Case: Commissioner Of Income-Tax,West Bengal Vs. Messrs. Jeewanlal Ltd

of its shareholders. In this sense, the directors of the 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 the company, carry the right to vote.See -Glasgow Expanded Metal Co., Ltd. v. Commrs. of Inland Revenue, (1923) 12 Tax Cas 573 (A) and - The Commrs. of Inland Revenue v. B. W. Noble, (1926) 12 Tax Cas 911 (B),It is not, however, necessary that in order to have "a controlling interest" the person or persons who hold the majority of the vote-carrying shares must have a beneficial interest in the shares held by them. These persons may hold the shares as trustees and may even be accountable to their beneficiaries and may be brought to book for exercising their votes in breach of trust, nevertheless, as between them as shareholders and the company, they are the shareholders, and as such have "a controlling interest" in the company.See Inland Revenue Commrs. v. J. Bibby and Sons Ltd. (l946) 14 I T R (Supp.) 7 (C) and - Commr. of Income-tax v. Bipin Silk Milis Ltd., AIR 1947 Bom. 45 (D).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.7. Learned counsel for the respondent company, however, contends, on the analogy of the reasonings adopted by the House of Lords in British American Tobacco Co. Ltd. v. Commrs. of Inland Revenue, (1943) AC (E), 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 at 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 Tribunal 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 to the correctness of the decision in the last mentioned case, we have no doubt that the analogy is inapt, for the principle of that decision can have no application to the case before us.In the case of directors, who hold the majority of shares as trustees they, so far as the company is concerned, are the registered shareholders and the right to vote is vested in them, although 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 title 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 Art. 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 they 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 -- Commrs. of Inland Revenue v. James Hodgkinson (Salford) Ltd., (1949) 29 Tax Cas 395 (F) appears to us to be apposite. It is unfortunate that the last mentioned case was not brought to the notice of the High Court before the judgment under appeal was delivered.8. Dissent has been expressed in the judgment under appeal from the recent decision of the Bombay High Court in - New Shorrock Spinning and Manufacturing Co. Ltd. v. Commr of Income-tax, Bombay, AIR 1950 Bom 391 (G). 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. 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 the 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 the company, carry the right toto 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 respondentare 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 to the correctness of the decision in the last mentioned case, we have no doubt that the analogy is inapt, for the principle of that decision can have no application to the case before us.In the case of directors, who hold the majority of shares as trustees they, so far as the company is concerned, are the registered shareholders and the right to vote is vested in them, although 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 title 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 Art. 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 they 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.Dissent has been expressed in the judgment under appeal from the recent decision of the Bombay High Court in - New Shorrock Spinning and Manufacturing Co. Ltd. v. Commr of Income-tax, Bombay, AIR 1950 Bom 391   (G). 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.