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PETITIONER: PUNJAB PRODUCE AND TRADING CO.  LTD.

       Vs.

RESPONDENT: C.I.T. WEST BENGAL, CALCUTTA

DATE OF JUDGMENT29/07/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S.

CITATION:  1971 AIR 2471            1971 SCR  977

ACT: Income-tax  Act,  1922, s. 23A(9)’  Explanation  (b)  (iii)- Shares  of company carrying more than 50% voting power  held by  less than six persons Affairs of company not  controlled by less than six persons-Company whether one in which public are  substantially interested-Whether one condition or  both conditions  in cl. (b) (iii) of Explanation should  be  ful- filled-Limitation  under s. 34(1) of Act whether  applicable where additional super-tax is imposed under s. 23A.

HEADNOTE: The  assessee company was incorporated under  the  erstwhile Gwalior  Companies  Act which did not make  any  distinction between  public and private companies.  ’The affairs of  the company  were  not controlled by less than six  persons  but shares carrying more than 50% of the total voting power were during  the  relevant  previous year held  by  less  than  6 persons.  After the company’s assessment for the  assessment year  1955-56  had  been completed  the  Income-tax  Officer levied  additional super-tax on the company under s. 23A  of the  Income-tax Act, 1922 holding that it was not a  company in which the public were substantially interested within the meaning  of sub-cl. (b) (iii) of the Explanation to cl.  (9) of s. 23A.  Under the Explanation a company is treated to be one  in which the public are substantially interested if  it is not a private company under the Indian Companies Act  and the affairs of the company or the shares carrying more  than 50%  3f  the total voting power are at no  time  during  the previous  year controlled or held by less than six  persons. The authorities under the Act as well as the High Court,  in reference, held against the assessee.  In appeal by  special leave  to  this Court the assessee contended that  the  word ’or’   in  sub-cl.  (b)  (iii)  aforesaid  had   been   used disjunctively  and  therefore if either  of  the  conditions mentioned  therein did not exist the company must be  deemed to be one in which the public were substantially interested. Reliance  was  placed on the decision of this Court  in  the case  of the State Company Ltd. in which the word ’or’  used in sub-cl. (b) (ii) of the aforesaid Explanation was held to have been used disjunctively.  It was also contended that on the  facts and circumstances of the case the  imposition  of the  additional super-tax under s. 23A without  recourse  to the provisions of s. 34(1) was not valid.

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HELD: (i) The language of sub-cls. (ii) and (iii) of cl. (b) is  different.   The former relates to a positive  state  of affairs  whereas the latter lays down  negative  conditions. The  word  ’or’ is often used to express an  alternative  of terms defined or explanation of the same thing in  different words.   Therefore if either of the two negative  conditions which  are  to  be  found  in  sub-cl.  (b)  (iii)   remains unfulfilled,  the conditions laid down in the entire  clause cannot be said to have been satisfied.  The clear import  of the  word  ’and’ appearing there read with the  negative  or disqualifying  conditions in sub-cl. (b) (iii) is  that  the assessee  was  bound to satisfy apart  from  the  conditions contained in the other sub-clauses that its affairs were  at no  time during the previous year controlled by less than  6 persons  and  shares  carrying more than 50%  of  the  total voting  power were during the same period not held  by  less than 6 persons. [982F-G] 978 Star  Company Ltd.  V. Commissioner of Income-tax  (Central) Calcutta, C.   A. No. 1204/68 dt. 29-4-70, distinguished. Indian Steel & Wire Products Ltd.  Calcutta v.  Commissioner of  Income-tax,  West Bengal, Calcutta, I.T.R.  No.  204  of 1961, referred to. (ii)An  order  made  by the  Income-tax  Officer  directing payment   of  additional  super-tax  is  not  an  order   of assessment within the meaning of s. 34(3) of the Act and  to such  an order the period of limitation  prescribed  thereby does not apply. [983A-B] M.M.  Parikh, I.T.O., Special Investigation  Circle  ’B’, Ahmedabad  v.  ,Navanagar Transport and  Industries  Ltd.  & Anr., 63 I.T.R. 663, followed.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1344  of 1967. Appeal  from the judgment and order dated November 24,  1966 of the Calcutta High Court in Income-tax Reference No. 86 of 1962. V.S.  Desai, N. R. Khaitan, B. P. Maheshwari and  Krishna Sen, for the appellant. Jagadish  Swarup, Solicitor-General, S. K. Aiyer and  B.  D. Sharma, for the respondent. The Judgment of the Court was delivered by Grover,  J.-This is an appeal by special leave from a  judg- ment of the Calcutta, High Court in an Income tax Reference. The  assessee  is a limited company incorporated  under  the erstwhile Gwalior State Companies Act which did not make any distinction between a private company and a public  company. The paid-up capital of the company was Rs. 25,00,000/-  com- posed  of 25,000 Ordinary shares of Rs. 100/-  each.   These 25,000 Ordinary shares were held by 17 share holders in all. It was also common ground that the shares carrying more than 50%  of  the  total voting power were held by  less  than  6 persons during the accounting. period.  The assessment  year was  1955-56  the accounting year being the  one  ending  on March 31, 1955.  The total income assessed for the aforesaid year  was Rs. 9,54,658/on which tax payable amounted to  Rs. 4,05,492.    The  surplus  available  for  distribution   of dividend  was  Rs. 5,49,166/-.  No  dividend,  however,  was distributed although at the meeting held on June 8,                             979 1955 the accounts which were approved showed a net profit of Rs. 6,81,298/-.

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The  controversy before the Income tax Officer  centered  on the applicability of the provisions of s. 23A of the  Income tax  Act 1922.  According to the assessee that  section  was not  applicable  but  the Income tax  Officer  came  to  the conclusion  that since the shares carrying more than 50%  of the total voting power were held by less than 6 persons  the company  was not one in which the public were  substantially interested.   As no justifiable reason for  non-distribution of  the  requisite  percentage  of  the  dividend  had  been furnished  s. 23A was applicable and 100%  distribution  was called  for.   In  view  of  the  provisions  of  s.  23A(1) additional  :super tax of Rs. 1,37,291.50 poise was  imposed subsequent to the completion of the assessment. The  assessee went up in appeal to the  Appellate  Assistant Commissioner  but  the same was dismissed.  The  sole  point that  was argued before the Appellate Tribunal  was  whether the  assessee fulfilled the conditions stated in  sub-clause (b)  (iii)  of the Explanation to s. 23A of the  Act.   This argument  will  be  considered  presently.   The   Tribunal, however,  was not persuaded to accept the contention of  the assessee.  On an application being filed under s. 66(1)  the Tribunal  referred  the following question on  law  for  the opinion of the High Court :               (1)"Whether   on  the  facts  and  in   the               circumstances   of  the  case,  the   assessee               company  is  one  in  which  the  public   are               substantially interested within the meaning of               the  Explanation to Section 23A of the  Income               tax Art, as it stood at the relevant time ?               (2)Whether   on  the  facts  and   in   the               circumstances  of the case, the imposition  of               the  additional  super-tax under  Section  23A               without recourse to the provisions of  Section               34(1) was legal and valid ?" Section  23A  of  the Act confers power on  the  Income  tax Officer to assess companies to super tax on  non-distributed income  in certain cases.  We are concerned, in the  present appeal,  only with sub-s. (9) and the  Explanation  thereto. That sub-section provided inter alia that nothing  contained in  the  section  shall apply to any company  in  which  the public   are   substantially  interested.    The   text   of Explanation  the  interpretation  of which  is  the  subject matter of dispute is as follows               "Explanation.-For the purposes of this section               a  company shall be deemed to be a company  in               which.    the   public    are    substantially               interested.               980               (a)If   it  is  a  company  owned  by   the               Government  or  in which not less  than  forty               percent   of  the  shares  are  held  by   the               Government.               (b)If  it  is  not  a  private  company  as               defined in the Indian Companies Act 1913  (VII               of 1913) and               (i)its shares (not being shares entitled to               a  fixed  rate of dividend,  whether  with  or               without  a  further right  to  participate  in               profits) carrying not less than fifty per cent               of   the  voting  power  have  been   allotted               unconditionally      to,      or      acquired               unconditionally  by, and were  throughout  the               previous year beneficially held by the  public               (not   including  a  company  to   which   the               provisions of this section apply) :

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             Provided that in the case of any such  company               as  is  referred to in sub-section  (4),  this               sub-clause shall apply as if forthe  words               ’not  less than fifty percent’ the  words  not               lessthan forty percent had been substituted.               (ii)  the  said  shares  were  at  party  time               during  the  previous  year  the  subject   of               dealing  in any recognised’stock  exchange  in               India  or  were  freely  transferable  by  the               holder to other members of the public-, and               (iii)the affairs of the company or the shares               carrying more than fifty percent of the  total               voting  power  were  at  no  time  during  the               previous year controlled or held by less  than               six  persons (persons who are related  to  one               another as husband, wife, lineal ascendant  or               descendant  or brother or sister, as the  case               may  be, being treated as a single person  and               persons  who  are nominees of  another  person               together with that other person being likewise               treated as a single person) :               Provided that in the case of any such  company               as  is  referred to in sub-section  (4),  this               clause  shall apply as if for the words  ’more               than  fifty  per cent’ the  words  ’more  than               sixty per cent’ had been substituted. It  is quite clear that clause (a) was not relevant and  had no, application.  It was also not disputed that the assessee had fulfilled the conditions contained in sub-clause  (b)(i) and (b)(ii) of the Explanation. The  sole question  which had to be decided by the Tribunaland  the High  Court  was whether the assessee had fulfilled theconditions  set  out in sub-clause (b)(iii) of the Explanation.  It Was not found that  the affairs of the company were, at any  time,  during the  previous  year controlled by less than 6  persons,  the number six being arrived at- according to- the formula 981 laid  down  in sub-clause.  The sole finding  on  which  the decision went against the assessee was that shares  carrying more  than  50% of the total voting power  were  during  the previous  year  held by less than 6 persons.   The  argument which has throughout been pressed on behalf of the  assessee is that the word "or" which is to be found between the words "the  affairs of the company" and ’the shares carrying  more than.............. had been used disjunctively and therefore if  either one of the conditions did not exist the  assessee would  be entitled to say that the conditions laid  down  in sub-clause  (b)(iii) had been fulfilled.  In other words  if it was established that the affairs of the assessee were  at no time, during the previous year controlled by less than  6 persons  it  would  be a company in which  the  public  were substantially  interested  even though the  shares  carrying more than 50% of the total voting power bad been held during the  previous year by less than six persons.   The  Tribunal disposed of this contention in the following manner :-               "Sub-clause  (iii) is divided into two  parts;               the  first part relates to the affairs of  the               company being controlled by not less 6 persons               and  the  second part relates  to  holding  of               shares  carrying  more than 50% of  the  total               voting power by not less than 6 persons.  Both               these  parts are joined with the main part  of               clause (b) by the use of the conjunctive  word               "and"  so that the proper construction of  the               sub-clause (iii) would be as follows :-

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             (1)If  it  is  not  a  private  company  as               defined in the Indian Companies Act, 1913  and               the  affairs  of the company were at  no  time               during  the previous year controlled  by  less               than six persons ;               (2)If  it  is  not  a  private  company  as               defined in ’the Indian Companies Act, 1913 and               the shares carrying more than 50% of the total               voting  power  were  at  no  time  during  the               previous year held by less than 6 persons." According to the Tribunal sub-cl. (iii) of cl. (b) sought to impose  two  distinct and separate conditions,  namely,  (1) control  of  the affairs of the company  and  (2)  requisite percentage of the voting power held by virtue of the holding of shares.  In order that a company might be treated as  one in which the public were substantially interested it had to show that not merely its affairs were controlled by not less the  6 persons but also that 50% of the total  voting  power had  been held by not less than 6 persons.  The  High  Court looked closely into the language of the Explanation and  had no  difficulty in coming to the conclusion that  the  condi- tions laid down in all the sub-clauses of cl. (b) had to  be satisfied. 982 The difficulty, however, was created by the language of sub- cl.(b)  (iii) in which the word "or" appeared in  more  than one  place.   In a previous Bench decision of  the  Calcutta High  Court in an Income tax Reference (The Indian  Steel  & Wire  Products Ltd. Calcutta v. The Commissioner of  Income- tax,  West Bengal, Calcutta) (1) the same point  had  arisen and it had been held that the conditions prescribed in  sub- cl. (b)(iii) would not be satisfied by mere compliance  with one  branch of it.  Both branches namely the control of  the affairs by not less than 6 persons and the holding of shares carrying the requisite percentage of the total voting. power by not less than 6 persons would have to be fulfilled. On  behalf of the assessee a good deal of reliance has  been placed on a decision of this Court in The Star Company  Ltd. v. The Commissioner of Income-tax (Central) Calcutta(1).  In that  case sub-clause (b)(ii) came up for consideration  and it was held that the two parts of the explanation  contained in that sub-clause were alternative.  In other words if  one part  was satisfied it was unnecessary to  consider  whether the second part was also satisfied.  Thus the word "or"  was treated   as   having  been  used  disjunctively   and   not conjunctively.   The same reasoning is sought to be  invoked with reference to sub-clause (b)(iii). It is significant that the language of sub-clauses (ii)  and (iii)  of  cl. (b) is different.  The former  relates  to  a positive  state  of  affairs whereas the  latter  lays  down negative conditions.  The word "or" is often used to express an  alternative of terms defined or explanation of the  same thing  in different words.  Therefore if either of  the  two negative conditions which are to be found in sub-clause  (b) (iii)  remains unfulfilled, the conditions laid down in  the entire  clause cannot be said to have been  satisfied.   The clear  import of the opening part of cl. (b) with  the  word "and"   appearing   there   read  with   the   negative   or disqualifying  conditions in sub-cl. (b) (iii) is  that  the assessee  was  bound to satisfy apart  from  the  conditions contained in the other sub-clauses that its affairs were  at no  time during the previous year controlled by less than  6 persons  and  shares  carrying more than 50%  of  the  total voting  power were during the same period not held  by  less than 6 persons.  We are unable to find any infirmity in  the

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reasoning  or  the conclusion of the Tribunal and  the  High Court so far as question No. 1 is concerned. (1)  Income Tax Reference No. 204 of 1961. (2)  C. As. 1204 & 1205168 dt. 29-4-70.                             9 83 The second question stands concluded by the decision of this Court in M. M. Parikh, I. T. O. Special Investigation Circle "B", Ahmedabad v. Navanagar Transport and Industries Ltd., & Another (1) in which it was held that an order under s.  23A of the Act made by the Income tax Officer directing  payment of  additional Super tax was an order of  assessment  within the meaning of s. 34(3) of the Act and to such an order  the period of limitation prescribed thereby did not apply. In  the  result this appeal fails and it is  dismissed  with costs. G.    C.                                              Appeal dismissed. (1) 63 I.T.R. 663. 984