State Trading Corporation of India Ltd & Others v Commercial Tax Officer

Facts of State Trading Corporation of India Ltd & Others v Commercial Tax Officer

The State Trading Corporation of India Ltd. (STC), a private limited company incorporated under the Indian Companies Act, 1956, approached the Supreme Court under Article 32 of the Constitution of India. The STC sought special writs challenging the imposition of sales tax by the excise authorities of Andhra Pradesh and Bihar, arguing that these taxes infringed its fundamental rights under Articles 19(1)(f) and 19(1)(g).

The STC, claiming to be an Indian national, argued that it was entitled to fundamental rights reserved for citizens under the Constitution. It also contended that its ownership by the Government of India (98% of its capital was contributed by the government) effectively made it an organ of the government. Consequently, it sought protection of fundamental rights against the state.

On the other hand, the Commercial Tax Officer (respondent) raised preliminary objections to the petition, questioning the citizenship status of the corporation and whether it could invoke fundamental rights available exclusively to individuals.

Issues Raised

The issues raised in State Trading Corporation of India Ltd & Others v Commercial Tax Officer were:

1. Can the State Trading Corporation, a company incorporated under the Indian Companies Act, 1956, be considered a “citizen” under Article 19 of the Constitution and thereby invoke fundamental rights reserved for citizens?
2. Is the STC, due to its ownership by the Government of India, a department or organ of the government capable of enforcing fundamental rights against the state?

Arguments

Appellant (State Trading Corporation)

• Corporate Citizenship: The STC argued that the Constitution and the Citizenship Act, 1955, did not comprehensively address the citizenship of corporate entities. It claimed that nationality could be determined based on the place of incorporation, and since STC was incorporated in India, it was entitled to be recognized as a citizen for constitutional purposes.
• Government Ownership: The corporation’s ownership by the Government of India (98% capital contribution) and its key shareholders being government officials supported its argument that it was an organ of the government. The STC contended that this status allowed it to invoke fundamental rights under Article 19 to challenge state actions.

Respondent (Commercial Tax Officer)

• Lack of Citizenship: The respondent argued that a corporation does not fall within the scope of the term “citizen” as defined in Article 19 of the Constitution or the Citizenship Act, 1955. Fundamental rights under Article 19 are inherently individual and not extendable to legal entities such as corporations.
• Independent Corporate Identity: The mere fact that the government was the majority shareholder did not transform STC into an organ of the government. The respondent emphasised that STC’s incorporation under the Companies Act rendered it a separate legal entity, distinct from its shareholders.

State Trading Corporation of India Ltd & Others v Commercial Tax Officer Judgement

The Supreme Court in State Trading Corporation of India Ltd & Others v Commercial Tax Officer delivered its judgement on 26th July 1963, with a majority decision by a 9-judge bench. The Court dismissed the appeal, ruling as follows:

Majority Opinion (Chief Justice B.P. Sinha and Others)

• Distinction Between Citizenship and Nationality: The Court in State Trading Corporation of India Ltd & Others vs Commercial Tax Officer clarified that while all citizens are persons, not all persons are citizens. A corporation, though capable of possessing nationality based on its place of incorporation, cannot claim citizenship under the Indian Constitution. Citizenship, as defined under Part II of the Constitution and the Citizenship Act, 1955, is limited to natural persons and excludes artificial entities like corporations.
• Inapplicability of Article 19 Rights: Fundamental rights under Article 19, such as the rights to freedom of speech, assembly, and movement, are explicitly meant for natural persons. These rights are personal in nature and cannot apply to legal entities like corporations. The Court concluded that corporations do not qualify as “citizens” and are therefore ineligible to claim rights under Article 19.
• Government Ownership Irrelevant: The Court in State Trading Corporation of India Ltd & Others vs Commercial Tax Officer rejected the argument that government ownership transformed STC into an organ or department of the government. The incorporation of STC under the Companies Act created a separate legal personality, independent of its shareholders, including the government.

Additional Opinions

• Justice Hidayatullah: Highlighted that a corporation’s legal identity is distinct from its members, even if its members are Indian citizens. This distinction negates any claim to citizenship by the corporation.
• Justice Das Gupta: Suggested a middle ground by proposing that the corporate veil could be pierced in exceptional cases to determine the citizenship of shareholders. However, this approach was not adopted by the majority.
• Justice Shah (Dissenting): Argued that the terms “person” and “citizen” could, in some instances, include legal persons like corporations. This minority view was not upheld by the Court.

Conclusion

The Supreme Court’s judgement in State Trading Corporation of India Ltd. v Commercial Tax Officer serves as a cornerstone in Indian constitutional law. By affirming the distinction between natural persons and legal entities, the Court provided clarity on the applicability of fundamental rights and the limitations of corporate claims under the Constitution.

The ruling reinforced that corporations, despite their legal personality and potential for government ownership, cannot be treated as citizens entitled to rights under Article 19. This precedent continues to shape the legal landscape, ensuring a clear boundary between individual and corporate rights within India’s constitutional framework.