AI Drafter 
TaxTMI 
TaxTMI 
2015 (10) TMI 1904
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....ttlement Commission), in a batch of 25 settlement applications filed under section 245C (1) of the Income Tax Act, 1961 (hereinafter referred to as 'the said Act'). Out of the 25 applications, 12 applications were admitted and allowed to be proceeded with under section 245D(1) of the act and 13 applications were held to be not fit for admission as having been filed by persons who were not covered in the definition of related parties as per explanation to sub-section (1) of section 245C of the Act for the purposes of clause (ia) of the Proviso to sub-section (1) and have been dismissed. 2. The question that arises for consideration in these petitions is whether the petitioner in each of these petitions is a related party of the respective specified person under section 245C(1)(ia) of the Act ? 3. Before adverting to the facts of each of the cases, it would be expedient to examine the provisions of section 245C of the Act to ascertain as to who qualifies as a related party in terms of clauses (a)(v) and (a)(vi)(B) of the Explanation to sub-section (1) to section 245C. Since the petitioners in these petitions claim themselves to be related parties in terms of the above referred ....
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....f clause (ia),- (a) the applicant, in relation to the specified person referred to in clause (ia), means,- (i) where the specified person is an individual, any relative of the specified person; (ii) where the specified person is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the specified person or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the specified person; or any director, partner or member of such company, firm, assoc....
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....x calculated under that clause; (b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year; (1D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub-section (1) shall be the additional amount of income-tax payable in respect of the income disclosed in the application. (2) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed. (3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant. (4) An assessee shall, on the date on which he makes an application under sub-section (1) to the Settlement Commission, also intimate the Assessing Officer in the prescribed manner of having ....
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.... relative of such member, of such specified person (association of persons); or (xii) any relative of such member, of such specified person (Hindu undivided family), (highlight & underlining supplied) has a substantial interest, in the business and profession of any person, who carries on a business or profession, then, such person is also covered in the definition of related parties for the purposes of clause (ia) of the Proviso to sub-section 1 to section 245C of the Act. 7. So, under clause (a)(v), only if a director of the applicant company has a substantial interest in the specified person (company), then, the applicant company, its directors and relatives of its directors qualify as related parties. A company would not qualify as a related party merely because any relative of one of its directors has a substantial interest in the specified person. However, under clause (a)(vi), the applicant would qualify as a related party, if a specified person (company) or any of its directors or any relative of any of its directors have a substantial interest in the applicant. 8. The following flow chart would explain the provision graphically: - Clause (a)(v....
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.... shall be deemed to have a substantial interest in a business or profession, where if, the business or profession is carried on by a company, then on the date of search, such person is 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 in any other case, such person is, on the date of search, beneficially entitled to not less than twenty per cent of the profits of such business or profession. 11. Out of the 25 applicants, the following two applicants fall in the category of specified persons: (i) M/s Somya Constructions Pvt. Ltd. (ii) M/s Rockland Hospitals Ltd. 12. Now let us examine the facts of each of the petitions to determine whether the respective petitioner qualifies as a related party to the claimed specified person. WP(C) 3557of 2014 (M/s Rockland Hotels Ltd.) 13. The Petitioner claims itself to be a related party to M/s Somya Constructions Pvt. Ltd. on the ground that both the companies are substantially controlled by the Srivastava and the Bhandari families and has common shareholding ....
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....a director is intended to be included, the legislature has specifically provided so. As held in Bharat Coop. Bank Ltd. (Supra), use of word 'means' implies that it is a 'hard and fast' definition. The court cannot enlarge the ambit of the qualifying condition and read into it what is not so specifically provided by the legislature. 16. For M/s Rockland Hotels Ltd. to qualify as a related party, one of its directors must hold a substantial interest in the specified person M/s Somya Constructions Pvt. Ltd.. Admittedly that is not the case and the said condition is not satisfied. None of the directors of M/s Rockland Hotels Ltd. hold substantial interest in M/s Somya Constructions Pvt. Ltd. Merely because a relative of one of the directors of the applicant/petitioner is stated to be holding a substantial interest in the specified person would be of no avail. We do not find any infirmity with the reasoning of the Settlement Commission. Since the conditions of Explanation (a)(v) are not satisfied, the Writ Petition is thus liable to be dismissed. WP(C) 3559/2014 (M/s. Avee Medi Surgical Pvt. Ltd.) WP(C) 3752/2014 (M/s. Akhil Meditech Pvt. Ltd.) WP(C) 3753/2014 (M/s. Hitesh C....
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..... reveals that its total shareholding is of 4,44.847 shares, with M/s. Rockland Pvt. Ltd. holding 4,34,847 shares which comes to 97% of shares. Thus, M/s. Rockland Pvt. Ltd. is the only shareholder having substantial interest in this company. Neither M/s. Rockland Hospitals Ltd. nor any of its Directors or their relative hold any substantial interest in the applicant company. Examination of the application of M/s. Himanshu Medicare Pvt. Ltd. reveals that its total shareholding is of 18,72,500 shares, with M/s. Rockland Pvt. Ltd. holding 18,62,500 shares which comes to 99% of shares. Thus, M/s. Rockland Pvt. Ltd. is the only shareholder having substantial interest in this company. Neither M/s. Rockland Hospitals Ltd. nor any of its Directors or their relative hold any substantial interest in the applicant company. Examination of the application of M/s. Aesthetica Enterprises Pvt. Ltd. reveals that its total shareholding is of 15,57,500 shares, with M/s. Rockland Pvt. Ltd. holding 15,47.500 shares which comes to 99% of shares. Thus. M/s. Rockland Pvt. Ltd. is the only shareholder having substantial interest in this company. Neither M/s. Rockland Hospitals Ltd. nor a....
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....d that the 9 applicant companies are related to M/s. Rockland Hospitals Ltd. Regarding the issue of beneficial shareholding, explanation (b) to proviso below section 245C(1) defines when a person is deemed to have a substantial interest. In the case of a company, sub-clause (A) defines that a person who is a beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in the profits), carrying not less than 20% of voting power, is deemed to have substantial interest. So the section envisages a situation where a shareholder has a right to participate in the profits and has voting power. It is only the equity shareholders who are normally entitled to voting power and participate in the profits. Such an equity shareholder may hold shares in his own name or in the name of his relatives or associates, but be the beneficial owner of such shares. In such a situation, the shareholding of such a person both in his own name or in the name of other persons will be clubbed to find out whether he has 20% voting power or not. But in the case of above 9 applicant companies, Rockland Pvt. Ltd. holds substantial interest,....
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....ance. The definition of related person has been provided in the Explanation (a) to proviso below section 245C(1). The words used are "the applicant, in relation to specified person referred to in clause (ia), means". Thus, the definition provided in Explanation is a complete definition and does not provide for any inclusive definition. Thus, if any person satisfies any of the conditions mentioned in clauses (i) to (vi), that person would be a related person. If any person does not satisfy any of these conditions, that person would not be a related person. In the case of applicant, Rockland Pvt. Ltd. holds substantial interest in the applicant companies. But M/s. Rockland Hospitals Ltd., any of its Directors or any relative of Director does not hold substantial interest in the applicant company. Accordingly, conditions of clause (vi) are not satisfied. None of the Directors of these 9 companies holds substantial interest in M/s. Rockland Hospitals Ltd., a specified person. Accordingly, conditions of clause (v) of the Explanation are also not satisfied. Clause (i) and (iii) of Explanation are not applicable. Similarly, clauses (ii) and (iv) are also not applicable. Thus, und....
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....f the legislature had been to permit scope of the same to be enlarged to include having substantial interest indirectly through another entity, the legislature would have specified so as has been done in the case of Explanation (b)(A). 20. Beneficial owner of the share as referred to in Explanation (b)(A) refers to shares held in a company by a person either in his own name or in the name of other, persons. A corporate entity is a separate legal entity. Merely because a director of the specified person holds shares in a company which in turn holds shares in the Petitioner would not make the director the beneficial holder of the shares of the Petitioner and thus qualify the petitioner as a related party. We do not find any infirmity with the reasoning of the Settlement Commission. Since the conditions of Explanation (a)(vi)(B) are not satisfied, these writ petitions are thus liable to be dismissed. WP(C) 3558 of 2014 (M/s Mona Infotech Pvt. Ltd.) WP(C) 3757 of 2014 (M/s. Umesh Pharmaceuticals Pvt. Ltd.) WP(C) 3762 of 2014 (M/s. Aditya Medicos Pvt Ltd.) 21. The Settlement Commission qua the petitioners hereinabove has held as under: "The AR has referred to cla....
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....interest, cannot be accepted. The provisions of Explanation (a) very clearly define the relationship based on any Director or his relative having substantial interest. The provisions of the Explanation do not provide that cumulative holding of 2 or more Directors can be taken into account for purpose of establishing the substantial interest. Explanation (b) provides definition of a person having a substantial interest in the business or profession of another person. This definition is applicable in respect of a person and not in respect of 2 or more persons having cumulative interest. Had the intention of Legislature been to provide for cumulative holding of 2 or more persons to decide whether they have substantial interest, the definition of substantial interest and also the definition of related person as provided in Explanation (a) and (b) would have suitably provided for it. The present definition is very clearly applicable only in respect of a person having a substantial interest. Two or more persons cumulatively having substantial interest cannot be read into the present definition. We accordingly find no merit in the argument that cumulative holding of Directors should be ta....