1968 (6) TMI 5 - HC - Income Tax

Reference Application - reference application signed by the ITO for and on behalf of the Commissioner was valid as he was competent to do so by reason of rule 2(ii) of the Tribunal Rules and notification thereunder - therefore, petition filed before the Tribunal u/s 66(1) of the IT Act was competent in law

Summary

Issues:
1. Interpretation of section 12(iv) of the Banking Companies Act, 1949 before and after its amendment in 1956.
2. Assessment of whether the company is a public company under section 23A of the Income-tax Act.
3. Competency of the petition filed before the Tribunal under section 66(1) of the Income-tax Act.

Interpretation of Section 12(iv) of the Banking Companies Act:
The case involved the application of section 12(iv) of the Banking Companies Act, 1949, both before and after its amendment in 1956. The original clause restricted voting rights of any one shareholder to not exceed five per cent. of total voting rights. The amended provision clarified this restriction, stating that no person holding shares in a banking company shall exercise voting rights exceeding 5 per cent. of the total voting rights. The Tribunal held that the assessee was not a controlled company for the purpose of section 23A(9) of the Income-tax Act based on this provision. However, upon analysis, it was found that two shareholders held more than 50 per cent. of the voting rights, leading to a different conclusion.

Assessment under Section 23A of the Income-tax Act:
The case revolved around whether the company qualified as a public company under section 23A of the Income-tax Act. The company claimed to be a public limited company carrying on banking business, with voting rights restrictions in place. The Tribunal initially held that the company was a public company substantially interested by the public. However, upon further examination, it was determined that two major shareholders held more than 50 per cent. of the total voting rights, leading to a different assessment under section 23A.

Competency of the Petition under Section 66(1) of the Income-tax Act:
A preliminary objection was raised regarding the competency of the petition filed before the Tribunal under section 66(1) of the Income-tax Act. The objection was based on the fact that the petition was signed by an Income-tax Officer on behalf of the Commissioner of Income-tax. The Tribunal found the objection unsubstantiated, holding that the Officer was authorized to act on behalf of the Commissioner, as per the rules and notifications in place. The Tribunal's decision on this matter was upheld.

In conclusion, the judgment addressed the interpretation of the Banking Companies Act, the assessment of the company's status under the Income-tax Act, and the competency of the petition filed before the Tribunal. The court clarified the voting rights restrictions under the Banking Companies Act and their impact on the company's classification. The decision highlighted the importance of adhering to legal procedures and authorized representation in tax-related matters.