# R. DALMIA v. COMMISSIONER OF INCOME-TAX, NEW DELHI

- **Citation:** [1977] 2 S.C.R. 654
- **Court:** Supreme Court of India
- **Decided:** 1977-01-19
- **Bench:** R. S. Sarkaria, P. S. Kailasam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/r-dalmia-v-commissioner-of-income-tax-new-delhi-7090
- **Pages:** 6

## Headnote

Indian Income Tax Act (XI of 1922)-s. 2(6C) (iii)-Scope of-"Person
concerned in the management of b11siness"-Meanin11 of.
Words and plzrases-"concerned", "manage", meaning of.
Section 2(6C) (iii) of the Income-tax Act, 1922 provides that the value of
any benefit or perquisite, whether convertible into money or not, obtained from
a company either by a director or by any other person who has a substantial
interest in .the company (that is to. say, who .is concerned in the management
of the busmess of the company, bemg beneficial owner of shares,
not being
shares entitled to fixed rate of dividend carrying not less than 20%
of !he
voting power) and any sum paid by any such company in respect of anv obligation which, but for such appointment, w011ld have been
payable
by
the
director or other person aforesaid is income
..
The assessee was the beneficial owner of 1800 out of 3000 equiiy shares of
a company.
He was, however, not its director.
He had a similar int<:rest in
another company.
Both the companies had spent on his personal necessities a
large sum of money, which the Income-tax Officer treated as his income under
s. 2(6C) (iii) of the Act.
The Appellate Assistant Commissioner, as also the
Tribunal, dismissed his appeal against the order of the Income-tax Officer and
the High Court answered the reference against the assessee.
.
'
In appeal to this Court it was contended that ·the expression "concerned" in
the management of the business of the company takes in only the person wh•
legally participates in the management of its business and not one
who has
only remote control of its business, even if he had the
majority of voting
power.
Dismissing the appeal,
HELD : The expression "person concerned in the management of business"
may take in not only a person who directly participates or engages
in
the
management of the business but also one who indirectly controls its
management through the managerial staff from behind the scenes.
[657 BJ
1. (a) The term "concerned" in s. 2(6C)(iii) cannot be restricted to a per·
son who is an employee of the business OL,an office-holder of the
company.
In the context of "management" it is wide enough to include
every person
"ifllerested" in the management, in the sense of having the direction and control of the managerial staff. [659 C-D]
(b) The word "concerned" is not a term of art, having a precise and fixed
meaning. It has several nuances, and is used to convey
diverse
shades
of
meaning. It may mean "to have a relation to. or bearing on, be of interest or
importance" or ''to have an anxiety, worry''.
"Concerned" as an adjective may
n1ean "interested", "involved".
In one context, it may mean one thing and in
a different context another. [658 G-HJ
(c) The word "concerned" takes its colour from the words "in the management of the business" in associatiop with which it occurs.
Jn the context of
business, "manage" means "to control, to guide, to administer to conduct or
direct affairs', carry on 'business. "Management" includes the act of manageing by direction or regulation or administration or control or superintendence.
[658 H, 659 A]
R. DALMIA. v. COMM. OF I.T. (Sarkaria, J.)
655
(2) The .fast part of the clause is. confined to the obtaini_ng of the value of
any benefit or perquisite from a company by a director, eveJ! if he has no subs- ·
·. tantial interest in the· company. The second part applies to a person who may
riot be a director but has a substantial interest iri the company. What is ."subs-
. tantial interest'' is further equated by the succeeding expression "that is· to say"
with the co-existence of two elements, namely, (i) concern in the management
of the business of the company and (ii) beneficial ownership of shares (not
being shares entitled to a fixed rate of dividend) carrying not less than 20% of
the voting power. [657 G-HJ
In the instant case, the ass,,ssee. obtained the benefit from the company holding 1800 out of 3000 shares, that is, carrying a voting power of 60%
and,

## Text

A
D
.E
.F
fH
654
R. DALMIA
v.
COMMISSIONER OF INCOME-TAX, NEW DELHI
January 19, 1977
[R. S. SARKARIA AND P. S. KAILASAM, JJ.J
Indian Income Tax Act (XI of 1922)-s. 2(6C) (iii)-Scope of-"Person
concerned in the management of b11siness"-Meanin11 of.
Words and plzrases-"concerned", "manage", meaning of.
Section 2(6C) (iii) of the Income-tax Act, 1922 provides that the value of
any benefit or perquisite, whether convertible into money or not, obtained from
a company either by a director or by any other person who has a substantial
interest in .the company (that is to. say, who .is concerned in the management
of the busmess of the company, bemg beneficial owner of shares,
not being
shares entitled to fixed rate of dividend carrying not less than 20%
of !he
voting power) and any sum paid by any such company in respect of anv obligation which, but for such appointment, w011ld have been
payable
by
the
director or other person aforesaid is income
..
The assessee was the beneficial owner of 1800 out of 3000 equiiy shares of
a company.
He was, however, not its director.
He had a similar int<:rest in
another company.
Both the companies had spent on his personal necessities a
large sum of money, which the Income-tax Officer treated as his income under
s. 2(6C) (iii) of the Act.
The Appellate Assistant Commissioner, as also the
Tribunal, dismissed his appeal against the order of the Income-tax Officer and
the High Court answered the reference against the assessee.
.
'
In appeal to this Court it was contended that ·the expression "concerned" in
the management of the business of the company takes in only the person wh•
legally participates in the management of its business and not one
who has
only remote control of its business, even if he had the
majority of voting
power.
Dismissing the appeal,
HELD : The expression "person concerned in the management of business"
may take in not only a person who directly participates or engages
in
the
management of the business but also one who indirectly controls its
management through the managerial staff from behind the scenes.
[657 BJ
1. (a) The term "concerned" in s. 2(6C)(iii) cannot be restricted to a per·
son who is an employee of the business OL,an office-holder of the
company.
In the context of "management" it is wide enough to include
every person
"ifllerested" in the management, in the sense of having the direction and control of the managerial staff. [659 C-D]
(b) The word "concerned" is not a term of art, having a precise and fixed
meaning. It has several nuances, and is used to convey
diverse
shades
of
meaning. It may mean "to have a relation to. or bearing on, be of interest or
importance" or ''to have an anxiety, worry''.
"Concerned" as an adjective may
n1ean "interested", "involved".
In one context, it may mean one thing and in
a different context another. [658 G-HJ
(c) The word "concerned" takes its colour from the words "in the management of the business" in associatiop with which it occurs.
Jn the context of
business, "manage" means "to control, to guide, to administer to conduct or
direct affairs', carry on 'business. "Management" includes the act of manageing by direction or regulation or administration or control or superintendence.
[658 H, 659 A]
R. DALMIA. v. COMM. OF I.T. (Sarkaria, J.)
655
(2) The .fast part of the clause is. confined to the obtaini_ng of the value of
any benefit or perquisite from a company by a director, eveJ! if he has no subs- ·
·. tantial interest in the· company. The second part applies to a person who may
riot be a director but has a substantial interest iri the company. What is ."subs-
. tantial interest'' is further equated by the succeeding expression "that is· to say"
with the co-existence of two elements, namely, (i) concern in the management
of the business of the company and (ii) beneficial ownership of shares (not
being shares entitled to a fixed rate of dividend) carrying not less than 20% of
the voting power. [657 G-HJ
In the instant case, the ass,,ssee. obtained the benefit from the company holding 1800 out of 3000 shares, that is, carrying a voting power of 60%
and,
therefore, satisfied the second element. His own admission that he
was
in
A
B
a
control of the company necessarily includes an admission of his
being "con-
~erned in the management of the business of the company". [658 A-BJ
'-
CIVIL APPELLATE. JURISDICTION: Civil Appeal No. 283 of 1972.
C
Appeal by Special Leave from the Judgment and
Order dated
,~
12-7~1971 of the Delhi High Court .in Income Tax Reference No. 31
of 1967.
. .I
Bishamber Lal for the Appellant.
V. S. Desai, !. · Ramamurthi and· R. N. Sachthey for
the
ResD
pondent.
Tl1e Judgment of the Court was delivered by
SARKARIA, J.
This appeal by special leave is directed against a
judgment, dated July 12, 1971, of the High Court of Delhi. It aris~s
out of these facts :
The. appellant (hereinafter referred to as the assessee) is an individual.
The assessment year is 19 5 5-5 6.
E
Bharat Union Agencies Pvt. Ltd. had spent Rs. 53,398/- after the
personal necessities of the assessee during the previous year
ending
30-9-1964, without charging for the same.
The assessee was not a
director of the said Company.
He however was the beneficial owner
F
of 1800 shares out of the total of 3000 equity shares of the said Com-
~ pany during the previous year.
Similarly, Allen Berry and Co. Pvt.
t Ltd .. had spent a sum of Rs. 4406/- after the personal necessities of
the assessee, without charging for the same.
The Income-tax Officer treated the total benefit of Rs. 57,804/-
received by the assessec from these two Companies, as his
'income'
G
under s. 2(6C) (iii) of the Income-tax Act, 1922 which was
introduced by the Finance Act, 1955 with effect from
1-4-1955,
and
charged it,to tax along with some other items of income.
The assessee carried an appeal to the Appellate Assistant Commissioner who found th11,t the assessee was beneficial owner of the
shares of Bharat Union Agencies. Pvt. Ltd. carrying more than 20 per
H
cent of the voting power.
He further held on the basis of certain
findings in the Report of the Commission of Inquiry on the administration of Dalmia Jain Companies published in 1963, that the assessee
A
B
c
SUPREME COURT REPORTS
[1977] 2 S.C.R.
had 100 per cent of the share-holding control of Allen Berry and
Co. Pvt. Ltd.
The Appellate Assistant Commissioner did not specifically deal with the question whether the assessee was "concerned· in
the management" of both these Companies.
In the result he upheld
the order of the Income-tax Officer.
The assessee preferred a further appeal to the Inc:ome-tax Appellate Tribunal which held that the asscssee was
"concerned in the
management of the Bha.rat Union Agencies (P) Ltd., being the beneficial owner of shares carrying more than 20% of the voting power,
and as such the benefit of Rs. 53,398/- received by him from that
Company was his 'income' within the later part of Clause
(iii)
of
s. 2(6C) of the Income-tax Act, 1922.
On this reasoning the Tribunal dismissed the assessee's
appeal in
regard
to
the item
of
Rs. 53,398/-. However, it allowed, on a different ground his appeal
with regard to the item of Rs. 4406/- received from Allen Berry and
Co. (P) Ltd.
In this appeal we are not concerned with that item any
more.
At the iristance of the assessec, the Tribunal stated the case and
referred the following question under s. 66 ( 1) of the Income-tax Act,
D
1922 to the High Court :
E
F
G
H
"Whether on the facts and in ·the circumstances of the
case, the sum of Rs. 53,398/-
spent by Bharat Union
Agencies P. Ltd. after the personal necessities of the assessee
is income within the meaning of section 2(6C) (iii) of the
Income-tax Act, 1922".
The High Court answered this question against the assessee. Hence
this appeal.
At the outset, Shri Bishamber Lal, appearing for
the
appellant,
tried to contend that the item of Rs.
53,398/-
received
by the
assessee from Bharat Union Agencies Pvt. Ltd. was not a "benefit or
perquisite" within the contemplation of s. 2(6C) (iii) of the 1922 Act
because, firstly, the constituents of this item were not cash amounts
1
but gifts or bounties, and secondly, the receipt of this benefit by the
~
assessee was unauthorised and could not be claimed by him
as
of
right on the basis of any agreement with the Company.
This was altogether a new plea. It was not even indirectly raised
before the authorities under the Income-tax Act or the High Court.
lt has not been raised even in the Special Leave Petition under Article
136 of the Constitution.
It was never the case of the assessee
that
this amount of Rs. 53,398/-
was
not "benefit obtained", by
the
assessee from the Company within the meaning of s. 2 ( 6C) (iii). On
the contrary it is apparent from the judgment of the Tribunal. that
there was "no dispute about the fact that the assessee received benefits from both the Companies to the extent stated by the authorities
below", i.e. benefits to the extent of Rs. 53,398/- and Rs. 4406/" were
received by the assessee from Bharat Union Agencies P.
Ltd. and
Allen Berry and Co. Pvt. Ltd. respectively.
The plea now sought to
R. DALMIA v. COMM. OF I.T. (Sarkaria, J.)
657
be raised in regard to the item of Rs. 53,398/- involv~s a question of
fact.. We therefore did not permit the Counsel to raise this plea for
the first time at the time of arguments before us.
Counsel next contended that the expression "concerned in . tl.\!
management of the business of the Company" takes in only that person who by virtue of a position or office held by him in the Company,
legally and actually participates in the management of its business and
not he who holds no such position or office but is in remote control
of the Company and its affairs merely on account of being in ownership of a certain number of shares, carrying more than 20 per cent or
even the majority of the voting power. In support of this restricted
construction of the term "concerned'', Counsel referred to a decision
of the Madras High Court in Arya Bhavan, Madras v. M. S. Narayana
Rao('), wherein Rajamannar C.J. held that the word "concerned" as
used in the context of 'workman' in s. 22 of the Industrial Disputes
(Appellate Tribunal) Act, 1950, connotes a more intimate and direct
relation to the matter than the word "interest" and therefore this term
should be given a more restricted meaning than the word "interest".
Mr. Bishamber Lal also referred to the meaning of the terms "concerned", "concerning" as given in the Dictionary, "Words and Phrases",
Permanent Edition pp. 504-505 Vol. 8.
Before dealing with this contention, it will be appropriate to examine the material part of s. 2(6C) (iii) of the 1922 Act, which runs
as fo!Jows:
"(iii) the value of any benefit or perquisite, whether
convertible into money or not, obtained from a company
either by a director or by any other person who has a substantial interest in the company (that is to say, who is concerned in the management of the business of the company,
being the beneficial owner of shares, not being shares entitled
to a fixed rate of dividend whether with or without a right
to participate in profits, carrying not less than twenty per ·
cent of the voting power), and any sum paid by any such
company in respect of any obligation which but for such
payment would have been payable by the director or other
person aforesaid."
A
B
c
D
E
F
From an analysis of Clause (iii), it is clear that it falls in two
distinct parts. The first part is confined to the obtaining of the value
of any benefit or perquisite from a Company by a director, even if
G
he has no substantial interest in the Company.
The second part
applies to a person who may not be a director but has a substantial
interest in the Company.
What is "substantial interest"
is
further
equated by the succeeding expression, "that is to say", with the coexistence of two clements, namely, (i) concern in the management of
the business of the Company, and (ii) beneficial ownership of shares
(not being shares entitled to a fixed rate of dividend) carrying not less
H
than twenty per cent of the voting power.
There is no dispute before
(1) A.l.R. 1960 Mad. 143.
658
SUPREME COURT REPQRTS
(1977] 2 S.C.R.
A
us that the assessee had obtained the benefit of Rs. 53,398/- from
Bharat Union Agencies Pvt. Ltd.
It is further admitted that he holds
1800 shares out of the total of 3000 equity shares in this Company,
carrying a voting power of 60 per cent.
Thus, the existence of the
secortd element is more than satisfied.
Controversy pivots
around
the first element, only.
B
The arguments which have been advanced before us on behalf of
the assessee with regard to the construction and application of the
expression "concerned in the management" of the business
of the
Company, were canvassed before the Tribunal, also.
The Tribunal
repelled these arguments.
The reasoning of the Tribunal-with which
the High Court found itself entirely in agreement-is as under :
C
"Shri Sharma conceded the position that the assessee was
controlling both the Companies in question ... To exercise
control over a Company is something more than. to manage
the Company.
A person who manages the company may
not necessarily be in a position to control the business
or ·
affairs of the Company.
He may be managing under the
instructions of those who are controlling the Company.
But
D
a person who controls a Company also directly or indirectly
through the managerial staff manages the business
of the
Company.
It is again not necessary that the person who
manages the business of the Company should be rightfully
entitled to do it.
A person who is not rightfully entitled to
manage the business of the Company but usurps the power
by virtue of his certain position, is, in our opinion, certainly
E
a person covered by this expFession. It is also not necessary ... that the management should be carried on
in
an
ostensible manner.
One who carried on the
management
indirectly and imperceptibly through the persons who outwardly and ostensibly carry on the. management is covered
by the expression. It is not necessary, in our opinion, that
the management should be both seen, and felt; it is sufficient
F
if it is felt, without being seen."
G
H
In our opinion, the above is a correct exposition of the law on the
point.
The word "concern" is not a term of art, having a precise,
fixed meaning.
It has several nuances, and is used to convey diverse
shades of meaning over a wide spectrum. It may mean "to have
a
relation to, or bearing on, be of interest or, importance" or "to have
an anxiety, worry".
"Concerned" as an adjective may mean "interested", "involved".
In one context, it may mean one thing, and in a
different context another.
The decisions as to the meaning of. this
word used in a different context in another statute, are scarcely of
much value in construing it in the setting of the provision with which
we are concerned.
The best way therefore to construe this word
is
with reference to the context in which it is used.
In sub-clause (iii)
of s. 2(6C) of the Income-tax Act, 1922, the word "concerned" takes
its colour from the words "in the management of the business" in association with which it occurs.
In the context of . ):msiness, "manage"
means "to control, to guide, to administer, to conduct or direct affairs;
i
...
R. DALMIA v. GOMM. OF J.T. (Sarkaria, /.)
659
carry on 'business' (Shorter Oxford Dictionary, Webster New World
Dictionary). "Management" includes the act of managing by direction, or regulation, or administration or control or superintendence.
Construed with reference to the context, and the circumstances of
A
a case, the expression "person concerned in the management of the
business" may take in not only a person who directly participates or
engages in the management of the business but also one who indirectly
B
controls its management through the managerial staff, from behind the
scenes.
The assessee's admission that he is in control of the Company
necessarily includes an admission of his
being "concerned in the
management of the business of the Company", We, therefore, agree
with the High Court, that the ambit of the term "concerned" in
s. 2(6C) (iii) cannot be restricted to a person who is an employee of
the business or an office-holder of the Company. In the context of
C
"management" it is wide enough to include every person 'interested'
in the management, in the sense of having the direction and control
of the managerial staff.
On the facts of the case, the assessee was
such a person.
We are therefore, of opinion that the High eourt was right in
answering the question referred to it, against the assessee.
D
The appeal fails and is dismissed with costs.
P.B.R .
Appeal dismissed.
8-l 12SCI/77