TMI Blog1974 (7) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Bihar State Financial Corporation, Patna, were preference shares and the Tribunal was right in holding that the assessee was not entitled to a further rebate of 7 % on the amount of dividend declared." The Corporation was formerly assessed for the assessment year 1964-65 by the Income-tax Officer, who subsequently found a mistake apparent on the face of the record in the calculation of tax to be paid by the assessee. Under the Finance Act, 1964, a mode of calculation of super-tax payable by companies is set out in Paragraph D of Part II of the First Schedule of that Act, which applies to the assessment for the year 1964-65. Similarly, the mode of calculation of income-tax, in so far as the assessment year 1965-66 is concerned, is set out in Paragraph F of Part I of the First Schedule to the Finance Act, 1965. There is no dispute that under the 1964 Act in calculating the super-tax payable a rebate of 37.5 per cent. was allowable but the amount of rebate so calculated was provided to be reduced by a sum equal to the amount of 7 per cent. on the whole amount of dividend other than the dividend on preference shares. So far as the Finance Act, 1965, is concerned, a simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere, the common question of law, as stated above, has been referred. In order to appreciate the respective stands taken by the assessee and the department, it is worth referring to some of the provisions of the Corporation Act. The Corporation is a statutory corporation established, as already stated earlier, under the provisions of section 3 of the Corporation Act. Section 4(3) of this Act lays down that : "The State Government shall, with the approval of the Central Government, determine the number of shares which may, respectively, be distributed among ( a )the State Government, ( b )the Reserve Bank, ( c )scheduled banks, insurance companies, investment trusts, co operative banks or other financial institutions, and ( d )parties other than those referred to in clauses ( a ), ( b ) and ( c ): Provided that the number of shares which may be allocated to the parties referred to in clause ( d ) shall in no case exceed twenty-five per cent. of the total number of shares." In accordance with the provisions of section 4(3) aforesaid, the Corporation was established with a paid-up capital of rupees one crore divided into one lakh shares of rupees one hundred each an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Corporation Act, which deserves notice for the purposes of these cases, is section 43 which lays down that for the purposes of the Income-tax Act the Financial Corporation shall be deemed to be a company within the meaning of that Act and shall be liable to income-tax and super-tax accordingly on its income, profits and gains, subject to certain provisos, with which we are not concerned. Turning now to the provisions of the Income-tax Act, 1961, it is the admitted case that the Corporation could not be termed as a company subjected to the provisions of section 104 of the 1961 Act, as section 108 expressly excludes any company, in which the public are substantially interested, from the operation of the provisions of section 104, and section 2(18) of the Income-tax Act defines "company in which the public are substantially interested" as a company owned by the Government or the Reserve Bank of India or in which not less than 40 per cent. of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank. As already pointed out above, the present Corporation will obviously fall within the definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only ( a ) equity share capital, and ( b ) preference share capital. It would thus be seen that the effect of section 85 read with section 86 of the Companies Act is that all share capital which is not preference share capital is equity share capital. And for the purpose of being brought within the purview of preference share capital, prima facie, it seems, both the conditions ( a ) and ( b ) have to be satisfied, namely, that as respects dividends, it carries or will carry a preferential right to be paid a fixed amount or at a fixed rate and that, as respects capital, it carries or will carry, on a winding-up or repayment of capital, a preferential right to be repaid the amount of the capital paid up. Though this seems to be prima facie the meaning of section 85, since clauses ( a ) and ( b ) are joined by the word " and ", it is not necessary to give any concluded opinion with regard to the true meaning and purport of the term " and " intervening between clauses ( a ) and ( b ) of sub-section (1) of section 85, for, in certain cases, it is well settled, " and " will also mean " or ". I am, therefore, proceeding upon the assumption that on the fulfilment of either of the two con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding upon the contingencies set forth in section 35(2) of the Corporation Act, it cannot be said that it is a fixed rate of dividend to which the shareholders are entitled. "Fixed" in common parlance or even in legal language must always mean "unalterable" or "invariable". Even with regard to the capital, there is no preferential right given to any shareholder vis-a-vis the other shareholders. All are equally entitled to the repayment in accordance with the provisions of the Corporation Act as per guarantee of the State Government. Treating both the clauses ( a ) and ( b ) of section 85(1) even disjunctively, therefore, it would be found that the shares of the Corporation cannot fall within the category of preference shares. It was next contended by learned counsel for the assessee that, in any event, because since the inception of the Corporation right up to 1965-66 or even later, as a matter of fact, no shareholder was paid dividend at the rate of more than 3 per cent. therefore, it should be treated as being a fixed rate for the purpose of bringing it within the purview of section 85(1)( a ) of the Companies Act. I am afraid the contention is too fallacious. This submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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