INCOME TAX OFFICER Vs. NATIONAL RUBBER MANUFACTURERS LTD

JUDGEMENT

(1.) This appeal is directed against a judgment and order dated August 25 and 28, 1972. The respondent made an application under article 226 of the Constitution for quashing a notice dated July 28, 1971, issued under Section 154 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the assessment year 1964-65. The shares of the respondent which is an existing company are held amongst others by the Life Insurance Corporation of India, Zenith Assurance Co. Ltd., and British India General Insurance Corporation. A list of shareholders of the respondent for the relevant year, that is to say, for the period from January 1, 1963, to December 31, 1963, had been annexed to the petition. A similar list was filed before the Income-tax Officer at or before the time of assessment of the tax for the assessment year 1964-65, In assessing the respondent, the Income-tax Officer computed the total income of the respondent at Rs. 19,78,729 and treated the respondent as a company in which the public were substantially interested within the meaning of Section 2(18) of the Act and allowed rebate of tax under para, (d) of Part II of the First Schedule to the Finance Act, 1964. By a notice under Section 154 of the Act dated July 28, 1971, the respondent was informed that on a perusal of the list of shareholders as on January 1, 1963, and December 31, 1963, it appeared that the respondent was not a company in which the public was substantially interested for the relevant assessment year and on that basis the respondent was called upon to show cause why the assessment should not be revised, and the excess rebate allowed to the respondent be withdrawn. This was followed by another notice dated July 28, 1971, by which the respondent was informed that the assessment order under Section 143(3) for the assessment year 1964-65 made on August 30, 1968, required to be amended, as there was a mistake apparent on the record. The respondent was asked to appear in person or by an authorised representative before the appellant No. I. The respondent obtained extension of time to show cause from time to time.

(2.) Mr. Suhas Sen, appearing for the appellant, contended that it appeared from the records, particularly from the list of shareholders annexed to the petition and also filed before the Income-tax Officer, that more than 50% of the total voting power of the respondent were held during the relevant previous year by 5 or less persons in terms of Sub-clause (iii) of clause (b) of Sub-section (18) of Section 2 of the Act. The next contention of Mr. Sen was that at the relevant time the respondent was not engaged wholly in manufacturing and processing of goods. In support of this he relied on the balance-sheet from which it appeared that at the relevant time the respondent was carrying on business as managing agents of different companies and also as exporters of goods. Mr. Sen contended that this was supported by the assessment order which showed that the respondent had obtained rebate as an exporter of goods.

(3.) Sub-clause (2) of Clause (iii) of Section 109 of the Act contemplates a company whose business consists wholly in manufacturing or processing of goods. It was argued by Mr. Sen that lor the reasons noted above the respondent was not at the relevant period of time a company engaged wholly in manufacturing or processing goods.