TMI Blog1998 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... years, it was a wholly-owned subsidiary of a company incorporated in the United Kingdom known as Gulf Oil ('Great Britain) Ltd., London (hereinafter for the sake of convenience, referred to as "the U.K. company"). The said U.K. company itself was also a subsidiary of another company incorporated in the U.S.A., viz., Gulf Oil Corporation, Pittsburgh (hereinafter for the sake of convenience, referred to as "the U.S. company"). In the course of assessment of the income of the assessee-company under the IT Act, 1961, for the asst. yrs. 1971-72 to 1975-76 a controversy arose in regard to the appropriate rate of income-tax applicable to it. The rates of tax applicable for the asst. yr. 1971-72 are prescribed in the Finance (No, 2) Act, 1971 (hereinafter referred to as "the Finance Act"). para F of the Finance Act contains the rates applicable to "companies" other than the LIC of India. For the purpose of rate of income-tax, companies are divided into two broad categories, viz. "domestic company" and "company other than domestic company". Domestic companies are again sub-divided into two categories, viz., (i) a company in which the public are substantially interested, and (ii) not a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. As is evident from a reading of question No. 1 itself, the real controversy is whether the assessee-company was a company in which the public are substantially interested as defined in s. 2(6)(a) of the Finance Act for the purpose of the First Schedule to the said Act. The First Schedule to the Finance Act deals with the rates of income-tax applicable to different categories and sub-categories of assessees. In sub-s. (6) of s. 2 of the Finance Act, certain expressions have been defined for the purpose of the First Schedule. Clauses (a), (b) and (c) thereof define a company in which the public are substantially interested, a domestic company, and an industrial company, respectively. In cl. (e) of sub-s. (6) of s. 2, it has been further provided that the words and expressions used in s. 2 or in the First Schedule to the said Finance Act which are not defined in s. 2(6) of the Finance Act but are defined in the IT Act shall have the meanings, respectively, assigned to them in that Act. Sub-s. (6) of s. 2, insofar as it has a bearing on the controversy in this case, reads as below : (6) For the purposes of this section and the First Schedule,--- (a) 'company in which the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy in this case, is set out below : " Paragraph F In the case of a company, other than the LIC of India established under the Life insurance Corporation Act, 1956 (31 of 1956), Rates of income-tax I. In the case of a domestic company (1) where the company is a company in which the public are substantially interested, (i) in a case where the total income does not exceed Rs. 50,000 45% of the total income; (ii) in a case where the total income exceeds Rs. 50,000 55% of the total income, (2) where the company is not a company in which the public are substantially interested,- (i) in the case of an industrial company (a) on so much of the total income as does not exceed Rs. 10,00,000 55%; (b) on the balance, if any, of the total income 60%; (ii) in any other case 65% of the total income : Provided that the income-tax payable by a domestic company, being a company in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any company in which the public are substantially interested or a subsidiary company of such company mentioned in clause (b)" and if it is so read, the subsidiary of a subsidiary or a sub-subsidiary will also fall in cl. (b). To appreciate the above contention, it may be expedient to mention that the IT Act itself contains a definition of "companies in which the public are substantially interested" in cl, (18) of s. 2. "company" has also been defined in cl. (17) of s. 2 thereof. These two clauses, as they stood at the material time, read as under : "2. (17) 'company' means--- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian IT Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y company of such company where such subsidiary, company fulfils the conditions laid down in cl. (b) of s. 108 (hereafter in this clause referred to as the subsidiary company), or (d) the public (not being a director, or a company to which this clause does not apply); (ii) the said shares were, during the relevant previous year, freely transferable by the holder to the other members of the public; and (iii) the affairs of the company, or the shares carrying more than 50% of its total voting power were at no time, during the relevant previous year, controlled or held by five or less persons; . . . " 7. From the above discussion, it is evident that the real controversy in this case is about the rate of income-tax applicable to the assessee-company. The rates as stated earlier, are prescribed in para F of the First Schedule to the Finance (No. 2) Act of 1971. In the above para, for the purpose of rates of income-tax, companies are divided into two broad categories, viz. "domestic company" and 11 company other than a domestic company". The rates of income-tax applicable to the former category of companies are specified in sub-para I and those applicable to the latter catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the definition of " company in which the public are substantially interested" contained in s. 2(6)(a) of the Finance Act r/w s. 108 of the IT Act, the assessee-company can be said to be a "company in which the public are substantially interested" if the U.K. company and the U.S. company are not domestic companies. 9. Before we proceed to examine the merits of the controversy, it may be expedient to dispose of the preliminary objection of learned counsel for the assessee, Mr. Dastur, in regard to the power of this Court to examine the above aspect of the question. According to Mr. Dastur, the above aspect having not been examined by any of the authorities below including the Tribunal, this Court should not examine the same for the first time while hearing a reference from the order of the Tribunal. We have given our careful consideration to the above contention of learned counsel. We however find it difficult to accept the same for the simple reason that what we propose to do is to examine a facet of the question which in our opinion, is most crucial for deciding the real controversy involved in the question referred to us. The question referred by the Tribunal is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of s. 66(1) of the Act." 10. To the same effect are the various other decisions of the Supreme Court. It may be expedient to refer to a recent decision in Salem Co-operative Central Bank Ltd. vs. CIT (1993) 111 CTR (SC) 394: (1993) 201 ITR 697 (SC); TC 55R.928, where the Supreme Court repelled the contention of the assessee that the High Court while deciding a reference is bound by the terms of the question and if the Tribunal proceeds on an assumption, which was erroneous in law and refers a question to the High Court, the High Court is bound to consider the question in terms thereof and is not empowered to act on its own assumption. The controversy in that case was whether additional surcharge under the relevant Finance Act was attracted or not. The contention of the assessee was that his entire income was exempt under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a domestic company in which the public are substantially interested for the purposes of sub-para I of para F of the First Schedule to the Finance Act or not. We, therefore, proceed to examine the controversy from the above angle. 12. A careful reading of para F of the First Schedule to the Finance Act in the light of the definition of some of the expressions contained in s. 2(6) of the said Act, and s. 2(17), s. 2(18) and s. 108 of the IT Act, makes it abundantly clear that, (1) the rates of income-tax applicable to companies will have to be determined with reference to para F to the Finance Act; (2) para F to the Finance Act classifies companies for the purpose of rates of income-tax into two categories, viz., (I) domestic company, and (II) company other than a domestic company; (3) a domestic company has further been sub-divided on the basis of the nature of the interest of the public therein, viz., (i) a company in which the public are substantially interested, and (ii) not a company in which the public are substantially interested; (4) separate rates of income-tax based on the total income have been specified for each category and subcategory of the companies. In the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income-tax applicable to domestic companies. For that purpose, the rates of income-tax applicable to domestic companies have been divided into two categories, viz., (1) a company in which the public are substantially interested, and (2) not a company in which the public are substantially interested. "Domestic company" has again been defined in cl. (b) of sub-s. (6) of s. 2 of the Finance Act to mean, (i) an Indian company, (ii) or any other company which, in respect of its income is liable to pay income-tax under the IT Act for the assessment year commencing on the 1st April, 1971, and has made the prescribed arrangements for the declaration and payment within India of the dividends (including dividends on preferences shares) payable out of such income in accordance with the provisions of s. 194 of that Act. Evidently, the U.S. and U.K. companies were not domestic companies. It is also not the case of the assessee that any of these companies during the assessment year commencing on the 1st April, 1971, was liable to pay income-tax in India under the IT Act. The contention of the assessee is that the U.S. company being a company in which the public were substantially interested wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter of requisition as it deals with only acquisitions of land. Repelling the argument of the land owner that in such a case, the provisions of the Land Acquisition Act cannot be applied for determination of compensation in respect of requisitions, the Supreme Court observed that for the purposes of requisitions under the Assam Land (Requisition and Acquisition) Act, 1948, the provisions relating to "acquisition" in the Land Acquisition Act, 1894, should be read "with due alteration of details or appropriate changes". It was observed . "Secs. 23, 24 and 25 (of the Land Acquisition Act, 1894), lay down the principles for ascertaining the amount of compensation payable to a person whose land has been acquired. We do not see any difficulty in applying those principles for paying compensation in the matter of requisition of land. While in the case of land acquired, the market value of the land is ascertained, in the case of requisition of land, the compensation to the owner for depriving him of his possession for a stated period will be ascertained, It may be that appropriate changes in the phraseology used in the said provisions may have to be made to apply the principles unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. In the instant case, the assessee-company is a wholly-owned subsidiary of the U.K. company. The U.K. company, in turn, is a wholly-owned subsidiary of the U.S. company. The statement of the case clearly goes to show that the assessee claimed to be a company in which the public are substantially interested on the footing that the U.S. company was a company in which the public were substantially interested within the meaning of cl. (a) of s. 108 of the IT Act, by reference to the fact that the shares of the said company were at all material times during the relevant years subject to dealings in the stock exchange, New York and other stock exchanges and were freely transferable by the holders to the other members of the public. Counsel for the assessee contended before us that as controversy did not arise before the Tribunal or any of the authorities below or it was never an issue raised by the Revenue before any of the authorities below that to fall within s. 2(6)(a) of the Finance Act r/w s. 108 of the IT Act, the U.S. company and the U.K. company should also be domestic companies within the meaning of s. 2(6)(b) of the Finance Act, the necessary facts were not brought by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company or by its nominees throughout the previous year. The admitted position is that the U.S. company calls in category (a) and the U.K. company falls in category (b). The only question that falls for determination is whether by reference to the subsidiary company given in the Companies Act, a wholly owned subsidiary of a subsidiary mentioned in cl. (b) will also fall within cl. (b) of s. 108 of the IT Act for the purposes of s. 2(6) of the Finance Act. 20. The expression "subsidiary company" has not been defined in the IT Act. There is no dispute about the fact that the said expression is most commonly used in the Companies Act. Under the circumstances, the question that arises for consideration is whether the meaning of the said expression given in the Companies Act can be applied for the purposes of s. 2(6)(a) of the Finance Act r/w cl. (b) of s. 108 of the Act. The expression "subsidiary company" has been defined in s. 4 of the Companies Act as under : "4. (1) For the purposes of this Act, a company shall, subject to the provisions of sub-s. (3), be deemed to be a subsidiary of another if, but only if,--- (a) that other controls the composition of its board of direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court referred, with approval, to the following observations of Chitty, J. in Wala Wynaad Indian Gold Mining Company, In re (1882) 21 Ch D 849: "I use now myself the term which is common in the Courts, 'a shareholder', that means the holder of the shares. It is the common term used, and only means the person who holds the shares by having his name on the register." Reference may also be made in this connection to the decision of the Supreme Court in CIT vs. Shantilal (P) Ltd. (1983) 35 CTR (SC) 395: (1983) 144 ITR 57 (SC) : TC 19R.493, wherein the Supreme Court observed : " There is no reason why the sense conveyed by the law relating to contracts should not be imported into the definition of 'speculative transaction"'. In that case, the controversy pertained to the true meaning of the expression "speculative transaction" which is defined in sub-s. (5) of s. 43 of the IT Act, 1961, to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts. The Supreme Court referred to the provisions of ss. 63 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not accept the contention of learned counsel for the assessee that a subsidiary company can also be a nominee within the meaning of cl. (b) of s. 108. But that does not affect our conclusion that s. 2(6)(a) of the Finance Act r/w s. 108(b) of the IT Act covers the case of a subsidiary company which is a subsidiary of a subsidiary company falling therein if it also meets the requirements mentioned in that clause. 24. In the above view of the matter, in order to get the benefit of the lower rate of income-tax prescribed in cl. (1) of sub-para I of para F of the First Schedule to the Finance (No. 2) Act, 1971, which is applicable to "domestic companies", every company, whether a holding company as well as the subsidiary or subsidiary of a subsidiary company, must be a domestic company and should also meet the requirements of s. 2(6)(b) of the Finance Act, r/w s. 108 of the IT Act, 1961. If a company is not a domestic company, cl. (1) of sub-para I of para F of the Finance Act will not be applicable to such a company and in that event its benefit will not be available to its subsidiary or sub-subsidiary also. If the subsidiary company, which is an Indian company, is a domestic co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant case, from para. 7 of the statement of the case, we find that the assessee was denying its liability to the levy of interest under s. 139 of the Act on two grounds. First, that if the contention of the assessee that it was a company in which public are interested is accepted, no interest would be chargeable. Second, that it had a reasonable cause. The Tribunal held that as the assessee has been held to be not a company in which the public are substantially interested, interest was chargeable under s. 139 of the IT Act. As such the question of denial of liability did not arise. As regards the second contention of the assessee that it had a reasonable cause, the Tribunal held that it was without merit as in its opinion, once the assessee had admittedly delayed filing of the return beyond the time allowed the provisions for charging of interest were automatically attracted and as there is no separate right of appeal against the charge, the assessee was not entitled to agitate the same by way of an appeal. In view of the above factual position, if the assessee can succeed in satisfying the Tribunal that it was a company in which the public are substantially interested in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the Revenue and question No 2 must be answered in the negative and in favour of the assessee. 3. The Finance (No. 2) Act, 1971, r/w the First Schedule appended thereto prescribed a concessional rate of income-tax in respect of "domestic companies" in which the public are substantially interested. Sec. 2(6)(a) of the Finance Act, 1971, defines "company in which the public are substantially interested" as a company referred to in s. 108 of the IT Act, 1961. The assessee is a "domestic company" being "an Indian company". The assessee claims to be a company in which the public are substantially interested within the meaning of s. 2(6)(a) of the Finance Act. The Revenue disputes the claim of the assessee. 4. The basic controversy arising in this reference is as to whether the assessee is "a company referred to in s. 108(b) of the IT Act, 1961" for purpose of the Finance (No. 2) Act, 1971, and the First Schedule appended thereto. The assessee is an Indian company. The assessee is thus a domestic company within the meaning of the expression "domestic company" as defined in S. 2(6)(b) of the Finance (No. 2) Act, 1971. The assessee is wholly owned subsidiary of Gulf Oil (Grea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 of the IT Act, 1961. Sec. 108 of the IT Act, 1961, reads as under: "108. Nothing contained in s. 104 shall apply--- (a) to any company in which the public are substantially interested; or (b) to a subsidiary company of such a 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. A company which is referred to in s. 108 of the IT Act, 1961, falls under s. 2(6)(a) of the Finance (No. 2) Act, 1971. Sec. 2(6)(e) of the Finance (No. 2) Act, 1971, provides that "all other words and expressions used in this section and the First Schedule but not defined in this sub-section and defined in the IT Act shall have the meanings, respectively, assigned to them in that Act". Both the Acts above referred to are statutes in pari materia. It is necessary to refer to some other provisions of the two Acts also for the purpose of interpreting s. 2(6)(a) of the Finance (No. 2) Act, 1971, and s. 108 of the IT Act, 1961, as indicated below. Sec. 2(17) of the Act defines expression "company" so as to include any body corporate incorporated by or under the laws of a country outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the company is a company in which the public are substantially interested,--- (i) in a case where the total income does not exceed Rs. 50,000 45% of the total income; (ii) in a case where the total income exceeds Rs. 50,000 55% of the total income..." The Court is required to consider and decide as to whether the assessee fulfils the prescribed conditions so as to be entitled to avail of the above referred to rate of income-tax prescribed by s. 2 of the Finance (No. 2) Act, 1971, r/w para F-I(1) of the First Schedule appended thereto. If the assessee is not so entitled, the rate of chargeable tax would be higher than the above referred to rate. 7. Before I discuss the rival contentions of learned counsel urged at the Bar, it is necessary to preface the discussion by formulation of the following propositions : (a) Each of the three companies referred to hereinabove is a separate legal entity having distinct corporate personality of their own. The corporate personality of the companies concerned cannot be ignored. Each of the above referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act. The expressions "holding company" and "subsidiary company" are not defined by the IT Act, 1961. The expression "subsidiary company" used in s. 108(b) of the Act should be, therefore, interpreted to mean and include a sub-subsidiary company also. If s. 4 of the Companies Act (1 of 1956), is treated as incorporated in s. 108(b) of the IT Act, 1961, for the purpose of interpreting the expression "subsidiary company", it would become clear that the assessee-company fans under s. 108(b) of the Act although it is not a subsidiary of the parent company, i.e., the U. S. company as such. 9. I am not impressed by the submissions of learned counsel. I see no merit in these submissions. I shall discuss the contentions urged at the Bar little later. 10. Learned counsel for the Revenue has submitted as under : (a) The U.S. company falls under s. 108(a) of the Act. The U.K. company being the wholly owned subsidiary of the U.S. company falls under s. 108(b) of the Act. (b) The assessee-company being a subsidiary of the U.K. company cannot be considered as subsidiary of the U.S. company as such. The shares of the assessee-company are not held by the U.S. company. The U.K. company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Sec. 108(b) of the Act does not limit its applicability to subsidiary of a domestic company. Secs. 108(a) and 108(b) of the company use the expression "the company", the said expression having been defined by s. 2(17) of the Act. This contention was never urged by anyone before any of the authorities below. Mr. Dastur, learned counsel for the assessee, submitted that this aspect of the controversy was not covered by the question referred to this Court and did not arise out of the order of the Tribunal. On the merits, Mr. Dastur submitted as under Sec. 2(6)(a) of the Finance (No. 2) Act, 1971, defined company in which the public are substantially interested as a company referred to in s. 108 of the IT Act, 1961. The two Acts contemplate uniform construction of s. 108 of the IT Act, 1961, for purposes of both the Acts and not different construction thereof for the purpose of the Finance Act. There was no warrant for restricting the applicability of s. 108(b) of the Act to subsidiary companies of "domestic companies" only. As regards interpretation of para F-1(1) of the First Schedule to the Finance (No. 2) Act, 1971, learned counsel submitted that the subheading appended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its own right and title as a separate corporate body and not as nominee of the U.S. company. A person can be considered as a nominee of another only if the alleged nominee has no beneficial title to the asset. In this case, the U.K. company as a separate legal entity is entitled to shares held by it in the assessee-company in its own right and title and it has legal and beneficial interest both in the shares of the assessee-company. In theory of law, the assets of the U.K. company do not belong to the U.S. company merely because of the control exercised by the U.S. company over affairs of the U.K. company. The separate corporate personality of the U.K. company as well as the U.S. company cannot be ignored. Thus, on a plain reading of s. 2(6)(a) of the Finance (No. 2) Act, 1971, and ss. 108(a) and 108(b) of the Act, I have reached the conclusion that the assessee cannot be treated as a company referred to in s. 108 of the IT Act, 1961. The Court cannot add additional categories to s. 108 of the Act by analogy or by process of interpretation or add words in the section. A subsidiary of the subsidiary or a subsidiary of a subsidiary of a subsidiary and so on cannot be treated as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961. Sec. 4 of the Companies Act, 1956, reads as under : "4. Meaning of 'holding company' and 'subsidiary'.-(1) For the purpose of this Act, a company shall, subject to the provisions of sub-s. (3), be deemed to be a subsidiary of another if, but only, if,--- (a) that other controls the composition of its board of directors, or (b) that other--- (i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company; (ii) where the first-mentioned company is any other company, holds more than halt in nominal value of its equity share capital; or (c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration Company B is a subsidiary of company A and company C is a subsidiary of company B. Company C is a subsidiary of company A, by virtue of cl. (c) above, If company D is a subsidiary of company C, company D will be a subsidiary of company B and consequently also of company A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, The apex Court held that according to the common meaning of the expression shareholder, it was required that the name of the person claiming to be a shareholder must be on the register of the company. In this context, the Supreme Court took assistance also of the meaning of the word " shareholder" as used in the Companies Act (1 of 1956). With respect, this case has no relevance for the purpose of interpretation of s. 108(b) of the IT Act, 1961, when the said section is sought to be interpreted in conjunction with s. 4 of the Companies Act (1 of 1956). Learned counsel for the assessee also relied upon the judgment of this Court in the case of CIT vs. Swadeshi Match Co. (1982) 26 CTR (Bom) 240 : (1983) 139 ITR 833 (Bom). In this case, the Court was required to interpret Explanation II of para D of Part II of the First Schedule to the Finance (No. 2) Act of 1962 . The Court was required to find out as to whether the concerned company held more than half of the equity share capital of the first-mentioned company. In this case there was no dispute that some of the shares were held by some of the admitted nominees of the assessee-company. The only question before the Court was as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustan Aluminium Corporation Ltd. was consuming the self-generated power within the meaning of s. 3(1)(c) of the U.P. Electricity (Duty) Act, 1952. Having regard to the totality of facts and circumstances of the case and the conduct of the parties including the Electricity Board, the Supreme Court held that Renusagar's power plant must be treated as the "own source of generation" of Hindalco and Hindalco was liable to pay electricity duty on this basis as permissible under s. 3(1)(c) of the U.P. Electricity (Duty) Act, 1952. With respect, this case has no relevance for the purpose of resolving controversy arising in this case. 18. Learned counsel for the assessee cited several other cases. It does not appear to me to be necessary to refer to all these cases as none of these cases appear to have any bearing on the issue before the Court. 19. One more aspect of the problem was debated at the Bar as indicated below: The question to be asked is as to whether a subsidiary company invoking s. 108(b) of the IT Act, 1961, can invoke the said provision only if its holding company is "a domestic company" within the meaning of s. 2(6)(b) of the Finance (No. 2) Act, 1971, and not other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Act as well as the Finance Act. Sec. 2(17) of the IT Act must be read in s. 108 of the Act wherever the expression 'company" appears therein. The heading and sub-heading affixed to para F of the Schedule are for purposes of applying the prescribed rate of tax to specified categories of assessees. Sec. 108(b) of the Act does not state that the said section shall be applicable only to subsidiary companies of which the holding company is a domestic company. It is therefore irrelevant to enquire as to whether the U.S. company or the U.K. company was a "domestic company" within the meaning of the said expression as defined in s. 2(6)(b) of the Finance Act, 1971. If the definition of the expression "domestic company" is to be read in s. 108(b) of the Act, for purposes of further restricting the applicability of s. 108(b) of the Act to subsidiaries, it would lead to anomaly. The definition of the expression "company in which the public are substantially interested" as set out in s. 2(6)(a) of the Finance Act is also for purposes of the First Schedule to the Act. The provisions contained in the First Schedule are enacted for the purpose of prescribing the rate of income-tax, etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case, the Tribunal was right in holding that the assessee-company was not a company in which public are substantially interested as defined in the Finance (No. 2) Act of 1971 for the purpose of the First Schedule to the said Finance Act? 2. Whether, on the facts and in the circumstances of the case, the Tribunal rightly held that no appeal lies against charge of interest under s. 139 of the Act ?" The reference was heard by a Division Bench of this Court. The two Judges took differing views. Therefore, the reference has been referred to this Court. 2. Under s. 259 of the IT Act, in cases of difference of opinion, the judges should state the point of law upon which they differ. The case should then be heard upon that point of law only by one or more Judges of the High Court. Unfortunately, the point of law upon which the Judges differed has not been stated. It is now not possible to have the point of law stated as one of the learned Judges has since retired. All parties very fairly agree that under these circumstances this Court should decide the two questions of law which have been referred to this Court by the Tribunal. 3. Even otherwise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic are substantially interested,- (i) in a case where the total income does not exceed Rs. 50,000 45% of the total income; (ii) in a case where the total income exceeds Rs. 50,000 55% of the total income; (2) where the company is not a company in which the public are substantially interested,- (i) in the case of an industrial company- (a) on so much of the total income as does not exceed Rs. 10,00,000 55%; (b) on the balance, if any, of the total income 60%; (ii) in any other case 65% of the total income : Provided that the income-tax payable by a domestic company, being a company in which the public are substantially interested, the total income of which exceeds Rs. 50,000 shall not exceed the aggregate of--- (a) the income-tax which would have been payable by the company if its total income had been Rs. 50,000 (the income of Rs. 50,000 for this purpose being computed as if such income included income from various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However s. 2(18) of the IT Act defines a company in which the public are substantially interested. Sec. 2(18) reads as follows : " "(18) ' company in which the public are substantially interested'---A company is said to be a company in which the public are substantially interested--- (a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than 50% of the shares are held (whether singly or taken together) by the Government or the Reserve bank of India or a corporation owned by that bank ;or (aa) if it is a company which is registered under s. 25 of the Companies Act, 1956 (1 of 1956); or (ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested : Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st April, 1971, or on or after that date) as may be specified in the declaration; or (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all have effect as if for the words 'not less than 50% and 'more than 50%, the words 'not less than 40%' and 'more than 60%' had, respectively, been substituted." 7. On the above provisions of law, one has to consider whether the assessee which is admittedly a domestic company, is also a company in which the public are substantially interested. 8. Mr. Dastur has submitted that this question can be looked at from four angles. He submitted that if any of these four are accepted by the Court then the assessee would be a company in which the public are substantially interested. The four angles propagated by Mr. Dastur are : (a) the U.S. company admittedly falls within s. 2(18)(b)(B)(i)(d). He submitted that as the U. S company falls under s. 2(18)(b)(B)(i)(d), the U.K. company would fall under s. 2(18)(b)(B)(i)(c). He submits that the U.K. company is thus a company in which the public are substantially interested within the meaning of s. 108(a). He submitted that as the U.K. company is a company in which the public are substantially interested within the meaning of s. 108(a) the assessee falls within s. 108(b). (i) In support of this proposition, Mr. Dastur relied upon a ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that therefore a sub-subsidiary which fulfils the requirement of s. 108(b) would be a subsidiary under s. 108(b). He submitted that in this case 100% of the shares of the assessee are held by the U.K. company. He submitted that the assessee thus fulfils the requirement of s. 108(b). (i) In support of this proposition Mr. Dastur relied up on the case of Howrah Trading Co. Ltd. vs. CIT (1959) 36 ITR 215 (SC) : TC 5R.508, wherein the question was whether a person who had purchased shares in a company under blank transfer forms and in whose name the shares have not been registered in the books of the company was or was not a shareholder within the meaning of s. 18(5) of the IT Act. The Supreme Court whilst deciding this question held that under the Indian Companies Act the expression "shareholder" denotes no other person except a member. The Supreme Court held that no valid reason existed why the word "shareholder" as used in s. 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act. The Supreme Court was thus importing the definition of the term " shareholder" as used in the Companies Act into the IT Act. (ii) Mr. Das ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore WIMCO would be a subsidiary both for the purposes of the Companies Act and of Expln. H of the Finance (No. 2) Act. (iv) Mr. Dastur also relied upon the authority in the case of State of UP. vs. Renusagar Power Co. (1991) 70 Comp. Cases 127 (SC). In this case the question was whether the assessee-company which was Renusagar Power Company, could be said to be entitled to benefits given to companies consuming power from their own source of generation. The question was whether the assessee was entitled to certain rebates on the above basis. The facts were that Renusagar Power Company generated power. Its power was supplied only to Hindustan Aluminium Corporation Ltd. Renusagar Power Company was a wholly owned subsidiary of Hindustan Aluminium Corporation Ltd., The Supreme Court held that it was high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil should be permissible as its frontiers were unlimited. The Supreme Court held that the veil on the corporate personality, even though may not be lifted, had become more and more transparent in modern company jurisprudence. The Supreme Court held that lifting of corporate veil i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporated into s. 108 of the IT Act. He submitted that neither of the two conditions prescribed under s. 108(b) were satisfied by the assessee-company. He submitted that the assessee was not a subsidiary of the U.S. company and therefore was not a subsidiary of a company falling within s. 108(a). He submitted that a sub-subsidiary could not be treated as a subsidiary for the purposes of s. 108(b). He submitted that therefore the assessee was thus not a company in which the public were substantially interested. In this behalf and in respect of the authorities relied upon by and submission of Mr. Dastur, Mr. Deodhar adopted the reasoning given by my Brother Judge Dhanuka (as he then was) in paras 16-22 of the judgment dt. 22nd Sept., 1993. Mr. Deodhar submitted that for the above two reasons the assessee cannot be said to be a company in which the public were substantially interested. 10. I have heard both sides. I am unable to accept the submission of Mr. Deodhar that the definition of the term "subsidiary company" under the Companies Act cannot be incorporated into the IT Act. The authorities of the Supreme Court as well as of this Court set out hereinabove are very clear. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of s. 2(6)(a) of the Finance (No. 2) Act, 1971, one has to go to s. 108 of the IT Act to determine whether a company is a company in which the public are interested. It is clear that s. 108 of the IT Act does not limit its applicability to a "domestic company". Sec. 108 does not provide in cl. (a) that it is to apply only to a domestic company. On the contrary, it applies to "any" company, Similarly, cl. (b) of s. 108 does not provide that it applies to a subsidiary of a domestic company. Thus, under s. 108(a) a company could be a company in which the public are substantially interested even though it is not a "domestic company". If that be so then a "subsidiary" under s, 108(b) could be a "subsidiary" of a company which is not a domestic company. As stated above, the definition of a " subsidiary" under s. 4(1)(c) includes a "sub-subsidiary". As stated above the definition of "subsidiary" under the Companies Act must be imported into the IT Act. Thus, even a sub-subsidiary would be a "subsidiary" under s. 108(b), Such "subsidiary" may be a "sub-subsidiary'; of a company which is not a domestic company. That under s. 108 a company need not be a domestic company is also clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Manganese Ore Co. Ltd. vs. CIT . The assessee has claimed that they were not liable to levy. Thus, they have disputed liability. An appeal is maintainable. In any event on the view that I have taken, i.e., that the assessee is a domestic company in which the public are substantially interested, the second question would no longer survive. I am informed that the advance tax which had been paid by the assessee would cover the entire tax liability. Accordingly the questions are answered as follows : Question Answer "1. Whether, on the facts and in the circumstances In the negative. The of the case, the Tribunal was right in holding that Tribunal was not right in the assessee-company was not a company in so holding. which public are substantially interested as defined in the Finance (No. 2) Act of 1971, for the purpose of the First Schedule to the said Finance Act ? 2. Whether, on the facts and in the circumstances In the negative and in of the case, the Tribunal rightly held that no appeal favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
