TMI Blog2015 (10) TMI 1904X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of such company” and “any relative of such director”. If the intention of the legislature of had been to cumulatively consider the shareholding of more than one directors or more than one relative of such directors to constitute substantial interest, then it would have specified so. Since the legislature has not provided for clubbing of the shareholding of different persons to determine substantial interest, the same cannot be considered. The fact that the legislature has catered for a situation of beneficial ownership of shares shows that the omission of clubbing of shareholding is not unintentional. The alleged fact that four directors of the specified person (M/s Rockland Hospitals Ltd.) hold 50% shares of the petitioner companies does not satisfy the condition. The requirement is that an individual director must hold more than 20% shares, which apparently is not the case. The further plea that the family members of Srivastava family and the Bhandari Family hold more than 20% of the shares of the specified person (M/s Rockland Hospitals Ltd.) and the petitioner companies and further that the petitioner companies have invested 100% share capital in the specified person (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses (a)(v) and (a)(vi)(B) of the Explanation to sub-section (1) to section 245C. Since the petitioners in these petitions claim themselves to be related parties in terms of the above referred clauses only, so the examination is restricted to only these clauses. 4. Section 245C of the Act reads as under: Application for settlement of cases. 245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided : Provided that no such application shall be made unless,- (i) in a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a substantial interest in the business or profession of the specified person; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the specified person being an individual, or any relative of such specified person, has a substantial interest in the business or profession of that person; or (B) where the specified person being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person; (b) a person shall be deemed to have a substantial interest in a business or profession, if- (A) in a case where the business or profession is carried on by a company, such person is, on the date of search, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement Commission, also intimate the Assessing Officer in the prescribed manner of having made such application to the said Commission. (highlight underlining supplied) 5. From a reading of clause (a) (v) of the Explanation to sub-section (1) to section 245C, it emerges that the following twelve categories of persons are covered in the definition of related parties for the purposes of clause (ia) of the Proviso to sub-section (1) to section 245C of the Act under that clause. (i) a company, a director of which, has a substantial interest in the business or profession of the specified person; or (ii) a firm, a partner of which, has a substantial interest in the business or profession of the specified person; or (iii) an association of persons, a member of which, has a substantial interest in the business or profession of the specified person; or (iv) a Hindu undivided family, a member of which, has a substantial interest in the business or profession of the specified person; or (v) any director, of such a company or (vi) any partner, of such a firm or (vii) any member, of such an association of persons; or (viii) any member, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Specified Person (SP) Related Party (RP) Qualified Director of SP Director of RP Qualified Relative of Director of SP Relative of Director of RP Qualified Clause (a)(vi) Specified Person (SP), or Related Party (RP) Qualified Director of SP, or Director of RP ------ Relative of Director of SP Relative of Director of RP ------ (where signifies having a substantial interest) 9. We may also note that the Explanation uses the word means . It is trite to say that when in the definition clause given in any statute the word means is used, what follows is intended to speak exhaustively. When the word means is used in the definition, to borrow the words of Lord Esher, M.R. in Gough v. Gough [(1891) 2 QB 665 : 60 LJQB 726 : 65 LT 110] it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed specified person. WP(C) 3557of 2014 (M/s Rockland Hotels Ltd.) 13. The Petitioner claims itself to be a related party to M/s Somya Constructions Pvt. Ltd. on the ground that both the companies are substantially controlled by the Srivastava and the Bhandari families and has common shareholding and directorship. It is also contended that more than 20% of the equity share capital of the specified person M/s Somya Constructions Pvt. Ltd. was held by Mrs. Mala Srivastava wife of Mr. Rajesh Srivastava a director of the petitioner. It claims to be covered by clause (a)(v) of the explanation. 14. The Settlement Commission, qua the petitioner, by the impugned judgment has held as under: The matter has been examined. Explanation (a)(v) as referred to above makes a company a related person if any of its Directors has a substantial interest in the business of a specified person. It is seen that none of the Directors of Applicant Company has any shareholding in M/s. Somya Constructions Pvt. Ltd. and accordingly clause (v) is not attracted. For purposes of explanation (a)(v), it is necessary that any Director of the applicant company should have substantial interest in the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the reasoning of the Settlement Commission. Since the conditions of Explanation (a)(v) are not satisfied, the Writ Petition is thus liable to be dismissed. WP(C) 3559/2014 (M/s. Avee Medi Surgical Pvt. Ltd.) WP(C) 3752/2014 (M/s. Akhil Meditech Pvt. Ltd.) WP(C) 3753/2014 (M/s. Hitesh Construction Pvt. Ltd.) WP(C) 3754/2014 (M/s. Radhika Surgical Pvt. Ltd.) WP(C) 3755/2014 (M/s. Kunal Medicare Pvt Ltd.) WP(C) 3756/2014 (M/s. Glory Lifescience Pvt. Ltd.) WP(C) 3758/2014 (M/s. Lipi Finstock Ltd.) WP(C) 3759/2014 (M/s. Himanshu Medicare Pvt. Ltd.) WP(C) 3761/2014 (M/s. Aesthetica Enterprises Pvt Ltd.) 17. The Settlement Commission qua the petitioners hereinabove has held as under: The AR claims that clause (vi) of the Explanation is attracted in respect of these 9 companies. Examination of the explanation (a)(vi)(B) reveals that it is applicable to a person where the specified person being a company itself holds or any Director of such company holds or any relative of such Director holds a substantial interest in the business or profession of that person. In other words, first it is necessary to find out who are the persons who hold substantial int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its total shareholding is of 15,57,500 shares, with M/s. Rockland Pvt. Ltd. holding 15,47.500 shares which comes to 99% of shares. Thus. M/s. Rockland Pvt. Ltd. is the only shareholder having substantial interest in this company. Neither M/s. Rockland Hospitals Ltd. nor any of its Directors or their relative hold any substantial interest in the applicant company. Examination of the application of M/s. Kunal Medicare Pvt. Ltd. reveals that its total shareholding is of 20,04,250 shares, with M/s. Rockland Pvt. Ltd. holding 19,94,250 shares which comes to 99%,of shores. Thus, M/s. Rockland Pvt. Ltd. is the only shareholder having substantial interest in this company. Neither M/s. Rockland Hospitals Ltd. nor any of its Directors or their relative hold any substantial interest in the applicant company. Examination of the application of M/s. Glory Lifescience Pvt. Ltd. reveals that its total shareholding is of 16,74,750 shares, with M/s. Rockland Pvt. Ltd. holding 16,64,750 shares which comes to 99% of shares. .Thus, M/s. Rockland Pvt. Ltd. is the only shareholder having substantial interest in this company. Neither M/s. Rockland Hospitals Ltd. nor any of its directors or their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the shareholding of such a person both in his own name or in the name of other persons will be clubbed to find out whether he has 20% voting power or not. But in the case of above 9 applicant companies, Rockland Pvt. Ltd. holds substantial interest, 3 directors of Rockland Hospitals Ltd. are claimed to have substantial interest in Rockland Pvt. Ltd. individually. The issue is whether these 3 directors have substantial interest in the cases of 9 applicant companies also. These 3 Directors either do not have shareholdings in these 9 companies or their shareholding in less than 9%. Consequently, voting power of these Directors in 9 applicant companies is either zero or of a percentage less than 20%. Rockland Pvt. Ltd. is an independent company and exists on its own as a legal entity. The company is a legal person entirely, different from its shareholders even if there is only one shareholder. Rights and liabilities of a company are different from the rights and liabilities of its shareholders. Participation in profits of Rockland Pvt. Ltd. in 9 applicant companies is not the same thing as the participation in profits of 9 applicant companies by three Directors. The dividend, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land Hospitals Ltd., a specified person. Accordingly, conditions of clause (v) of the Explanation are also not satisfied. Clause (i) and (iii) of Explanation are not applicable. Similarly, clauses (ii) and (iv) are also not applicable. Thus, under the facts and circumstances of the case, there is no relationship of these 9 companies with M/s Rockland Hospitals Ltd. within the meaning of Explanation (a) to proviso below section 245C(1). Accordingly, these 9 companies cannot be treated as related persons. (Highlight and underlining supplied) 18. Applying the parameters of clauses (a)(v) and (a)(vi), only if a director of the petitioner companies has a substantial interest in the specified person (company), then, the petitioner companies, their directors and relatives of their directors qualify as related parties. The Petitioner companies would not qualify as a related party merely because any relative of one of its directors has a substantial interest in the specified person. Further, the petitioner companies would qualify as a related party, if a specified person (company) or any of its directors or any relative of any of its directors have a substantial interest in the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd.) WP(C) 3757 of 2014 (M/s. Umesh Pharmaceuticals Pvt. Ltd.) WP(C) 3762 of 2014 (M/s. Aditya Medicos Pvt Ltd.) 21. The Settlement Commission qua the petitioners hereinabove has held as under: The AR has referred to clause (vi) of the Explanation to apply in respect of these 3 companies. Examination of the explanation (a)(vi)(B) reveals that it is applicable to a person where the specified person being a company itself holds or any Director of such company holds or any relative of such Director holds a substantial interest in the business or profession of that person. In other words, first it is necessary to find out who are the persons who hold a substantial interest in the business of applicants. Examination of the application of M/s. Mona Infotech Pvt. Ltd. reveals that its total shareholding is of 6,74,875 shares. 20% of holding comes to 1,34,975 shares. The details of shareholding filed with the application reveals that there is no shareholder holding 20% of shares. Thus there is no person having substantial holding in M/s. Mona Infotech Pvt. Ltd. Examination of application of M/s. Aditya Medicos Pvt. Ltd. reveals that total shareholding of this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial interest. Two or more persons cumulatively having substantial interest cannot be read into the present definition. We accordingly find no merit in the argument that cumulative holding of Directors should be taken into account to determine whether they have substantial interest in the business of applicant. As mentioned above, conditions mentioned in Explanation (a)(vi)(B) are not satisfied and therefore we hold that the above 3 applicant companies are not related to M/s. Rockland Hospitals Ltd. Since, tax payments in these 3 applications are less than ₹ 50 lakh and therefore these cases cannot be admitted u/s 245D(1). (highlight and underlining supplied) 22. In the case of the abovementioned 3 petitioners also clause (a)(vi) is stated to be applicable and they are stated to be related parties to M/s Rockland Hospitals Ltd. Therefore the specified person (i.e. M/s Rockland Hospitals Ltd.) or any of its directors or any relative of any of its directors should have a substantial interest in the petitioner companies. Admittedly, neither M/s. Rockland Hospitals Ltd. nor any of its directors individually or their relatives individually hold any substantial interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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