9911796707
TMI Blog1996 (1) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the company was formed on November 1, 1977, the formalities of getting the approval of the High Court were completed on December 18, 1979, when the High Court passed the necessary order approving the scheme of amalgamation. The shareholding of the Indian company was subsequently raised with a total number of 12 shareholders, two of them holding ten shares each and the remaining ten holding five shares each. Since during the accounting period relevant to the assessment year in question more than 50 per cent. of the voting power was controlled by five persons (less than six persons). The Income-tax Officer refused to accept the company as one in which the public are substantially interested within the meaning of section 2(18)(b)(B)(iii) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "). Aggrieved by the said order, the assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals), Calicut. Before the Commissioner of Income-tax (Appeals), the assessee contended that when the Indian company was formed with effect from November 1, 1977, with seven shareholders the understanding was that it could be only an ad hoc arrangement as everyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held by five persons or less ; for the foreign company itself was a company in which the public are substantially interested. The Commissioner of Income-tax (Appeals) considered the above submissions and held that the Income-tax Officer had taken a very narrow and unduly strict view of the matter while interpreting the provisions of section 2(18)(b)(B)(iii) of the Act. The appellate authority noted the fact that the amalgamation was approved by the Kerala High Court with effect from November 1, 1977, that the approval of the amalgamation was also the approval of the scheme, that the entire scheme envisages the taking over of the Indian business of the foreign company by the Indian company from November 1, 1977, with a widely based shareholding including the shareholding of 40 per cent. by the foreign company, that the ban on declaration of dividend till the company was fully constituted in the manner envisaged by the scheme is also a significant factor which should decide the real character of the company, that although the Indian company was technically in existence from November 1, 1977, till January 14, 1980, when the amalgamation became effective, as a company of only seven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended before the Tribunal by the Departmental Representative that there is no provision in the High Court's order for any retrospective effect being given to the allotment of shares and that it was the allotment of shares alone with which we are concerned. Counsel on behalf of the assessee reiterated the submissions made before the Commissioner of Income-tax (Appeals), before the Tribunal and contended that the company was formed with a view to take over the Indian business of the foreign company and that the scheme itself provided the allotment of shares to the foreign company. He also contended that when the shares were later on allotted by the assessee to the foreign company the foreign company did not have to pay for the shares because consideration in the form of transfer of the undertaking was already there. He also emphasised before the Tribunal that under the letter from the Reserve Bank of India the assessee could not declare any dividend and that during the accounting period relevant to the assessment year in question the assessee could not do anything with regard to the declaration of dividend and that being so the relevant provisions of section 2(18)(b)(B)(iii) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefits of the company are to be restricted to a small group of people the tax at a higher rate would be payable. It was also observed by the Tribunal that there were hardly any affairs to be controlled and no dividend to be declared and no benefits to be derived. The Tribunal, on a consideration of the entire facts and circumstances, held that the assessee was a company in which the public were substantially interested. It was also observed that the intention in regard to the future as such is the only relevant factor to be taken into consideration to determine its character because any other factor depending merely on the literal application of sub-clause (iii) would serve absolutely no purpose. Before us learned counsel for the Revenue contended that the Tribunal has entered a clear finding to the effect that the five persons did hold (less than six) 50 per cent. of the voting power in the assessee-company, that this finding was entered on a consideration of the provisions of section 2(18)(b)(B)(iii) of the Act and that after entering such a clear finding the Tribunal was not justified in approaching the question in a different manner with reference to the purpose and in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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