TMI Blog1951 (1) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... or was not a director-controlled company within the meaning of section 2(21) of the Excess Profits Tax Act, 1940, during the chargeable accounting periods in question. The material portion of that section is as follows: "Statutory percentage" means ( a ) in relation to a business carried on by a body corporate (other than a company the directors whereof have a controlling interest therein), eight per cent, per annum; ....( c ) in relation to a business to which sub-clause ( a ) does not apply, ten per cent. per annum. If the respondent company is a director-controlled company, then on the increase in its average capital, the statutory percentage allowed under that section will be 10 per cent. and if not, it will be 8 per cent. The respondent company was incorporated under the Indian Companies Act having a capital of Rs. 36 lacs divided into, 3,60,000 shares of Rs. 10 each. During the chargeable accounting periods in question, these shares were held as follows: Name of shareholder. Number of shares held in C.A. Ps. ended 31-12-1939 and 31-12-1940. Number of shares held in C.A. Ps. ended 31-12-1941, 31-12-1942 31-12-1943. 1.M/s. Aluminium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial or general proxy to vote the said shares on behalf of Aluminium, Ltd., at any general or special meetings of the shareholders of Jeewanlal [1929], Ltd." The resolutions recite Article 90 set out above. The "said shares" in, the resolutions refer to the shares owned by Aluminium, Ltd. and Jeewanlal [1929], Ltd. is the respondent company. The Appellate Assistant Commissioner held that Mr. Bash functioned in the dual capacity of a director of the assessee company and as an agent of Aluminium, Ltd. and that he was controlling the assessee company by exercising the voting rights in respect of the shares held by the foreign company as agent of the said company and not as a director of the assessee company, and on that view, he, in agreement with the Income-tax Officer, treated the assessee as not a director-controlled company within the meaning of section 2(21) of the Excess Profits Tax Act. From this order there was an appeal to the Income-tax Appellate Tribunal. The Tribunal held that in view of the power-of-attorney given to Mr. Bash by the Aluminium, Ltd., there was no room for doubt that the respondent company was a director-controlled company and set aside the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Forms edited by Dr. Underhill and is also given in Palmer's Company Precedents. Both counsel agree that the English Companies Acts do not contain any express provision authorising an English company to execute a general power-of-attorney like the one under consideration. If a corporation has no authority to execute such a power, I do not see any meaning in the great authorities giving the forms, I have above referred to, as specimen forms. But in the reference before us we are not called upon to decide the question raised by Dr. Gupta. We are of opinion that the applicant before us is not entitled to take the point as to the invalidity of the power. The point the applicant took before the Tribunal was not that the power was invalid but that on the true construction of the power given to Mr. Basil, he was not entitled to vote as a direction in respect of the shares held by Aluminium, Ltd. There the applicant argued that by virtue of the power given to Mr. Bash, he could only vote as an agent of Aluminium, Ltd., and, therefore, the respondent company was not a director-controlled company. It is clear, therefore, that the argument was based on the validity of the power. But now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter. The only point, therefore, for our consideration is whether in view of the fact that Mr. Bash had a valid power-of-attorney from Aluminium, Ltd., to vote on the shares held by that company, the respondent company can be said to be a director-controlled company. The question depends on the meaning to be given to the words "controlling interest" in section 2(21). The control of a company resides in the voting power of its shareholders. "Controlling interest" means the extent to which the shareholders have the power of controlling the decisions of the company by vote. The fact that the beneficial interest in the shares is in a third party is immaterial. No distinction can be made between the case when the director-trustee has, and when he has not, a beneficial interest in the shares. This is the decision of the House of Lords in Inland Revenue Commissioners v. J Bibby sons Ltd. In this case the issued capital of the company concerned consisted of 750,000 1 preference shares and 500,000 1 ordinary shares. The preference shares carried no votes. Each ordinary share carried one vote on a poll. There were eight directors who were respectively beneficial owners a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the shares in company No. 2, which in turn owns all the shares in company No. 3, company No. 1 has no interest, controlling or otherwise, in company No, 3. It is true that in such circumstances company No. 1 ownes none of the assets of company No. 2, and a fortiori owns none of the assets of company No. 3, and in that sense neither owns, nor has an interest in company No. 3. But that is to treat the phrase ' controlling interest' as capable of connoting only a proprietary right, that is, an interest in the nature of ownership. The word 'interest', however, as pointed out by Lawrence, J., is a word of wide connotation and I think the conception of 'controlling interest' may well cover the relationship of one company towards another, the requisite majority of whose shares are, as regards their voting power, subject, whether directly or indirectly, to the will and ordering of the first-mentioned company. If, for example the appellant company owns one-third of the shares in company X, and the remaining two-thirds are owned by company Y, the appellant company will none the less have a controlling interest in company X if it owns enough shares in company Y to control the latter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to agree with the view expressed in the later Bombay case. It is to be noted that this case does not make any reference to the earlier Bombay case and it does not appear that their Lordships' attention was drawn to that case. The matterial words in the section which is now under consideration are "directors whereof have a controlling interest therein." The section does not make any reference to any register. There is nothing in the section to show that such control must be brought about by directors having a majority of votes on the register. It is unnecessary to discuss other cases which were cited by counsel because in my humble opinion the two decisions of the House of Lords and the earlier Bombay case very clearly decide the meaning of the expression "controlling interest" in the section under consideration. It is clear, therefore, on the principal stated above that the respondent is a director-controlled company. It is quite true that Mr. Bash had no beneficial interest in the shares which were owned by Aluminium, Ltd., but by virtue of the power he held from that company, he, a director, was in a position to control the decision of the respondent company by votes a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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