Full Judgment Text
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PETITIONER:
PUNJAB PRODUCE AND TRADING CO. LTD.
Vs.
RESPONDENT:
C.I.T. WEST BENGAL, CALCUTTA
DATE OF JUDGMENT29/07/1971
BENCH:
GROVER, A.N.
BENCH:
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 ful-
filled-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.
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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.
JUDGMENT:
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 judg-
ment 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/- com-
posed 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/-.
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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) :
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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 at- according to- the 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 :-
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(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 condi-
tions 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
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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.
984