Controlling interest turns on voting power, while new objections cannot be raised in income-tax reference proceedings.

A question of law in a reference under the Indian Income-tax Act must arise from the issues raised before the Appellate Tribunal, so a fresh challenge to the validity of a power of attorney could not be entertained for the first time in reference. The expression "controlling interest" under section 2(21) of the Excess Profits Tax Act, 1940 was construed as control through voting power at a general meeting, not mere beneficial ownership of shares. On the facts, the relevant voting power was exercised through the director-attorney arrangement, so the company was treated as director-controlled and the substantive tax issue was answered in favour of the Revenue.

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Issues: (i) Whether the invalidity of the power-of-attorney could be raised for the first time in the reference under section 66 of the Indian Income-tax Act. (ii) Whether, on the facts, the respondent company was a company whose directors had a controlling interest within section 2(21) of the Excess Profits Tax Act, 1940.

Issue (i): Whether the invalidity of the power-of-attorney could be raised for the first time in the reference under section 66 of the Indian Income-tax Act.

Analysis: The point of invalidity had not been raised before the Appellate Tribunal. A question of law arises out of the Tribunal's order only if it was raised before that body. The reference jurisdiction could not be used to introduce a new ground inconsistent with the position taken throughout the earlier proceedings.

Conclusion: The point was not open in the reference and could not be entertained.

Issue (ii): Whether, on the facts, the respondent company was a company whose directors had a controlling interest within section 2(21) of the Excess Profits Tax Act, 1940.

Analysis: Control of a company was held to reside in voting power. The expression "controlling interest" was construed to mean the power to control decisions by votes at a general meeting, and not beneficial ownership of the shares. On the facts, Mr. Bash, as director and attorney of the shareholder company, could exercise the relevant voting power and the directors accordingly had effective control of the company.

Conclusion: The respondent company was a director-controlled company and the answer to the referred question was in the affirmative.

Final Conclusion: The reference was answered against the applicant, with the result that the Revenue's position was accepted on the substantive tax issue and the attempted new challenge was rejected.

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