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Commissioner of Income-tax Vs. P.N.N. Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 263 of 1964 (Reference No. 70 of 1964)
Judge
Reported in[1969]39CompCas287(Mad); [1969]72ITR497(Mad)
ActsIncome Tax Act, 1922 - Sections 5A(8), 23A(9), 61 and 66(1); Appellate Tribunal Rules, 1946 - Rule 2; Banking Companies Act, 1949 - Sections 12; Banking Companies (Amendment) Act, 1956
AppellantCommissioner of Income-tax
RespondentP.N.N. Bank Ltd.
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateS. Swaminathan and ;K. Ramagopal, Advs.
Cases ReferredSubramanian Chettiar v. Commissioner of Income
Excerpt:
.....(1) of income tax act, 1922, rule 2 of appellate tribunal rules, 1946, section 12 of banking companies act, 1949 and banking companies (amendment) act, 1956 - whether assessee satisfied in context of section 12 (iv) which restricts upon voting rights of shareholder - on applying 5% limitation under section 12 each of them would have 50 votes, total 100 but 16 remaining shareholders possessed only 44 votes - therefore both 'x' and 'y' possessed voting rights far exceeding 50 % of total voting rights of all shareholders - question answered against assessee. - - though, in substance and effect, the amended provision is the same as the unamended one, the former brings out the intent more clearly. there is, therefore, no substance in this point as well. ..10. whether the assessee..........conditions) that the voting rights of any one shareholder do not exceed five per cent. of the total voting rights of all the shareholders............'2. the section had a proviso with which we are not concerned. as amended in 1950, sub-section (2) of section 12 stated that no person holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights on poll in excess of 5 per cent. of the total voting rights of the shareholders of the banking company. though, in substance and effect, the amended provision is the same as the unamended one, the former brings out the intent more clearly. by an application of the above provision, the tribunal held that the assessee was not a controlled company for the purpose of section 23a(9) of the income-tax act,.....
Judgment:

Veeraswami, J.

1. This reference relating to the assessment years 1955-56 to 1960-61 raises the problem of application, to the facts, of Section 12(iv) of the Banking Companies Act, 1949, before and after its amendment in 1956. Clause (iv) was recast in that year and took the shape of Sub-section (2) of that section. Clause (iv), as originally stood, was to this effect that:

' No banking company shall carry on business in any Province of India unless it satisfies (among other conditions) that the voting rights of any one shareholder do not exceed five per cent. of the total voting rights of all the shareholders............'

2. The section had a proviso with which we are not concerned. As amended in 1950, Sub-section (2) of Section 12 stated that no person holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights on poll in excess of 5 per cent. of the total voting rights of the shareholders of the banking company. Though, in substance and effect, the amended provision is the same as the unamended one, the former brings out the intent more clearly. By an application of the above provision, the Tribunal held that the assessee was not a controlled company for the purpose of Section 23A(9) of the Income-tax Act, 1922. At the instance of the Commissioner of Income-tax, this reference comes before us under Section 66(2) of the Act.

3. The assessee claims to be a public limited company carrying on banking business. It has a share capital of Rs. 1,00,000 divided into 1,000 shares of the face value of Rs. 100 each. The total shares were held by 18 persons including P.N. Nagamanickam Chettiar with 500 and P.N. Nagamiah Gupta with 456 shares. The remaining 16 shareholders held the balance of 44 shares. On the basis that the assessee was a public limited company it was, for the years in question, allowed a rebate of one anna in the rupee in respect of income-tax on the undistributed profits in excess of the total income less seven annas in the rupee and also a rebate of three annas in the rupee in respect of the corporation tax. The assessments were, however, re-opened and revised with the result that a rebate of only two annas under corporation tax was allowed and the rebate of one anna in respect of income-tax was withdrawn. This was on the view that two out of 18 shareholders possessed more than 50 per cent. of the voting rights of all the shareholders. The Tribunal did not concur with that view but considered that as between P.N. Nagamanickam Chettiar and P.N. Nagamiah Gupta they held 10 per cent. of the voting rights and, therefore, it was clear that shares carrying more than fifty per cent. of the total voting power were at no time during the assessment years controlled and held by less than six persons. The result was that the Tribunal thought that the assessee was a public company in which the public were substantially interested within the meaning of Section 23A of the Income-tax Act. In the circumstances, the following question has been referred to us ;

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was a public company within the meaning of the Explanation to Section 23A of the Income-tax Act '

4. There is before us also a further question which is in the nature of a preliminary objection to the validity of the reference, viz., whether the petition filed before the Tribunal under Section 66(1) of the Income-tax Act was competent in law. This question has been posed because, as a matter of fact, the application filed by the Commissioner oi Income-tax for reference was signed for him by Mr. S. P. Krishnamoorthy, an Income-tax Officer, on May 21, 1962. There is no dispute that this officer, by a notification appearing in the Gazette of India, dated July 14, 1962, was authorised with effect from May 16, 1961, to ' appear, plead and act for any income-tax authority who is a party to any proceeding before the Income-tax Appellate Tribunal '. The Tribunal found no substance in the assessee's objection that, having regard to the provisions of the Act, the Commissioner should himself sign the petition for reference and no authorised representative of his could do it.We shall first deal with the second question and, in doing so, we may at once say without hesitation that we agree with the Tribunal. Section 66(1), no doubt, states that the Commissioner may, by application in the prescribed form, require the Appellate Tribunal to refer. The form prescribed is silent as to whether the Commissioner can sign a petition for reference. Where the assessee is the applicant, the form indicates that either he or his authorised representative may sign it. The authorisation by an assessee in this behalf is permitted by Section 61 which is, that any assessee, who is entitled or required to attend before the Appellate Tribunal or any income-tax authority in connection with any proceeding under the Act, may attend by a person authorised by him in writing in this behalf. Mr. Swaminathan, for the assessee, refers to the form prescribed under Section 66(1) and the terms of Section 61 of the Income-tax Act and contends that the two, read together, would suggest that the Commissioner does not have the privilege of having an authorised representative, while an assessee or an Income-tax Officer would have it under the provisions of the Act. This argument does not take into account Section 5A(8) and the rules made thereunder. Sub-rule (ii) of Rule 2 of the Appellate Tribunal Rules, 1946, framed under Section 5A(8) defines an authorised representative in relation to an income-tax authority who is a party to any proceeding before the Tribunal, as a person duly appointed by the Central Government by notification in the Official Gazette as authorised representative 'to appear, plead and act for such authority in any such proceeding ' and any other person acting on behalf of the person so appointed. In our opinion, this language ' to appear, plead and act ' carries with it the authority to sign a reference petition on behalf of an income-tax authority which includes the Commissioner of Income-tax. The word ' act' in the phraseology following as it does the words ' appear and plead ' should be understood in the sense that, apart from appearing and pleading before the Tribunal, the authorised representative would have further power to act which would include the authority to sign a reference petition for the Commissioner of Income-tax. That the word 'act' or ' acting ' itself would normally convey that meaning and particularly in the context, is clear from Explanation (i) to Rule 2 of Order IV of the Supreme Court Rules. The Explanation says :

' 'Acting' means filing an appearance or any pleading or application in any court or Tribunal in India or any act (other than pleading) required or authorised by law to be done by a party in such court or Tribunal either in person or by his recognised agent or by an advocate or attorney on his behalf. '

5. This court in Subramanian Chettiar v. Commissioner of Income-tax, : [1953]24ITR89(Mad) . held that the language in a vakalath ' to appear for me in the above assessment, appeal, revision, application, reference or other proceeding, to receive all notices and letters and all orders passed therein, to apply for and get return of all documents filed, copies of all papers and orders and to receive any refunds that may be due in the above proceedings, ' covered the authority for the advocate who held the vakulath to sign for an applicant for reference under Section 66(1). The language employed to define an authorised representative in the Appellate Tribunal Rules is a fortiori, for, the authorisation is not merely for appearance and pleading but also for acting. We are of the view that the Income-tax Officer who signed the reference petition was competent to do so.

6. A further point is raised for the assessee that, on the date the Income-tax Officer signed the reference petition, he had no authority and that the notification authorising him was published only on July 14, 1962. But we find from the notification that the authorisation was with effect from May 16, 1962, and so, where factually the Income-tax Officer purported to act as an authorised representative to the knowledge of the Commissioner of Income-tax before the notification under the Appellate Tribunal Rules, his act in signing the petition could validly be ratified. There is, therefore, no substance in this point as well.

7. We shall now turn to consider the first question. In addition to Section 12(iv) of the Banking Companies Act, Article 13 of the articles of association, as amended on April 7, 1951, which was in force during the relevant years, reads:

' At every general meeting on a show of hands each member present in person shall have one vote for every share held by him and on a pollevery member present in person or by proxy shall have one vote for every share held by him. But the voting rights of any member shall be strictly proportionate to the contribution made by him to the paid up capital of the company and shall not exceed five per cent. of the total voting rights of all the members.'

8. Section 23A of the Income-tax Act provides for power to assess companies to super-tax on undistributed income in certain cases. Subsection (9) is:

' (9) Nothing contained in this section shall apply to any company in which the public are substantially interested or to a 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.'

9. In view of this provision, Section 23A is applied to what would be called controlled companies even though they may be public companies. Sub-section (9) has an Explanation and Clause (iii) of this Explanation says :

'Explanation 1.--For the purposes of this section, a company shall be deemed to be a company in which the public are substantially interested--......

(iii) the affairs of the company or the shares carrying more than fifty per cent. of the total voting power were at no time during the previous year controlled or held by less than six persons......'

10. Whether the assessee satisfied this provision will have to be decided in the context of Section 12(iv) of the Banking Companies Act which places a restriction upon the voting rights of a shareholder in certain circumstances, that is to say, irrespective of the quantum of the shareholding and contribution to the capital, the voting rights of a shareholder do not exceed five per cent. of the total voting rights of all the shareholders. While the principle as visualised by Section 12 of the Banking Companies Act is equal voting for equal contribution to the capital and under the articles of association governing the assessee each share will carry with it one vote, nevertheless, a further restriction has been imposed that in the case of a banking company, no shareholder should have voting rights exceeding five per cent. of the total voting rights of all the shareholders. Mr. Swaminathan for the assessee contends that the effect of the restriction is that no shareholder can in any case exercise voting right in excess of five per cent. and that, on this basis, out of 144 exercisable votes P.N. Nagamanickam Chettiar and P.N. Nagamiah Gupta would each have only five per cent. of that figure, that is to say, an aggregate of ten per cent. of the total 144 votes. In other words, what learned counsel suggests is that the total voting rights should be taken for the purpose of limitation as at polling. To put it differently, P.N. NagamanickamChettiar and Nagamiah Gupta would each have five per cent. of 1,000 shares which would mean that each would have 50 and the remaining 16 shareholders would have 44, thus making a total of 144 votes. This will be the position at the polling and this, according to learned counsel, is the total voting rights of all the shareholders contemplated by Section 12 of the Banking Companies Act. In our view, this contention cannot be accepted. It is against the plain language employed by Section 12 and further, to accept that contention, would mean application of the limitation twice over. The provision speaks of not exceeding five per cent. of the total voting rights of all the shareholders which obviously, in our opinion, means total voting rights of all the shareholders, before applying the limitation of five per cent. Article 13 of the articles of association of the assessee, which incorporates the limitation under Section 12 of the Banking Companies Act, also leaves no room for doubt that the five per cent. has to be ascertained in respect of the total voting power or rights. We do not think that the problem in the reference turns on any distinction between the voting rights and voting power. But for Section 12 of the Banking Companies Act and the said article, each shareholder will have one vote for each share held by him and the limitation under Section 12 is applied with reference to it. In our opinion, the Tribunal was not right in its view that P.N. Nagamanickam Chettiar and P.N. Nagamiah Gupta held as between themselves only a total of ten per cent. of the voting rights. On applying the five per cent. limitation under Section 12 each of them would have 50 votes, a total of 100, but the 16 remaining shareholders possessed only 44 votes. The position, therefore, is that Nagamanickam Chettiar and Nagamiah Gupta both possessed voting rights far exceeding 50 per cent. of the total voting rights of all the shareholders. The first question is answered in favour of the revenue and the second question against the assessee. The revenue will be entitled to its costs, counsel's fee Rs. 250.

11. We find from the record that the assessee in its appeal before the Tribunal objected to the competency to re-open the assessments for the first four years under Section 34 of the Income-tax Act. On the view it took the Tribunal thought it was unnecessary to deal with the matter. Now that the reference has been answered against the assessee, it follows that the Tribunal will have also to deal with the assessee's point based on Section 34 and decide the same in the final disposal of the appeal.


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