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Commissioner of Income-tax Vs. Ion Exchange (India) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 23 of 1971
Judge
Reported in[1977]110ITR98(Cal)
ActsIncome Tax Act, 1961 - Section 2(17); ;Finance Act; ;Income Tax Act, 1922
AppellantCommissioner of Income-tax
Respondention Exchange (India) Ltd.
Appellant AdvocateB.L. Pal and ;Ajit Sengupta, Advs.
Respondent AdvocateK. Ray and ;R.N. Dutt, Advs.
Cases ReferredAgarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal
Excerpt:
- .....persons. it held 1,50,000 shares out of 2,50,000 shares of the assessee in the relevant accounting year. permutit company was not assessed to income-tax under the indian income-tax act, 1922, as a company for the assessment year commencing on april 1, 1947. 4. the assessee claimed before the income-tax officer at the time of assessment that it should be assessed in the status of a public limited company inasmuch as 1,50,000 shares out of its 2,50,000 shares were held by permutit company but the income-tax officer rejected the said claim as no evidence was adduced by the assessee to show that permutit company was a public limited company and accordingly he assessed the assessee in the status of a private limited company. 5. in the appeal filed by the assessee before the appellate.....
Judgment:

Deb, J.

1. The following question is involved in this reference under Section 256(1) of the Income-tax Act, 1961 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that M/s. Permutit Co. Ltd. of U.K. was a company within the meaning of Section 2(17) of the Income-tax Act, 1961 ?'

2. The assessment year involved is 1965-66. The previous year ended on December 31, 1964. The assessee is an Indian company and was incorporated on March 6, 1966, under the provisions of the Companies Act, 1956.

3. The facts stated and found by the Appellate Tribunal may be briefly stated as follows: M/s. Permutit Co. Ltd. was incorporated as a public limited company in 1937 under the relevant provisions of the Companies Act of England. Its shares were held by the public and were freely transferable. Its shares carrying more than 50% of the voting power were not controlled or held by five or fewer persons. It held 1,50,000 shares out of 2,50,000 shares of the assessee in the relevant accounting year. Permutit Company was not assessed to income-tax under the Indian Income-tax Act, 1922, as a company for the assessment year commencing on April 1, 1947.

4. The assessee claimed before the Income-tax Officer at the time of assessment that it should be assessed in the status of a public limited company inasmuch as 1,50,000 shares out of its 2,50,000 shares were held by Permutit Company but the Income-tax Officer rejected the said claim as no evidence was adduced by the assessee to show that Permutit Company was a public limited company and accordingly he assessed the assessee in the status of a private limited company.

5. In the appeal filed by the assessee before the Appellate Assistant Commissioner, the assessee adduced evidence to show that Permutit Company was a public limited company in which the public were substantially interested within the meaning of that expression as defined by Section 2(18) of the Income-tax Act, 1961. The Appellate Assistant Commissioner accepted the said evidence and allowed the appeal with a finding that Permutit Company was a company in which the public were substantially interested. He, therefore, held that the assessee should be assessed in the status of a public limited company.

6. The department then went to the Tribunal on appeal and to meet the new contentions raised by the departmental representative further evidence was adduced by the assessee before the Tribunal. The Tribunal has accepted those evidence and has dismissed the said appeal for the reasons recorded in its appellate order. Hence, the above question is now before us at the instance of the Commissioner.

7. To appreciate the contentions made before us it is necessary to refer to Section 2(17) of the Income-tax Act, 1961. It reads as follows :

'(17) 'company' means-

(i) any Indian company, or

(ii) any association, whether incorporated or not and whether Indian or non-Indian, which is or was assessable or was assessed under the Indian Income-tax Act, 1922 (11 of 1922), as a company for the assessment year commencing on the 1st day of April, 1947, or which is declared by general or special order of the Board to be a company for the purposes of this Act.'

8. It is the submission of Mr. B. L. Pal, the learned counsel for the revenue, that since Permutit Company was not assessed at all under the Indian Income-tax Act, 1922, the Tribunal should have ascertained the fact, namely, that whether Permutit Company 'was assessable' in the assessment year commencing on the 1st April, 1947, in order to determine whether it was a company within the meaning of Section 2(17)(ii) of the Income-tax Act, 1961. It is also his submission that before it can be said that Permutit Company was a company within the meaning of Section 2(17)(ii) of the Act some income must accrue to it in India in the previous year relevant to the assessment year commencing on the 1st April, 1947, and such income 'was assessable' in that assessment year. Therefore, according to Mr. Pal, the Tribunal has erred in holding that it was a company within the meaning of that section without ascertaining the aforesaid facts. It is his further submission that the above question cannot be answered by this court and it should be sent back to the Tribunal with a direction to re-determine the appeal after ascertaining the aforesaid facts.

9. Mr. Kalyan Ray, the learned counsel for the assessee, has disputed the above submissions of Mr. Pal and has contended that the words 'was assessable' used in Section 2(17)(ii) of the Act mean an association which was assessable in the status of a company for the assessment year commencing on the 1st April, 1947. He has also placed reliance on the meaning of the word 'company' as it stood on April 1, 1947, under the Indian Income-tax Act, 1922, and has contended that irrespective of the question as to whether any income had accrued to Permutit Company in India in the the previous year relevant to the assessment year commencing on the 1st April, 1947, it should be held that the said company was a company within the meaning of that term used in the 1922 Act and, therefore, this question should be answered in favour of the assessee.

10. Now, the definition of the word 'company' under the Indian Income-tax Act, 1922, at the relevant time was as follows :

'2. (6) 'company' means a company as defined in the Indian Companies Act, 1913, or formed in pursuance of an Act of Parliament or ofRoyal Charter or Letters Patent or of an Act of the Legislature of a British possession or of a law of an Indian State, and includes any foreign association, whether incorporated or not, which the Central Board of Revenue may, by general or special order, declare to be a company for the purposes of this Act.'

11. It has been found by the Tribunal that Permutit Company Ltd. was formed in pursuance of an Act of the British Parliament, namely, the Companies Act of England. Therefore, Permutit Company directly comes within the above definition of the word 'company' used in the 1922 Act. It is to be noted here that for the purposes of taxation the Income-tax Acts have given separate status to the assessee, namely, the individuals, Hindu undivided families, registered firms, companies, association of persons, local authorities, etc. Income-tax Acts read with the Finance Acts have also placed the companies on a different footing from the other assessees. The minimum taxable limits prescribed by the Finance Acts for the assessees does not apply to the companies, which are liable to pay income-tax and super-tax, however small their total income may be. With regard to the income-tax and super-tax the other assessees are taxed according to the slab system, whereas the companies are taxed on a flat rate on the whole of their total income. In my opinion, in view of the scheme of the Income-tax Acts and the provisions of the Finance Acts it must be held that Section 2(17) of the Income-tax Act, 1961, does not deal with any assessment as such but it merely deals with a status, that is to say, the status of a company which is also abundantly clear by the words 'was assessable... as a company' used in Section 2(17)(ii) of the Act.

12. The word 'assess', according to the Shorter Oxford Dictionary, 3rd edition, volume 1, page 110, means 'to tax', the word 'assessed' means 'fixed by an assessment, taxed', and the word 'assessable' means 'capable of assessment, liable to assessment'. Therefore, the words 'was assessable......as a company' used in Section 2(17)(ii) of the Act when readwithin its context and in the light of the relevant provisions of the Income-tax Act, 1964, and the Finance Acts must mean a company which was capable of being assessed as a company, that is to say, in the status of a companyirrespective of any question as to whether it had any assessable income inthe previous year relevant to the assessment year commencing on 1st April,1947.

13. Since Permutit Company was a company under the Indian Income-tax Act, 1922, it must be held that it was capable of being assessed in the status of a company and not in any other status in the assessment year commencing on the 1st April, 1947, and, therefore, it must also be held that it is a company within the meaning of Section, 2(17)(ii) of the Income-tax Act, 1961.

14. Mr. Pal has relied on certain observations of their Lordships of the Supreme Court in the case of Agarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal : [1958]33ITR245(SC) , but those observations were made in a different context and have no application to the present case before us.

15. In this view of the matter, the contentions of Mr. Pal must fail and we return our answer in the affirmative and in favour of the assessee. The parties shall pay and bear their own costs of this reference.

Dipak Kumar Sen, J.

16. I agree with the judgment just now delivered by my learned brother. I would like to add the following as further reasons on which the conclusion can be supported.

17. Section 2(17) of the Income-tax Act, 1961, which has been fully set out in the other judgment includes within the ambit of the expression 'a company', any association, whether Indian or non-Indian, which is or was assessable or was assessed under the relevant Income-tax Act for the assessment year commencing on the 1st April, 1947. The meaning which the revenue seeks to give to the word 'assessable' is that such an association in that year, that is the assessment year commencing on the 1st April, 1947, had an income which was assessable by the revenue authorities in India under the relevant Income-tax Act. If this meaning is given to the word 'assessable', then the other part of the section 'was assessed' becomes redundant.

18. Such meaning if attributed to the expression 'assessable' would include in the category of companies a very limited number of entities which in the assessment year commencing on the 1st April, 1947, had an assessable income in India but for some reason or other was not assessed. Such non-assessment may be ascribed to the violation of law by such an assessee or due to the negligence of the revenue. It does not appear to me that the legislature intended to give such a limited meaning to the expression.

19. Apart from that if this meaning is ascribed it would give rise to other absurdities. If a foreign association had been sought to be assessed in the particular assessment year, that is the year commencing on 1st April, 1947, but the assessment was dropped after it was commenced or if the assessment was completed and afterwards it was found that it did not have any assessable income, then in such a case what would be the status of such an association which would incidentally come to be determined in the proceedings This status cannot stand or fall on the result of the final assessment. It is possible also to visualise cases where in order to determine whether a particular association would have an assessable income or not would depend upon the prior determination of its status. In such a case further complications would arise.

20. The Tribunal in its order made in Income-tax Appeals Nos. 12801 to 12804 of 1965 has noted some of the difficulties which have been indicated above.

21. For the reasons as aforesaid, the answer to the question ought to be in the affirmative and in favour of the assessee.


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