TMI Blog2023 (11) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... is a subsidiary of a pubic company, is deemed to be a public company. Therefore, the assessee company qualifies as a subsidiary of Allcargo Logistics Ltd. and will be regarded as deemed to be public company. Therefore it will not come within the ambit of section 56(2)(viib) of the Act. Only grievance of the Revenue is that the Ld. CIT(A) has stretched the scope of deeming provision under section 2(71) of the Companies Act, 2013 for further deeming which is beyond its originally intended purpose - In our humble opinion this stand of the Revenue is not legally tenable as the provisions of section 2(87) of the Companies Act, 2013 cannot be overlooked. It is well settled that full effect must be given to the statutory fiction and it should be carried to its logical conclusion. - Dr. Brr Kumar, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : None For the Department : Shri Vivek Vardhan, Sr. DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the Revenue is directed against the order dated 19.05.2022 of the Ld. Commissioner of Income Tax (Appeals)-28, New Delhi ( CIT(A) ) pertaining to Assessment year ( AY ) 2016-17. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2990/- by the assessee to Contech, its holding company and asked the assessee to furnish note on applicability of section 56(2)(viib) of the Income Tax Act, 1961 (the Act ) and valuation of share as per Rule 11UA of Income Tax Rules, 1961 (the Rules ). The assessee complied stating that section 56(2)(viib) r.w. Rule 11UA is not applicable backed by legal opinion of M/s. CNK Associates LLP dated 30.3.2015 (summarised by the Ld. AO at page 2 of his order). 6. The contention of the assessee was not acceptable to the Ld. AO. According to him section 56(2)(viib) of the Act has to be strictly interpreted. Since preference shares were issued during the FY 2015-16 relevant to AY 2016-17, section 56(2)(viib) of the Act is enforceable in this year. The Ld. AO held that the assessee company is a company in which public are not substantially interested and hence section 56(2)(viib) of the Act is squarely applicable. The holding company of the assessee company is Contech which is a private company. The scope of deeming provision cannot be stretched for further deeming. 6.1 For valuation of the shares under Rule 11UA the assessee submitted report of a CA firm wherein yield meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovincial Act, or (c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. 6.1 Sub-clause (c) of item (B) of clause (b) of sec. 2(18) of the Act is required to be explained in detail to comprehend it. The plain reading of the aforesaid relevant portion of sec. 2(18) provides that a company in which the public are substantially interested if it is a company which is not a private company as defined in the Companies Act, 1956 and the conditions specified in item (B) are fulfilled namely, the shares of the said company carrying not less than 50% of the voting power have been allotted unconditionally and were throughout the relevant previous year beneficially held by any company to which this clause applies, or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. 6.2 In this case, the appellant company, namely, Comptech, is a wholly owned subsidiary of Contech and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a company in which the holding company- (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. Explanation. -For the purposes of this clause,- (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub- clause (i) or subclause (ii) is of another subsidiary company of the holding company; (b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors; (c) the expression company Includes any body corporate; (d) layer in relation to a holding company means its subsidiary or subsidiaries; In view of the aforesaid provisions, it is apparent that the appellant company would be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantially interested and fell within section 108(a). A 100 per cent owned sub-subsidiary of a 100 per cent owned subsidiary would be a subsidiary within the meaning of section 4(1)(c) of the Companies Act and also within the meaning of section 108(b). The assessee fulfilled the condition of section 108(b) inasmuch as throughout the previous year 100 per cent of its share capital was held by the U.K. company. Throughout the previous year 100 per cent of the share capital of the U.K. company was held by the U.S. company. The U.K. company was, thus, a nominee of the U.S. company. The assessee would, thus, be a subsidiary within the meaning of section 108(b). Further, The ITAT Ahmedabad Bench 'A' (Special Bench) in the case of Assistant Commissioner of Income-tax v. Ajax Investment Ltd. [2003] 85 ITD 154 (AHD.)(SB) held that the second subsidiary company of first subsidiary company (parent company listed in the recognized stock exchange of India) falls within the term wholly owned subsidiary company notwithstanding the fact that neither the parent company is holding any shares (or requisite shares) in the second subsidiary company nor is the first subsidiary compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany as given in section 2(71) of the Companies Act, 2013 and the definition of subsidiary company as per section 2(87) of the Companies Act, 2013, the Ld. CIT(A) reached the conclusion, with which we agree that the assessee company is a subsidiary company of Allcargo Logistics Ltd. by virtue of clause (a) of the Explanation of section 2(87) of the Companies Act, 2013 and as per proviso of section 2(71) of the Companies Act, 2013 a company which is a subsidiary of a pubic company, is deemed to be a public company. Therefore, the assessee company qualifies as a subsidiary of Allcargo Logistics Ltd. and will be regarded as deemed to be public company. Therefore it will not come within the ambit of section 56(2)(viib) of the Act. 12. The only grievance of the Revenue is that the Ld. CIT(A) has stretched the scope of deeming provision under section 2(71) of the Companies Act, 2013 for further deeming which is beyond its originally intended purpose. In our humble opinion this stand of the Revenue is not legally tenable as the provisions of section 2(87) of the Companies Act, 2013 cannot be overlooked. It is well settled that full effect must be given to the statutory fiction and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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