THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.13120 of 2004 06.06.2011 Between: M/s.NRI Academy of Sciences, Chinakakani, Guntur District. …. Petitioner AND The Commercial Tax Officer, Benz Circle, Vijayawada. … Respondent THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.13120 of 2004 ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) The notice dated 04.06.2004, and the subsequent endorsement dated 26.06.2004, issued by the respondent demanding Rs.9,82,499/- (Rupees nine lakh eighty two thousand four hundred and ninety nine only) as the petitioner had failed to deduct tax at source from Works Contractors under Section 5H of the Andhra Pradesh General Sales Tax Act, 1957 (APGST Act) is under challenge in this writ petition as being illegal on the ground that the petitioner is not an instrumentality of “State” under Article 12 of the Constitution of India. The endorsement issued by the respondent dated 26.06.2004 was based on the premise that the petitioner, a society registered under the Societies Registration Act, 1965, was an Agency or instrumentality of the State and, hence, a “State” within the meaning of Article 12 of the Constitution of India. Reliance is placed by the respondent on Ajay Hasia v Khalid Mujib[1] to hold that the petitioner, a registered society, is liable to deduct tax at source from the amount payable to the contractors and remit it to the Department under Section 5H of APGST Act. On the ground that the petitioner had failed to do so, the respondent directed that, in addition to the amount of TDS to be deducted, interest at the rates specified under Section 16(3) of the APGST Act be paid by them. The objects of the petitioner, a society registered under the Societies Registration Act, is to establish a medical college and a teaching hospital in Chinakakani Village, Mangalagiri Mandal, Guntur District. The petitioner obtained registration, as a dealer under the APGST Act, with the respondent. It is their case that they do not receive any sort of aid from the State Government or Central Government; the State or Central Government do not have any control over the administration of their society; their administration is carried out by the Chairman and Executive Committee Members; there is no official of the Central or State Government on the Board of the Executive Committee; the petitioner Society is merely an association of members; and such a society of persons is not an instrumentality of the State within the meaning of Article 12 of the Constitution. Under Section 5H(1) of the APGST Act the requirement of deducting tax at source from contractors, in respect of works contract executed for them, is on the Central Government, or the State Government, or a Central Government or State Government Industrial, Commercial or Trading Undertaking, or a local authority or a statutory body or a company registered under the Companies Act, or any other person which the Government may notify from time to time. It is not the case of the respondent that the petitioner Society has been notified by the Government as required under Section 5H(1) of the APGST Act. The ground on which the petitioner is held liable, for failure to deduct tax at source, is on the premise that it is an instrumentality of the State within the meaning of Article 12 of the Constitution. Article 12 of the Constitution defines “State” to include the Government and the Parliament of India; the Government and the Legislature of each of the States; and all local or other authorities within the territory of India or under the control of the Government of India. As to which “other authority” falls within the ambit of Article 12 of the Constitution for the purpose of Part III thereof, has been subject matter of consideration in several Judgments of the Supreme Court. A Seven Judge Bench of the Supreme Court, in Pradeep Kumar Biswas v Indian Institute of Chemical Biology[2], held that, in order to determine whether or not a Society registered under the Societies Registration Act is an instrumentality of the State within the meaning of Article 12 of the Constitution of India the tests are whether, in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of the Government; such control must be particular to the body in question and must be pervasive; and if the control is merely regulatory, whether under a statute or otherwise, it would not serve to make the body a “State”. As is evident from the averments in the affidavit filed in support of the writ petition neither the Central Government nor State Government exercise financial, functional or administrative control over the petitioner Society nor are their representatives even part of the executive committee of the said Society. The petitioner Society cannot, therefore, be held to be a ‘State’ within the meaning of Article 12 of the Constitution. The endeavour of the respondent to bring the petitioner within the definition of ‘State’ under Article 12 of the Constitution is erroneous and misplaced. Even otherwise it is only industrial, commercial or trading undertakings of the Central Government or the State Government or a local authority, or a statutory body, or a Company registered under the Companies Act, 1956, which are fastened with the obligation, under Section 5-H of the Act, of deducting tax at source from contractors in respect of works contracts. It is not even the case of the respondent that the petitioner is an industrial, commercial or trading undertaking of the Central Government or the State Government. The petitioner, a Society registered under the Societies Registration Act, is not a local authority or a statutory body or a Company registered under the Companies Act. As it is not notified by the Government, the petitioner does not fall within any of the categories mentioned in Section 5-H of the Act. The tests laid down earlier in Ajay Hasia1 and later in Pradeep Kumar Biswas2 is only to determine when a “Society” would fall within the ambit of “other authority” under Article 12 of the Constitution. This is not the test required to be satisfied under Section 5H of the APGST Act. The order of the respondent is contrary to the plain language of Section 5H of the APGST Act and must, therefore, be set aside. Consequently, both the impugned endorsement and the notice are quashed. The writ petition is accordingly allowed without any order as to costs. _______________ (V.V.S.RAO, J) ______________________________ (RAMESH RANGANATHAN, J) 06.06.2011 Pln/Asp [1] AIR 1981 SC 487 [2] (2002) 5 SCC 111