Mrs. Chitra Venkataraman, J. - Since the assessee, who filed the Tax Case (Appeals) under the Income Tax Act, 1961 and the Wealth Tax Act is one and the same and the question of law raised is also common, we pass a common order herein.
2. Following are the questions of law raised in the Tax Case (Appeals):—
| "1. |
|
Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is a company in which the public is substantially interested ? |
2. |
|
Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is not assessable to Wealth Tax ?" |
3. The Tax Case (Appeals) and the assessment years under consideration in respect of the Income Tax Act, 1961 are as under:—
Tax Case (Appeal).No.1014/2005 relating to the assessment year 1991-92,
T.C.(A).No.1015/2005 relating to 1992-93,
T.C.(A).No.842/2004 relating to 1993-94,
T.C.(A).No.620/2004 relating to 1988-89.
The Tax Case (Appeals) and the assessment years under consideration in respect of Wealth Tax Act are as under:-
T.C.(A).No.546/2004 relating to 1991-92,
T.C.(A).No.547/2004 relating to 1992-93;
T.C.(A).No.503/2004 relating to 1984-85,
T.C.(A).No.504/2004 relating to 1985-86,
T.C.(A).No.505/2004 relating to 1986-87,
T.C.(A).No.506/2004 relating to 1987-88;
T.C.(A).No.507/2004 relating to 1988-89;
T.C.(A).No.788/2004 relating to 1989-90;
T.C.(A).No.789/2004 relating to 1990-91.
4. In the assessment under Income Tax Act,1961 as well as under the Wealth Tax Act, the assessee claimed its status as a company, in which public are substantially interested. It is seen from the facts narrated that the assessee is a subsidiary of M/s.Ace Investments Private Limited, which held 100% shares in the assessee company. The shareholders of the company were members of Goenka Family. It was claimed that 51% of the shares of Ace Investment Pvt.Ltd., were transferred to one Bhagwan Das Goenka Educational Institution, which is said to be a company incorporated under Section 25 of the Companies Act, 1956. Since under Section 2(18)(aa) of the Income Tax Act, 1961, Bhagwan Das Goenka Educational Institution is a company, in which the public are substantially interested and that the shareholding of the Ace Investments to the extent of 51% was held by the Bhagwan Das Goenka Educational Institution, Ace Investments Pvt. Limited claimed that it is a company, in which public are substantially interested.
5. It is seen from the orders passed for the assessment year 1984-85 in the case of the assessee under the Wealth Tax Proceedings, that the shares in Ace Investments were transferred to the Bhagwan Das Goenka Educational Institution by way of gift only on 19.03.1984. Thus, from 01.05.1982 to 31.03.1984, during 23 months, only for the last 12 days, the Bhagwan Das Goenka Educational Institution held 49% in Ace Investments, consequently, in the assessment made on Ace Investments for 1984-85, the status as a company, in which public are substantially interested was not given.
6. It is seen from the facts admitted by both sides that in respect of assessment year 1984-85 under the Wealth Tax Proceedings, the assessee herein had gone for Samadhan, hence, we are not concerned about the status of the assessee before us.
7. It is seen from the orders passed by the Deputy Commissioner of Income Tax, Special Range IX, Madras-34, for the assessment year 1985-86 in the case of Ace Investments, that the Income Tax Department accepted the status of Bhagwan Das Goenka Educational Institution as a company for the assessment years 1984-85 and 1985-86.
8. It is further seen from the narration in the papers made available before this Court that the Company Law Board started proceedings against the Bhagwan Das Goenka Educational Institution revoking its license granted under Section 25 of the Companies Act, 1956. On a Writ Petition filed by Bhagwan Das Goenka Educational Institution before the Calcutta High Court, stay of the proceedings was granted and for the past 25 years, as of today, it is stated by learned counsel for the respondent/assessee that the Writ Petition is still pending and the stay granted continues. In the circumstances, we have to treat the Bhagwan Das Goenka Educational Institution as Section 25 Company only till such time the proceedings before the Calcutta High Court comes to a finality on this issue.
9. It is seen from the order of the Commissioner of Income Tax (Appeals) that for the assessment year 1985-86 dated 19.06.1990, the assessee's claim that it should be taken as a company, in which public are substantially interested was accepted by the Commissioner of Income Tax (Appeals). Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal, which dismissed the Revenue's appeal. As against the order of the Income Tax Appellate Tribunal dated 07.02.2002, admittedly, the Revenue has not come on appeal before this Court.
10. As far as the case of the assessee as well as the assessments relating to the assessee herein viz., M/s. Express Newspapers Limited, for the year under consideration 1984-85 is concerned, as already seen, there is no question now surviving for decision. However, for the assessment years relating to 1985-86, 1986-87, 1987-88 and 1988-89 are concerned, a reading of the order of Commissioner of Income Tax (Appeals) shows that he took a different view from what was taken earlier in favour of the assessee based on the status of Ace Investments, which in turn rested on the Bhagwan Das Goenka Educational Institution as Section 25 company.
11. The Commissioner of Income Tax (Appeals), in the order dated 24.06.1992 pointed out that the shares of the assessee company as well as Ace Investments were not quoted in stock exchange; though a specific question was raised, it was not answered by the assessee; in the absence of any material to show that the assessee satisfied the conditions as given under Section 2(18) of the Income Tax Act, 1961, the claim of the assessee, based on the status of Ace Investments could not be granted. It pointed out that the case of the assessee could not be approached from the Bhagwan Das Goenka Educational Institution angle. The status of the assessee has to be seen vis-a-vis the status of Ace Investments, it being the holding company for the assessee. Thus, by referring to Section 2(18)(b)(B) of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) held that when the shares of M/s. Ace Investments were not held by the Bhagwan Das Goenka Educational Institution throughout the Ace Investments Limited's previous year in respect of assessment year 1984-85 and thus, the requirement having not fully satisfied, it could not be said to be a company, in which public are substantially interested and the assessee could not be given the same status. It further pointed out that the assessee ought to have proved that the shares of the Ace Investments had indeed been unconditionally allotted to or acquired by the Bhagwan Das Goenka Educational Institution and also that the transferred shares carried not less than 50% of the voting power. The burden of proof having not been discharged by the assessee, the status as a company, in which public are substantially interested should not be granted. Thus, differing from earlier views in the case of Ace Investments, the assessee's appeals were rejected.
12. Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal and on its part, the Department also went on appeal before the Income Tax Appellate Tribunal.
13. A reading of the order of the Income Tax Appellate Tribunal shows that following the order already passed in the case of Ace Investments, holding the status as that of the company, in which public are substantially interested, the same status was extended to the assessee herein. In view of this, the assessee's case was allowed and the Revenue's case was dismissed. Aggrieved by this, the Revenue has preferred the above Tax Case (Appeals).
14. Learned Standing counsel appearing for the Revenue submitted that the mere fact that the Bhagwan Das Goenka Educational Institution is stated to have had 49% of the shares in Ace Investments, per se, would not lead to an inference that Goenka Educational Institution had 50% voting power in Ace Investments. In any event, when the status of the Bhagwan Das Goenka Educational Institution as Section 25 Company itself is under challenge, Ace Investments could not be considered as a company in which public are substantially interested; in the circumstances, the assessee's case fails. Learned Standing Counsel appearing for the Revenue submitted that there are no materials to show that all shares in Ace Investments were held by Goenka Trust Educational Institution; in the circumstances, the Income Tax Appellate Tribunal committed serious error in accepting the case of the assessee.
15. Per contra, learned counsel appearing for the assessee submitted that the Department had accepted the case of Ace Investments, as a company in which public are substantially interested and the order passed, even in the assessee's case, in the present proceedings, clearly pointed out the transfer of shares by the Ace Investments to the Bhagwan Das Goenka Educational Institution and the voting power as evidenced by Article 13 of the Articles of Association of Ace Investments. Thus, it is totally incorrect on the part of the Revenue to say that Ace Investments is not a company in which public are substantially interested. He further pointed out that so long as the stay was there on the cancellation of the status of the Bhagwan Das Goenka Educational Institution as Section 25 company and the order of the Income Tax Appellate Tribunal in the case of Ace Investments having attained finality, it is not open to the Revenue to reopen the issue to declare the status of the assessee as a company, in which public are not substantially interested.
16. We agree with the contentions made by learned counsel for the assessee. Section 2(18) of the Income Tax Act, 1961 defines when a company is one, in which public are substantially interested. The said provision which are relevant to the case are as under:—
'2. Definitions:—
(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) (a) to (a)(c)** |
** |
** |
(ad) if it is a company, wherein 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 relevant previous year beneficially held by, one or more co-operative societies ;
(b) if it is a company which is not a private company as defined in the Companies Act, 1956, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—
(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ;
(B) shares in the company (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 relevant previous year beneficially held by—
| (a) |
|
the Government, or |
(b) |
|
a corporation established by a Central, State or Provincial Act, or |
(c) |
|
any company to which this clause applies or any subsidiary company of such 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.' |
17. It is not denied by the Revenue that as per the findings given in the assessment order under the Wealth Tax Act, in the assessee's case, for the assessment year 1984-85, there is a finding that 49% of the shares in Ace Investments were transferred to Bhagwan Das Goenka Educational Institution as early as on 19.03.1984. Considering the fact that during the year relevant to that previous accounting year, shares were held only for last 12 days, the status of the company in which public are substantially interested was not granted to Ace Investments and consequently too to the assessee herein. Considering the facts thus admitted in the assessment order that there had been transfer of shares from Ace Investments to Bhagwan Das Goenka Educational Institution and the status of the Bhagwan Das Goenka Educational Institution, treated as Section 25 Company, when 12 we look at the Articles of Association, we find under Clause 13 of the Articles of Association, every member present in person shall have one vote only in respect of every share held by him. On the admitted fact position that 49% of the votes in Ace Investments stood transferred to the Bhagwan Das Goenka Educational Institution, which is Section 25 company, we do not find the question as to whether there has been a transfer at all of the shares of the Ace Investments surviving today for the Department to raise a dispute.
18. Secondly, when the order of the Income Tax Appellate Tribunal on Ace Investments dated 07.02.2002, has attained finality, which question has relevance for the purpose of deciding this case before us, it is no longer open to the Revenue to question the order or argue against the order of the Income Tax Appellate Tribunal. We do admit that there are materials before us, which were not placed before the Income Tax Appellate Tribunal. However, admittedly, when the Revenue has not furnished materials to discredit this and the findings recorded before the Income Tax Appellate Tribunal regarding the Ace Investments in the appeal filed by the Revenue, thus, having attained finality, in the background of this fact situation with 100% of the shares of the assessee company held by Ace Investments, which is recognised as a company in which public are substantially interested, we do not find any justifiable ground to take a view differently as that of what had been taken by the Income Tax Appellate Tribunal.
19. Going by Section 2(18)(b)(B), Sub clause (c) of the Income Tax Act 1961, we have no hesitation in holding that so long as Bhagwan Das Goenka Educational Institution has its status as Section 25 Company, the status of Ace Investments, thus, not being a question raised by the Revenue, the assessee is entitled to succeed in its contention that it is the company in which public are substantially interested.
20. We are aware of the fact that this position would continue only so long as the status of the Bhagwan Das Goenka Educational Institution continue as a Section 25 Company under the Companies Act, 1956. However, in the event of any order passed therein in the Writ Petition filed before the Calcutta High Court, adverse to the interests of Bhagwan Das Goenka Educational Institution, it is always open to the Revenue to reopen the assessment as per Section 150 Sub Section 1 of the Income Tax Act, 1961.
21. It is a matter of relevance herein to note further that in the appeal filed for the assessment year 1989-90 by the Revenue, the Income Tax Appellate Tribunal upheld the order of the Commissioner of Income Tax holding that when the wholly owned subsidiary could be considered as a company in which public are substantially interested, the assessee-company ought to be treated as a company in which public are substantially interested. The order of the Income Tax Appellate Tribunal dated 02.04.2002 in the assessee's own case, thus having attained finality, there being no appeal filed against this order, we do not find any merit in the Revenue's contention.
22. Accordingly the Tax Case (Appeals) filed by the Revenue are dismissed. No costs.