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Commissioner of Income-tax Bombay Vs. Narottam Pereira Ltd., Bombay. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai
Decided On
Case NumberReference under Section 21 of the Excess Profits Tax Act (XV of 1940) read with Section 66(1) of the
Reported in[1946]14ITR793(Bom)
AppellantCommissioner of Income-tax Bombay
RespondentNarottam Pereira Ltd., Bombay.
Excerpt:
- - of the ordinary shares of the company, but i fail to see how it can be said that the scindia steam navigation company is the manager of the company or concerned in the management of the business or that it is remunerated out of the funds of that business. in order that this definition can apply, all the three conditions which are cumulative must be satisfied......interest in fact of each of the directors in the respondent company and (3) whether the scindia steam navigation company limited and/or mrs. nanavati are the directors of the respondent company as contended by the respondent assessee ?the supplementary statement of the tribunal is now before us and they have answered the three questions raised by us. their findings are that mr. p.n. vevaina, dewan bahadur i.x. pereira, mr. j.e.a. pereira, mr. walchand hirachand, mr. shantikumar n. morarji, sir chunilal b. mehta, the honourable sir shantidas askuran and mr. s.c. sheth are the eight directors of the assessee company. they have also stated that the number of shares held by the directors are as follows :-mr. p.n. vevaina..... 9 shares dewan bahadur i. x. pereira...... 5 shares mr. j.e.a......
Judgment:

CHAGLA, J. - The question raised by the Tribunal on this reference is whether, upon the facts found by the Tribunal, the assessee company is one in which the directors had a controlling interest within the meaning of Section 2(21)(a) of the Excess Profits Tax Act and rule 7(1) of Schedule I to that Act.

This reference came before me and my learned brother Mr. Justice Kania on the 19th September, 1945, and we sent the reference back to the Tribunal under Section 66(4) of the Act and requested them to record their findings on the three questions which we raised. The three questions were :-

(1) Who are the directors of the respondent Company (2) What is the interest in fact of each of the directors in the respondent company and (3) Whether the Scindia Steam Navigation Company Limited and/or Mrs. Nanavati are the directors of the respondent company as contended by the respondent assessee ?

The supplementary statement of the Tribunal is now before us and they have answered the three questions raised by us. Their findings are that Mr. P.N. Vevaina, Dewan Bahadur I.X. Pereira, Mr. J.E.A. Pereira, Mr. Walchand Hirachand, Mr. Shantikumar N. Morarji, Sir Chunilal B. Mehta, the honourable Sir Shantidas Askuran and Mr. S.C. Sheth are the eight directors of the assessee company. They have also stated that the number of shares held by the directors are as follows :-

Mr. P.N. Vevaina..... 9 shares Dewan Bahadur I. X. Pereira...... 5 shares Mr. J.E.A. Pereira..... 3 shares Mr. Walchand Hirachand..... 1 share Mr. Shantikumar N. Morarji..... 1 share Sir Chunilal B. Mehta..... 1 share Honourable Sir Shantidas Askuran..... 1 share

So it will be found that the shares held by these seven directors total 21 shares. The total ordinary shares of the company are 60 and therefore on this finding, out of the 60 ordinary shares 21 shares are held by the directors. As the finding stands, there can be no question that these directors have no controlling interest in the company. Before a controlling interest can be established, the directors must hold a majority of the shares and when the Tribunal has found that the directors hold only 21 out of 60 shares it is impossible to contend that the directors have a controlling interest.

To get over this almost insuperable difficulty sir Jamshedji has advanced a rather ingenious argument. What he says is this, that the Scindia Steam Navigation Company hold 20 shares and they have nominated Mr. Walchand Hirachand, Sir Chunilal Mehta and Honourable Sir Shantidas Askuran as the nominees. Therefore, these three nominees are not the real directors, but the real director is the Scindia Steam Navigation company and as such the Scindia Steam Navigation Company controls 20 shares. This argument is based on the contention that as it is not possible for a limited company to be a director of another company, therefore, the Scindia Steam Navigation Company was compelled to nominate these three gentlemen as the directors.

Now, Sir Jamshedji Kanga has cited no authority for this proposition that a limited company cannot be appointed a director of another company and in the absence of any such authority we are not prepared to accept that statement of the law as a correct statement.

It has also been contended by Sir Jamshedji Kanga that the Scindia Steam Navigation Company comes under the definition of 'director' given in Section 2(10). That definition, it is true, is not exhaustive but an inclusive definition and it provides that a 'director' includes any person occupying the position of a director by whatever name called and also includes any person who (1) is a manager of the company or concerned in the management of the business; and (2) is remunerated out of the funds of the business; and (3) is the beneficial owner of not less than 20 per cent. of the ordinary share capital of the company.

Now, it is true that the Scindia Steam Navigation Company is the beneficial owner of not less than 20 per cent. of the ordinary shares of the company, but I fail to see how it can be said that the Scindia Steam Navigation Company is the manager of the company or concerned in the management of the business or that it is remunerated out of the funds of that business. In order that this definition can apply, all the three conditions which are cumulative must be satisfied. It is also rather significant to note that in the certificate which was filed by the Scindia Steam Navigation Company before the Tribunal their contention was that the Scindia Steam Navigation Company always voted according to the advice and suggestion of their nominees. Sir Jamshedji Kanga is indeed hard put to it now to suggest entirely the opposite of what is contained in the certificate. The suggestion now is that the nominees real vote at the advice and suggestion of the Scindia Steam Navigation Company. We are therefore of the opinion that the question referred to us by the Tribunal should be answered in the negative. The assessee must pay the costs of the reference.

Reference answered in the negative.


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