Judgement

S. R. Das J.: This is an appeal from the judgment and order of a Bench of the Calcutta High Court delivered on a reference made by the Income-tax Appellate Tribunal under S. 21, Excess Profits Tax Act, 1940 read with S. 66(1), Income-tax Act, whereby the High Court answered in the affirmative the question of law referred to it. The question referred was:

"Whether in the facts and circumstances of these cases, the Income-tax Appellate Tribunal was right in holding that the Directors of the Respondent Company had a controlling interest in it as contemplated by S. 2(21), Excess Profits Tax Act."

2. The controversy arose between the parties during proceedings for assessment of Excess Profits Tax for five chargeable accounting periods ending on 31st December of each of the years 1939 to 1943.

3. The relevant facts which are not in dispute are these: The respondent company is a company incorporated in what was then British India having a capital of Rs.36,00,000 divided into 360,000 shares of Rs. 10 each. The Aluminum Limited, a company incorporated in Canada, held 359,790 shares in the chargeable accounting periods ending on 31-12-1939 and 31-12-1940 and 359,600 shares in the chargeable accounting periods ending on 31-12-1941, 31-12-1942 and 31-12-1943. In exercise of the power given to it by Article 105 of the Article of Association of the respondent company, the Aluminium Ltd. appointed three permanent directors on the board of directors of the respondent company. Two of these directors eventually retired and only one, namely, Mr. L. G. Bash continued to be a director of the respondent company nominated by the Aluminium Ltd.

Mr. L. G. Bash and other directors had between them during the chargeable accounting periods ending on 31-12-1939 and 31-12-1940 only 210 shares and in the chargeable accounting periods ending on 31-12-1941, 31-12-1942 and 31-12-1943 400 shares Mr. L. G. Bash not having a single share during these last mentioned chargeable accounting periods. By a resolution passed by the directors of the Aluminium Ltd., Mr. L. G. Bash was appointed to vote and/or from time to time to appoint a special or general proxy to vote for and on behalf of the Aluminium Ltd. in respect of the shares held by it in the respondent, company at all oral nary or extraordinary general meetings of the shareholders of the respondent company.

Article 90 of the Articles of Association of the respondent company provides:

"90. Where a company registered under the provisions of the Indian Companies Act or not is a member of this company a person duly an pointed to represent such company at a meeting of this company in accordance with the Provisions of S. 80, Companies Act 1913, shall not be deemed to he a proxy but shall be entitled to vote for such company on a show of hands and to exercise the same power on behalf of the company which he represents as if he were an individual member of this company including the power to appoint a proxy whether special or general and the production at the meeting of a company of such resolution in pointing such representative duly signed by one director of such company and by the secretary (if any) and certified by them or him as being a true copy of the resolution shall on production at the meeting be accepted by this company as sufficient evidence of the validity of his appointment."

4. Mr. L G. Bash has at all material times been exercising the powers conferred by the above article as the representative of the Aluminium Ltd.

5. The claim of the respondent company was that it should be regarded as a company the directors whereof had a controlling interest therein, inasmuch as Mr. L. G. Bash, one of the directors, had the authority to exercise the voting power of the Aluminium Ltd. and, as such, could control the affairs of the respondent company and that in computing the Standard profits the Statutory percentage should be taken at 10 per cent. per annum and not at 8 per cent. per annum. This contention was reje