TMI Blog2008 (6) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... urred. Before the AO, the assessee produced an opinion given by advocates. Advocates noted that the shareholding of the company clubbed with the shareholding of M/s AMCO Properties Investments Ltd. would exceed 51 per cent of the voting power. However, a doubt was expressed as to whether shareholding of a subsidiary company can be taken into account in determining the beneficial ownership in terms of s. 79. The shareholding of the company for the financial years 1999-2000 to 2003-04 is as under: ---------------------------------------------------------------- Financial 31-3-1999 31-3-2000 31-3-2001 31-3-2002 31-3-2003 Year ---------------------------------------------------------------- Assessment 1999-2000 2000-01 2001-02 2002-03 2003-04 year ---------------------------------------------------------------- Share holding pattern ---------------------------------------------------------------- (a) ABL 100% 100% 55% 6% 6% ---------------------------------------------------------------- (b) TAFE Nil Nil Nil 49% 49% ---------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has cited the decision of Supreme Court in the case of Raghuvanshi Mills Ltd. vs. CIT (1961) 41 ITR 613 (SC). This decision was rendered under the IT Act, 1922. The issue before the Hon'ble Supreme Court was the meaning of the word 'substantial' with reference to shareholding. The Supreme Court was interpreting the term 'substantially interested' for distribution of profits. The Court held that anyone who holds more than 15 per cent of the voting power for the benefit of another and who does not exercise his voting power, cannot be said to belong to that body, which is designated to be public. In fact, the Supreme Court made it clear that, if a person holds shares but cannot exercise his voting power freely, such a person cannot be held to belong to the public. In this case, the facts are different. APIL is an independent company and holds shares in the assessee company. There is nothing explicit or implicit, either in law or facts, to show that APIL does not have the freedom to vote. This case does not help the assessee. 6.6 The next case relied on by the learned representative is the decision of the Supreme Court in the case of CIT vs. Shri Subhulaxmi Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year. [Section quoted is incomplete-Ed.] 9. The requirement as per the s. 79 of the IT Act is that 51 per cent of the voting power should be beneficially held by persons who held beneficial shares of the company carrying not less than 51 per cent of the voting power on the last day of the year or years in which the loss was incurred. Before us, it is not disputed that M/s APIL is a subsidiary of M/s ABL. As per s. 2(47) of the Companies Act, a subsidiary company means a subsidiary company within the meaning of s. 4 of the Companies Act. As per s. 4 of the Companies Act a subsidiary company is a company in which, its board of directors is controlled by the holding company. Sec. 4(2) of the Companies Act says that board of directors shall be deemed to be controlled by another company if that other company at its discretion can appoint or remove the holders of all or majority of the directorship. Once, it is not disputed that M/s APIL is a subsidiary of M/s ABL the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: The essence of the Explanation lies not in the percentage which only shows the limit of the minimum holding by the public, but lies in the words 'unconditionally' and 'beneficially'. These words underline the fact that no person who holds a share or shares not for his own benefit but for the benefit of another and who does not exercise freely his voting power, can be said to belong to that body, which is designated 'public'. The word 'public' is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a block. If such a block exists and possesses more than seventy-five per cent of the voting power, then the company cannot be said to be one in which the public are substantially interested. 11. If there is a block of voting power then the shares held by it cannot be said to unconditionally beneficially held by members of the public. 12. The learned Bombay High Court at p. 495 of 56 ITR observed as under: The whole object of the third proviso is to ensure that there must be voting power exercised which must be independent of the control of a dominant group, not necessarily the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f s. 79 of the IT Act, we have to see that 51 per cent of the voting power is beneficially held during the year under reference by the persons who held such voting right during the year in which loss was incurred. Since the board of directors of M/s APIL is controlled by M/s ABL, being a holding company, hence the voting power of M/s APIL is controlled by M/s ABL and hence such voting power is beneficially held by M/s ABL. It is clear from the ratio of law laid down from the Bombay High Court in the case of Raghuvanshi Mills Ltd. Hence, we are inclined to agree with the contention of the learned Authorised Representative that the assessee is entitled to set off and carry forward business loss. Accordingly, the AO is directed to allow the set off of carry forward business loss. 14. The last grievance of the assessee is that the claim of lease rentals and improvements should have been allowed as revenue expenditure. 15. We have gone through the order of the learned CIT(A). The issue now being raised before us has not been raised before the learned CIT(A). Therefore, the issue is not emanating from the order of the learned CIT(A). Hence, this ground of appeal is dismissed. Now, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means actually paid or incurred, according to the method of accounting. Accordingly, the learned CIT(A) held that liability to pay the consideration of ₹ 5 crores arose on 1st March, 1998 by virtue of the agreement and this is to be treated as paid in view of the definition of word paid as contained in s. 43(2) of the Act. The learned CIT(A), therefore directed that deduction under s. 35AB should be allowed. 20. On the above referred issue, we have heard both the parties. It is clear that as per the agreement entered between the assessee and ABL, lump sum consideration of ₹ 5 crores was considered for acquiring the technical know-how. Hence, it is the case where lump sum consideration was considered for acquiring the technical know-how. The word paid is defined under s. 43(2) as under: (2) 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession'. Hence, looking to the definition of the word paid given in s. 43(2) of the IT Act, we feel that the learned CIT(A) was justified in allowing the deduction. Sec. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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