DIPAK KUMAR SEN, J. - (1.) ICI (India) Pvt. Ltd., the respondent in this appeal, is an Indian company and is assessed to income-tax in India as an ordinary resident.
(2.) IMPERIAL Chemical Industries Ltd., London (hereafter referred to as "ICI"), is a company incorporated under the laws of the United Kingdom and is a non-resident company within the meaning of the IT Act, 1961. At the material time, ICI (India) Pvt. Ltd. was a 100 per cent subsidiary of ICI. The facts and proceedings leading upto this appeal are, inter alia, as follows : (i) With the object of manufacture in India of diverse products, ICI, in 1937, promoted a company in India named Alkali and Chemical Corporation of India Ltd. (hereafter referred to as "ACCI"), for the manufacture of caustic soda and chlorine products. (ii) After the last World War, ICI decided further to make substantial investments in India for the manufacture of an extended range of products which were previously imported. Accordingly, the existing company, ACCI, was substantially expanded and two other new companies named Indian Explosives Ltd. (hereafter referred to as "IEL") and Atic Industries Ltd. (hereafter referred to as ''ATIC'') were promoted. The expansion of ACCI contemplated a project for the setting up of a plant for production of polythene granules; IEL was promoted for the manufacture of commercial blasting high explosives and ATIC was promoted for the manufacture of dyestuffs. (iii) The Government of India had also requested ICI to consider manufacture of commercial blasting high explosives in India some time in 1949. (iv) To finance the aforesaid projects, ICI made available sterling loans to the respondent to enable the respondent to advance loans to ACCI, IEL and ATIC. The respondent advanced the loans to the said three companies on condition, inter alia, that the respondent would take up equity shares in the said three companies initially in its own name with an understanding to transfer the same to ICI as and when ICI would call upon the respondent to do so at par or at the issue price in satisfaction of the said loans from ICI to the respondents.
(3.) IT was open to ICI to subscribe for and hold directly the shares of the said three manufacturing companies, viz., ACCI, IEL and ATIC. But ICI decided to hold such shares initially through and in the name of the respondent for the following reasons : (a) Tax reliefs were available for new industrial undertakings under ss. l5C and 56A of the Indian IT Act, 1922. (b) If ICI held the shares directly, the reliefs under the said sections would be nullified as the dividends on which relief could be obtained in India would be fully taxed in the U.K. (c) The procedure would also be administratively convenient.;