2001 PLP 1963 (PTD)

‑‑‑--Company‑‑‑Company in which public are substantially interested‑‑ Definition ‑‑‑Assessee company formed to take over Indian business of widely held foreign company‑‑‑Foreign company to hold 40 per cent. shareholding in assessee‑company‑‑‑Scheme of amalgamation completed by High Court with effect from date of formation‑‑‑Five persons controlling more than 50 per cent. of voting power in accounting year‑‑‑Ban on declaration of dividend until assessee fully ‑constituted ‑‑‑Assessee a Company in which public are substantially interested‑‑‑Indian Income Tax Act, 1961, S.2(18). The assessee, an Indian company, was formed on November 1, 1977, to take over the Indian business of a widely held foreign company. Formalities for obtaining approval for an amalgamation were completed by an order of approval of the High Court on December 18, 1979, having effect from the date of‑its formation. During the accounting period relevant to the assessment year in question there were only seven shareholders and the Income‑tax Officer refused to, accept that the assessee was a company in which the public was substantially interested under section 2(18) of the Income Tax Act, 1961, but, on appeal, the Commissioner (Appeals) held the assessee to be one in which the public were substantially interested in view of the facts (i) that the amalgamation was approved by the High Court with effect from the date of formation of the company; (ii) that the entire scheme envisaged the taking over of the Indian business of a foreign company from November 1, 1977, with a widely based shareholding including the shareholding of 40 per cent: of the foreign company; (iii) that there was a ban on declaration of dividend till the assessee‑company was fully constituted in the manner in the scheme of amalgamation. The Tribunal affirmed the decision of the Commissioner (Appeals) holding (i) that the assessee was not to do anything during the relevant previous year except‑to serve as a holder of the undertaking which could be transferred to it; (ii) that the purpose of the provisions regarding control of the affairs of the company or holding 50 per cent. or more of the shares was to tax at a higher rate if the benefits of the company were to be restricted to a small group; and (iii) there were hardly any affairs to be controlled, no dividend to be declared and no benefit to be derived. On a reference, the High Court affirmed the decision of the Tribunal holding that the Tribunal was justified in not taking a literal approach and in deciding the matter keeping in view the purpose behind the provision. The Department preferred an appeal to the Supreme Court: The Supreme Court dismissed the appeal observing that the reasoning was put correctly by the Commissioner (Appeals). C.I.T. v. Harrisons Crossfield (India) Ltd. (1996) 220 ITR 494 affirmed. K. N. Shukla, Senior Advocate (Rajiv. Nanda and Ms. Sushma Suri, Advocates with him) for Appellant. . C. S.. Vaidyanathan, Senior Advocate (C.N. Sree Kumar and P. Sureshan, Advocates with him) for Respondent. Given the facts and circumstances of the case, we think that no interference is called for with the orders of the Commissioner of Income‑tax (Appeals), the Tribunal and the High Court. We may say that it is the Commissioner of Income‑tax (Appeals) who has put the reasoning correctly. The appeals are dismissed. No order as to costs M.B.A:/498/FC Appeals dismissed.