COMMISSIONER OF INCOME TAX Vs. COIMBATORE PIONEER MILLS LIMITED

JUDGEMENT

(1.) THE following question was referred to us by the Appellate Tribunal under Section 66(1), Income-tax Act :

(2.) THE assesses in this case is a company incorporated under the Companies Act and carries on business at Coimbatore. During the accounting year from 1st July 1941 to 30th June 1942 the company was assessed to Excess Profits Tax and the resolution of the company amending Article 12 of the Articles of Association was set aside by the Excess Profits Tax Officer under Section 10-A, Excess Profits Tax Act. This decision, however, was reversed by the Appellate Tribunal who disagreed with the conclusion of the Excess Profits Tax Officer. Hence this reference.

(3.) VISWANATHA Sastri J. -- I agree with the answer proposed by my learned brother. It was contended by Mr. Ramchandra Aiyar, the learned advocate for the assessee, that the question referred to us really raised two points (a) whether the alteration of Article 12 of the Articles of Association of the Coimbatore Pioneer Mills Ltd., amounted to a transaction within the meaning of Section 10-A, Excess Profits Tax Act, and (b) whether the main purpose of the transaction, if it amounted to one, was the avoidance or reduction of the liability of the assessee to excess profits tax. If the revenue authorities establish that there has been a transaction as contemplated by Section 10-A and that it comes within the mischief of the section, they can proceed to make the adjustments which they think are necessary for the purpose of neutralising the transaction in so far as it affects the liability of the assessee to excess profits tax. The contention of Mr. Ramachandra Aiyar is that the alteration of Article 12 of the Company's Articles by a resolution of the company cannot be regarded as a transaction in the sense in which it is understood in law. He maintains that the transaction referred to in the section is a transaction made in the course of carrying on the business of the company with persons who are outside the company and an alteration in the mode of the indoor management of the company or of the voting rights of the shareholders of the company, cannot be said to be a transaction of the company. For this proposition he relied upon a judgment of the Court of Appeal in Bendir v. Anson, 1936 3 ALL E. R. 326 : (80 S. J. 873) where Lord Wright observed that a transaction meant an act the effect of which extended beyond the agent to other persons. This decision was given in connection with the interpretation of Order 16, Rule 1 of the Rules of the Supreme Court corresponding to Order 1, Rule 1, Civil P. C. But, in my opinion, the passage relied upon by the learned advocate is itself an authority against his contention, for Lord Wright observed that though the action might be that of an individual by himself, still its effects might be prejudicial or injurious to other persons and all those persons who are so injuriously affected by the action of one could be said to be persons to whom a right to relief arises by the transaction. The word "transaction" has many shades of meaning in the English language and its connotation in the present case must depend upon the context in which it occurs. "Transaction" has been defined is an act, doing, performing, business. It is also defined as an accomplishment of a result or the carrying on or completion of an action or course of action. There is no need, therefore, to limit the meaning of the expression transaction to a bilateral transactions between the company or its share-holders on the one hand and strangers on the other. Acts, resolutions or proceedings of learned, philosophical, scientific or academic bodies are referred to as "transactions" even though there is no question of bilateral arrangements being put through. In my opinion the word transaction as used in Section 10-A has a very wide connotation and is not confined: to transactions made by a firm or a company in the course of its business or trading operations and with outsiders. The decision in Ramaswamier & Sons v. Commissioner of Income-tax, Madras, I. L R. 1948 Mad. 618 : (A. I. R. (32) 1945 Mad 131) is an authority in point. I therefore hold that the amendment off Article 12 in this case amounted to a transaction.