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TMI Blog2008 (6) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... l to note statutory provisions applicable in the present case. 4. Section 2(18) of the Act insofar as the same is relevant for our purpose reads as follows: "2.(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 forty per cent 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 section 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 day of April, 1971, or on or after that da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that more than 50% shares of Assessee Company are held by P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. taken together. These two companies are subsidiaries of VVN Manufacturing and Investment Ltd. which is the Company whose shares are listed on the stock exchange. It is also the case of Assessee that P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. are assessed to tax at Bombay and they have been treated as Companies covered by the definition of Section 2(18) of the Act. It is thus the case of the Assessee that P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. are the Companies "to which this clause applies" as referred to in sub-clause(c) in Section 2(18)(b)(B). It is thus the case of Assessee that the Assessee Company should also be treated as a Company covered within the definition of Section 2(18) of the Act since more than 50% of the shares of the Assessee Company are held by P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. which are the Companies "to which this clause applies. 7. the other hand, the case of the Revenue is that though P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. are companies which are subsidiaries of VVN Manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue whether whole of the equity shares capital of these two subsidiary companies are held by VVN or not. It is observed that only 4 out of 6 Equity shares of Rs. 100 each of P.B. Investments & Trust Ltd. are fled by VVN Mfg. & Investa Ltd. It is further observed that only 3 out of 5 Equity shares of Rs. 100 each of K.B. Investments Ltd. are held by VVN Mfg. and Investa Ltd. Thus, it can be said that VVN Mfg. & Investa Ltd. which is a widely held company is not holding whole of the Equity share capital of any of the two companies mentioned before which is the second conduction of sub-clause(c) of Section 2(18)(B) of the Act." 8. The Commissioner of Income-tax (Appeals) in its appellate order also upheld the stand of the Revenue, negatived the contention of Assessee, approved the view of the Assessing Officer and came to the conclusion that Assessee is not a Company covered under Section 2(18) of the Act and thus it is not a Company in which public are substantially interested. The Income tax Tribunal however, reversed the decision of the authorities below and held that the Assessee Company is covered under Section 2(18) of the Act. Reasoning of the Tribunal was as follows: "I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned advocate Mr. Bhargav Karia appearing for the Assessee contended that the correct interpretation of sub-clause(c) in Section 2(18)(b)(B) of the Act would be that "any company to which this clause applies" would also include any company which may be subsidiary of a holding Company. Since P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. are Companies "to which this clause applies" and since between P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. more than 50% shares of Assessee Company are held, the Assessee Company should be deemed to be one in which public is substantially interested as required under Section 2(18) of the Act. 12. Having thus heard the learned advocates appearing for the parties, and having taken note of the undisputed facts emerging from the record, the entire question boils down to the interpretation of sub-clause(c) in Section 2(18)(b)(B) of the Act. At the outset, it may be recalled that admittedly P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. are subsidiaries of VVN Manufacturing and Investment Ltd, but it is equally undisputed that VVN Manufacturing and Investment Ltd. does not hold the whole of the share capital of such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude the company which is a subsidiary of a parent company. Thus if a company which is subsidiary of a parent company but which independently fulfills the requirement of being Company to which this clause applies requirement of sub-clause(c) in Section 2(18)(b)(B) of the Act, stands fulfilled. 14. With this clarity in mind, if one reverts back to the present case, it is an admitted position that between P.B. Investments and Trusts Ltd. and K.B. Investments Ltd., the two companies hold more than 50% of the capital share of the Assessee Company. P.B. Investments and Trusts Ltd. and K.B. Investments Ltd are the companies to which this clause applies as per sub-clause(c) in Section 2(18)(b)(B) of the Act. This being the case so far as Assessee company is concerned, it's not less than 50% of the shares having been unconditionally allotted to P.B. Investments & Trusts Ltd. and K.B. Investments Ltd. together and since P.B. Investments & Trusts Ltd. and K.B. Investments Ltd are companies to which this clause applies, the Assessee Company stands covered within the definition of Section 2(18) of the Act. In our opinion, the Tribunal was justified in so holding. We thus answer the question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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