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

The respondent company is a company incorporated in what was then British India having a capital of Rs.36,00,000 divided into 360,000 shares of Rs. 10 each. The Aluminum Limited, a company incorporated in Canada, held 359,790 shares in the chargeable accounting periods ending on 31-12-1939 and 31-12-1940 and 359,600 shares in the chargeable accounting periods ending on 31-12-1941, 31-12-1942 andIn exercise of the power given to it by Article 105 of the Article 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 continued to be a director of the respondent company nominated by the Aluminium Ltd.Mr. L. G. Bash and other directors had between them during the chargeable accounting periods ending on 31-12-1939 and 31-12-1940 only 210 shares and in the chargeable accounting periods ending on 31-12-1941, 31-12-1942 and 31-12-1943 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 oral nary or extraordinary general meetings of the shareholders of the respondent company.Article 90 of the Articles of Association of the respondent companyWhere a company registered under the provisions of the Indian Companies Act or not is a member of this company a person duly an pointed to represent such company at a meeting of this company in accordance with the Provisions of S. 80, Companies Act 1913, shall not be deemed to he 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 in pointing 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.5. The claim of the respondent company was that it should be regarded as a company the directors whereof had a controlling interest therein, inasmuch as Mr. L. G. Bash, one of the directors, had the authority to exercise the voting power of the Aluminium Ltd. and, as such, could control the affairs of the respondent company and that in computing the Standard profits the Statutory percentage should be taken at 10 per cent. per annum and not at 8 per cent. per annum. This contention was rejected by the Excess Profits Tax Officer. On appeal by the respondent company the Appellate Assistant Commissioner of Excess Profits Tax upheld the decision of the Excess Profits Tax Officer.The respondent company thereupon appealed to the Income-tax 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 hereinafter set out. By its judgment dated 11-1-1951 the High Court of Calcutta has answered the question in the affirmative. The Commissioner of Excess Profits Tax, West Bengal, has now, came up on appeal to this Court with a certificate under S. 66-A(2), Income-taxto 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.

Reasoning: 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.