The Addl. Commissioner Of ... vs M/S. Motor & General Finance Ltd.
2000 Latest Caselaw 617 Del

ORDER

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 ITC's 31/73 and 19/74, the following questions have been referred for 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 rder of the Appellate Asstt. Commissioner canceling 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 sub-clause (ii) of Explanation I of 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 grand children 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 I to Section 2(18) of the IT Act, 1961"

2. Factual position as set out in the statement of case is as follows:

Question arose during the assessment year 1962-63 and 1965-66 as to whether the assessee, M/s Motor and General Finance Ltd. was a company in which the public were substantially interested during previous years relevant for the assessment years ending on 3.6.1961 and 30.6.1964 respectively. For adjudication of this question in terms of sub-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. Said question arose in the context of Section 104 of the Act. Under Section 108 of the Act, the provi-

sions of Section 104 do not apply to any company in which public are substantially interested. In which case public are substantially interested is dealt with in Section 2(18). 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 45000

ii Daulat Ram Public Trust Education Society 10000

iii. The 20 members of the Gupta family and two Trusts (Sl No.1-

22) 65080

iv. Shareholdings belonging to the group of SN Gupta 8611

v. Shareholders of Syal Group 5460

3. He was of the opinion that 50% of the voting power was in the hands of five persons and therefore the assessee was a company in which public was not substantially interested. Additional super-tax was levied for both the years. It is to be noted that orders under Section 104 of the Act for the assessment years in question were passed on 22-3-1968 and 30-3-1970 respectively.

4. Assessee preferred appeals before the Appellate Assistant Commissioner(in short, AAC) submitting that shareholding of 65080, which the Assessing Officer has held to be belonging to one group, was not really so. AAC 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 relative of the sons or grand children of D.R. Gupta and vice versa. AAC held that from group No. 3 the holdings of V.P. Gupta and his sons aggregating to 28512 should be excluded. If this was done the remaining holdings of the five biggest groups do not equal to 50% of the voting power. Revenue carried the matter in appeal before the Tribunal for assessment year 1962-63 where findings were recorded by the AAC. Two contentions were raised before the Tribunal by the Revenue. First was that even if AAC was right in his interpretation of "relative" the assessee company would still be within the pale of Section 104 and therefore analysis made was erroneous. Said contention was rejected by the Tribunal. It was observedthat 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 grand children were notencompassed. The result was achieved because under the statute each of the sons of DR. 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 interpretation given to the expression "relative" was not correct did not find favour with the Tribunal. Stand of the Revenue was that all family members of V.P. Gupta and D.R. Gupta should be con-

strued as family. As D.R. Gupta, his wife and grand children were relatives, likewise V.P. Gupta and his sons were relatives; again 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 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, same view was taken by the AAC and Tribunal for 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. 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 Section 2(18) and 2(41), as it stood between 1.4.62 and 1.4.65, which read as follows:

"2(18) A company is said to be a company in which the public are substantially interested.

(a) xxx xxx xxx

xxx xxx xxx

(b) If it is not a private company as defined in the Companies Act, 1956 (1 of 1956).

xxx xxx xxxx

The affairs of the company, of the shares carrying more then fifty per cent of its total voting power were at no time during the relevant previous years controlled or held by less than five persons;

xxx xxx xxx

(ii) persons who are relatives of one another and persons who are the nominees of any other person, shall be treated as a single person;

xxx xxx xxx

(41) "relative" in relation to an individual, means the husband, wife, brother or sister or any lineal descendant or descendant of that individual.

6. Clause (2) of Explanation 1 of Section 2(18) is categorical and definite that unless two or more persons are relatives of one and another, they cannot be treated as 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 sisters or any lineal ascendant or ascendant of that individual. 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 ascendant of an individual is concerned, merely because another person who is relative being one of the indicated categories, relatives of that person are not covered by expression `relative' under section 2(41), so far as the other individual is concerned, Tribunal has categorically found this aspect on analysis of the factual position. Answer to the questions referred to are, therefore, in the affirmative in favour of the assessee and against the Revenue.