COMMISSIONER OF INCOME TAX Vs. UNITED BREWERIES

JUDGEMENT

(1.) This is a reference under S.256(1) of the Income Tax-Act, 1961 hereinafter called the Act and it relates to the assessment years 1962-63 to 1965-66. The question of law referred for the opinion of this Court is :

(2.) The Appellate Assistant Commissioner on the appeal preferred by the assessee-company held that in regard to the subsidiaries other than Ruttonjee & Co. Ltd., and Darloo Cannings Ltd., the advances were given to them by the assessee-company of its own funds and therefore deleted the disallowances pertaining to' them. With respect to the advances made to Ruttonjee & Co. Ltd., and Darlo Cannings Ltd., the Appellate Assistant Commissioner sustained the disallowances but directed that the quantum of disallowances must be calculated on the daily product system at 7 per cent for the first three years and at 8 per cent for the last year. Before the Income Tax Appellate Tribunal, Madras Bench 'A', number of grounds were urged by the assessee-company but the Tribunal without expressing any opinion on the several grounds urged, allowed the appeals on the ground that the assessee-company carries on its business through the agency of its subsidiaries and that in the instant case, the veil of corporate personality has to be lifted in as much as there is no distinction between the activities carried on by the holding company and its subsidiaries. In that view of the matter, the Tribunal held that when the assessee company.borrows capital and puts it into the activities carried on by it through its subsidiaries, it must be said that the capital is borrowed for the purpose of the business of the assessee-company and the interest paid for such borrowings falls within the claim permitted under S.36(1) (iii) of the Act.

(3.) It is well settled that the mere fact that a man helds all the shares in a company does not make the business carried on by that company his business, nor does it make the company his agents for the carrying on of the business. That proposition is iust as true if the shareholder is itself a limited company. It is also well settled that there may be such an arrangement between the shareholders and a company as will constitute the company the share-holders' agent for the purpose of carrying on the business and make the business the business of the shareholders. It is therefore a question of fact in each case to be dedided whether the subsidiary was carrying on the business as the company's business or as its own. The business of subsidiary company can be regarded as the business of the parent company if in addition to the capitalist control, it has "functional control" over is subsidiary.