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TMI Blog2008 (6) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee Company is the Company in which the public are substantially interested as defined under Section 2(18) of the Income Tax Act, 1961("Act" for the short). 3. On the other hand, the case of the Revenue is that the Assessee Company is not covered by the definition of the Company in which public are substantially interested as contained in Section 2(18) of the Act. Before adverting to the factual background and the legal controversy, it would be useful to note statutory provisions applicable in the present case. 4. Section 2(18) of the Act insofar as the same is relevant for our purpose reads as follows: "2.(18) "Company in which the public are substantially interested" - A company is said to be a company in which the public are substantially interested - (a) If it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank; or] (aa) If it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956); or (ab) If it is a company having no share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forty per cent" had been substituted;" 5. Section 108(b) of the Act reads as follows: 108. Nothing contained in Section 104 shall apply - (a) to any company in which the public are substantially interested; or (b) to a subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year." 6. Before the authorities below, the case of the Assessee Company has been that more than 50% shares of Assessee Company are held by P.B. Investments Trusts Ltd. and K.B. Investments Ltd. taken together. These two companies are subsidiaries of VVN Manufacturing and Investment Ltd. which is the Company whose shares are listed on the stock exchange. It is also the case of Assessee that P.B. Investments Trusts Ltd. and K.B. Investments Ltd. are assessed to tax at Bombay and they have been treated as Companies covered by the definition of Section 2(18) of the Act. It is thus the case of the Assessee that P.B. Investments Trusts Ltd. and K.B. Investments Ltd. are the Companies "to which this clause applies" as referred to in sub-clause(c) in Section 2(18)(b)(B). It is thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, the fact that more than 51% shares of Emtici Engg. Co. Ltd. are held by P.B. and K.B., taken together, does not entitle the Emtici to be covered under the definition of Section 2(18). Thus, the case is not covered under the first condition of sub-clause(c). 4.11 The facts of the case certainly draw us to the other condition referred to in Sub-clause(c). P.B. and K.B. are subsidiary companies of a company "to which this clause applies". We are therefore required to examine the issue whether whole of the equity shares capital of these two subsidiary companies are held by VVN or not. It is observed that only 4 out of 6 Equity shares of Rs. 100 each of P.B. Investments Trust Ltd. are fled by VVN Mfg. Investa Ltd. It is further observed that only 3 out of 5 Equity shares of Rs. 100 each of K.B. Investments Ltd. are held by VVN Mfg. and Investa Ltd. Thus, it can be said that VVN Mfg. Investa Ltd. which is a widely held company is not holding whole of the Equity share capital of any of the two companies mentioned before which is the second conduction of sub-clause(c) of Section 2(18)(B) of the Act." 8. The Commissioner of Income-tax (Appeals) in its appellate or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se(c) in Section 2(18)(b)(B) of the Act. It was contended that since P.B. Investments and Trusts Ltd. and K.B. Investments Ltd are subsidiaries of VVN Manufacturing and Investment Ltd and such subsidiary companies do not fulfill the conditions laid down in clause(b) of Section 108, the Assessee Company whose more than 50 per cent shares are held by P.B. Investments and Trusts Ltd. and K.B. Investments Ltd., cannot derive benefit of sub-clause(c) in Section 2(18)(b)(B) of the Act. 11. On the other hand, learned advocate Mr. Bhargav Karia appearing for the Assessee contended that the correct interpretation of sub-clause(c) in Section 2(18)(b)(B) of the Act would be that "any company to which this clause applies" would also include any company which may be subsidiary of a holding Company. Since P.B. Investments Trusts Ltd. and K.B. Investments Ltd. are Companies "to which this clause applies" and since between P.B. Investments Trusts Ltd. and K.B. Investments Ltd. more than 50% shares of Assessee Company are held, the Assessee Company should be deemed to be one in which public is substantially interested as required under Section 2(18) of the Act. 12. Having thus heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d independent of each other. If the company which is subsidiary company of holding company but which satisfies the requirement of being "any company to which this clause applies", need not thereafter, fulfill the further requirement of being a Company whose whole of the share capital has been held by the parent company as provided in Section 108(b). In other words, there is nothing in the first part of sub-clause(c) in Section 2(18)(b)(B) of the Act, namely any company to which this clause applies which would exclude the company which is a subsidiary of a parent company. Thus if a company which is subsidiary of a parent company but which independently fulfills the requirement of being Company to which this clause applies requirement of sub-clause(c) in Section 2(18)(b)(B) of the Act, stands fulfilled. 14. With this clarity in mind, if one reverts back to the present case, it is an admitted position that between P.B. Investments and Trusts Ltd. and K.B. Investments Ltd., the two companies hold more than 50% of the capital share of the Assessee Company. P.B. Investments and Trusts Ltd. and K.B. Investments Ltd are the companies to which this clause applies as per sub-clause(c) i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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