# COMMISSIONER OF INCOME-TAX. WEST BENGAL v. MESSRS .• TEEW ANLAL LTD

- **Citation:** [1954] 1 S.C.R. 189
- **Court:** Supreme Court of India
- **Decided:** 1951-01-17
- **Case number:** Civil Appeal No. 78of1952
- **Bench:** Patanjali Sastri C.J, S. R. Das, V1VIAN BosR, Ghulam Hasan, Bhagwati
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-west-bengal-v-messrs-teew-anlal-ltd-245
- **Pages:** 7

## Headnote

Excess Profits Tare Act (XV of 1940), s. 2(11)-Director controlled company-Definition-Directors aidhori.sed by another company holding majority of shares to vote in respect of the sharesCompany, whether director controlled.
Ordinarily a company will be a "company, the directors whereof have a controlling interest therein" for the purposes of the
Excess Profits Tax Act, 1940, only if the directors thereof hold, and
are entered in the share register as holders of, a majority of the
vote-carrying shares of the company. It is not necessary that
they must have a beneficial interest in such shares, but the mere
fact that one of the directors of the company has been authorised
by another company which held a majority of shares in the former
company, to vote on its behalf in respect of the shares held by it,
will not make the former company a director controlled company.
Glasgow Expanded Metal Co. Ltd. v. Commissioners of Inland
Revenite (12 Tax Oas. 573), Commissioners of Inland Revenue v.
B. W. Noble (12 Tax Oas. 911), Inla.nd Revenue Commissioners v .
• T. Bibby and Sons Ltd. (14 I.T.R. Suppl- 7, 29 Tax Cas. 167),
Commissioner of Income-tax v. Bipin Silk 111ills Ltd. (14 I.T.R. 344)
and Commissioners of Inland Revenne v.1-Iodgkinson (Salford) Ltil.
(29 Tax Oas. 395) relied on.
British A?nerican Tobacco Co. Ltd. v.
Commissioners of Inland Revenue ([1943] A.O. 335) and New Shorrock
Spinning and Manil/acti;ring Co. Ltd. v. Commissioner of Incometax, Bombay (18 I.T.R. 712) distinguished.
CrvIL APPELLATE JURISDICTION: Civil Appeal No.
78of1952.
Appeal from the Judgment and Order dated the
17th January, 1951, of the High Court of Judicature
at Calcutta (Harries C.J. and Banerjee J.) initsSpecial
Jurisdiction (Income-tax) in Income-tax Reference
No. 50 of 1950.
Q. K. Daphtary, Solicitor-General for India (G. N.
Joshi, with him) for the appellant.
26
1953
SUPREME COURT REPORTS
(1954)
1963
N. 0. Chatterjee (S. O. Ma}umdar, with him) for the
Com.missioner of respondent.
Income-tax,
1953. October 8. The Judgment of the Court was
-
West Bengal
d ]"
d b
v,
e IVere
y
Messrs.
Jeewanlal Ltd.
DAS J.-This is an appeal from the judgment and
order of a Bench of the Calcutta High Court delivered
on a reference made by the Income-tax Appellate
Tribunal under section 21 of the Excess Profits Tax
Act, 1940, read with section 66(1) of the Indian
Income-tax Act, whereby the High Court answered in
the affirmative the question of law referred to it.
The
question referred was :
"Whether in the facts 11nd circumstances of these
cases, the Income-tax Appellate Tribunal was right in
holding that the directors of the respondent company
had a controlling interest in it as contemplated by
section·2 (21) of the Excess Profits Tax Act."
The controversy arose between the parties during
proceedings for assessment of excess profits tax for
five chargeable accounting periods ending on the 31st
December of each of the years 1939 to 1943.
The relevant facts which are not in dispute are these:
The respondent company is a company incorporated
in what was then British India having a capital of
Rs. 3,600,000 divided into 360,000 shares of Rs. 10
each. The Aluminium Limited, a company incorporated in Canada, held 359,790 shares in the
chargeable accounting periods ending on December 31,
1939, and December 31, 1940, and 359,600 shares in
the chargeable accounting periods ending on December
31, 1941, December 31, 1942, and December 31, 1943.
In exercise of the power given to it by article 105
of the articles of association of the respondent company, the Aluminium Ltd. appointed three permanent
directors on the board of directors of the respondent
company. Two of these directors eventually retired
and only one, namely, Mr. L. G. Bash cont.inned to
be a director of the respondent company nominated
by the Aluminium Ltd. Mr. L. G. Bash and the other
directors had between them during the chargeable
•
....
....
•
•
S.C.R.
SUPREME COURT REPORTS
accounting periods ending on December 31,

## Text

r
•
S.C.R.
SUPREME COURT REPORTS
189
COMMISSIONER OF INCOME-TAX.
WEST BENGAL
v.
MESSRS .• TEEW ANLAL LTD.
[PATANJALI SASTRI C.J., S. R. DAS, V1VIAN BosR,
GHULAM HASAN and BHAGWATI JJ.]
Excess Profits Tare Act (XV of 1940), s. 2(11)-Director controlled company-Definition-Directors aidhori.sed by another company holding majority of shares to vote in respect of the sharesCompany, whether director controlled.
Ordinarily a company will be a "company, the directors whereof have a controlling interest therein" for the purposes of the
Excess Profits Tax Act, 1940, only if the directors thereof hold, and
are entered in the share register as holders of, a majority of the
vote-carrying shares of the company. It is not necessary that
they must have a beneficial interest in such shares, but the mere
fact that one of the directors of the company has been authorised
by another company which held a majority of shares in the former
company, to vote on its behalf in respect of the shares held by it,
will not make the former company a director controlled company.
Glasgow Expanded Metal Co. Ltd. v. Commissioners of Inland
Revenite (12 Tax Oas. 573), Commissioners of Inland Revenue v.
B. W. Noble (12 Tax Oas. 911), Inla.nd Revenue Commissioners v .
• T. Bibby and Sons Ltd. (14 I.T.R. Suppl- 7, 29 Tax Cas. 167),
Commissioner of Income-tax v. Bipin Silk 111ills Ltd. (14 I.T.R. 344)
and Commissioners of Inland Revenne v.1-Iodgkinson (Salford) Ltil.
(29 Tax Oas. 395) relied on.
British A?nerican Tobacco Co. Ltd. v.
Commissioners of Inland Revenue ([1943] A.O. 335) and New Shorrock
Spinning and Manil/acti;ring Co. Ltd. v. Commissioner of Incometax, Bombay (18 I.T.R. 712) distinguished.
CrvIL APPELLATE JURISDICTION: Civil Appeal No.
78of1952.
Appeal from the Judgment and Order dated the
17th January, 1951, of the High Court of Judicature
at Calcutta (Harries C.J. and Banerjee J.) initsSpecial
Jurisdiction (Income-tax) in Income-tax Reference
No. 50 of 1950.
Q. K. Daphtary, Solicitor-General for India (G. N.
Joshi, with him) for the appellant.
26
1953
SUPREME COURT REPORTS
(1954)
1963
N. 0. Chatterjee (S. O. Ma}umdar, with him) for the
Com.missioner of respondent.
Income-tax,
1953. October 8. The Judgment of the Court was
-
West Bengal
d ]"
d b
v,
e IVere
y
Messrs.
Jeewanlal Ltd.
DAS J.-This is an appeal from the judgment and
order of a Bench of the Calcutta High Court delivered
on a reference made by the Income-tax Appellate
Tribunal under section 21 of the Excess Profits Tax
Act, 1940, read with section 66(1) of the Indian
Income-tax Act, whereby the High Court answered in
the affirmative the question of law referred to it.
The
question referred was :
"Whether in the facts 11nd circumstances of these
cases, the Income-tax Appellate Tribunal was right in
holding that the directors of the respondent company
had a controlling interest in it as contemplated by
section·2 (21) of the Excess Profits Tax Act."
The controversy arose between the parties during
proceedings for assessment of excess profits tax for
five chargeable accounting periods ending on the 31st
December of each of the years 1939 to 1943.
The relevant facts which are not in dispute are these:
The respondent company is a company incorporated
in what was then British India having a capital of
Rs. 3,600,000 divided into 360,000 shares of Rs. 10
each. The Aluminium Limited, a company incorporated in Canada, held 359,790 shares in the
chargeable accounting periods ending on December 31,
1939, and December 31, 1940, and 359,600 shares in
the chargeable accounting periods ending on December
31, 1941, December 31, 1942, and December 31, 1943.
In exercise of the power given to it by article 105
of the articles of association of the respondent company, the Aluminium Ltd. appointed three permanent
directors on the board of directors of the respondent
company. Two of these directors eventually retired
and only one, namely, Mr. L. G. Bash cont.inned to
be a director of the respondent company nominated
by the Aluminium Ltd. Mr. L. G. Bash and the other
directors had between them during the chargeable
•
....
....
•
•
S.C.R.
SUPREME COURT REPORTS
accounting periods ending on December 31, 1939,
and December 31, 1940, only 210 shares and in the
chargeable accounting periods ending on December 31,
1941, December 31, 1942, and December 31, 1943,
400 shares, Mr. L. G. Bash not having a single
share during
these
last
mentioned
chargeable
accounting periods. By a resolution passed by the
directors of the Aluminium Ltd., Mr. L. G. Bash was
appointed to vote and/or from time to time to appoint
a special or general proxy to vote for and on behalf of
the Aluminium Ltd. in respect of the shares held by it
in the respondent company at all ordinary or extraordinary general meetings of the shareholders of the
respondent company.
Article 90 of the articles of
association of the respondent company provides:-
"90. Where a company registered under the provisions of the Indian Companies Act or not is a member
of this company a person duly appointed to represent
such company at a meeting of this company in accordance with the provisions of section 80 of the Indian
Companies Act, 1913, shall not be deemed to be a
proxy but shall be entitled to vote for such company
on a show of hands and to exercise the same power on
behalf of the company which he represents as if he
were an individual member of this company including
the power to appoint a proxy whether special or general
and the production at the meeting of a company .of
such resolution appointing such representative duly
signed by one director of such company and by the
secretary (if any) and certified by them or him as being
a true copy of the resolution shall on production at the
meeting be accepted by this company as sufficient
evidence of the validity of his appointment."
Mr. L. G. Bash has at all material times been exercising the powers conferred by the above article as the
representative of the Aluminium Ltd.
The claim of the respondent company was that it
should be regarded as a company the directoni whereof
had a controlling interest therein, inasmucJ;i as Mr'.
L. G. Bash, one of the directors, had the authority to
exercise the voting power of the Aluminium Ltd. and,
1953
Commissioner of
Income-tax,
West Bengal
v.
Messrs.
J eewanlal Ltd.
DasJ.
i92
SUPREME COURT REPORTS
'
[1954]
19sa
as such, could control the affairs of the respondent
0
-. -.
1 company and thatincomputingthestandardprofits the
0
;:;;:;~;;;
0 statutory percentage should be taken at 10 per cent. per
west Beng;I
annum and not at 8 per cent. per annum. This conv.
tention was rejected by the Excess Profits Tax Officer.
Mems.
On appeal by the respondent company the Appellate
Jccwanlal Ltd. Assistant Commissioner of Excess Profits Tax upheld
Da1J J.
the decision of the Excess Profits Tax Officer.
The
respondent company thereupon appealed to the Incometax Appellate Tribunal which reversed the decision of
the Appellate Assistant Commissioner observing that
in view of the power of attorney that was given to
Mr. L. G. Bash by the Aluminium Ltd. there was no
room for doubt that the respondent company, which
was then the appellant before the Tribunal, was a
director-controlled company.
On the application of
the Commissioner of Income-tax, the Appellate Tribunal
referred the question of law herein before set out. By
its judgment dated the 11th January, 1951, the High
Court of Calcutta has answered the question in the
affirmative. The Commissioner of Excess Profits Tax,
West Bengal, has now come up on appeal to this court
with a certificate under section 66-A (2) of the Indian
Income-tax Act.
In common parlance a person is said to have "a
controlling interest" in a company when such a person
acquires, by purchase or otherwise, the majority of the
vote-carrying shares in that company, for the control
of the. company resides in the voting powers of its
shareholders. In this sense, the. directors of a company may well be regarded as having "a controlling
interest" in the company when they hold and are
entered in the share register as holders of the majority
of the shares which, under the articles of association
of tlie company, ~a.rry the right to vote.
[See Glasgow
Expcinded J1fetal
Co.,
Ltd. v.
Ooinmissioners of
Inland Revenue (') and
Commissioners of Inland
Revenue v. B. W. Noble(')].
It is not, however, necessary that in' order to have "a controlling interest" the
person or pernons who hold the majority of the votecarrying shares must have a beneficial interest in the
(I) (1923) 12 Tax Cao. 573.
(2) (1926) 12 Tax Cao. 911.
...
•
-
)
{
•
S.C.R.
SUPREME COURT REPORTS
193
shares held by them. These persons may hold the
lPliJ
shares as trustees and may even be accountable to 0
. .
.
h ·
b
fi · ·
d
b
b
h
b l c
ommissioner ot
t eir
ene manes an
may
e
roug t to oo r ~or
Income-tax, '
exercising their votes in breach of trust, nevertheless,. West Bengal
as between them as shareholders and the company,
v.
they are the shareholders, and as such, have "a conMessrs.
trolling interest" in the company. [See Inland Revenue Jeewanlal Ltd.
Commissioners v.
J. Bibby
&:
Sons Ltd.(1) and
Commissioner of Income-tax v. Bipin Silk Mills Ltd.( 2)].
According to the facts found in the statement of the
case the directors of the respondent company do not
themselves hold the majority of shares which, on the
contrary, are registered in the name of the Aluminium
Ltd. and, therefore, according to the principles discussed above, they cannot be said to have "a controlling
interest" in the respondent company.
Learned counsel for the respondent company, however, contends, on the analogy of the reasonings adopted
by the House of Lords in British American Tobacco Go.
Ltd. v. Commissioners of Inland Revenue( 3) that although
Mr. L. G. Bash does not hold the majority of shares
and has no beneficial interest in the shares held by the
Aluminium Ltd. in the respondent company and
although he may be bound to cast the votes according
to the directions of his principals, the Aluminium Ltd.,
and may be answerable to the latter if he acts in breach
of his duty, nevertheless, as long as his authority is not
revoked, as far as the respondent company is concerned,
the majority of its vote-carrying shares are subject,
directly or indirectly, to his will and ordering and,
therefore, the directors of the respondent company in
fact control its affairs at general meetings and as such
have "a controlling interest" therein, no matter by
what machinery or means that result has been effected.
This line of argument found favour with the Appellate
'l'ribu1rnl and the High Court. We are unable, with all
respect, to accept this argument as sound, for this
argument appears to us to oversimplify the position.
Assuming, but without expressing any final opinion as
(ll (1946] 14 I.T.R. (Suppl.) 7; [1945J 1 All E.R. 667; J9 Tax Cas. 167.
(2) A.LR. 1947 Born. 45; 14 I.T.R. 344.
( 3) [1943] A.C. 335; 11 I.T.R. (Suppl.) 29; 29 Tax Cas, 49,
DasJ.
' -
194
SUPREME COURT REPORTS
[1954]
1953
to, the correctness of the decision in the last mentioned
Commi,,ioner of case, we have no doubt that the analogy is inapt, for
Income-tax,
the principle of that decision can have no application
West Ben~al to the case before us. In the case of directors, who
v.
hold the majority of shares as trustees they, so far as
Mems.
the company is concerned, am the registered shareJ eewanlal Ltd. holders and the right fo vote is vested in them, although
Das J.
as between them and their beneficiaries the beneficial
interest is vested in the latter. They are the registered
holders of the shares and the votes they cast are their
own votes. That case is entirely different from the
case of directors who are only the agents of the holders
of the majority of shares. When a shareholder holding
the majority of shares authorises an agent to vote for
him in respect of the shares so held by him, the agent
acquires no interest, legal or beneficial, in the shares.
The ti tie in the shares remains vested in the shareholder.
The shareholder may revoke the authority of
the agent at any time. In spite of the appointment of
the agent the shareholder may himself appear at the
meeting and cast his votes personally. Therefore, the
shares being always subject to his will and ordering,
the controlling interest which the holder of the majority of shares has never passes to the agent. Let us
take the facts of the present case. Under article 90,
when Mr. L.G. Bash as agent of the Aluminium Ltd.
attends a general meeting of the respondent company
he has to produce the resolution of his principals authorising him to cast the votes of his principals. The votes
he casts are not his votes but are the votes of the
Aluminium Ltd. In such a situation, in the eye of the
law, the controlling interest remains vested in the
Aluminium Ltd. and is at no time vested in Mr. L. G.
Bash. The shares in question which give the controlling
interest are neither held by Mr. L. G. Bash nor are thl'y
subject, directly or indirectly, to his will and ordering,
and, therefore, he cannot, applying either of the tests
·mentioned above, be said to have a controlling interest.
The decision of the Court of Appeal in Commissioners
of Inland Revenue v. James Hodgkinson (Salford) Ltd.(')
(I) (1949) 29 Tax Cas. 395.
(
•
)
•
S.C.R.
SUPREME COURT REPORTS
195
appears to us to be apposite. It is unfortunate that
l953
the last mentioned case was not brought to the notice 0
. .
,,
.
•
onimiasioner oJ
of the High Court before the Judgment under appeal
Income-tax,
was delivered.
West Bengal
Dissent has been expressed in the judgment under
appeal from the recent decision of the Bombay High
Court in New Shorrock Spinning and 1l1 anuf acturing
Co. Ltd. v. Commissioner of Income-tax, Bombay(').
The facts of that case are entirely different from the
facts of the case before us and that decision has no
manner of application to the present case. It is, therefore, unnecessary for us to discuss or express any
opinion as to whether the observations to be found in
the judgment in that case are or are not well-founded.
For reasons stated above, we accept this appeal and
hold that the answer to the question referred by the
Appellate Tribunal to the High Court should be in the
negative. The respondent company must pay the
costs of the appellant in this court as well as in the
High Court.
Appeal allowed.
Agent for the appellant: G. H. Rajadhyaksha.
Agent for the respondent: S. C. Banerjee.
ALLAHABAD BANK LTD.
v.
COMMISSIONER OF INCOME-TAX,
WEST BENGAL.
[PATANJALI SASTRI C.J;, S.R. DAS, VIVIAN BOSE,
GHULAM HASAN and BHAGWATI JJ.]
Income-tax Act (XI of 1922). s. 10 (2) (xv)-Contribntion lo
trust for payment of pension to employees-TVhether bitsiness expenditure-Payment of pension and amount thereof left to discretion of
employer-No obligation on tr·nstees to pny pension-Validity of
trust.
(1) [1950] 18 I.T.R. 712; A.I.R. 1950 Born. 39L
v.
Messrs.
J eewanlal Ltd.
DasJ.
1963
Oct. 8,