Income Tax Appellate Tribunal - Mumbai
Tata Sons Ltd. vs Deputy Commissioner Of Income Tax on 28 April, 2006
Equivalent citations: [2007]104ITD45(MUM), (2007)106TTJ(MUM)1
ORDER
Pradeep Parikh, A.M.
1. The assessee is in appeal before us against the order of the learned CIT(A), dt. 30th Aug., 1991 for asst. yr. 1985-86.
2. First ground in the appeal is against the disallowance of Rs. 2,00,398 in respect of debts written off due from CBS Gramaphone & Tapes India Ltd. This ground was not pressed at the time of hearing and hence, the same is dismissed as such.
3. Next ground relates to the disallowance of Rs. 19,53,000 being liability for expenses on behalf of Tata Mills Ltd. Similar ground had come up before the Tribunal in assessee's own case for asst. yr. 1984-85 in ITA Nos. 3624 and 3845/Mum/1991, dt. 21st Jan., 2000. The said ground was allowed by the Tribunal in the aforementioned appellate order to which, one of us (the AM) is a party. Hence, following the earlier order of the Tribunal, this ground of the assessee is allowed.
4. Next ground is against not treating the company as a financial company as per Section 40A(8) of the IT Act, 1961 (the Act). This ground was also a matter of adjudication in the appeals cited (supra) for asst. yr. 1984-85 and it was held that the assessee-company is a financial company and hence, disallowance under Section 40A(8) has to be deleted. The facts for the present year remaining the same, we follow the earlier order of the Tribunal and delete the disallowance of Rs. 10,25,032 made under Section 40A(8) of the Act.
5. Ground No. 4 is against disallowance of Rs. 35,24,873 being 10 per cent of the dividend income on ad hoc basis. This ground was not pressed at the time of hearing and hence the same is rejected as such.
6. Fifth ground in the appeal is against disallowance of Rs. 99,860 as prior period expenses. This ground was also not pressed at the time of hearing and hence, the same is dismissed as such.
7. The sixth ground is against not treating the company in which the publics are substantially interested as per Section 2(18) of the Act. In its return as well as by its letter dt. 15th July, 1987, assessee had claimed itself to be a company in which the public are substantially interested and it was also stated that the company was covered under Section 104(2)(iii) of the Act. AO observed that for asst. yr. 1984-85, the CIT had passed an order under Section 263 of the Act and had held as follows:
The assessee-company cannot fall under Section 2(18)(b)(B) - (a), (b) or (c). The Sub-clause (d) having been deleted w.e.f. asst. yr. 1984-85, the status of the assessee-company for this assessment year can only be a company in which public are not substantially interested.
The AO noted that the facts relating to the issue being same as last year, he held that the company was not a company in which public are not substantially interested as it did not fulfil the conditions laid down under Section 2(18) of the Act.
8. CIT(A) held that the construction placed on the term by the AO was not only in keeping with the definition as contained in Section 2(18), but was in confirmatory with the basic concept and essential meaning of the term "the company in which the public are substantially interested". Accordingly, he upheld the action of the AO on this matter.
9. At the outset, it was submitted by Mr. Dinesh Vyas, the learned Counsel for the assessee-company, that the Finance Act for the relevant year prescribed three rates of taxes for the corporate sector, viz., 55 per cent for the widely held companies, 60 per cent for closely held companies and 65 per cent for trading companies. There is no dispute over the fact that the assessee is not a trading company. However, if the claim of the company is accepted, then it would be taxed at 55 per cent and not at 60 per cent as held by the Department. It is also admitted and it is on record that 78.71 per cent of the shares in the assessee-company are held by four public charitable trusts.
10. Coming to the arguments proper of Mr. Vyas, firstly it was contended that a natural and ordinary meaning should be given to the phrase "a company in which the public are substantially interested." The claim of the assessee is not based on the extended meaning provided in Section 2(18) of the Act. In this connection, our special attention was invited to the opening sentence of Section 2 which mentions. "In this Act, unless the context otherwise requires,...." It was submitted that in the context of concessional rate of taxation, one should go by the natural and ordinary meaning of the term defined without being bound by the artificial and extended definition of Section 2(18).
11. With regard to the term "person having interest", our attention was invited to the provisions of Bombay Public Trust Act, 1950. Section 2(10)(e) of the said Trust Act included a beneficiary of a public trust as a person interested in the trust. Reference was also made to Sections 41B and 50 of the said Trust Act whereby trustees incurred liabilities for breach of trust and also entitled any beneficiary to lodge complaints before the Charity Commissioner. In the instant case, it was submitted, since the public at large were beneficiaries of the trust, automatically, by virtue of the trusts' shareholding in the assessee-company, it (i.e. public) became substantially interested in the assessee-company. In this connection, decision of the Supreme Court in the case of Deoki Nandan v. Murlidhar and of the Lahore High Court in the case of Nihal Chand v. Narain Das AIR 1934 Lahore 949 were referred to.
12. Reference was then made to the decision of the Madras High Court in the case of Amrutanjan Ltd. v. CIT (1961) 41 ITR 21 (Mad), wherein, the High Court's observations while dealing with identical provisions in Section 23A of the 1922 Act were upheld by the Supreme Court in N.C. Sen & B.C. Sen v. ITO (1964) 51 ITR 218 (Cal). The said observations were to the effect that the companies specified in the said provision could only be an addition to the category of a "company in which public are substantially interested."
13. Mr. Vyas drew our attention to Ciaies and Statute Law under the paras entitled "ordinary meaning not taken away by clause extending the meaning of a word", "Interpretation clauses inserted ex abundanti cautela" and "Interpretation clause not necessarily applicable on every occasion when word interpreted is used in the Act." He also referred to the Commentary in Maxwell on Interpretation of Statutes. Mr. Vyas then referred to a host of decisions wherein the term "unless the context otherwise requires..." was interpreted. Referring to the several categories of companies mentioned in Section 2(18), it was stated that it was only out of abundant caution that the categories were specified and which, but for the specific categorisation would not have been classified as widely-held companies. Finally, concluding his arguments, Mr. Vyas submitted that if the Departmental stand is taken to its logical conclusion, then even if 100 per cent shares were held by public trusts, the concessional rate of tax would never be available to such a company and which could not be the intention of the legislature. Thus, it was vehemently pleaded that the assessee-company be treated as a company in which public are substantially interested and that concessional rate of tax be applied to it.
14. Mr. H. Srinivasulu, the learned Departmental Representative made elaborate arguments in support of the orders of the authorities below. Firstly, it was submitted that a taxing statute has to be construed strictly. In support of this submission, reliance was placed on the decision of the Delhi High Court in the case of Modipon Ltd. v. CIT and of the Calcutta High Court in the case of TTO v. Chandmull Bhatia . As a corollary, it was submitted, the definition in a taxing statute also ought to be construed strictly. In this connection, it was further submitted that normally the definition as given in the statute prevails throughout the Act unless the context otherwise requires. In support of the contention, Commentary by Chaturvedi and Pithisaria on p. 32 (Vol. 1 - 5th Edn.) was referred to. Several clauses of Section 2 providing for various definitions were referred to. It was pointed out that whereas certain clauses used the word "means", certain other clauses used the word "includes". Reference was made to the order of the Tribunal in the case of Life Insurance Corporation of India v. Jt. CIT Interest-tax Appeal No. 9/Bom/1996 and Ors. reported at (2002) 74 TTJ (Mumbai) 624 Ed. In the said decision it was observed by the Tribunal that when the term "means and includes" is used, the definition is meant to be exhaustive and neither extensive nor inclusive. When the term "means" is used it gives a hard-and-fast definition. In Clause (18) of Section 2, it was submitted, the term "is said to be" is used which is qualified by the phrase "if it is...." Thus, it was sought to be impressed by Mr. Srinivasulu that the phraseology used in Section 2(18) tantamounts to using the term "means".
15. The use of the definition in Section 2(18) was broadly two-fold, viz. (a) difference in tax rate and (b) for the purpose of Section 104. Keeping these purposes in mind, it was contended, enlarged meaning could not be given. It was contended that if enlarged meaning is given, then it may lead to abnormal situations. The learned Departmental Representative gave an illustration of companies in infrastructure sector. These companies also could be said to be catering for public purpose and hence howsoever restricted the shareholding may be, it would always be treated as a public company. This, according to the learned Departmental Representative, was not the intention of the legislature. Natural meaning as advocated by the learned Counsel could be given only when there was an inclusive definition and not an exhaustive one as was the case in Section 2(18).
16. With regard to the purport of using the word "unless the context otherwise requires", it was contended that where by a special provision, the enactment brings a different meaning, then that special definition would prevail over the general definition. In this connection, the decision of the Allahabad High Court in the case of J.K. Cotton & Spinning & Weaving Mills Co. Ltd. and of the Bombay High Court in the case of CIT v. Indian Hotels were relied upon. Relying on the decision of the Bombay High Court in the case of Indo Oceanic Shipping Co. Ltd. it was submitted that the definition given in a' non-fiscal statute could not be borrowed for the purposes of a fiscal statute.
17. Finally, summing up his arguments, Mr. Srinivasulu submitted that there cannot be any doubt about the meritorious services rendered by shareholder trusts, however, it was not germane to the issue on hand. The definition given in Section 2(18) was an exhaustive definition, that the concessional rate of tax cannot be said to be an incentive provision, it remained a charging provision and hence it has to be strictly construed, and if so construed, the assessee could not be treated as a widely held company.
18. In his counter-reply, Mr. Vyas specifically referred to the learned Departmental Representative's submission regarding the meanings to be imported from other statutes. Referring to the decision in Oceanic Shipping Co. Ltd. (supra) relied upon by the learned Departmental Representative, it was submitted that the Bombay High Court itself noted that the Merchant Shipping Act was not in paxi materia with the IT Act. Therefore, the provisions thereof did not apply to the IT Act and more so when the term "India" was specifically defined in Section 2(25A) of the Act.
19. With regard to the decision in Indian Hotels Co. Ltd. (supra), it was submitted that the provisions interpreted therein were no longer on the statute book. It was further contended that whereas the Bombay High Court in that case was seized with the interpretation of Section 2(18), the assessee's case in the present appeal was to remain outside the said provision and that it be dictated only by the natural meaning of the term a "company in which public are substantially interested.
20. On a specific querry from the Bench as to whether the aspect of control of the affairs of the company was of any relevance, the reply of Mr. Vyas was in the negative since Clause (iii) of Section 2(18)(b)(i) dealing with the control of the affairs of the company had been deleted after the amendment in 1983. On a specific querry posed to the learned Departmental Representative as to whether he stands committed to the proposition that the words "is said to be" used in Section 2(18) have the same connotation as the term "means", his answer was in the affirmative.
21. We have duly considered the rival contentions and the material on record. We pick up the issue from where the learned Departmental Representative replied to our query as mentioned above. We cannot agree to his arguments that the words "is said to be" means the same thing as the word "means". There cannot be any dispute over the interpretation that the term "means" gives a hard and fast definition to the term defined. While defining the term "company in which'the public are substantially interested", nothing precluded the legislature to define it by using the term "means". If that was the intention of the legislature, Section 2(18) could well have read as "a company in which the public are substantially interested" means the following companies"However, instead using the term "means", the legislature used the term "is said to be". This only leads us to conclude that the legislature intended to travel beyond the normal meaning of a public company. Our view gets corroborated by the fact that most of the categories mentioned in Section 2(18) of the Act, but for their inclusion therein, would not have been categorised as widely held companies. As an illustration, we take Clause (a) of Section 2(18). According to the said clause, a company in which at least 40 per cent of the shares are held by the Government etc., it would be regarded as a widely held company, even though it may have been registered as a private company. Similarly, if we consider Clause (aa), it includes a company which is registered under Section 25 of the Companies Act, 1956. These companies are generally entities like chambers of commerce, clubs etc. which are essentially non-profit making concerns and in the absence of share capital, in the ordinary sense of the term, it could not have been classified as a widely held company. Thus, the point we are trying to drive home is that by using the term "is said to be", the legislature has tried to rope in certain categories of companies which otherwise would not' have been regarded as companies in which public are substantially interested. In this connection, we draw ample support from the decision of the Supreme Court in the case of Amrutanjan Ltd. cited (supra).
22. This takes us to another important argument of the learned Departmental Representative and i.e. with regard to his reliance on the decision in the case of Indian Hotels Ltd. (supra). On a careful reading of the decision, we find that none of the arguments which are raised here were before the Bombay High Court. As rightly pointed out by Mr. Vyas, the High Courtin that case was concerned with a statutory provision which no longer exists for the assessment year with which we are concerned. In it, the words "held by" were interpreted by the High Court, which in our opinion, is a narrower concept, than the concept "substantially interested." In this context, it is well established, as held by the Bombay High Court in the case of CIT v. Thane Electricity Supply Ltd. that what is binding on the Court in a subsequent case is not the conclusion arrived at in a previous decision, but the ratio of that decision for it is the ratio which binds as a precedent and not the conclusion.
23. In short, we are satisfied that the assessee-company before us is a company in which the public are substantially interested. Though our conclusion is mainly based on two specific arguments of the learned Counsel namely, the meaning of the term "is said to be" and the decision in Indian Hotels (supra), we are also convinced that the context in which the definition has to be read is the concessional rate of tax. In other words, since the context does not require us to travel beyond the scope of the issue before us, no other meaning can be ascribed to the term "a company in which the public are substantially interested". As observed in para 22 above, the words "held by" has narrower scope than the concept "substantially interested", the definition of the term "persons having interests" as defined in Bombay Public Trust Act becomes relevant. Thus, besides the two specific arguments referred to by us in this para, the purport of the term "unless context otherwise requires" and the wider definition of the term "persons having interests" in Public Trust Act has also weighed with us in coming to the conclusion we have come to. It may not be out of place to mention that the stricter definition which existed earlier has been considerably toned down by including more and more companies coming under the coverage of Section 2(18) of the Act. Thus, we uphold the contention of the learned Counsel and hold that the assessee-company is a company in which the public are substantially interested.
24. Ground No. 7 is against not allowing deduction of Rs. 1,99,245 in respect of amounts outstanding at the year-end in respect of the provident fund and superannuation fund liabilities. It is submitted by the learned Counsel for the assessee that the said deduction has been allowed to the assessee in the subsequent years and hence, the issue does not survive in this year. Accordingly, the ground is dismissed as infructuous.
25. Ground No. 8 is against treating cash compensatory support of Rs. 24,15,820 as revenue receipt and not as capital receipt as claimed by the assessee. In view of retrospective amendment in the Act with regard to the taxability of this item, the ground is not pressed by the assessee and hence, the same is dismissed.
26. In the result, assessee's appeal is partly allowed.
I.P. Bansal, J.M. 14th July, 2001
1. I have carefully gone through the proposed order passed by learned brother, but unfortunately, I am unable to persuade myself to agree with the proposed view (in ground No. 6) insofar as treating the assessee-company as a company is which public are substantially interested is concerned.
2. The facts are stated in detail is the order proposed by my learned Brother and therefore not repeated here. I proceed to touch upon the reasons which compels me to hold that assessee is not a company in which the public are substantially interested.
3. It is a cardinal principle in construction of enactments that unless the context otherwise requires, the definition of an expression contained in the Act should prevail throughout the Act. Therefore, whenever a different meaning is sought to be given to that expression occurring at different places in the Act, it is necessary to point out why the context requires different meaning to be given to the same expression occurring at different places in the Act. (Reference is invited to the decision in the case of CIT v. Dredging Corporation of India .
4. "Unless the context otherwise requires" means that the same words should have been used elsewhere is the Act in a different context. If we were to interpret those words in that context, one may ignore the definition given under Section 2(18). However, in this case, there is no such expression elsewhere in the Act so as to protect or give benefit to the company such as the assessee herein. Absence of any such clause in respect of the companies who should otherwise have been held as a "company in which the public are substantially interested", has unnecessarily affected some companies and the legislature realised this difficulty and by Finance Act, 1971 suitably amended Section 2(18) to bring within its fold companies which were registered under Section 25 of the Companies Act. This was also explained in Explanatory Notes on the provisions of Finance (No. 2) Act, 1971 vide Circular No. 72, dt. 6th Jan., 1972. The relevant portion of the circular would highlight the issue as under:
33. A company is treated, for purposes of income-tax, as a "company in which the public are substantially interested", only if it satisfies the various tests laid down in the definition of the term in Section 2(18) of the IT Act. Broadly speaking, the aim of these tests is to decide whether there is wide public participation is the ownership of the shares in, and control over the affairs of the company. Entities like Chambers of Commerce, clubs, etc. which are declared to be "companies" by the Board under the relevant provisions of the IT Act, are essentially non-profit making concerns and in the absence of a share capital, in the ordinary sense of the term, it is not practicable to apply to such entities the tests of a "company in which the public are substantially interested". The same difficulty arises with regard to companies limited by guarantee.
34. In order to obviate the difficulties pointed out above, the definition of a "company in which the public are substantially interested in Section 2(18) has been amended by Section 3(b) of the Finance Act in order to provide that a company which is registered under Section 25 of the Companies Act (i.e. a company having for its object the promotion of commerce, art, science, religion, charity or any other useful object and which prohibits payment of dividends to its members) will be regarded as a company in which the public are substantially interested without the application of the various tests as to the composition of the ownership of the shares in, and control over the affairs of, the company. Further, in order to cover the cases of entities which are not registered as companies but are declared to be companies for tax purposes and to companies limited by guarantee which are not registered under Section 25, the CBDT has been empowered to direct that any such entity or company shall be treated as a company in which the public are substantially interested. Such direction will be made by the board having regard to the objects of the company, the nature and composition of its membership and other relevant considerations. The Board is empowered to issue such direction even in respect of a past year and the direction will have effect for the assessment year or years specified therein.
5. In this case of Chamber of Commerce, Club etc., a pragmatic view would have been to treat them as companies in which public are substantially interested. But probably it was found difficult to raise such contentions, i.e. of including such companies in the definition of Section 2(18), and, thus, the legislature had to intervene. The case of the assessee-company cannot be said to be any different. The following observations of the Hon'ble Bombay High Court in the case of CIT v. Indian Hotels Co. Ltd. my sincere view, leads to the only interpretation that the assessee-company does not fall under Section 2(18) of the Act:
Now, the arguments before the Tribunal in the instant case had proceeded on the footing that 81 per cent of the shares held by the three public trusts must be treated as being held by the public. As indicated by the decisions referred to above, two questions will have to be answered. Firstly, whether there is any group of shareholders who can be considered as a block and whose voting power is more than 50 per cent and, secondly, are 50 per cent of the shares acquired unconditionally and beneficially held by the public. As a matter of fact, any view which we may take on the argument which is advanced before us at considerable length on behalf of the assessee that the shares held by the trustees must be treated as shares held by the public, would be sufficient to answer the question referred to us in this reference. We have repeatedly tried to ascertain from Mr. Vyas as to whether the shares held by the three trusts, which between themselves hold about 81 per cent of the shares and they are undoubtedly a group of Tata Charities, can be said to have been beneficially held by any particular person and we have been repeatedly told that public in general, who are the beneficiaries under the trusts, are the beneficial holders of these shares. This runs counter to the decision of the Supreme Court. As already pointed out, if a person does not hold a share for his own benefit, that person must fall out of the category of "public", as contemplated by the definition in Section 2(18) of the Act. Admittedly, the shares are held by the trustees in their own names, but they are admittedly not the beneficial holders of the shares. If the shares are not held by the trustees for their own benefit and they are held for the benefit of somebody else, on the law laid down by the Supreme Court, they must be out of the category of "public". The total number of shares held by these three trusts comes to about 81 per cent. This by itself will rule out any possibility of the prescribed 50 per cent of the shares being held by the public.
6. This view was also affirmed in the case of CIT v. Madhusudan Brothers Ltd. . It is not even disputed by the learned Counsel for the assessee that as per plain meaning of Section 2(18) of the Act the assessee-company cannot be treated as a company in which public are substantially interested. In my considered view, the benefit of treating the company as a company is which the public are substantially interested cannot be extended to the assessee-company in view of the plain language of section and also in the light of decisions of Hon'ble jurisdictional High Court which are directly on the issue. The intent of legislature in making a suitable amendment to include such companies which should have otherwise been brought within the fold of Section 2(18) would also cushion the conclusion reached by me.
7. In the result I reject the contention of the assessee-company with regard to treatment of the assessee as a company in which public are substantially interested.
8. With regard to grounds other than the ground No. 6, I agree with the views and findings of my learned Brother.
REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 23rd July, 2001 We the members of the Mumbai Bench 'C' have differed on one issue in the case of Tata Sons Ltd. v. Dy. CIT in ITA No. 8231/Bom/1991. Hence, this reference is made to the Hon'ble President of the Tribunal to nominate a Third Member to decide the point of difference. The point of difference is as follows:
Whether, on the facts and in the circumstances of the case and in law, the assessee-company is a company in which the public are substantially interested as per Section 2(18) of the Act.
The AM has held that the same to be a company in which the public are substantially interested whereas the JM has held it to be a company in which the public are not substantially interested.
R.P. Garg, Vice President 28th April, 2006
1. On a difference of opinion between the Members, the following point of difference has been referred by the President, Tribunal under Section 255(4) of the IT Act, 1961, for my opinion as Third Member:
Whether, on the facts and circumstances of the case and in law the assessee-company is a company in which the public are substantially interested as per Section 2(18) of the Act.
2. The assessee, in its return of income as well as by its letter dt. 15th July, 1987, had claimed itself to be a company in which the public are substantially interested and it was also stated that the company was covered under Section 104(2)(iii) of the IT Act, 1961 (in short "the Act").
3. The AO noticing the finding of the CIT under Section 263 for asst. yr. 1984-85, and stating that the facts relating to the issue being same as last year held that the company was not a company in which public are not substantially interested as it did not fulfil the conditions laid down under Section 2(18) of the Act.
4. The CIT in asst. yr. 1984-85 passed an order under Section 263 of the Act and held as under:
The assessee-company cannot fall under Section 2(18)(b)(B)(a), (b) or (c). The Sub-clause (d) having been deleted w.e.f. asst. yr. 1984-85, the status of the assessee-company for this assessment year can only be a company in which public are not substantially interested.
5. As to what ultimately happened in asst. yr. 1984-85 is not brought on record by either party.
6. The CIT(A) held that the construction placed on the term by the AO was not only in keeping with the definition as contained in Section 2(18), but was in conformity with the basic concept and essential meaning of the term "the company in which the public are substantially interested". Accordingly, he upheld the action of the AO on this matter.
7. When the matter came up before the Tribunal there struck a difference of opinionthe AM held the company to be a company in which the public are substantially interested and the JM held it to be a company in which the public are not substantially interested.
8. Shri Dinesh Vyas, the learned Counsel for the assessee, carried us through various provisions of law and decided cases to advance his case and also submitted the written submissions. According to him the natural and ordinary meaning of the term a "company in which public are substantially interested" cannot be destroyed; that the provisions contained in Section 2(18) are inclusive one and serve the purpose of only extending the ordinary meaning of the said term; that as far as the facts are concerned, there is no dispute that the public trusts are holding 78.71 per cent of the shares and therefore the public have an interest in the trusts by virtue of Sections 2(10), 41B and 50 of the Bombay Charity Trust Act, 1950 and consequently the public are interested in the assessee-company through the trusts; that the decision of the Bombay High Court in the case of CIT v. Indian Hotels Co. Ltd. (1982) 30 CTR (Bom) 12 : (1983) 141 FIR 343 (Bom) as relied upon by the Revenue is not an authority for any of the issues to be decided in this appeal and consequently, the assessee-company has to be treated as a "company in which the public are substantially interested". He also referred to certain decisions wherein the defined meaning has been extended keeping into consideration the term 'unless the context otherwise require'.
9. Shri P.K. Das, the learned Departmental Representative made elaborate arguments in support of the orders of the authorities below. He submitted that a taxing statute has to be construed strictly; that normally the definition as given, in the statute prevails throughout the Act unless the context, otherwise requires; that in several clauses of Section 2 providing for various definitions the legislature used in certain clauses the word "means", and in other clauses used the word "includes"; that when the term "means" is used it gives a hard-and-fast definition; that in Clause (18) of Section 2, the term "is said to be" is used which is qualified by the phrase "if it is...", which phraseology used in Section 2(18) is tantamount to using the term "means"; that the definition in Section 2(18) is broadly for two-fold uses, viz. (a) difference in tax rate and (b) for the purpose of Section 104; that keeping these purposes in mind, the enlarged meaning could not be given as otherwise it might lead to abnormal situations. He gave an illustration of companies in infrastructure sector. These companies also could be said to be catering for public purpose and hence howsoever restricted the shareholding may be, it would always be treated as a public company. This according to the learned Departmental Representative was not the intention of the legislature. Natural meaning as advocated by the learned Counsel could be given only when there was an inclusive definition and not an exhaustive one as is in Section 2(18) of the Act. With regard to the purport of using the word "unless the context otherwise requires", it is contended that where, by a special provision, the enactment brings a different meaning, then that special definition would prevail over the general definition. Finally, he submitted that there cannot be any doubt about the meritorious services rendered by shareholder trusts, but it is not germane to the issue on hand; that the Bombay High Court decision in the case of CIT v. Indian Hotels Co. Ltd. (supra) covers the issue. It is also submitted that the definition given in Section 2(18) is an exhaustive definition, that the concessional rate of tax cannot be said to be an incentive provision, it remained a charging provision and hence it has to be strictly construed, and if so construed, the assessee could not be treated, as a widely held company.
10. Parties are heard and their rival submissions considered along with the material placed on record. Section 2(18) as it stood in the impugned year reads as under:
2. In this Act, unless the context otherwise requires,-
(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 RBI or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the RBI 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 capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested:
Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration; or
(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely:
(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder;
(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by-
(a) the Government, or
(b) a corporation established by a Central, State or Provincial Act, or,
(c) any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the conditions laid down in Clause (b) of Section 108 (hereafter in this clause referred to as the subsidiary company).
Explanation : In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", and "more than fifty per cent", the words "not less than forty per cent" and "more than sixty per cent" had, respectively, been substituted;
11. On a reading of this provision it is apparent that a company in which public is substantially interested is said to be a company which is enumerated in various clauses of this definition clause, viz., (i) a company owned by the Government or the RBI or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the RBIor a corporation owned by that bank; or (ii) a company which is registered under Section 25 of the Companies Act, 1956; or (iii) a company having no share capital and it is declared by order of the Board to be a company in which the public are substantially interest; or (iv) a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by the Government, or a corporation established by a Central, State or Provincial Act or, any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the conditions laid down in Clause (b) of Section 108.
12. The provision as it stood prior to the present one and as was subject-matter of consideration of the Bombay High Court read as under:
2. In this Act, unless the context otherwise requires,-
(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 RBI or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the RBI or a corporation owned by that bank; or (aa) if it is a company which is registered under Section 2b of the Companies Act, 1956 (1 of 1956); or (ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the board to be a company in which the public are substantially interested:
Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration; or
(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely:
(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder.
(B)(i) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by
(a) the Government, or
(b) a corporation established by a Central, State or Provincial Act, or
(c) any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the conditions laid down in Clause (b) of Section 108.
(d) the public (not being a director, or a company to which this clause does not apply);
(ii) the said shares were, during the relevant previous year, freely transferable by the holder to the other members of the public; and
(iii) the affairs of the company or the shares carrying more than fifty per cent held by five or less persons.
Explanation 1 : In computing the number of five or less persons aforesaid,
(i) the Government or any corporation established by a Central, State or Provincial Act or a company to which this clause applies or the subsidiary company of such company shall not be taken into account, and
(ii) persons who are relatives of one another, and persons who are nominees of any person together with that other person, shall be treated as a single person.
Explanation 2 : In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per cent" had been substituted;
13. It may be noted that the portion typed (d), (ii), (iii) and Expln. 1 was omitted by the amendment in 1984 and the requirement of holding shares by the public, the freely transferability by the holder to the other members of the public; and the control of affairs of the company or holding of the shares at no time by five or less persons carrying more than fifty per cent of its total voting power.
14. Under the earlier provisions the matter came up for consideration before Bombay High Court in the case of Indian Hotels (supra), the company claimed that it should be treated as a 'company in which the public are substantially interested' in terms of Section 2(18) of the IT Act, 1961 on the ground that the majority of the shares (78.71) were held by the public charitable trusts. ITO did not accept this contention of the assessee. The AAC also rejected the contention of the assessee-company and he held that since more than 50 per cent of the voting power is held by three persons (public trusts), the company was caught by the mischief of Section 2(18)(b)(ii). The Tribunal declined to accept the argument that as 81 per cent of the shares of the company were held by the three public charitable trusts, the shares should be taken to have been held by the public for the purpose of Section 2(18) of the Act. The Tribunal held that in the case of a trust, the trustees have merely to carry out the wishes of the settlor and the beneficiaries have no say as to how those wishes have to be carried out and if shares of a company are held by charitable trusts, primarily, the voting power in respect of those shares will be governed by the directions given by the settlor and in the absence of such directions, the voting power will be exercised according to the wishes of the trusts. An alternative argument was also advanced before the Tribunal on behalf of the assessee-company that having regard to the provisions of Section 187B of the Companies Act, 1956, the shares, in respect of which the voting power is exercisable by the public trustee under that section, should be regarded as held by the "public". This alternative argument was accepted by the Tribunal, which took the view that under Section 187B of the Companies Act, in the case of every trust, the rights and powers including the right to vote exercisable at any meeting of the company of which shares are held by the trust, shall be exercisable by the public trustee and since, the public trustee was a nominee of the Government and the Government would represent the people, it could be said that the voting power in respect of the shares held by the trust is ultimately exercisable by the Government on behalf of the public and so, the shares were held by the public. Having accepted the alternative argument advanced before it, the Tribunal came to the conclusion that as the shares in the assessee-company were held by the three trusts, the same can be said to be held by the public and the assessee-company should be held as a company in which the, public are, substantially interested.
15. At the instance of Revenue the question referred to the Bombay High Court was: "Whether the assessee-company is a company in which the public are substantially interested as the majority of the shares are held by charitable trusts." The High Court rejected the claim on both the grounds. As regards alternate arguments, it held that the limited effect of Section 187B is that the rights and powers exercisable at a meeting of the company or at any meeting of any class of members of a company cease to be exercisable by the trustee and those rights and powers become-exercisable by the public trustee. The scope of Section 187B is, therefore, of a very limited character. It does not have the effect of divesting a trustee who is a shareholder of all rights which vest in him as a shareholder. The trustee does not cease to be a member of the company and Section 187B does not have the effect of substituting the public trustee as a member of the company in place of a trustee who holds shares as a trustee. If a member is not divested of the shares held by him and only his right to vote which he exercises as a member of the company at any meeting is taken away and vested in the public trustee, it is difficult to appreciate the view taken by the Tribunal that because the public trustee exercises the right to vote, the right to vote must be treated as being exercised by the Government itself and further that since Government acts on behalf of the public at large, the shares must be treated as having been held by the public. Apart from the fact that, as we shall presently point out, the word "public" is used in a particular sense in Section 2(18), the ground on which the Tribunal has held that the assessee-company must be treated as a company in which the public are substantially interested is wholly untenable and the view of the Tribunal is based on misconception of the scope, purpose and the effect of Section 187B of the Companies Act. As regards the main ground, the Court noted the contention of Mr. Vyas that the provisions of Section 2(18) must be reasonably construed; that the beneficiaries under the three trusts, who held the shares, were members of the public and on a reasonable construction of the provisions of Section 2(18), it must be held that the shares were acquired by the trustees as members of the public and were held for the benefit of the public; that though, the shares were held by a person, it was possible that beneficial interest in those shares is held by the members of the public and the shares standing in the names of the trustees must be held as having been acquired by members of the public; that for the purposes of Section 2(18) of the Act it is enough that the shares are held by the public and in a case where there are beneficiaries of a public trust, the shares must be treated as being beneficially held by the beneficiaries through the trusts; that in such case, the voting power vests in the public but through the trustees; that the statute must be reasonably construed and a construction in consonance with justice should be adopted. The High Court observed that while it is hard to dispute the proposition that tax laws are to be interpreted reasonably and in consonance with justice, it is also well established that any equitable considerations are wholly irrelevant in interpreting tax laws.
16. Quoting Raghuvanshi Mills Ltd. v. CIT , the Bombay High Court held that the observations of the Supreme Court will thus indicate that when the definition in Section 2(18)(b) requires that the prescribed number of shares should be beneficially held by the public, it contemplates that person must hold the shares for his own benefit and no person who holds a share or shares not for his own benefit but for the benefit of another will fall within the body which is designated "public" in Section 2(18)(b)(i). One of the important considerations, therefore, for deciding whether company can be said to be a company in which the public are substantially interested is whether the prescribed number of shares are held by the member concerned for his own benefit or for the benefit of another. "Beneficially holding a share" is not the same thing as "holding a share for the benefit of another" or "some other person being the beneficiary of the share", as contended for the assessee. The Court also noted the observations of Supreme Court that the word "public" is used in contradistinction with one or more persons who act in unison and amongst whom the voting power constitutes a block. Therefore, one of the other important considerations which has to be taken into account while applying the definition in Section 2(18)(b) is whether there are one or more persons who act in unison and amongst whom the voting power constitutes a block and only those members of the public who are outside this block will, therefore, be covered by the "public" as contemplated by Section 2(18)(b) of the Act. This is made further clear by the Supreme Court in CIT v. Jubilee Mills Ltd. (1963) 48 ITR 9 (SC). Referring to observation in the decision in Raghuvanshi Mills' case (supra), the Bombay High Court noted that "...what one has to find out is whether there is an individual who, or a group acting in concert which, controls or control the affairs of the company to the exclusion of others by reason of his or their voting power. Such person or group of persons do not answer the description public".
17. The Court held that the scope and the nature of an enquiry which is contemplated when determining whether a company is a company in which the public are substantially interested were laid down by the Supreme Court in CIT v. East Coast Commercial Co. Ltd. (1967) 63 ITR 449 (SC), while dealing with the provisions of Section 23A(1) of the Indian IT Act, 1922. These were:
It is clear that in deciding whether an order under Section 23A(1) is called for, the ITO must determine (i) whether there is an individual or a group which can control the voting power as a block. The existence of such a block may be established by showing that the voting power is vested in persons possessing more than fifty per cent of the shares issued who act in concert; and (ii) that the block exercises a controlling interest over the affairs of the company. This condition is satisfied only if the voting power of the block or group is seventy-five per cent or more. If the block holds seventy-five per cent of the voting power, it shall be deemed that the company is one in which the public are not substantially interested. On the other hand, if the members of the public hold shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits), carrying not less than twenty five per cent of the voting power allotted unconditionally to, or acquired unconditionally by, them, the company shall be deemed to be one in which the public are substantially interested.
Now, the arguments before the Tribunal in the instant case had proceeded on the footing that 81 per cent of the shares held by the three public trusts must be treated as being held by the public. As indicated by the decisions referred to above, two questions will have to be answered. Firstly, whether there is any group of shareholders who can be considered as a block and whose voting power is more than 50 per cent and, secondly, are 50 per cent of the shares acquired unconditionally and beneficially held by the public. As a matter of fact, any view which we may take on the argument which is advanced before us at considerable length on behalf of the assessee that the shares held by the trustees must be treated as shares held by the public, would be sufficient to answer the question referred to us in this reference. We have repeatedly tried to ascertain from Mr. Vyas as to whether the shares held by the three trusts, which between themselves hold about 81 per cent of the shares and they are undoubtedly a group of Tata Charities, can be said to have been beneficially held by any particular person and we have been repeatedly told that public in general, who are the beneficiaries under the trusts, are the beneficial holders of these shares. This runs counter to the decisions of the Supreme Court. As already pointed out, if a person does not hold a share for his own benefit, that person must fall out of the category of "public", as contemplated by the definition in Section 2(18) of the Act. Admittedly, the shares are held by the trustees in their own names, but they are admittedly not the beneficial holders of the shares. If the shares are not held by the trustees for their own benefit and they are held for the benefit of somebody else, on the law laid down by the Supreme Court, they must be out of the category of "public". The total number of shares held by these three trusts comes to about 81 per cent. This by itself will rule out any possibility of the prescribed 50 per cent of the shares being held by the public.
18. The shares are also not acquired by the beneficiaries. The shares are acquired by the trustees for the beneficiaries. The conclusion as held by the High Court to be inescapable that the 81 per cent of shares which are held by the trustees for the beneficiaries under the public trusts cannot be said to be shares held by the public. It further held that even so far as the controlling interest was concerned, it was difficult to resist the conclusion that the three public trusts hold controlling interest in the company. No doubt, some of the trustees in the three trusts are different. But so far as the Lady Tata Memorial Trust and Sir D.J. Tata Trust were concerned, the Court observed that three trustees were common and the first trust had 1,400 share, and the second trust had 2,995 shares. As a matter of fact in all the three trusts, the first name of the trustee, which would normally be the name first recorded as the holder of the shares, was the same, namely, Lady Navajbai Ratan Tata. Normally, these trustees would be expected to act in concert. Similarly, the remaining shares are held either by Tata Sons (P) Ltd. to the extent of 1,051, that person and there are 8 such groups of 6 shares each, out of which the joint holders in 4 groups are trustees in one or the other trust. Looking at the manner in which the shares are held, either way, it was held that therefore, the prescribed 50 per cent of the shares, as required by Clause (i) of Section 2(18)(b), could not be said to be held by the public. If this condition is not satisfied, then irrespective of the question as to whether the second or the third condition is satisfied or not, the company will not be one which falls within Section 2(18)(b) of the Act.
19. The expression "company in which the public are substantially interested" came up before the Supreme Court in CIT v. Amrutanjan Ltd. with reference to provisions of Section 23A of the IT Act, 1922. The Court after noticing the fact that the Act did not define explained it as : "Normally a company would be deemed to be one in which the public are substantially interested, where more than half the voting power is vested in the public. Where the controlling interest i.e. a minimum of fifty-one per cent of the voting rights is held by a single individual or a group of individuals acting in concert, the company would be regarded as one, in which the public are not substantially interested."
20. There was an Explanation to this Section 23A of 1922 Act, based on which the Revenue contended that the Explanation is in reality a clause which defines what a company, in which the public are substantially interested, is. The Explanation read:
For the purpose of this sub-section,-
a company shall be deemed to be a company in which the public are substantially interested if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying 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 (not including a company to which the provisions of this sub-section apply)....
21. The Court answered the question by stating: "In terms, however, the Explanation raises a presumption and does not purport to define a company in which public are substantially interested." The Court then explained as to what company in which the public are substantially interested, is and that is that "normally a company would be deemed to be one in which the public are substantially interested, where more than half the voting power is vested in the public. Where the controlling interest i.e. a minimum of fifty-one per cent of the voting rights is held by a single individual or a group of individuals acting in concert, the company would be regarded as one in which the public are not substantially interested."
22. The contention of the learned Counsel of the assessee that the fact that a substantial shareholding to the extent of 78.71 per cent in the assessee-company is in the hands of four public trusts, which had been functioning in accordance with law and in public interest is not in dispute. In these trusts according to him, the fact that the public are directly interested is clearly established under the applicable statute, namely, the Bombay Public Trust Act, 1950 may be true because in a public trusts, admittedly the beneficiaries are the members of the general public and, therefore, under Section 2(10) every member of the public has to be regarded as a "person having interest" and this fact coupled with the right of every member of the public under Section 41B to file a complaint, resulting in the Charity Commissioner exercising his power to institute an enquiry with regard to the affairs of the trust and that every member of the public has the right to resort to the provisions of Section 50 that may result in the filing of an appropriate suit in an appropriate Court for redressal of justice. The above statutory provisions and fact do not establish that every member of the public has substantial interest in the assessee-company through the public trusts. It may be that the general public are the beneficiaries in a public trust and are persons interested in the public trust in view of the Supreme Court in the decision of Deoki Nandan v. Murlidhar as also the decision of the Lahore High Court in the case of Nihal Chand v. Narain Das AIR 1934 Lahore 949, but that does not mean that public are substantially interested in the company of which the shares are held by the four charity trusts. It is the trust as such that could be said to have substantial interest in the company and not the beneficiaries thereof. Trusts being 4 only who hold more than 50 per cent (exactly 78.71 per cent), it cannot be said that public are substantially interested in the company. Holding of more than 50 per cent shares by 4 persons cannot be equated with such holding by public. Let us have a case of a company, a private limited or public company to which this section does not apply, or a registered society or a co-operative society that are entity by themselves, independent and separate to its members like trusts. In each of these entities, be it a company or a society, their members have an interest. If they held shares in a company can it be said that their members are holding shares in that company and since they have interest in these companies or societies, they are public and the company whose shares are so held is a company in which public are substantially interested? Certainly not. Shares would be said to be held only by these entities which hold the shares and if they individually or cumulatively can constitute public, the company could be a company in which public are substantially interested and not because their members who have interest in these companies or societies or trusts are many or public at large. Their interest in these companies or societies or trusts cannot make them to have an interest in the company whose shares their parent companies or societies or trusts hold. Members and these companies or societies or trusts have their separate entities independent to each other. By mixing them one would be ignoring the reality and their individual and separate entity in law.
23. It may be true that none of the arguments that were raised here were before the Bombay High Court but a jurisdictional High Court decision cannot be ignored by this fact. It does not lose its binding force merely because some argument was not raised or raised not in a particular way. It might be that the High Court in that case was concerned with a statutory provision that no longer exists for the assessment year under consideration. But that decision has interpreted the words "held by" and in that connection it was held that the shares held by public trusts cannot be construed as held by public. A trust even though for benefit of public in nature cannot be equated with public. It is the ratio of a decision that is material for it is the ratio that binds as a precedent and not the conclusion.
24. The term 'held by' might be as stated by the learned Counsel, a narrower concept than the concept "substantially interested". But both are associated with public and the public trusts are held to be not public in itself it gives the same resultin the first case, shares held by public and in the later case, where public is substantially interested. If the trusts are not public, both fail. It may not be out of place to mention that Clause (d) in the earlier definition 2(18)(b)(B) making holding of shares by public which was subject-matter of consideration of Bombay High Court was deleted, though by certain more companies were included under the coverage of Section 2(18) of the Act. That shows that even when public holding was one of the criteria to determine the character of the company in which public are substantially interested the shareholding by trust was not held to be public; it would all the more be logical that such shareholding by the trust will not be taken as a criteria when such requirement of holding by public is deleted from the definition of such a company.
25. Mr. Vyas further submitted that the Courts are entitled to resort to the ordinary and natural meaning of a term and that the Courts should refrain from destroying the basic concept or essential meaning of a term in the light of abundant legal material available in this regard. He referred to Ciaies on Statute Law, the observations on p. 214 as follows:
An interpretation clause which extends the meaning of a word does not take away its ordinary meaning.... An interpretation clause of this kind is not meant to prevent the word receiving its ordinary, popular, and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject-matter to the contrary, to be applied to some things to which it would not ordinarily be applicable.... It is perfectly consistent with that, that they should be read as applicable, and should be applied, to those things to which they in their natural sense apply, and which do not require any interpretation clause to bring them in. An interpretation clause, said Lush J. in R.V. Pearce, should be used for the purpose of interpreting words which are ambiguous or equivocal, and not so as to disturb the meaning of such as are plain, or as Lora Coleridge said in London School Board v. Jackson so as to prevent the operation of a word in its primary and obvious sense.
According to him the above view finds support from several cases decided under taxation laws as well. The Supreme Court in CGT v. N.S. Getti Chettiai quoted with approval the above observation of Craies on Statute Law and has on p. 605 observed as under:
As observed in Craies on Statute Law (sixth Edn., p. 213), an interpretation clause which extends the meaning of a word does not take away its ordinary meaning. An interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject-matter to the contrary, to be applied to some things to which it would not ordinarily be applicable.
The Punjab and Haryana High Court in CIT v. Straw Board Mfg. Co. Ltd. 1975 CTR (P&H) 17 : (1975) 98 LTR 78 (P&H) affirmed by the Supreme Court in CIT v. Straw Board Manufacturing Co. Ltd. has reiterated the above view having followed the Supreme Court decision in the case of Getti Chettiar. On p. 84 the Punjab and Haryana High Court has quoted the above observations of the Supreme Court.
The jurisdictional Bombay High Court has also in CGT v. Dr. R.B. Kamdin reiterated the above view by observing that the essential meaning or the basic idea of a term must be borne in mind while interpreting it and on pp. 481-2 observed as under:
It (Supreme Court) further observed that where, within the framework of the ordinary acceptation of a word, every single requirement of the definition clause was fulfilled, it would be wrong to take the definition as destroying the 'essential meaning' of that word. With respect, I agree with the approach commended in the judgments delivered in both these cases.
In view of the above discussion, it is necessary to resort independently to the natural and ordinary meaning of the term "company in which the public are substantially interested", in the present appeal.
26. The argument has no force. As aforesaid, the public at large having interest in these trusts cannot be said to have interest in the company when the shares in that are held by these trusts and therefore, it is not a case of destroying the natural and ordinary meaning of the term. Even as per natural and ordinary meaning of the term "a company in which public are substantially interested the shares held by the charitable trusts cannot make their members to have an interest in the company.
27. Mr. Vyas further submitted that in view of the opening words of Section 2 namely "unless the context otherwise requires", the provisions of Section 2(18) are not to be regarded as sacrosanct and, therefore, the assessee can be treated as a "company in which the public are substantially interested" even if it does not fall within the additional categories of such companies as enumerated in Section 2(18). He relied upon Supreme Court decision in K.V. Muthu v. Angamuthu Ammal , wherein the Supreme Court noted in the context of definition in Section 2(6A) of 1922 Act that normally use of the term "means" makes the definition an exhaustive one but such exhaustive definition is to be departed from if the definition section opens with the words "unless the context otherwise requires" if there be something in the context to show that the definition could not be applied. This decision itself mentioned "while interpreting a definition, it has to be borne in mind that the interpretation placed on it should not only be not repugnant to the context, it should also be such as would aid the achievement of the purpose which it is sought to be served by the Act. A construction which would defeat or was likely to defeat the purpose of the Act has to be ignored and not accepted." Nothing is pointed out in this connection which can depart (sic) one take the case in the ken of a company in which public are substantially interested. A similar approach was adopted in Ashok Kapil v. Sahu Ullah , where the relevant term "building" is defined with the use of the expression "means" and where the definition section opened with the words "unless the context otherwise requires" a building without roof was taken as a building because such variations was necessary to achieve the object of the enactment. In ITO v. Chandmull Batia (Cal), the Court was concerned with provisions of Section 2(22)(e) of the Act and in that connection it held that it is the loan given to registered shareholder which would attract the provisions of Section 2(22)(e). The Companies Act, 1956, by Section 153 does not recognize any trust or beneficial interest of a person in any share. There also the beneficial holding was not recognized for the purposes of deemed dividend which is even an inclusive definition.
28. In CIT v. Harrisons Crossfield (India) Ltd. the Revenue contended that the Tribunal has entered a clear finding to the effect that the five persons did hold (less than six) 50 per cent of the voting power in the assessee-company, that this finding was entered on a consideration of the provisions of Section 2(18)(b)(B)(iii) of the Act and that after entering such a clear finding the Tribunal was not justified in approaching the question in a different manner with reference to the purpose and in holding that the company is one in which the public are substantially interested. The attention of the Court was drawn to the decision of the Supreme Court in Punjab Produce & Trading Co. Ltd. v. CIT (1971) 82 HP, 619 (SC). The Court answered the question referred in favour of the assessee and against the Department and held that:
We could not find any assistance from the said decision so far as this case is concerned. The question for consideration in the Supreme Court decision was entirely different from the one for consideration in the present case. In that case, in the applicant-company shares carrying more than 50 per cent of the total voting power were held by less than six persons. In that case there was no dispute regarding the fact that less than six persons held more than 50 per cent of the voting power of the company on a permanent basis. The only thing was that a decision was taken by the company in its meeting that no dividend need be declared for which no reasons have also been stated. On the other hand, on the above facts, the question was as to whether the twin conditions of the proviso to Section 23A of the Indian IT Act, 1922, which is in pari materia according to learned Counsel for the Department with Section 2(18)(b)(B)(iii) of the Act are to be cumulative or is it sufficient that any one of the conditions is satisfied? In this case, the factual matrix is entirely different in that the initial formation and the allotment of shares to the seven persons was only a temporary arrangement and that the permanent basis depending on the final order to be passed by this Court in the amalgamation order and the scheme. We are of the view that the Tribunal was justified in not taking a literal approach and in deciding the matter keeping in view the purpose behind the provision, or, in other words, a purposive approach in deciding the question. We entirely agree with the concurrent reasoning of the two appellate authorities and hold that the assessee-company is a company in which the public are substantially interested and accordingly entitled to the reduced rate of tax." It may be noted that there were certain circumstances already in existence that persuaded the Court to take that into consideration for determining the character of the company as against the literal meaning to be subscribed as per fact appearing in that year itself. Nothing of that sort is appearing in this case to consider and dilute the plain meaning of the term.
29. Here we may quote the observations in Modipon Ltd. v. CIT , Delhi High Court which quoted the following observations of State of Bombay v. Automobile & Agricultural Industries Corporation (1961) 12 STC 122 (SC).
But the Courts in interpreting a taxing statute will not be justified in adding words thereto so as to make out some presumed object of the legislature.... If the legislature has failed to clarify its meaning by the use of the appropriate language, the benefit thereof must go to the taxpayer. It is settled law that in case of doubt that interpretation of a taxing statute, which is beneficial to the taxpayer must be adopted.
30. It is a cardinal principle in construction of enactments that, unless the context otherwise requires, the definition of an expression contained in the Act should prevail throughout the Act. Whenever a different meaning is sought to be given to that expression occurring at different places in the Act, it is necessary to point out why the context requires different meaning to be given to the same expression occurring at different places in the Act. (Reference is invited to the decision in the case of CIT v. Dredging Corporation of India . "Unless the context otherwise requires" means that should have been used elsewhere in the Act in different context. If we were to interpret those words in that context, one may ignore the definition given under Section 2(18) of the Act.
31. Mr. Vyas further contended that whereas the term "means" is exhaustive in nature, the expression "is said to be" is illustrative in nature. Section 2(18) uses the expression "is said to be" and not the term "means". Therefore, the categories of companies expressly specified in Section 2(18) are illustrative and are in addition to those companies, which are on ordinary and natural meaning, companies in which public are substantially interested. There is no force in this argument of the assessee. The words "is said to be" certainly cannot be equated with the term "include" so as to make the definition as inclusive one and leaving the scope of a general meaning which is not stated in the ambit of the definition. The term "is said to be" gives an impression that it is used to give an exhaustive description of the term 'a company in which public is substantially interested'. It is more near to denoting to the same thing as the word "means". It is more so when one reads it with the opening words "unless the context otherwise require". The intention of the legislature in drafting Section 2(18) could well have read as "a company in which the public are substantially interested" means the enumerated companies. It is true that instead of using the term "means", the legislature used the term "is said to be", but that does not make any difference as it is in contradiction to the words "include". This does not lead us to conclude that the legislature did not intend to travel beyond the normal meaning of a company in which public is substantially interested. It is true that most of the categories mentioned in Section 2(18) of the Act, are of the nature as would not have otherwise also been categorised as widely held companies. As an illustration, we take Clause (a) of Section 2(18). According to the said clause, a company in which at least 40 per cent of the shares are held by the Government etc., it is regarded as a widely held company, even though it might have been registered as a private company. Similarly, if we consider Clause (aa), it includes a company which is registered under Section 25 of the Companies Act, 1956. These companies are generally entitles like chambers of commerce, clubs etc. which are essentially non-profit making concerns and in the absence of share capital, in the ordinary sense of the term, it could not have been classified as a widely held company. But these are specific inclusions in the definition and cannot drive home the proposition that by using the term "is said to be", the legislature has tried to rope in certain categories of companies which otherwise would not have been regarded as companies in which public are substantially interested. The result could have flowed if the legislature used the term 'means' instead of 'is said to be'.
32. Mr. Vyas then referred to the decision of the Supreme Court in Printers (Mysore) Ltd. v. Asstt. CTO rendered in the context of a concessional rate of tax, the decision in the case of N.K. Jain v. C.K. Shah dealing with a welfare legislation; the decision in Workmen of American Express International Banking Corporation v. Management of American Express International Banking Corporation , a three Judge Bench of the Supreme Court in The Vanguard Fire & General Insurance Co. v. Fraser & Ross ; several tax cases including CIT v. B.C. Srinivasa Setty : Bombay High Court in Ritz Ltd. v. CIT (1995) 126 CTR (Bom) 33 : (1995) 216 LTR 138 (Bom). The discussions on the above cases compel one to look into the provisions of Section 2(18) in the relevant context. It is clear that the concessional rate of taxation was provided in the Finance Act to a company in which public are substantially interested and, therefore, it is one's duty to ensure that this legislative intention is fulfilled. The rate undoubtedly was concessional in comparison to the rates for other companies. If it were not the intention of the legislature to provide a concession, it would have adopted the same uniform rate for all the companies. The above cases require one to adopt a natural and ordinary meaning of the term "company in which the public are substantially interested", in the present context of concessional rate of tax. Again, as mandated by the aforesaid series of decisions of the Supreme Court and in the light of statutory mandate contained in Section 2, one has to look into the context of concessional rate of tax, the context of Section 2(18) itself whose close examination leads one to believe that the cases enumerated therein are such which may not ordinarily be regarded as cases of companies in which public are substantially interested. They appear to be additions to the term "company in which public are substantially interested as ordinarily understood. It is quite possible to conclude that without the express inclusion in Section 2(18), such companies may not be regarded as companies in which the public are substantially interested. Keeping in mind the factual position that substantial shareholding to the tune of 78.71 per cent of the assessee is held by public trusts, one should conclude that the assessee is a company in which the public are substantially interested. Examining the legal issue from all aspects, the learned Counsel submitted that the law appears to be self-evident and covered by several pronouncements of the Supreme Court and as far as the facts here are concerned, it has not been disputed that the public trusts have promoted and protected public interest in the national arena. The above conclusion is fully consistent with the obvious intention of the legislature and is capable of being arrived at without doing any violence whatsoever to the language and the statute. Relying on the decision of the Supreme Court in CIT v. Straw Board Mfg. Co. Ltd. (supra), it can be argued that in the context of a law providing for concessional rate of tax, a literal construction should be avoided.
33. In these cases, the Courts held that it is not mandatory that one should mechanically attribute to it the meaning assigned to it in definition clause and where the context does not permit or where it would lead to absurd or unintended result, the definition of an expression need not be mechanically applied. No absurdity is seen in this case in adopting the meaning given in the definition clause. The Supreme Court observed that "The opening words in Section 2 viz. 'In this Act, unless the context otherwise requires' must be examined in the light of the context, the title, the preamble and all the other enacting parts of the statute. Due weight ought to be given to the opening words. The subject matter and the context in which a particular word is used are of great importance and it is axiomatic that the object underlying the Act must always be kept in view in construing the context in which a particular word is used. So construed there is much in the context to show that the restricted meaning in the definitions should not be applied." It may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. Further, that a definition or interpretation clause which extends the meaning of a word should not be construed as taking away its ordinary meaning is a proposition well established by the cases of CGT v. N.S. Getti Chettiai (supra), CIT v. Straw-Board Mfg. Co. Ltd. (supra) and Jagatram Ahuja v. CIT in this case as held above there is no ordinary meaning which can be ascribed to the term "a company in which public are substantially interested" therefore these cases are of no help to the assessee. There is thus no destruction of the basic concept or essential meaning of the expression defined.
34. The theory that this section only seeks to enlarge and add additional categories in the term a "company in which the public are substantially interested" cannot be accepted. Section 2(18) does not include but defines what a company in which the public are substantially interested is said to be. On the above analysis, it is clear that in relation to each of the above categories, it was doubtful whether such companies could definitely be regarded as a "company in which the public are substantially interested" and it is precisely for this reason that the legislature expressly included them in Section 2(18). This is not so if we see the circular for amendment in 1971 encompassing the various categories in the definition clause:
3. It satisfies the various tests laid down in the definition of the term in Section 2(18) of the IT Act. Broadly speaking, the aim of these tests is to decide whether there is wide public participation in the ownership of the shares in, and control over the affairs of the company. Entities like chambers of commerce clubs, etc. which are declared to be "companies" by the board under the relevant provisions of the IT Act, are essentially non-profit making concerns and in the absence of a share capital, in the ordinary sense of the term, it is not practicable to apply to such entities the tests of a "company in which the public are substantially interested". The same difficulty arises with regard to companies limited by guarantee.
35. It was in order to obviate these difficulties the definition of a "company in which the public are substantially interested" in Section 2(18) has been amended in order to provide that a company which is registered under Section 25 of the Companies Act (i.e. a company having for its object the promotion of commerce, art, science, religion, charity or any other useful object and which prohibits payment of dividends to its members) will be regarded as a company in which the public are substantially interested without the application of the various tests as to the composition of the ownership of the shares in, and control over the affairs of, the company. Further, in order to cover the entities which are not registered as companies but are declared to be companies for tax purposes and to companies limited by guarantee which are not registered under Section 25, the CBDT has been empowered to direct that any such entity or company shall be treated as a company in which the public are substantially interested having regard to the objects of the company, the nature and composition of its membership and other relevant considerations.
36. Notes on Clauses of the Finance Bill, 1983 may also be referred to for amended provisions which is applicable to the impugned year. It reads:
Sub-clause (b) seeks to amend Clause (18) of Section 2 of the IT Act.
Under the proposed amendment, a company whose shares are not listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, and any rules made thereunder will not be treated as a company in which the public are substantially interested unless the shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent, of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant, previous year beneficially held by-
the Government, or a corporation established by a Central, State or Provincial Act, or any company to which the clause applies or any 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 The proposed modification will, however, not apply in relation to the following categories of companies:
(i) a company owned by the Government or the RBI or in which not less than forty per cent, of the shares are held (whether singly or taken together) by the Government or the RBI or a corporation owned by that bank;
(ii) a company which is registered under Section 25 of the Companies Act, 1956;
(iii) a company having no share capital, which is declared by the Central Board of Direct Taxes to be a company in which the public are substantially interested.
These companies will continue to be regarded as companies in which the public are substantially interested.
These amendments will take effect from 2nd April, 1983.
37. Memorandum explaining the provisions state as under:
Definition of "widely held company"
138. Under the existing provisions of the IT Act, a company is regarded as a company in which the public are substantially interested (i.e., a widely held company) if it is a company in which the aggregate shareholding of the Government or the RBI or a corporation owned by that bank is 40 per cent, or more of the total share capital of the company; or it is a company registered under Section 25 of the Companies Act; or it is a company having no share capital and it has been declared by the Central Board of Direct Taxes to be a widely held company; or it is a public limited company within the meaning of the Companies Act, 1956, and it fulfils the conditions specified in this regard in the IT Act.
139. The conditions which the last category of companies have to fulfil are that, either (i) the equity shares of the company should, as on the last date of the relevant year, be listed in a recognised stock exchange in India, or (ii) equity shares carrying not less than 50 per cent of the voting power should be beneficially held by:
(a) the Government, or
(b) a statutory corporation, or
(c) any other widely held company or a wholly owned subsidiary of such company, or
(d) the public (other than a director of the company or a closely held company).
140. Two other conditions laid down are that the shares of the company should be freely transferable by the holders to other members of the public and the affairs of the company or the shares carrying more than 50 per cent, of its total voting power should, at no time during the relevant previous year, be controlled or held by five or less persons. For the purposes of determining whether the affairs of a company or shares in the company are controlled or held by five or less persons, persons who are relatives of one another and persons who are nominees of any other person together with that person are treated as a single person.
141. Under the proposed amendment, a company whose shares are not listed in a recognised stock exchange in India will not be treated as a widely held company. However, a company whose equity shares carrying not less than 50 per cent, of the voting power are held by the Government, a statutory corporation, or another widely held-company or a wholly owned subsidiary of such company, will continue to be regarded as a widely held company. It is also being provided that, as at present, companies In which the aggregate shareholding of Government or the RBI or a corporation owned by that bank is not less than 40 per cent companies registered under Section 25 of the Companies Act and "companies without share capital which are declared by the Central Board of Direct Taxes to be widely held companies will continue to be regarded as widely held companies.
142. This amendment will take effect from 1st April, 1984, and will accordingly apply in relation to the asst. yr. 1984-85 and subsequent years.
38. The CBDT in its Circular No. 372, dt. 8th Dec, 1983 has explained the provisions as under:
9.1 Section 2(18) of the IT Act defines the expression "company in which the public are substantially interested" (that is, a widely held company). Sub-clauses (a), (aa) and (ab) of the said definition deal with special categories of companies (e.g. Government-owned companies, companies registered under Section 25 of the Companies Act, 1956, companies having no share capital) which are regarded as widely held companies. Sub-clause (b), which is applicable in the generality of cases, provides that a company will be regarded as a widely held company if it is not a private company as defined in the Companies Act, 1956, and it fulfils either the conditions specified in item (A) or in item (B) of the said clause. The condition specified in item (A) aforesaid is that shares in the company (not being shares entitled to a fixed rate of dividend) were, as on the last day of the relevant previous year, listed in a recognised' stock exchange in India in accordance with the Security Contracts (Regulation) Act, 1956, and the rules made thereunder. A company which does not fulfil the condition laid down in item (A) has to fulfil the three conditions specified in item (B).
9.2 The Finance Act has substituted item (B) by a new item. The effect of the substituted item (B) will be that where the shares of a company are not listed in a recognised stock exchange in India as on the last day of the relevant previous year, the company will not be regarded as a widely held company, unless the shares in the company (not being shares entitled to a fixed rate of dividend) carrying not less than 50 per cent, of the voting power (40 per cent, in the case of Indian companies engaged in manufacturing activities, etc.) have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by the Government, or a statutory corporation, or a widely held company or a wholly owned subsidiary of such company. If the requisite percentage of the shares of the company are not so held, the company would be regarded as a closely held company even though fifty per cent, or more of its shares are held by the public generally.
39. In view of these extracts of circulars, notes on clauses and memo explaining the objects and reasons, it is evident that the items enumerated in the definition clause are all those which are widely held companies. But as they were not finding inclusion in the definition, a need was felt to incorporate them specifically. Therefore there is no force in the submission of the assessee that some companies which were not of the nature of widely held companies are also included. In any case even if that were so, it does not help in importing a company in the definition if that does not satisfy the requirements of a company enumerated therein.
40. In view of the above, it is held that the assessee-company is not a company in which public are substantially interested.
41. In the result, the appeal on this point is to be dismissed.