JUDGMENT Arijit Pasayat, C.J.
1. Pursuant to the directions given by this court under Section 256(2) of the Income-tax Act, 1961 (in short "the Act"), in ITCs Nos. 31 of 1973 and 19 of 1974, the following questions have been referred for the opinion of this court by the Income-tax Appellate Tribunal, Delhi Bench-E (in short "the Tribunal") :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in upholding the order of the Appellate Assistant Commissioner cancelling the order of the Income-tax Officer passed under Section 104 of the Income-tax Act ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that all the persons counted as one by the Income-tax Officer are not relatives of one another in terms of Section 2(41) and, therefore, such persons cannot be grouped as one person under Clause (ii) of Explanation 1 to Section 2(18) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding" that the sons and grandchildren of Shri V. P. Gupta were not relatives of Shri D. R. Gupta within the terms of Section 2(41) and as such could not be grouped as one person under Clause (ii) of Explanation 1 to Section 2(18) of the Income-tax Act, 1961."
2. The factual position as set out in the statement of case is as follows :
A question arose during the assessment years 1962-63 and 1936-66 as to whether the assessee, Motor and General Finance Ltd., was a company in which the public were substantially interested during the assessment years relevant to the previous years ending on June 30, 1961 and June 30, 1964, respectively. For adjudication of this question in terms of Clause (ii) of Explanation 1 to Section 2(18) of the Income-tax Act, 1961, read with Section 2(41) of the Act was considered necessary. The said question arose in the context of Section 104 of the Act. Under Section 108 of the Act, the provisions of Section 104 do not apply to any company in which the public are substantially interested. In which case the public are substantially interested is dealt with in Section 2(18). The Assessing Officer was of the view that the provisions of Section 104 were applicable to the case. He found that the total equity shares were 2,40,000 and 1,34,151 shares were held by the following persons :
(i) Daulat Ram Public Trust 45,000
(ii) Daulat Ram Public Trust Education Society 10,000
(iii) The 20 members of the Gupta Family and two trusts (Sl. No. 1-22) 65,080
(iv) Shareholdings belonging to the group of S. N.
Gupta 8,611
(v) Shareholders of Syal Group 5,460
3. He was of the opinion that 50 per cent of the voting power was in the hands of five persons and, therefore, the assessee was a company in which public were not substantially interested. Additional super-tax was levied for both the years. It is to be noted that the orders under Section 104 of the Act for the assessment years in question were passed on March 22, 1968, and March 30, 1970, respectively.
4. The assessee preferred appeals before the Appellate Assistant Commissioner (in short, "the AAC") submitting that the shareholding of 65,080 shares which the Assessing Officer has held to be belonging to one group, was not really so. The Appellate Assistant Commissioner accepted this contention with reference to Section 2(41) and held that a person and his relatives could be clubbed together only to the extent they were relatives of one and another. As a result, D. R. Gupta and V. P. Gupta who were brothers were relatives of each other. But V. P. Gupta could not be said to be a relative of the sons or grandchildren of D. R. Gupta and vice versa. The Appellate Assistant Commissioner held that from group No. 3, the holdings of V. P. Gupta and his sons aggregating to 28,512 should be excluded. If this was done the remaining holdings of the five biggest groups do not equal to 50 per cent. of the voting power. The Revenue carried the matter in appeal befo're the Tribunal for the assessment year 1962-63 where findings were recorded by the Appellate Assistant Commissioner. Two contentions were raised before the Tribunal by the Revenue. The first was that even if the Appellate Assistant Commissioner was right in his interpretation of "relative" the assessee-company would still be within the pale of Section 104 and therefore the analysis made was erroneous. The said contention was rejected by the Tribunal. It was observed that the classifications made by the Revenue were not correct. For, while D. R. Gupta, his wife and sons were relatives of one another, the introduction of V. P. Gupta into the group will take them out because the wife and children of D. R. Gupta were not relatives of V. P. Gupta within the meaning of Section 2(41). Similarly V. P. Gupta and his grandchildren were not encompassed. The result was achieved because under the statute each of the sons of D. R. Gupta was a relative vis-a-vis only his parents, children and brothers but, not vis-
a-vis his nephews and nieces. Alternatively, the Revenue's contention that the interpretation given to the expression "relative" was not correct did not find favour with the Tribunal. The stand of the Revenue was that all family members of V. P. Gupta and D. R. Gupta should be construed as family. As D. R. Gupta, his wife and grandchildren were relatives, likewise V. P. Gupta and his sons were relatives ; again the D. R. Gupta group were relatives. In regard to the object and purposes of the definition which was to treat the relatives of a certain individual as one with him all the persons mentioned in group No. 3 of the analysis made by the Income-tax Officer should be treated as one for the purposes of the section. This stand as noted above was not accepted. Subsequently, the same view was taken by the Appellate Assistant Commissioner and the Tribunal for the assessment year 1965-66. Applications for reference under Section 256(1) were rejected and, as stated, on being moved under Section 256(2) of the Act, references have been made. The stand taken before the Tribunal was reiterated before us. There is no appearance on behalf of the assessee when the matter was Called.
5. In order to appreciate the stand of the Revenue, it is necessary to quote Sections 2(18) and 2(41), as it stood between April 1, 1962 and April 1, 1965, which read as follows :
"2. (18) a company is said to be a company in which the public are substantially interested--...
(b) if it is not a private company as defined in the Companies Act, 1956, (1 of 1956), . . .
(iii) the affairs of the company, or the shares carrying more than fifty per cent. of its total voting power were at no time during the relevant previous year controlled or held by five or less persons . . .
(ii) persons who are relatives of one another, and persons who are nominees of any other person together with that other person, shall be treated as a single person."
"(41) 'relative', in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual."
6. Clause (ii) of Explanation 1 to Section 2(18) is categorical and definite that unless two or more persons are relatives of one another, they cannot be treated as a single person. The expression "relative" as appearing in Section 2(41) is in relation to an individual and persons who are included in the category of "relatives" have been spelt out in the provision itself, i.e., husband, wife, brother or sister or any lineal ascendant or descendant of that individual. The expression "that individual" is the key to the intention of the Legislature. It has link with the expression "an individual" which appears in the earlier part of the provision. Therefore, while husband, wife, brother and sisters or lineal ascendants of an individual is concerned, merely because another person who is relative being one of the indicated categories, the relatives of that person are not covered by the expression "relative" under Section 2(41), so far as the other individual is concerned, the Tribunal has categorically found this aspect on analysis of the factual position. The answer to the questions referred to arc, therefore, in the affirmative in favour of the assessee and against the Revenue.