 1956 - Sections 617; General Insurance Business (Nationalisation) Act, 1972 - Sections 4(9) and 412; Delhi Sales Tax Act, 1975 - Sections 2
AppellantNational Insurance Co. Ltd.
RespondentThe Union of India and ors.
Advocates: Balram Sangal,; S.N. Sharma and; R.C. Chawla, Advs
Cases ReferredMithanLal v. State of Delhi
Excerpt:
.....void - whether tax was one on property and property vested in union - entire shareholding owned by central government does not make incorporated company as central government - article 285 gives exemption to property of union from state taxes - petitioner not being central government not aggrieved by impugned legislation under which incidence of tax imposed on transaction of sale or purchase made by central government - in case petitioner not central government then exemption under article 285 not available - petitioner had no locus standi to invoke jurisdiction of court to pronounce upon constitutional validity of provisions - petition challenging constitutional validity of sections 2 (c), 2 (e) and 2 (g) dismissed. - - it is well-settled that the courts do not pronounce upon any..........who carries on business of selling goods in delhi and includes- (i) the central government or a state government carrying on such business; (ii) an incorporated society (including a co-operative society), club or association which sells or supplies goods, whether or not in the course of business, its members for cash or for deferred payment or for commission, remuneration or other valuable consideration ; (iii) a manager, factor, broker, commission agent, del credere agent, or any mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who sells goods belonging to any principal whether disclosed or not ; and (iv) an auctioner who sells or auctions goods belonging to any principal whether disclosed or not and whether the offer of.....
Judgment:

S.S. Chadha, J.

(1) This petition under articles 226 of the Constitution of India seeks a declaration that the provisions of clauses (e), (e) and (g) of section 2 of the Delhi Sales Tax Act, 1975, are ultra virus of article 285 of the Constitution of India and prays for striking down the said provisions as void. The impugned provisions are :

'SECTION 2(c) 'Business' includes- (i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, make gain or profit and whether or not any gain or profit accrues from such trade, commerce manufacture, adventure or concern, and (ii) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern ; (e) 'dealer' means any person who carries on business of selling goods in Delhi and includes- (i) the Central Government or a State Government carrying on such business; (ii) an incorporated society (including a co-operative society), club or association which sells or supplies goods, whether or not in the course of business, its members for cash or for deferred payment or for commission, remuneration or other valuable consideration ; (iii) a manager, factor, broker, commission agent, del credere agent, or any mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who sells goods belonging to any principal whether disclosed or not ; and (iv) an auctioner who sells or auctions goods belonging to any principal whether disclosed or not and whether the offer of the intending purchaser is accepted by or by the principal or a nominee of the principal ; (g) 'goods' includes all materials, articles, commodities and all other kinds of movable property, but does not include newspapers, actionable claims, stocks, shares, securities or money;.........'

(2) Under article 285 of the Constitution, the property of the union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State, unless it comes within the specified circumstances detailed in the proviso. The challenge to the constitutional validity in substance is that the petitioner's trade, assets and properties are that of the Central Government with effect from 2nd January, 1973, by virtue of sections 4(1) and 5(1) of the General Insurance Business (Nationalisation) Act, 1972, and, as such, the same being the property of the Union Government, is exempt from State tax by virtue of article 285 of the Constitution of India. Two essential questions, thereforee, arise turn determination; firstly, whether the tax is one on property and, secondly, whether such property is vested in the Union. I will deal with the second question first as to whether the petitioner is the Central Government. In order to appreciate this point, it is necessary to state briefly the provisions of the General Insurance Business (Nationalisation) Act, 1972.

(3) By the General Insurance (Emergency Provisions) Ordinance, 1971, which was later replaced by an Act of Parliament, the management of the undertaking of all insurers carrying on general insurance business was vested in the Central Government, pending nationalisation. In the year 1972, the Parliament enacted an Act known as the General Insurance Business (Nationalisation) Act of 1972 (hereinafter referred to as the Act). Section 3(b) defines the 'appointed day' as meaning such day not being a day later than the 2nd day of January, 1973, as the Central Government may be notification appoint. Section 4(1) provides that on the appointed day, all the shares in the capital of every Indian insurance company shall, by virtue of the Act, stand transferred to and vested in the Central Government free of all trusts, liabilities and encumbrances affecting them. Section 4(2) provides that out of the shares so transferred and vested, the Central Government shall, immediately thereafter, by notification provide for the transfer of not less than ten shares of every such company to such persons as may be specified in the notification to enable the Indian insuarance company to function as a Government company. Section 5 provides for the transfer of undertaking of other existing insures who is not an Indian insurance company and the vesting in the Central Government. Section 6 provides the effect of transfer of undertaking. Section 7 provides for the transfer of service of existing employees in certain cases. Section 9 provides that the Central Government shall form a Government company in accordance with the provisions of the Companies Act, to be known as the General Insurance Corporation of India, for the purpose of superintending controlling and carrying on the business of general insurance. Section 10 provides that all the shares in the capital of every Indian Insurance company which stand transferred to and vested in the Central Government by virtue of section 4 (with the exception of the shares transferred to any person under subsection (2) of that section), shall immediately after such vesting, stand transferred to and vested in the corporation and every Indian insurance company shall forthwith give effect to such transfer of shares and rectify its register of members by including therein the corporation as the holder of such shares. It is the petitioner's case that after the commencement of the Nationalisation Act, the Central Government issued notifications under the Act, by virtue of which the business of certain insurance companies was merged in the petitioner-company, which is incorporated under the Companies Act. The shares have been transferred and vested in the Central Government.

(4) One of the functions of the petitioner-company is to insure the vehicles, properties and other goods thereby providing insurance to the custo- mers and indemnity against loss, damage and theft of the insured property in terms of the insurance contract. In some cases, after making payment of the compensation when arising, the petitioner-company becomes the owner and is entitled to possess the waste or unuseable property damaged by the risk insured against. The properties or goods, which are thus damaged and rendered unuseable, are taken into custody by the petitioner-company after making payment of compensation to the person concerned. These are then disposed of by way of auction or otherwise as salvaged material. The Sales Tax Officer issued a show cause notice requiring the petitioner-company to appear and to furnish the statement of sales in respect of the salvage effected by the petitioner-company during the stated periods for the purpose of making assessments of tax under the provisions of the Bengal Finance (Sales Tex) Act' 1941, as was extended to the Union territory of Delhi, and also under the Delhi Sales Tax Act, 1975. One of the questions raised in the reply to the show cause notice was that the assets business and property of the petitioner-company had vested in the Central Government after nationalisation and the petitioner company being the property of the Central Government, is exempted from the levy of sales tax by virtue of article 285 of the Constitution of India. It was urged that clauses (e), (e) and (g) of section 2 of the Delhi Sales Tax Act, 1975 are void being vocative of article 285 of the Constitution of India. These proceedings are still pending before the sales tax authorities. In the meanwhile, the petitioner has raised the question relating to the constitutional validity of clauses (e), (e) and (g) of section 2 of the Delhi Sales Tax Act, 1975, in this court.

(5) At the outset, the argument of Mr. Balram Sangal the learned counsel for the petitioner, is that the minimum number of judge who shall sit for the purpose of determining the question as to the constitutional validity shall be five, as required under article 228A of the Constitution and, thereforee a Bench of five Judges should be constituted to pronounce upon the constitutional validity of the said provisions.

(6) The Supreme Court has often emphasised that the investigations of validity of a given statute or any part thereforee shall be limited to the extent absolutely necessary for the disposal of the issue before the Court. Again, a court will not decide the constitutional validity of any law at the instance of a party whose material interest are not prejudicially affected by the enforcement of the law. As a general rule the courts do not pronounce upon the constitutionality of law except at the instance of a petitioner whose material interests have been or will be adversely affected by the enforcement of laws. Sitting singly, I may not be having competence to pronounce upon the constitutional validity of any State law, but I have jurisdiction to determine my powers. Any court of law has inherent jurisdiction to determine whether it has juridiction to decide a particular case. The mere fact that the petitioner has raised the question relating to the constitutional validity of a State law will not oust the jurisdiction of this court to consider whether such a question in fact arises on the admitted facts before the Court. It could not be the intention of the legislature that in all cases in which a question relating to the constitutional validity of any State law is raised by any busy-body that a Bench of five Judges of the High Court must be constituted. It is well-settled that the courts do not pronounce upon any hypothetical question of law much less at the instance of a person who is not aggrived in law. The court must consider whether, for the purpose of determining the controversy that has been raised, the question relating to the constitutional validity of the State law is involved or not and whether the petitioner's interest will be adversely affected by the enforcement of the law.

(7) As already discussed in the earlier part of the judgment, the petitioner is a company incorporated under the Companies Act. A company registered under the Companies Act has a legal entity of its own, separate from that of its shareholders whoever they may be. The company itself is a juristic person. Its personality emerges from the incorporation and is governed by the memorandum of association and article of association. It will make no difference whether the entirety of the capital is subscribed by the Central Government or the company is controlled by the Central Government. It will also make no material difference that the entire assets would go to the Central Government in case of winding up of the company. The petitioner company may be a Government company within the meaning of section 617 of the Companies Act, 1956 (as is envisaged by section 4(2) of the Act), but the juristic character of the company does not change. The identity of the Government company remains distinct from the Government. The Government Company is not identified with the Union, but has been placed under a special system of control and conferred certain privileges by virtue of the provisions contained in sections 618 to 620 of the Companies Act, 1956. Thus merely because the entire shareholding is owned by the Central Government will not make the incorporated company as the Central Government.

(8) In heavy Engineering Wavdoor Union v State of Bihar a question arose about the meaning of the words used by the Parliament in the definition clause of 'appropriate Government' contained in section 2 of the Industrial Disputes Act in that case, the Heavy Engineering Corporation Ltd. Ranchi, was a company incorporated under the Companies Act 1956. Its entire share capital is contributed by the Central Government and all its shares have been registered in the name of the President of India and certain officers of the Central Government. It is, thereforee, a Government company within the meaning of section 617 of the Companies Act. It was held that the undertaking is not one carried on directly bp the Central Government or by any one of its departments as in the case of Post and Telegraphs or the Railways. It was held:

'ANincorporated company, as is well-known has a separate existence and the law recognises it is as a juristic person separate and distinct from its members. This new personality emerges from the moment of its incorporation and from that date the persons subscribing to its memoran- dum of association and others joining it as members are regarded as a body incorporate or a corporation agregate and the new person begins to function as an entity. Its rights and obligations are different from those of its shareholders. Action taken against it does not directly affect its shareholders......'

(9) In Andhra Pradesh State Transport Corporation v. Income-tax Officer B I Ward Hyderabad^ the Supreme Court observed that a corporation consti- tuted under the Road Transport Corporations Act, 1950. though statutory, has a personlity of its own distinct from that of the State or other shareholders It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned.

(10) Article 285 gives exemption to the property of the Union from State taxes. The petitioner is a company incorporated under the Companies. Act and has a personality of its own distinct from the Central Government. If the petitioner is not the Central Government, then the exemption under article 285 is not available to it. As already stated court of law will not pronounce upon the constitutional validity of a statute at the instance of any party unless his rights are adversely affected by the impugned legislation. The petitioner, not being a Central Government, is not a person aggrieved by the impugned legislation under which the incidence of taxation has been imposed on the transactions of sale or purchase made by the Central Government. The constitutional validity of a provision can only be determined if it is necessary for the determination of the questions raised in a particular case. It also has bearing on the lacusslandi of the person invoking the juridiction of the court. In my opinion, the petitioner has no locu standi to invoke the jurisdiction of the court to pronounce upon the constitutional validity of the provisions. On this shortground, I dismiss the petition challenging the constitutional validity of clauses (e), (e) and (g) of section 2 of the Delhi Sales Tax Act, 1975.

(11) With all fairness to the learned counsel for the parties, I may notice the other arguments advanced by them. Article 285 of the Constitution grants exemption to the property of the Union from all State taxes. Mr. R. C. Chawla, the learned counsel for the respondents, contends that under the sale tax laws the incidence of taxation is the transaction of sale or purchase, and property as such is not subjected to tax. Reliance was placed by him on Government Medical Store Depot v. State of Haryana and in re Sea Customs Act. On the other hand, Mr. Sangal contends that a Division Bench of the Punjab and Haryana High Court took a contrary view in Union of India v. State ofPunjab. He also contends that the case before the Supreme Court was on a reference under article 143 of the Constitution and that the majority opinion in the case has not dealt with the scope and effect of article 245 of the Constitution of India and, thereforee, the majority opinion is not law within the meaning of article 141 of the Constitution. Another argument raised by Mr. Chawla is that the impugned legislation was enacted by the Parliament under Article 246(4) of the Constitution of India. The impugned legislation was not made in exercise of the power under entry 54 in the State List of the Seventh Schedule of the Constitution. Reliance is placed on MithanLal v. State of Delhi'. Mr. Chawla also contends that the words 'same in so far as Parliament may by law otherwise provide' show that the bar to the taxation is not absolute one. The preamble of the Act shows that it was enacted by the Parliament. On the other band, the contention of Mr. Sangal is that the definition of State law contained in Article 366(26-A)(a), (d) and (g) would include the impugned legislation as the State law. I am not expressing any opinion on these submission in view of my finding that the petitioner-company is not the Union within the scope of article 285 of the Constitution.

(12) So far as the prayer for quashing the impugned notices and the proceedings pursuant on the notices are concerned, the challenge is yet premature as no orders have been passed. Let the petitioner pursue his remedies before the sales tax authorities.

(13) In the result, the writ petition is dismissed but in the circumstances, there is no order as to costs.


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