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TMI Blog1981 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. It was claimed that these two companies were subsidiaries of the assessee-company. The dividend received from WIMCO came to Rs. 21,94,800. As against 50 per cent. claimed by the assessee, the ITO allowed super-tax rebate at 30 per cent. on the dividend received from WIMCO, relying upon the provisions of Para. D of Part II of Sch.I to the Finance (No.2)Act of 1962. The total share capital of WIMCO consisted of 2,75,000 equity shares. Of these, the assessee claimed to hold 1,37,505 shares, and of these 330 shares were held in the name of four persons who were admittedly, the nominees of the assessee. The ITO, however, held that the assessee directly held in its name 1,37,175 shares only and that this was less than 50 per cent. of the share capital of WIMCO. In his view, the shares held by the nominees could not be counted for the purpose of allowing rebate at 50 per cent. Aggrieved by this decision to allow super-tax rebate at the lesser rate of 30 per cent., the assessee moved the AAC. Before the AAC, relying upon the dictionary meaning of the word " hold ", it was submitted that even a beneficial owner of the shares would have to be regarded as the holder of shares wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the AAC dated February 21, 1969, which is the order for the assessment year 1962-63. It has been pointed out by Mr. Dastur that even in the balance-sheet of the " subsidiary company ", namely, WIMCO, the holding of the assessee-company has been given at the larger figure, namely, 1,37,505 shares, which would include this holding of 330 shares in the names of the four nominees. We are not concerned with a situation in which there is some conflict between registered owner of shares and a purchaser, but with a slightly different situation, and there is no doubt whatever that under the Companies Act, WIMCO is, admittedly, a subsidiary of the assessee-company. The question is whether in the absence of certain portion of the definition of de subsidiary company " occurring in s. 4 of the Companies Act, which is found lacking in Expln. II, a curious situation would result, namely, that WIMCO would be the subsidiary of the assessee-company for the purposes of the Companies Act but not a subsidiary to enable the assessee to get the higher rebate of 50 per cent. under the Finance Act. Mr. Joshi submitted that a similar curious situation had come to light even in the decision in Mafatla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its subsidiary not being held or exercisable as mentioned in clause (c) shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of transaction entered into in the ordinary course of that business." Now, if one turns to Expln. II to Para. D of Part II of Sch. I to the Finance (No. 2) Act 1962, we find the same as under: " Explanation II.-For the purposes of this paragraph and Part III of the Schedule, a company shall be deemed to be a subsidiary of another company if that other company holds more than half in nominal value of the equity share capital of the first-mentioned company. " It is obvious, therefore, that for the purposes of the Finance Act, only one part of the definition of " holding company " and " subsidiary " found in s. 4 is retained, and that is the one contained in s. 4(1)(b)(ii) of the Companies Act. Company X may control the composition of the board of directors of company Y. In such a case, company X will be the holding company and company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion II at the end of the third proviso in Para. D of the First Schedule to the Finance (No. 2) Act, 1962, will be required to be accepted as containing within itself a precise definition of what a subsidiary company is for the purposes of applying Para. D and Part III of the First Schedule to the 1962 Finance Act. If the assessee-company receives dividends from another company in which it holds more than 50 per cent. of the normal equity capital, then and then alone can the latter company be considered to be a subsidiary company for the purpose of applying the said Paragraph of the said Part of the First Schedule to the Finance (No. 2) Act, 1962. Since the admitted position is that the assessee-company by itself does not directly own the necessary portion of the nominal equity capital of the two companies, viz., Standard and Sassoon, the latter two companies cannot be considered to be subsidiary companies of the assessee company in terms of Explanation 11 as interpreted by us. In our view, the fact that the Standard and the Sassoon could be regarded as subsidiary companies of the assessee-company for the purpose of the Companies Act makes no difference, for, we have taken the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitle the higher rebate to be claimed as the company giving the dividend would not be a subsidiary as defined by Expln. II. The words " directly " and " indirectly " have been used in the context of the claim made under s. 4(1)(c) of the Companies Act and not in respect of the claim under s.4(1)(b)(ii). The short question is whether it is proper and correct to read the rules of determination provided under s. 4(3) of the Companies Act, 1956, as a special provision or a clarification made for the sake of extra caution. Mr. Dastur submitted that absurd results were likely to follow if it were to be held that the word " holds ", to be found in Expln. II, is not equivalent to beneficial ownership, and he illustrated the submission by referring to trustee companies. According to his argument, a trustee company may have invested its own funds and, therefore, be beneficially interested in 10 per cent. of the share capital of another company. It may on the other hand have invested moneys of the beneficiaries or estates administered by it to purchase about 50 per cent. of the share capital of the other company. In its own income-tax assessment it will show dividend income only in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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