Punjab Produce and Trading Co. Ltd. Vs.
C.I.T. West Bengal, Calcutta [1971] INSC 170 (29 July 1971)
GROVER, A.N.
GROVER, A.N.
HEGDE, K.S.
CITATION: 1971 AIR 2471 1971 SCR 977
ACT:
Income-tax Act, 1922, s. 23A(9)' Explanation
(b) (iii)Shares of company carrying more than 50% voting power held by less
than six persons Affairs of company not controlled by less than six
persons-Company whether one in which public are substantially
interested-Whether one condition or both conditions in cl. (b) (iii) of Explanation
should be fulfilled-Limitation under s. 34(1) of Act whether applicable where
additional super-tax is imposed under s. 23A.
HEADNOTE:
The assessee company was incorporated under
the erstwhile Gwalior Companies Act which did not make any distinction between
public and private companies. 'The affairs of the company were not controlled
by less than six persons but shares carrying more than 50% of the total voting
power were during the relevant previous year held by less than 6 persons. After
the company's assessment for the assessment year 1955-56 had been completed the
Income-tax Officer levied additional super-tax on the company under s. 23A of
the Income-tax Act, 1922 holding that it was not a company in which the public
were substantially interested within the meaning of sub-cl. (b) (iii) of the
Explanation to cl. (9) of s. 23A. Under the Explanation a company is treated to
be one in which the public are substantially interested if it is not a private
company under the Indian Companies Act and the affairs of the company or the
shares carrying more than 50% 3f the total voting power are at no time during
the previous year controlled or held by less than six persons.
The authorities under the Act as well as the
High Court, in reference, held against the assessee. In appeal by special leave
to this Court the assessee contended that the word 'or' in sub-cl. (b) (iii)
aforesaid had been used disjunctively and therefore if either of the conditions
mentioned therein did not exist the company must be deemed to be one in which
the public were substantially interested.
Reliance was placed on the decision of this
Court in the case of the State Company Ltd. in which the word 'or' used in
sub-cl. (b) (ii) of the aforesaid Explanation was held to have been used disjunctively.
It was also contended that on the facts and circumstances of the case the
imposition of the additional super-tax under s. 23A without recourse to the
provisions of s. 34(1) was not valid.
HELD: (i) The language of sub-cls. (ii) and
(iii) of cl. (b) is different. The former relates to a positive state of
affairs whereas the latter lays down negative conditions.
The word 'or' is often used to express an
alternative of terms defined or explanation of the same thing in different
words. Therefore if either of the two negative conditions which are to be found
in sub-cl. (b) (iii) remains unfulfilled, the conditions laid down in the
entire clause cannot be said to have been satisfied. The clear import of the
word 'and' appearing there read with the negative or disqualifying conditions
in sub-cl. (b) (iii) is that the assessee was bound to satisfy apart from the
conditions contained in the other sub-clauses that its affairs were at no time
during the previous year controlled by less than 6 persons and shares carrying
more than 50% of the total voting power were during the same period not held by
less than 6 persons. [982F-G] 978 Star Company Ltd. V. Commissioner of
Income-tax (Central) Calcutta, C. A. No. 1204/68 dt. 29-4-70, distinguished.
Indian Steel & Wire Products Ltd.
Calcutta v. Commissioner of Income-tax, West Bengal, Calcutta, I.T.R. No. 204
of 1961, referred to.
(ii)An order made by the Income-tax Officer
directing payment of additional super-tax is not an order of assessment within
the meaning of s. 34(3) of the Act and to such an order the period of
limitation prescribed thereby does not apply. [983A-B] M.M. Parikh, I.T.O.,
Special Investigation Circle 'B', Ahmedabad v. ,Navanagar Transport and
Industries Ltd. & Anr., 63 I.T.R. 663, followed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1344 of 1967.
Appeal from the judgment and order dated
November 24, 1966 of the Calcutta High Court in Income-tax Reference No. 86 of
1962.
V.S. Desai, N. R. Khaitan, B. P. Maheshwari
and Krishna Sen, for the appellant.
Jagadish Swarup, Solicitor-General, S. K.
Aiyer and B. D. Sharma, for the respondent.
The Judgment of the Court was delivered by
Grover, J.-This is an appeal by special leave from a judgment of the Calcutta,
High Court in an Income tax Reference.
The assessee is a limited company
incorporated under the erstwhile Gwalior State Companies Act which did not make
any distinction between a private company and a public company.
The paid-up capital of the company was Rs.
25,00,000/composed of 25,000 Ordinary shares of Rs. 100/each. These 25,000
Ordinary shares were held by 17 share holders in all.
It was also common ground that the shares
carrying more than 50% of the total voting power were held by less than 6
persons during the accounting. period. The assessment year was 1955-56 the
accounting year being the one ending on March 31, 1955. The total income
assessed for the aforesaid year was Rs. 9,54,658/on which tax payable amounted
to Rs. 4,05,492. The surplus available for distribution of dividend was Rs.
5,49,166/-. No dividend, however, was distributed although at the meeting held
on June 8, 979 1955 the accounts which were approved showed a net profit of Rs.
6,81,298/-.
The controversy before the Income tax Officer
centered on the applicability of the provisions of s. 23A of the Income tax Act
1922. According to the assessee that section was not applicable but the Income
tax Officer came to the conclusion that since the shares carrying more than 50%
of the total voting power were held by less than 6 persons the company was not
one in which the public were substantially interested. As no justifiable reason
for non-distribution of the requisite percentage of the dividend had been
furnished s. 23A was applicable and 100% distribution was called for. In view
of the provisions of s. 23A(1) additional :super tax of Rs. 1,37,291.50 poise
was imposed subsequent to the completion of the assessment.
The assessee went up in appeal to the
Appellate Assistant Commissioner but the same was dismissed. The sole point
that was argued before the Appellate Tribunal was whether the assessee
fulfilled the conditions stated in sub-clause (b) (iii) of the Explanation to
s. 23A of the Act. This argument will be considered presently. The Tribunal,
however, was not persuaded to accept the contention of the assessee. On an
application being filed under s. 66(1) the Tribunal referred the following
question on law for the opinion of the High Court :
(1)"Whether on the facts and in the
circumstances of the case, the assessee company is one in which the public are
substantially interested within the meaning of the Explanation to Section 23A
of the Income tax Art, as it stood at the relevant time ? (2)Whether on the
facts and in the circumstances of the case, the imposition of the additional
super-tax under Section 23A without recourse to the provisions of Section 34(1)
was legal and valid ?" Section 23A of the Act confers power on the Income
tax Officer to assess companies to super tax on non-distributed income in
certain cases. We are concerned, in the present appeal, only with sub-s. (9)
and the Explanation thereto.
That sub-section provided inter alia that
nothing contained in the section shall apply to any company in which the public
are substantially interested. The text of Explanation the interpretation of
which is the subject matter of dispute is as follows "Explanation.-For the
purposes of this section a company shall be deemed to be a company in which.
the public are substantially interested.
980 (a)If it is a company owned by the
Government or in which not less than forty percent of the shares are held by
the Government.
(b)If it is not a private company as defined
in the Indian Companies Act 1913 (VII of 1913) and (i)its shares (not being
shares entitled to a fixed rate of dividend, whether with or without a further
right to participate in profits) carrying not less than fifty per cent of the
voting power have been allotted unconditionally to, or acquired unconditionally
by, and were throughout the previous year beneficially held by the public (not
including a company to which the provisions of this section apply) :
Provided that in the case of any such company
as is referred to in sub-section (4), this sub-clause shall apply as if forthe
words 'not less than fifty percent' the words not lessthan forty percent had
been substituted.
(ii) the said shares were at party time
during the previous year the subject of dealing in any recognised'stock
exchange in India or were freely transferable by the holder to other members of
the public-, and (iii)the affairs of the company or the shares carrying more
than fifty percent of the total voting power were at no time during the
previous year controlled or held by less than six persons (persons who are
related to one another as husband, wife, lineal ascendant or descendant or
brother or sister, as the case may be, being treated as a single person and
persons who are nominees of another person together with that other person
being likewise treated as a single person) :
Provided that in the case of any such company
as is referred to in sub-section (4), this clause shall apply as if for the
words 'more than fifty per cent' the words 'more than sixty per cent' had been
substituted.
It is quite clear that clause (a) was not
relevant and had no, application. It was also not disputed that the assessee
had fulfilled the conditions contained in sub-clause (b)(i) and (b)(ii) of the
Explanation. The sole question which had to be decided by the Tribunaland the
High Court was whether the assessee had fulfilled theconditions set out in
sub-clause (b)(iii) of the Explanation. It Was not found that the affairs of
the company were, at any time, during the previous year controlled by less than
6 persons, the number six being arrived ataccording tothe formula 981 laid down
in sub-clause. The sole finding on which the decision went against the assessee
was that shares carrying more than 50% of the total voting power were during
the previous year held by less than 6 persons. The argument which has
throughout been pressed on behalf of the assessee is that the word
"or" which is to be found between the words "the affairs of the
company" and 'the shares carrying more than.............. had been used
disjunctively and therefore if either one of the conditions did not exist the
assessee would be entitled to say that the conditions laid down in sub-clause
(b)(iii) had been fulfilled. In other words if it was established that the
affairs of the assessee were at no time, during the previous year controlled by
less than 6 persons it would be a company in which the public were
substantially interested even though the shares carrying more than 50% of the
total voting power bad been held during the previous year by less than six
persons. The Tribunal disposed of this contention in the following manner :"Sub-clause
(iii) is divided into two parts;
the first part relates to the affairs of the
company being controlled by not less 6 persons and the second part relates to
holding of shares carrying more than 50% of the total voting power by not less
than 6 persons. Both these parts are joined with the main part of clause (b) by
the use of the conjunctive word "and" so that the proper construction
of the sub-clause (iii) would be as follows :(1)If it is not a private company
as defined in the Indian Companies Act, 1913 and the affairs of the company
were at no time during the previous year controlled by less than six persons ;
(2)If it is not a private company as defined
in 'the Indian Companies Act, 1913 and the shares carrying more than 50% of the
total voting power were at no time during the previous year held by less than 6
persons." According to the Tribunal sub-cl. (iii) of cl. (b) sought to
impose two distinct and separate conditions, namely, (1) control of the affairs
of the company and (2) requisite percentage of the voting power held by virtue
of the holding of shares. In order that a company might be treated as one in
which the public were substantially interested it had to show that not merely
its affairs were controlled by not less the 6 persons but also that 50% of the
total voting power had been held by not less than 6 persons. The High Court
looked closely into the language of the Explanation and had no difficulty in
coming to the conclusion that the conditions laid down in all the sub-clauses
of cl. (b) had to be satisfied.
982 The difficulty, however, was created by
the language of sub cl.(b) (iii) in which the word "or" appeared in
more than one place. In a previous Bench decision of the Calcutta High Court in
an Income tax Reference (The Indian Steel & Wire Products Ltd. Calcutta v.
The Commissioner of Income tax, West Bengal, Calcutta) (1) the same point had
arisen and it had been held that the conditions prescribed in sub cl. (b)(iii)
would not be satisfied by mere compliance with one branch of it. Both branches
namely the control of the affairs by not less than 6 persons and the holding of
shares carrying the requisite percentage of the total voting. power by not less
than 6 persons would have to be fulfilled.
On behalf of the assessee a good deal of
reliance has been placed on a decision of this Court in The Star Company Ltd.
v. The Commissioner of Income-tax (Central)
Calcutta(1). In that case sub-clause (b)(ii) came up for consideration and it
was held that the two parts of the explanation contained in that sub-clause
were alternative. In other words if one part was satisfied it was unnecessary
to consider whether the second part was also satisfied. Thus the word
"or" was treated as having been used disjunctively and not
conjunctively. The same reasoning is sought to be invoked with reference to
sub-clause (b)(iii).
It is significant that the language of
sub-clauses (ii) and (iii) of cl. (b) is different. The former relates to a
positive state of affairs whereas the latter lays down negative conditions. The
word "or" is often used to express an alternative of terms defined or
explanation of the same thing in different words. Therefore if either of the
two negative conditions which are to be found in sub-clause (b) (iii) remains
unfulfilled, the conditions laid down in the entire clause cannot be said to
have been satisfied. The clear import of the opening part of cl. (b) with the
word "and" appearing there read with the negative or disqualifying
conditions in sub-cl. (b) (iii) is that the assessee was bound to satisfy apart
from the conditions contained in the other sub-clauses that its affairs were at
no time during the previous year controlled by less than 6 persons and shares
carrying more than 50% of the total voting power were during the same period
not held by less than 6 persons. We are unable to find any infirmity in the
reasoning or the conclusion of the Tribunal and the High Court so far as
question No. 1 is concerned.
(1) Income Tax Reference No. 204 of 1961.
(2) C. As. 1204 & 1205168 dt. 29-4-70.
9 83 The second question stands concluded by
the decision of this Court in M. M. Parikh, I. T. O. Special Investigation
Circle "B", Ahmedabad v. Navanagar Transport and Industries Ltd.,
& Another (1) in which it was held that an order under s. 23A of the Act
made by the Income tax Officer directing payment of additional Super tax was an
order of assessment within the meaning of s. 34(3) of the Act and to such an
order the period of limitation prescribed thereby did not apply.
In the result this appeal fails and it is
dismissed with costs.
G. C. Appeal dismissed.
(1) 63 I.T.R. 663.
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