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PCC TAXATION

Pranav Prasad Visapurkar (Final Student) (197 Points)

25 April 2009

in the income tax module,

at many places. there is reference of the term '' persons having substantila interest in the company'',

I could not understood the term as much clearly as i wanted to understand. will anybody explain me the difference bet'n beneficial ownership and legal ownership and also the the term above mentioned.

Thanks in advance!

Hve a good day!

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4 Replies

k n v v s k sri kanth ( ) (564 Points)
Replied 25 April 2009

Beneficial ownership is enjoyed by anyone who has the benefits of ownership of a security or property, and yet does not nominally own the asset itself.

k n v v s k sri kanth ( ) (564 Points)
Replied 25 April 2009

Legal Ownership is enjoyed by that particular person who has the legal authority or right on that particular property of which should be under his pocession. Also the legal actions can be taken by the court of law.

k n v v s k sri kanth ( ) (564 Points)
Replied 25 April 2009

pranav dont get confused with the wordings try to grasp the sentencful meaning ::

you said ::

Persons having substantial interest in the company

meaning ::

Section 2(6C)(iii) of the Income-tax Act, 1922 provides that the value of any benefit or perquisite, whether con- vertible into money or not, obtained from a company either by a director or by any other person who has a substantial interest in the company (that is to say, who is concerned in the management of the business of the company, being benefi- cial owner of shares, not being shares entitled to fixed rate of dividend carrying not less than 20% of the voting power) and any sum paid by any such company in respect of any obligation which, but for such appointment, would have been payable by the director or other person aforesaid is income.

The assessee was the beneficial owner of 1800 out of 3000 equity shares of a company. He was, however, not its director. He had a similar interest in another company.

Both the companies had spent on his personal necessities a large sum of money, which the Income-tax Officer treated as his income under s. 2(6C)(iii) of the Act. The Appellate Assistant Commissioner, as also the Tribunal, dismissed his appeal against the order of the Income-tax Officer and the High Court answered the reference against the assessee.

In appeal to this Court it was contended that the ex- pression "concerned" in the management of the business of the company takes in only the person who legally partici- pates in the management of its business and not one who has only remote control of its business. even if he had the majority of voting power.

Dismissing the appeal,

HELD: The expression "person concerned in the management of business"may take in not only a person who directly partici- pates or engages in the management of the business but also one who indirectly controls its management through the managerial staff from behind the scenes. [657 B]

1. (a) The term "concerned" in s. 2(6C)(iii) cannot be restricted to a person who is an employee of the business or an office-holder of the company. In the context of "manage- ment" it is wide enough to include every person "interest- ed" in the management, in the sense of having the direction and control of the managerial staff. [659 C-D]

(b) The word "concerned" is not a term of art, having a precise and fixed meaning. It has several nuances, and is used to convey diverse shades of meaning. It may mean

"to have a relation-to. or bearing on, be of interest 0r importance" or "to have an anxiety, worry". "Concerned" as an adjective may mean "interested", "involved". In one context, it may mean one thing and in a different context another. [658 G-H]

"in the management of the business" in association with which it occurs. In the context of business, "manage"

means "to control. to guide. to administer to conduct or direct affairs', carry on 'business. "Management" includes the act of managing by direction or regulation or adminis- tration or control or superintendence. [658 H, 659 A]

655 (2) The first part of the clause is confined to the ob- taining of the value of any benefit or perquisite from a company by a director, even if he has no substantial inter- est in the company. The second part applies to 2a person who may not be a director but has a substantial interest in the company. What is "substantial interest" is further equated by the succeeding expression "that is to say" with the co-existence of two elements, namely, (i) concern in the management of the business of the company and (ii) benefi- cial ownership of shares (not being shares entitled to a fixed rate of dividend) carrying not less than 20% of the voting power. [657 G-H]

In the instant case, the assessee, Obtained the benefit from the company holding 1800 out of 3000 shares, that is, carry- ing a voting power of 60% and, therefore, satisfied the second element. His own admission that he was in control of the company necessarily includes an admission of his being "concerned in the management of the business of the company". [658 A-B]