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TMI Blog1984 (6) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ital is held by Imperial Chemical Industries Limited, London. The assessee at all material times sold the large bulk of dyes manufactured by it in wholesale to Atul Products Limited and Imperial Chemical Industries (India) Private Limited at a uniform price applicable alike to both these wholesale buyers and these wholesale buyers in their turn sold the dyes purchased by them from the assessee to dealers as well as consumers. Now, until 13th March, 1978, Imperial Chemical Industries (India) Private Limited was a subsidiary company wholly owned by Imperial Chemical Industries Limited, London. But, in pursuance of the policy of the Government of Indian requiring that not more than 40 per cent of the share capital of an Indian company should be held by a foreign share-holder, 60 per cent of the share capital of Imperial Chemical Industries (India) Private Limited was offered to the public, with the result that since 13th March, 1978 only 40 per cent of the share capital of Imperial Chemical Industries (India) Private Limited was held by Imperial Chemical Industries Limited, London and 60 per cent came to be held by Indian citizens and Imperial Chemical Industries (India) Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice to the assessee on 31st July, 1976 calling upon the assessee to show cause why the earlier decision of the Assistant Collector approving the price list should not be reviewed on the ground that the assessee on the one hand and Atul Products Limited and Crescent Dyes and Chemicals Limited on the other were "related persons" and the assessable value of the dyes manufactured by the assessee was, therefore, liable to be calculated on the basis of the price at which Atul Products Limited and Crescent Dyes and Chemicals Limited sold the dyes to the dealers and the consumers. The assessee was required to show cause why the differential duty worked out on the basis of the selling price charged by Atul Products Limited and Crescent Dyes and Chemicals Limited should not be recovered from the assessee with effect from 1st October, 1975. The assessee in its reply dated 31st August, 1976 raised several contentions in answer to the show cause notice and pointed out inter alia that the assessee on the one hand and Atul Products Limited and Crescent Dyes and Chemicals Limited on the other were not "related persons" within the meaning of the definition of that term contained in sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Union of India v. Bombay Tyres International Limited (1984) 1 SCC 467 = 1983 E.L.T. 1896 (SC) where an identical challenge to the constitutional validity of the definition of the term "related person" was negatived by this Court. The definition of the term "related person" was read down and it was held by this Court that "On a proper interpretation of the definition of "related person" in sub-section (4) (c) of section 4, the words "relative and a distributor of the assessee" do not refer to any distributor but they are limited only to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956. So read, the definition of "related person" is not unduly wide and does not suffer from any constitutional infirmity. It is within the legislative competence of Parliament." The decision of the High Court holding that "the concept of related person occurring in amended section 4 is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in the Union List" and striking down clause (c) of sub-section (4) of section 4 as also the expression "the buyer is not a related person and" in clause (a) of sub-section (1) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the definition can succeed. What the first part of the definition requires is that the person who is sought to be branded as a "related person" must be a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make any difference, so long as each has got some interest, direct or indirect, in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld admittedly have an interest in the business of the assessee in its capacity as a shareholder, but how can Crescent Dyes and Chemicals Limited of which 40 per cent of the shares are held by Imperial Chemical Industries Limited, London which in its turn is a shareholder of the assessee, can be said to have any interest, direct or indirect, in the business of the assessee. Equally the assessee has no interest direct or indirect in the business of Crescent Dyes and Chemicals Limited, which is just a wholesale dealer purchasing dyes from the assessee in wholesale on principal to principal basis. It is obvious that for the same reasons which have prevailed with us while discussing the case of Atul Products Limited, the assessee has no direct or indirect interest in the business of Crescent Dyes and Chemicals Limited. The first part of the definition of related person in clause (c) of sub-section (4) of section 4 of the amended Act is, therefore, clearly not satisfied both in relation to Atul Products Limited as also in relation to Crescent Dyes and Chemicals Limited and neither of them can be said to be a "related person" vis-a-vis the assessee within the meaning of the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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