1998 (7) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee-company was a company in which the public are substantially interested as defined in the Finance (No. 2) Act of 1971 for the purpose of the First Schedule to the said Finance Act.
2. Whether an appeal lies against the charge of interest u/s 139 of the IT Act.

Summary:

Issue 1: Whether the assessee-company was a company in which the public are substantially interested.
The assessee, an Indian company, was a wholly-owned subsidiary of a UK company, which in turn was a wholly-owned subsidiary of a US company. The controversy was about the appropriate rate of income-tax applicable to the assessee-company for the assessment years 1971-72 to 1975-76. The assessee claimed to be a "domestic company in which the public are substantially interested" based on its parent companies' public interest status. The Tribunal held that s. 108 of the IT Act did not cover a sub-subsidiary and thus, the assessee was not a company in which the public are substantially interested. The High Court examined whether the assessee could be considered a company in which the public are substantially interested by interpreting s. 108 of the IT Act and s. 2(6)(a) of the Finance Act. The Court concluded that the definition of "subsidiary company" under the Companies Act can be imported into the IT Act, and thus, a sub-subsidiary can be considered a subsidiary under s. 108(b) if it meets the requirements. The Court held that the assessee was a domestic company in which the public are substantially interested, even if the parent companies are not domestic companies. Therefore, the Tribunal was not right in holding that the assessee-company was not a company in which the public are substantially interested.

Issue 2: Whether an appeal lies against the charge of interest u/s 139 of the IT Act.
The Tribunal held that no appeal lies against the charge of interest u/s 139 of the IT Act. However, the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT held that an appeal is maintainable if the assessee denies liability to pay interest on the ground that the return was not belated or that the penal provision was not attracted. In the instant case, the assessee denied its liability on the ground that it was a company in which the public are substantially interested and had a reasonable cause for the delay. The High Court held that if the assessee can prove it is a company in which the public are substantially interested, the appeal against the levy of interest would be maintainable. Therefore, the Tribunal was not right in holding that no appeal lies against the charge of interest u/s 139 of the Act.