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PETITIONER: R. DALMIA

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, NEW DELHI

DATE OF JUDGMENT19/01/1977

BENCH: SARKARIA, RANJIT SINGH BENCH: SARKARIA, RANJIT SINGH KAILASAM, P.S.

CITATION:  1977 AIR  988            1977 SCR  (2) 654  1977 SCC  (2) 467

ACT:            Indian Income Tax Act (XI of 1922)--s.  2(6C)(iii)--Scope         of--"Person concerned in the management of  business"--Mean-         ing of.            Words   and   phrases--"concerned",   "manage",   meaning         of.

HEADNOTE:            Section  2(6C)(iii) of the Income-tax Act, 1922  provides         that  the value of any benefit or perquisite,  whether  con-         vertible  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 benefi-         cial  owner of shares,  not  being shares entitled to  fixed         rate of dividend carrying not less than 20%  of  the  voting         power)  and any sum paid by any such company in  respect  of         any  obligation which, but for such appointment, would  have         been  payable  by  the director or other person aforesaid is         income.             The  assessee  was the beneficial owner of 1800  out  of         3000  equity shares of a company.  He was, however, not  its         director.   He  had a similar interest 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  ex-         pression  "concerned" in the management of the  business  of         the  company takes in only the person who  legally  partici-         pates  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 partici-         pates   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 B]             1.  (a) The term "concerned" in s. 2(6C)(iii) cannot  be

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       restricted to a person who is an employee of the business or         an office-holder of the  company. In the context of "manage-         ment" it is wide enough to include  every  person "interest-         ed" 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  0r         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. [658 G-H]             (c) 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  business,  "manage"         means  "to control. to guide. to administer to  conduct   or         direct affairs’, carry on ’business.  "Management"  includes         the  act of managing by direction or regulation or  adminis-         tration or control or superintendence. [658 H, 659 A]         655           (2)  The first part of the clause is confined to  the  ob-         taining  of  the value of any benefit or perquisite  from  a         company by a director, even if he has no substantial  inter-         est  in the company.  The second part applies to  2a  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 co-existence of two elements, namely, (i) concern in the         management  of the business of the company and (ii)  benefi-         cial  ownership  of shares (not being shares entitled  to  a         fixed  rate of dividend) carrying not less than 20%  of  the         voting power.  [657 G-H]         In the instant case, the assessee, Obtained the benefit from         the company holding 1800 out of 3000 shares, that is, carry-         ing  a voting power of  60%  and, therefore,  satisfied  the         second element.  His own admission that he  was  in  control         of  the  company necessarily includes an  admission  of  his         being  "concerned in the management of the business  of  the         company". [658 A-B]

JUDGMENT:           CIVIL  APPELLATE  JURISDICTION: Civil-Appeal  No.  283  of         1972.             Appeal  by  Special Leave from the Judgment  and   Order         dated  12-7-1971  of  the  Delhi  High  Court  in  of  1967.         Income Tax Reference No. 31 of 1967.         Bishamber Lal for the Appellant.         V.S. Desai, J. Ramamurthi and R.N. Sachthey for the Res-         pondent.         The 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         out of these facts:            The  appellant (hereinafter referred to as the  assessee)         is an individual.  The assessment year is 1955-56.            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 of 1800 shares  out  of         the  total of 3000 equity shares of the said Company  during         the previous year.  Similarly, Alien Berry and Co. Pvt. Ltd.

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       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 assessee from these two  Companies,         as his  ‘income’ 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 that the  assessee  was  beneficial         owner   of   the shares of Bharat Union Agencies  Pvt.  Ltd.         carrying  more  than 20 per 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         656         had  100  per  cent of the share-holding  control  of  Allen         Berry   and Co. Pvt. Ltd.  The Appellate  Assistant  Commis-         sioner  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  Income-         tax  Appellate  Tribunal which held that  the  assessee  was         "concerned  in  the management of the Bharat 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  ’in-         come’ 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 Alien Berry and Co. (P) Ltd.  In this appeal we are not         concerned with that item any more.             At the instance of the assessee, the Tribunal stated the         case and referred the following question under s. 66(1 )  of         the Income-tax Act, 1922 to the High Court:                           "Whether  on the facts and in the  circum-                       stances  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 asses-         see. 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 contempla-         tion of s. 2(6C)(iii) of the 1922 Act because, firstly,  the         constituents of this item were not cash amounts 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  indi-         rectly  raised before the authorities under  the  Income-tax         Act  or the High  Court. It has not been raised even in  the         Special  Leave Petition under Article 136 of  the  Constitu-         tion.   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

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       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         657         be  raised in regard to the item of Rs. 53,398/- involves  a         question  of fact.  We therefore did not permit the  Counsel         to  raise this plea for the first time at the time of  argu-         ments before us.             Counsel  next contended that the  expression  "concerned         in  the 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(1),  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  there-         fore  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  appro-         priate to examine the material part of s. 2(6C)(iii) of  the         1922 Act, which runs as follows:                             "(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 sub-                       stantial  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 afore-                       said."             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 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 "substantiaI interest"  is         further  equated by the succeeding expression, "that  is  to         say",  with  the coexistence 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         twenty  per cent of the voting power.  There is  no  dispute         before         (1) A.I.R. 1960 Mad. 143.

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       658         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 second element  is         more  than satisfied.   Controversy pivots around the  first         element, only.             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  manage-         ment"  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:                             "Shri Sharma conceded the position  that                       the  assessee was controlling both the  Compa-                       nies. 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  con-                       trol the business  or affairs of the  Company.                       He may be managing under  the instructions of.                       those  who are controlling the  Company.   But                       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  man-                       ages  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 a person covered  by  this                       expression.   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 ostensi-                       bly 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  if  it  is                       felt, without being seen."             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  mean-         ing  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 refer-         ence  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  manage-         ment  of the business" in association with which it  occurs.         In the context of  business, "manage" means "to control,  to         guide, to administer, to conduct or direct affairs;         659         carry on ’business’ (Shorter Oxford Dictionary, Webster  New

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       World Dictionary).  "Management" includes the act of  manag-         ing  by direction, or regulation, or administration or  con-         trol or superintendence.             Construed with reference to the context, and the circum-         stances  of 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 controls its  man-         agement  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 Compa-         ny",  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 "manage-         ment" 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  Court  was         right  in answering the question referred to it, against the         assessee.         The appeal fails and is dismissed with costs.         P.B.R.                                               Appeal dismissed.         8--112SCI/77         660