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2014 (4) TMI 436 - AT - Income TaxDeduction u/s 37(1) of the Act – Remuneration paid in contravention - The AO invoked the provisions of section 4 (7) of the Companies Act, 1956 and reached at the conclusion that the assessee company is to be treated as public company and the managerial remuneration paid in contravention to provisions of Companies Act, 1956 was an offence/prohibited in law – Held that:- The decision in CIT vs. Papilion Investments Pvt. Ltd.[2009 (8) TMI 832 - BOMBAY HIGH COURT] followed - The total equity shares of the assessee company were 76,36,000 out of which 76,35,999 equity shares were held by NTT Communications Corporation, Japan and only one equity share was allotted to the Managing Director of the assessee company - The money for allotment of this one equity share to MD of the company was paid by NTT Communications Corporation, Japan - This single share was allotted to the MD in the capacity of a nominee of the assessee company to meet the requirement of minimum two shareholders in the case of a private limited company in view of Section 12 of the Companies Act – the fact has been clearly mentioned in the Memorandum & Article of Association. There cannot be any company in India which has less than two members i.e. shareholders - the requirement of section 4(7) is that the whole of the share capital of the subsidiary company should be held by the holding company - The whole of the share capital being held by the holding company is certainly not the same thing as whole of the share capital being held in the name of the holding company - the situation is a legal impossibility in India - in case one is to proceed on the basis that entire share capital of the subsidiary should be held in the name of the holding company, there cannot be any situation in which section 4(7) can apply - That is certainly not an interpretation which can be termed as to make the statute effective rather than making it redundant - Thus, there was no fault in the order of the CIT (A) for granting the relief to the assessee – thus, the order of the CIT(A) upheld – Decided against Revenue.
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