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TMI Blog1979 (2) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... andard Mills Company Ltd . (hereinafter referred to as " the Standard " for the sake of brevity) and Sassoon Spinning and Weaving Company Ltd. (hereinafter referred to as " the Sassoon " for the sake of brevity). The assessee-company's direct holding in the aforesaid two companies did not exceed 50% of the issued equity capital in each of the said two companies. The assessee-company, however, with one of its subsidiaries, viz., New Shorrock Spinning and Manufacturing Company Ltd., held more than 50% of the equity capital of the Standard. Similarly, the assessee-company along with its another subsidiary, viz., Mafatlal Fine Spinning and Manufacturing Company Ltd., also held more than 50% of the equity capital in the Sassoon. It is common ground that by virtue of the provisions of s. 4 of the Companies Act, 1956, both the Standard and the Sassoon were at all relevant times subsidiary companies of the assessee-company. In respect of the dividend income from the said two companies the assessee-company claimed in its assessments super-tax rebate at the rate of 50% as provided in Para. D of Part II of the First Schedule to the Finance (No. 2) Act, 1962, for the first year, and Para. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned counsel for the assessee- company before the Tribunal was based upon the definition of " subsidiary company " to be found in the Companies Act, 1956. The submission was that it is that definition in the Companies Act which must govern and the assessee-company could not be denied the relief of the higher rate of rebate, viz., 50%, merely on the basis that it did not fall within the case covered by Expln. II. We will not advert to the argument in greater detail as it appears to us that the Tribunal has not extracted it properly, and since the counsel for the assessee-company before us has adverted to the argument in a manner not reflected in the order of the Tribunal, we will deal with the argument as developed before us rather than with the cursory rejection thereof to be found in the order of the Tribunal. It will be sufficient for our purposes to observe that the Tribunal understood the argument to be that the definition given in Expln. II was not to be applied and if the assessee-company were able to satisfy that the dividends were received from subsidiary companies as defined in the Companies Act, that was sufficient for the purpose of being allowed rebate at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of section 4. " We now turn to s. 4 of the Companies Act, and we are principally concerned with sub-s.(1) thereof as the sub-section following deals with the manner in which sub-s. (1) of s.4 is to be considered and applied. Section 4(1), as initially enacted by Parliament in 1956, read as follows : " (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if,-- (a) that other controls the composition of its board of directors ; or (b) that other holds more than half in nominal value of its equity share capital ; or (c) the first mentioned company is a subsidiary of any company which is that other's subsidiary. " By the Companies (Amendment) Act, 1960, cl. (b) of sub-s. (1) of s. 4 of the Companies Act was substituted, and after the said substitution, sub-s. (1) of s. 4 read as follows : " (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if,-- (a) that other controls the composition of its board of directors ; or (b) that other-- (i) where the first-ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company on so much of the total income as consists of dividends received by it from a subsidiary Indian company. This is provided for of the said volume under the Finance Act, 1958, without there being any Explanation of the nature which is required to be considered and applied by us. A similar situation also seems to exist in the subsequent Finance Acts till we come to the Finance (No. 2) Act, 1962 (hereinafter referred to as " 1962 Finance Act " for the sake of brevity). As far as this Act is concerned, we must analyse the provisions in some detail, because it is primarily this Act with which we are concerned and on it arguments have been extensively based at the bar. In the first place, in s. 2(7) of the 1962 Finance Act are to be found certain definitions for the purposes of that section and for the rates of tax imposed thereby. We then turn to the Schedule of the 1962 Finance Act for ascertainment of the rates of income-tax and surcharges on income-tax. Paragraph D of Part II of the First Schedule to the 1962 Finance Act deals with the taxation of companies other than the Life Insurance Corporation of India. A rate of super-tax at 55% is provided for such companies with provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the Companies Act which might have been required to be applied for the previous financial years. The Tribunal obviously accepted the latter contention, and it is the correctness of the approach and the conclusion of the Tribunal that is controverted in this reference before us. Mr. Palkhivala urged that the arguments on behalf of the assessee-company had been totally misunderstood by the Tribunal. In his submission, he was not canvassing for preference of the definition of the " subsidiary company " given in the Companies Act to the definition contained in Expln. II, which we are considering. On the contrary, his argument was that Expln. II did not contain any definition of " subsidiary company " for the purpose of Para. D of Part II and Part III of the Finance (No. 2) Act, 1962. In his submission, the said Explanation merely contained a deeming provision by which it was sought to add to or alter or modify the definition of the subsidiary company to be found in the Companies Act. According to his submission, such a deeming provision was required to be contained in or prescribed by the Finance (No. 2) Act, 1962, in view of the amendment of the Companies Act which had taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deeming provision a fiction which serves to expand the definition of " subsidiary company " by bringing within its compass something which may not be a subsidiary company as defined in the Companies Act. 5. Our attention was drawn to the Explanatory Notes to the Finance (No. 2) Bill, 1962. In particular, our attention was drawn to Note (iv) to be found of the said volume, which does not suggest that a narrower concept of subsidiary company was being enacted by substituting the definition of " subsidiary company " in the Companies Act with a restricted definition in the Finance (No. 2) Act, 1962. According to the counsel, fairly read, the Note merely suggests that a higher rate of rebate was to be allowed for dividends received from Indian subsidiary companies (which was also the previously existing position) and no significant words have been used to suggest that the concept of subsidiary company was intended to be radically altered from what it was understood to be in the prior Finance Acts. It was submitted that the court should, after considering the cumulative effect of all these arguments, come to the conclusion that this was clearly a deeming provision or a fiction or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said Explanation and if these words were properly understood, then Expln. II did not provide for the embodiment of a fiction or a presumption but was in the nature of a definition section. In view of these rival contentions it becomes necessary to consider the same in detail and with reference to the authorities on which reliance was placed at the bar for the purpose of deriving support for the same. As far as the first point of Mr. Palkhivala is concerned, viz., that the Explanation must be regarded as a deeming provision and not by way of a definition provision because it is not found in s. 2(7) but added at the end of Para. D, it will be required to be stated that we have not found any great substance in the point. If a meaning is required to be given not for the purposes of the entire Schedule but for the purpose of a portion there of, it would be open to the Legislature or the rule-making authority, as the case may be, to insert a definition provision apart from a general definition provision, at the opening or closing stage of the section or para which is sought to be governed by that definition. In this connection, we may also dispose of another submission whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the previous state of the law. This has been observed by Lord Denning himself in Escoigne Properties Ltd. v. IRC [1958] AC 549 (HL), which observation is quoted in Craies on Statute Law, Seventh Edn., at page 67. From this it will not, however, follow that the courts can put on the statutory provision some meaning on the basis that the legislature did not or could not have contemplated the consequences thereof which consequences are in conformity with the plain words of the statutory provision. Where the language of an Act is clear and explicit effect must be given to it, whatever may be the consequences, for, in that case, the words of the statute will be taken to represent the intention of the legislature. It must be conceded that bearing in mind the legislative history of the provision particularly of the definition of " subsidiary company " in the Companies Act, an attractive argument has been raised on behalf of the assessee-company that Expln. II must be taken to restore the position as was prevalent prior to the amendment of the Companies Act in 1960 and in view of that intention of the Legislature, it must be accepted not as a definition provision but as a dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying not less than twenty-five per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the previous year beneficially held by the public... " There was no controversy that the company was a public limited company, that the beneficial interest in the shares belonged to the share-holders in whose names they were held, that they were freely transferable by them to the members of the public and that the shares were quoted on the stock exchange. It was contended on behalf of the department that the Explanation to the third proviso to s. 23A, of which we have extracted the relevant portion, amounted to a precise definition of what a company, in which the public were substantially interested, meant, that is, the Explanation was a glossary for the third proviso. On this contention it was urged that if ordinary shares alone are taken into account the members of the public held less than 25 per cent. of the ordinary shares and, therefore, the company would not be one in which the public are substantially interested. The court did not find merit in this argument nor in the approach. Prima facie, according to the Division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a presumption and does not purport to define a company in which the public are substantially interested." As earlier observed, the decision in Amrutanjan Ltd.'s case [1964] 53 ITR 218 (SC) formed the most substantial part of the arguments advanced on behalf of the assessee-company before us, and it was contended by counsel on behalf of the assessee-company that we had also before us a similar deeming provision which was required to be given the same effect as had been given by the Madras High Court in Amrutanjan Ltd.'s case [1961] 41 ITR 21. In this connection, reference may also be made to the following observations of Lord Radcliffe in the case of St. Aubyn v. Attorney-General [1952] AC 15 at page 53 ; 3 EDC 292 (HL), which are found cited in Khatizabai Mohomed Ibrahim v. CED [1959] 37 ITR (ED) 53 at page 86 (Bom) : " The word 'deemed' is used a great deal in modern legislation. Some times it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation incorporating the deeming provision was a definition provision introducing a glossary for the said section. Before us we do not have any such background material which would assist us in arriving at the same or similar conclusion. We also do not find the non-incorporation of the words " only if " to be of material significance. It is to be appreciated that if these words had been there, the meaning would have been clear and the contention advanced on behalf of the revenue would be required to be accepted for the mere asking. However, from the failure of the draftsman to incorporate these words it would not necessarily follow that the intention of the Legislature was not to make this an exclusive definition of it " subsidiary company " to be utilised for the purpose of applying it to Para. D and Part III of the 1962 Finance Act, but a fiction or a presumption to get over the change effected by the amendment of 1960 which affected the definition of " subsidiary company " in the Companies Act. Both prior to 1960 and after the amendment of 1960, if one company held more than half in nominal value of the equity capital of another company, then the latter company would be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary company " for the purposes of Para. D and Part III of the First Schedule to the Finance (No. 2) Act, 1962. It is that definition alone which would have to be looked at for the purposes of that Paragraph and that Part and the definition contained in the Companies Act will be required to be ignored whatever may have been the position for the earlier financial years. We have already mentioned that the Tribunal had rightly rejected the alternative argument advanced on behalf of the assessee-company that the word " holding " in Expln.II should be interpreted to mean " holding directly or indirectly ". It is quite clear to us that the holding which is prescribed pertains to effective direct ownership and in that view of the matter holding in Standard and Sassoon by the subsidiary companies of the assessee-company cannot be aggregated with the direct holding of the assessee-company in order to apply the definition contained in Expln. II. Counsel inform us that the position under the Finance Act, 1963, is identical with that existing under the Finance (No. 2) Act, 1962, and that whatever we have stated as to the effect of Expln. II for the purpose of application of the First S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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