PETITIONER:
R. DALMIA
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, NEW DELHI
DATE OF JUDGMENT19/01/1977
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
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.
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
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.
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
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