INDER DEV DUA, J.

1. This is an application under article 226 of the Constitution by the Pepsu Road Transport Corporation for quashing the assessment order dated January 31, 1961, passed by the Income-tax Officer, respondent No. 1.

2. According to the allegations in the writ petition, the petitioner-corporation was established on January 7, 1956, under section 3 of the Road Transport Corporation Act, 1950 (hereinafter called the Act), vide annexure "B". This Act had come into force in the State of Patiala and East Punjab States Union on March 10, 1955, vide annexure "A". The petitioner-corporation was reconstituted on October 29, 1956, vide annexure "C", and subsequently the Provincial Transport Controller, Punjab, was appointed a member in place of the Joint Provincial Transport Controller. The objects for establishing the petitioner-corporation are stated to have been laid down in section 3 of the Act and its general duty in section 18. The petitioner took over with effect from October 16, 1956, the undertaking from the Pepsu Roadways which had been operating departmentally the road transport services under the policy of nationalisation of road transport followed by the Pepsu Government. The terms and conditions of this transfer are contained in annexure "D". On taking over this undertaking, the capital investment was raised to Rs. 25 lakhs, out of which Rs. 5 lakhs was contributed by the Northern Railway. The Income-tax Officer, respondent No. 1, served on the petitioner-corporation notices for submission of returns under section 22 (2) and 38 of the Income-tax Act for the years 1957-58 to 1960-61. The jurisdiction of respondent No. 1 to assess the petitioner-corporation was questioned by the latter, but the returns for the three years 1957-58 to 1959-60 were forwarded under protest in pursuance of the notices. The Income-tax Officer did not agree with the objection and made assessment under the Income-tax Act for the year 1957-58 which is the subject-matter of challenge in the present writ proceedings.

3. On behalf of the petitioner, Shri Sikri, the learned Advocate-General, has raised four points. According to the first objection the income of the corporation is stated to be the income of the Punjab State and, therefore, exempt from the Union tax under article 289 of the Constitution. According to the second objection, the petitioner is not a taxable entity and, therefore, cannot be subjected to the impugned levy. Without prejudice to these two objections, the third objection is based on section 4 (3) (i) of the Income-tax Act and the petitioner claims to be a charitable institution established by the State Government for providing utility service to the public, trade and industry in general within the section. And lastly, the petitioner claims to be a local authority within the meaning of section 4 (3) (i) of the Income-tax Act and, therefore, exempt from taxation.

4. While developing the first point the learned counsel, to begin with, has referred us to article 289 (1) of the Constitution according to which the property and income of a State is exempt from Union taxation. It is submitted that until Parliament by law so provides, as contemplated by sub-article (2) of this article, the income of a State must be held exempt from the operation of the Indian Income-tax Act. The counsel then drew our attention to article 298 according to which the executive power of contracts for any purpose. After referring to these articles the counsel has placed reliance on Rai Sahib Ram Jawaya Kapur v. State of Punjab which, according to the counsel, clearly lays down that the Government can carry on a business through an undertaking. In the reported case, the Government had started publishing, printing and selling text books for educational institutions and challenge to this power was repelled. The counsel then relied on a decision of the Privy Council in a case from Canada in Montreal v. Montreal Locomotive Works Ltd. Reliance h