Bhatia Colonizers P Ltd., A v. The Deputy Commissioner Of Income Tax, Centralrevenue Building, Rawat Bhata Road, Kotarevenue Building, Rawat Bhata Road, Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR S.B. Civil Writs No. 2050/2018 Bhatia Colonizers P Ltd., A/34, Landmark City, Bundi Road,Kunhadi, Kota, Rajasthan- 324008 Thro, R/o 49-A, New Colony,Gurmanpura, Kota Rajasthan ----Petitioner Versus 1. The Deputy Commissioner Of Income Tax, CentralRevenue Building, Rawat Bhata Road, KotaRevenue Building, Rawat Bhata Road, Kota 2. The Pr. Commissioner Of Income Tax Central, AayakarBhawan, Central Revenue Building, Statue Circle, Jaipur.Bhawan, Central Revenue Building, Statue Circle, Jaipur. 3. Income Tax Settlement Commission, Principal Bench,Through Secretary, 9Th Floor, Lok Nayak Bhawan KhanMarket, New Delhi-110003Through Secretary, 9Th Floor, Lok Nayak Bhawan KhanMarket, New Delhi-110003 ----Respondents For Petitioner(s) For Respondent(s) : Mr.Prakul Khurana, Advocate.: Mr.Siddharth Bapna, Advocate. HON'BLE MR. JUSTICE ASHOK KUMAR GAUR Judgment Judgment reserved on : 4 th December, 2018.Date of Judgment: 18[th] December, 2018.Date of Judgment: 18[th] December, 2018. -By the Court: 1.The petitioner-Company has filed the instant writ petitionchallenging the order dated 03.01.2018 passed by the Income TaxSettlement Commission, Principal Bench, New Delhi wherein theapplication filed by the petitioner-Company under Section 245C(1)of the Income Tax Act, 1961 (hereinafter shall be referred to as“the Act, 1961”) has been held “invalid” as it has not fulfilled theconditions prescribed under Section 245C(1) of the Act, 1961. 2.The petitioner-Company has prayed for a writ of mandamusto direct the respondents-Income Tax Authorities to entertain thesettlement application of the petitioner-Company and further toproceed in accordance with law. The prayer has also been made toquash and set aside the proceedings initiated in pursuance of theimpugned order dated 03.01.2018 rejecting the application of thepetitioner-Company. 3.Brief facts pleaded in the writ petition, are that the petitioneris a company incorporated under the provisions of the CompaniesAct, 1956 having its registered office at A/34, Landmark City,Bundi Road, Kunhadi, Kota (Rajasthan). The Income Taxauthorities carried search and seizure under Section 132 of theAct, 1961 at the premise of the petitioner-Company and itsDirectors namely Ram Jashandas Bhatia, Deepak Rajwanshi andArun Mehta and other related Concerns on 03.03.2016. 4.The petitioner-Company has pleaded that on 31.10.2017, thepetitioner-Company filed an application under Section 245C(1) ofthe Act, 1961 seeking settlement with the Income Tax Departmentfor the Assessment Year 2010-11 to 2017-18 declaring additionalincome of Rs.30,90,929/-. The petitioner-Company declared taxpayable on declared income as Rs.10,02,952/-. The Directors ofthe petitioner-Company namely Ram Jashandas Bhatia, DeepakRajwanshi and Arun Mehta also declared additional income inpersonal hands on which tax payable was above Rs.50 Lakhs eachand the details, as given in the writ petition, are as follows:- Applicants nameAdditionalTax payable onAdditional Income DeclaredIncomeRam Jashandas BhatiaRs.21,22,65,084/-Rs.7,06,93,579/-Deepak RajwanshiRs.6,85,61,116/-Rs.2,28,87,964/-Arun MehtaRs.7,19,78,909/-Rs.2,43,07,779/- 5.The petitioner-Company has pleaded that as per clause (i) tothe proviso to Section 245C(1) of the Act, 1961, it is sine qua nonfor a valid application before the Settlement Commission that theincome tax payable on the additional income disclosed in theapplication exceeds the amount of Rs.50 Lakhs and the saidapplicant is termed as ‘specified person’ for the other applicantswho are related to the ‘specified person’ for whom the condition oftax payable on additional income disclosed in the application isminimum of Rs.10 Lakhs. Applicants nameAdditionalTax payable onAdditional Income DeclaredIncomeRam Jashandas BhatiaRs.21,22,65,084/-Rs.7,06,93,579/-Deepak RajwanshiRs.6,85,61,116/-Rs.2,28,87,964/-Arun MehtaRs.7,19,78,909/-Rs.2,43,07,779/- 5.The petitioner-Company has pleaded that as per clause (i) tothe proviso to Section 245C(1) of the Act, 1961, it is sine qua nonfor a valid application before the Settlement Commission that theincome tax payable on the additional income disclosed in theapplication exceeds the amount of Rs.50 Lakhs and the saidapplicant is termed as ‘specified person’ for the other applicantswho are related to the ‘specified person’ for whom the condition oftax payable on additional income disclosed in the application isminimum of Rs.10 Lakhs. 6.The petitioner-Company has pleaded in the petition that itqualifies the definition of relation with the ‘specified person’ withinthe meaning of explanation (a) to Section 245C(1) of the Act,1961 as covered under clause (v) of explanation (a) to Section245C of the Act, 1961 and was thus, competent to maintainsettlement application declaring tax payable at Rs.10,02,952/-. 7.The petitioner-Company has given shareholding of itsDirectors namely Ram Jashandas Bhatia, Deepak Rajwanshi andArun Mehta, as follows:- Name of the Share HolderTotal Share Per SharesCentageRam Jashandas Bhatia88507.3%Deepak Rajwanshi1320011%Arun Mehta1320011% 8.The petitioner-Company has pleaded in the petition that theapplication of the petitioner-Company came to be opposed by the (4 of 18) respondent-Department on the ground that it did not qualify therequirement of being related to the ‘specified person’. 9.The petitioner-Company has pleaded in the petition that bythe impugned order dated 03.01.2018, the SettlementCommission has erroneously dismissed the application by holdingthat the petitioner is not covered in the definition of ‘relatedperson’ to the ‘specified person’ within the meaning of explanationto Section 245C(1) of the Act, 1961. The petitioner-Company haspleaded that the impugned order dated 03.01.2018 is legally notsustainable. 10.The petitioner-Company has pleaded that the impugnedorder dated 03.01.2018 is patently bad and illegal and suffersfrom vice of non-application of mind, arbitrariness and apparentcontradiction as Settlement Commission omitted to appreciatethat in the present case, the Directors of the petitioner-Companyand ‘specified person’ within the meaning of Section 245C of theAct, 1961 are the same. It is pleaded that Director of thepetitioner-Company is having 100% interest in the business orprofession of the specified person (which fulfills the condition of‘substantial interest’, as defined in clause (B) of the explanation(b) to Section 245C(1) of the Act, 1961 and as per the petitioner-Company its case was squarely covered under clause (v) ofexplanation (a) to Section 245C(1) of the Act, 1961). 11.Counsel for the petitioner has raised following legalsubmissions before this court:- (i)The Settlement Commission failed to appreciate that thecase of the petitioner-Company was squarely covered underclause (v) of explanation (a) to Section 245C(1) of the Act, 1961and Director of the petitioner-Company and ‘specified person’ inthe meaning of Section 245C are same. The Director of thepetitioner-Company is having 100% interest in the business orprofession of the specified person (fulfilling the condition of‘substantial interest’, as defined in clause (B) of the explanation(b) to Section 245C(1) of the Act, 1961). (ii)The Settlement Commission failed to appreciate that thecollective stake of all the three ‘specified persons’ exceeded 20%in the petitioner-Company and, therefore, the petitioner-Companyalternatively gets covered under clause (vi)B of explanation (a) toSection 245C(1) of the Act, 1961. (ii)The Settlement Commission failed to appreciate that thecollective stake of all the three ‘specified persons’ exceeded 20%in the petitioner-Company and, therefore, the petitioner-Companyalternatively gets covered under clause (vi)B of explanation (a) toSection 245C(1) of the Act, 1961. (iii)The interpretation adopted by the Settlement Commissionwould be contrary to the spirit and legislative intention behind theset-up of the Settlement Commission and the relevant provisionneeds to be suitably read down to hold that the petitioner-Company being covered under the expression “in relation to thespecified person” as per explanation (a) to Section 245C(1) of theAct, 1961. 12.The respondents have filed reply to the writ petition and theyhave supported the impugned order dated 03.01.2018 passed bythe Settlement Commission. 13.The respondents have pleaded in the reply that thepetitioner-Company has misinterpreted the provisions of Section 245C(1) of the Act, 1961 and it is seeking benefit under theprovision which does not apply to the petitioner-Company. 14.The respondents have pleaded that explanation appended toSection 245C(1) of the Act, 1961 comprehensively andexhaustively elucidates as to who and what can be categorized as‘related person’ with respect to a ‘specified person’, as referredunder clause (ia) of Section 245C(1) of the Act, 1961. 15.The respondents have submitted that the petitioner-Company is covered under clause (vi) of explanation (a) of Section245C(1) of the Act, 1961 rather than being covered under clause(v) of the explanation, as claimed by the petitioner-Company. 16.The respondents have pleaded that although clauses (iv) and(v) of the explanation talk about a Company, firm, an associationof persons or a Hindu Undivided Family but these are generalprovisions in respect of a ‘specified person’, who can be anyjuridical person. However, clause (vi) of the explanation is morespecific in respect of the ‘specified person’ being an individual. Itis submitted that clause (vi) being a specific provision withreference to ‘specified person’ being an individual will beapplicable to the present case of the petitioner-Company insteadof general provisions of clauses (iv) and (v) of the explanation. 17.The respondents have further reiterated that clauses (iv) and(v) of the explanation govern those relations where there is anindirect link between the specified and related persons for thepurpose of clause (ia) of Section 245C(1) of the Act, 1961contrary to clause (vi) of the explanation, the same governs the relations where there is a direct link between specified and relatedpersons. 18.The respondents have submitted that the taxing statues areto be strictly interpreted and there is no intention of thelegislature for considering shareholding of one or more Directorscumulatively and if the legislature has not provided clubbing of theshareholding of different persons to determine substantial interestof the person, the same cannot be considered. 19.Counsel for the respondents Mr.Siddharth Bapna hasopposed the prayer sought in the writ petition and has submittedthat the impugned order, passed by the Settlement Commission,does not require any interference by this Court. 20.I have heard counsel for the parties. It would be appropriateto quote Section 245C of the Act, 1961 to examine the presentcontroversy, which reads as follows:- “Application for settlement of cases. 19.Counsel for the respondents Mr.Siddharth Bapna hasopposed the prayer sought in the writ petition and has submittedthat the impugned order, passed by the Settlement Commission,does not require any interference by this Court. 20.I have heard counsel for the parties. It would be appropriateto quote Section 245C of the Act, 1961 to examine the presentcontroversy, which reads as follows:- “Application for settlement of cases. 245C. (1) An assessee may, at any stage of a case relatingto him, make an application in such form and in suchmanner as may be prescribed, and containing a full and truedisclosure of his income which has not been disclosed beforethe Assessing Officer, the manner in which such income hasbeen derived, the additional amount of income-tax payableon such income and such other particulars as may beprescribed, to the Settlement Commission to have the casesettled and any such application shall be disposed of in themanner hereinafter provided : Provided that no such application shall be made unless,— (i) in a case where proceedings for assessment orreassessment for any of the assessment years referredto in clause (b) of sub-section (1) of section 153A orclause (b) of sub-section (1) of section 153B in case ofa person referred to in section 153A or section 153Chave been initiated, the additional amount of income-tax payable on the income disclosed in the applicationexceeds fifty lakh rupees,reassessment for any of the assessment years referredto in clause (b) of sub-section (1) of section 153A orclause (b) of sub-section (1) of section 153B in case ofa person referred to in section 153A or section 153Chave been initiated, the additional amount of income-tax payable on the income disclosed in the applicationexceeds fifty lakh rupees, (ia) in a case where— (A) the applicant is related to the person referred toin clause (i) who has filed an application(hereafter in this sub-section referred to as"specified person" ); and in clause (i) who has filed an application(hereafter in this sub-section referred to as"specified person" ); and (B) the proceedings for assessment or re-assessmentfor any of the assessment years referred to inclause (b) of sub-section (1) of section 153A orclause (b) of sub-section (1) of section 153B incase of the applicant, being a person referred toin section 153A or section 153C, have beeninitiated, for any of the assessment years referred to inclause (b) of sub-section (1) of section 153A orclause (b) of sub-section (1) of section 153B incase of the applicant, being a person referred toin section 153A or section 153C, have beeninitiated, the additional amount of income-tax payable on the incomedisclosed in the application exceeds ten lakh rupees, (ii) in any other case, the additional amount of income-taxpayable on the income disclosed in the applicationexceeds ten lakh rupees,payable on the income disclosed in the applicationexceeds ten lakh rupees, and such tax and the interest thereon, which would havebeen paid under the provisions of this Act had the incomedisclosed in the application been declared in the return ofincome before the Assessing Officer on the date ofapplication, has been paid on or before the date of makingthe application and the proof of such payment is attachedwith the application. Explanation.—For the purposes of clause (ia),— (a) the applicant, in relation to the specified personreferred to in clause (ia), means,— referred to in clause (ia), means,— (i) where the specified person is an individual,any relative of the specified person;any relative of the specified person; and such tax and the interest thereon, which would havebeen paid under the provisions of this Act had the incomedisclosed in the application been declared in the return ofincome before the Assessing Officer on the date ofapplication, has been paid on or before the date of makingthe application and the proof of such payment is attachedwith the application. Explanation.—For the purposes of clause (ia),— (a) the applicant, in relation to the specified personreferred to in clause (ia), means,— referred to in clause (ia), means,— (i) where the specified person is an individual,any relative of the specified person;any relative of the specified person; (ii) where the specified person is a company,firm, association of persons or Hinduundivided family, any director of thecompany, partner of the firm, or member ofthe association or family, or any relative ofsuch director, partner or member;firm, association of persons or Hinduundivided family, any director of thecompany, partner of the firm, or member ofthe association or family, or any relative ofsuch director, partner or member; (iii) any individual who has a substantial interestin the business or profession of the specifiedperson, or any relative of such individual;in the business or profession of the specifiedperson, or any relative of such individual; (iv) a company, firm, association of persons orHindu undivided family having a substantialinterest in the business or profession of thespecified person or any director, partner ormember of such company, firm, associationHindu undivided family having a substantialinterest in the business or profession of thespecified person or any director, partner ormember of such company, firm, association or family, or any relative of such director,partner or member; (v) a company, firm, association of persons orHindu undivided family of which a director,partner or member, as the case may be, hasa substantial interest in the business orprofession of the specified person; or anydirector, partner or member of suchcompany, firm, association or family or anyrelative of such director, partner or member;Hindu undivided family of which a director,partner or member, as the case may be, hasa substantial interest in the business orprofession of the specified person; or anydirector, partner or member of suchcompany, firm, association or family or anyrelative of such director, partner or member; (vi) any person who carries on a business orprofession,—profession,— (A) where the specified person being anindividual, or any relative of suchspecified person, has a substantialinterest in the business or professionof that person; or individual, or any relative of suchspecified person, has a substantialinterest in the business or professionof that person; or (B) where the specified person being acompany, firm, association of personsor Hindu undivided family, or anydirector of such company, partner ofsuch firm or member of theassociation or family, or any relative ofsuch director, partner or member, hasa substantial interest in the businessor profession of that person; company, firm, association of personsor Hindu undivided family, or anydirector of such company, partner ofsuch firm or member of theassociation or family, or any relative ofsuch director, partner or member, hasa substantial interest in the businessor profession of that person; (b) a person shall be deemed to have asubstantial interest in a business orprofession, if— substantial interest in a business orprofession, if— (B) where the specified person being acompany, firm, association of personsor Hindu undivided family, or anydirector of such company, partner ofsuch firm or member of theassociation or family, or any relative ofsuch director, partner or member, hasa substantial interest in the businessor profession of that person; company, firm, association of personsor Hindu undivided family, or anydirector of such company, partner ofsuch firm or member of theassociation or family, or any relative ofsuch director, partner or member, hasa substantial interest in the businessor profession of that person; (b) a person shall be deemed to have asubstantial interest in a business orprofession, if— substantial interest in a business orprofession, if— (A) in a case where the business orprofession is carried on by a company,such person is, on the date of search,the beneficial owner of shares (notbeing shares entitled to a fixed rate ofdividend, whether with or without aright to participate in profits) carryingnot less than twenty per cent of thevoting power; and profession is carried on by a company,such person is, on the date of search,the beneficial owner of shares (notbeing shares entitled to a fixed rate ofdividend, whether with or without aright to participate in profits) carryingnot less than twenty per cent of thevoting power; and (B) in any other case, such person is, onthe date of search, beneficially entitledto not less than twenty per cent of theprofits of such business or profession. the date of search, beneficially entitledto not less than twenty per cent of theprofits of such business or profession. (1A) For the purposes of sub-section (1) of this section , theadditional amount of income-tax payable in respect of theincome disclosed in an application made under sub-section(1) of this section shall be the amount calculated inaccordance with the provisions of sub-sections (1B) to (1D). (1B) Where the income disclosed in the application relates toonly one previous year,— (i) if the applicant has not furnished a return inrespect of the total income of that year, then, taxshall be calculated on the income disclosed in theapplication as if such income were the totalincome;respect of the total income of that year, then, taxshall be calculated on the income disclosed in theapplication as if such income were the totalincome; (ii) if the applicant has furnished a return in respectof the total income of that year, tax shall becalculated on the aggregate of the total incomereturned and the income disclosed in theapplication as if such aggregate were the totalincome.of the total income of that year, tax shall becalculated on the aggregate of the total incomereturned and the income disclosed in theapplication as if such aggregate were the totalincome. (1C) The additional amount of income-tax payable in respectof the income disclosed in the application relating to theprevious year referred to in sub-section (1B) shall be,— (a) in a case referred to in clause (i) of thatsubsection, the amount of tax calculated underthat clause; subsection, the amount of tax calculated underthat clause; (b) in a case referred to in clause (ii) of thatsubsection, the amount of tax calculated underthat clause as reduced by the amount of taxcalculated on the total income returned for thatyear; subsection, the amount of tax calculated underthat clause as reduced by the amount of taxcalculated on the total income returned for thatyear; (1C) The additional amount of income-tax payable in respectof the income disclosed in the application relating to theprevious year referred to in sub-section (1B) shall be,— (a) in a case referred to in clause (i) of thatsubsection, the amount of tax calculated underthat clause; subsection, the amount of tax calculated underthat clause; (b) in a case referred to in clause (ii) of thatsubsection, the amount of tax calculated underthat clause as reduced by the amount of taxcalculated on the total income returned for thatyear; subsection, the amount of tax calculated underthat clause as reduced by the amount of taxcalculated on the total income returned for thatyear; (1D) Where the income disclosed in the application relates tomore than one previous year, the additional amount ofincome-tax payable in respect of the income disclosed foreach of the years shall first be calculated in accordance withthe provisions of sub-sections (1B) and (1C) and theaggregate of the amount so arrived at in respect of each ofthe years for which the application has been made undersubsection (1) shall be the additional amount of income-taxpayable in respect of the income disclosed in the application. (2) Every application made under sub-section (1) shall beaccompanied by such fees as may be prescribed. (3) An application made under sub-section (1) shall not beallowed to be withdrawn by the applicant. (4) An assessee shall, on the date on which he makes anapplication under sub-section (1) to the SettlementCommission, also intimate the Assessing Officer in theprescribed manner of having made such application to thesaid Commission. 21.This court finds from the perusal of the impugned orderdated 03.01.2018 that there were total 11 applications which werefiled under Section 245D(2C) of the Act, 1961 on 31.10.2017. Theapplication No.RJ/JP-51/17-18/39-IT was filed by the petitioner-Company. The impugned order further reflects that theapplications No.1 to 4 and 6 were filed by the individuals,application No.5 was filed by the firm and applications No.7 to 11were filed by the Companies. The present petitioner-Company,assailing the impugned order dated 03.01.2018, was at S.No.11 inthe Settlement Application. 22.A perusal of the impugned order passed by the SettlementCommission shows that the Settlement Commission has taken aview that explanation (iv) and (v) are not applicable to the case ofthe petitioner-Company and the case was to be governed byexplanation (vi). The Settlement Commission has taken a viewthat word ‘substantial interest’ in the business requires thatDirectors should have such substantial interest, as defined in theAct, 1961 under clause (b). 23.The Settlement Commission has further taken a view thatsubstantial interest was lacking in the instant case and thepetitioner-Company cannot take recourse to the provisions ofclause (v) of the explanation. The Settlement Commission hasfurther found capping of 20% interest of a Director as substantialinterest cannot be permitted to be added or included and addingof interest would defeat the very objective of the legislature ofcapping 20%, as a requirement. 24.The submission of counsel for the petitioner that petitioner’scase would fall under clause (v) of the Explanation (a) to Section245C of the Act, 1961, this court finds no substance in the saidsubmission. The existence of substantial interest of the Director inthe business or profession of the specified person cannot beconsidered as covering the case falling under clause (v) of theExplanation to Section 245C of the Act, 1961. 25.The submission of counsel that the Director of the Companyhas 100% interest in the business or profession of the specifiedperson as fulfilling the substantial interest, cannot be accepted. 24.The submission of counsel for the petitioner that petitioner’scase would fall under clause (v) of the Explanation (a) to Section245C of the Act, 1961, this court finds no substance in the saidsubmission. The existence of substantial interest of the Director inthe business or profession of the specified person cannot beconsidered as covering the case falling under clause (v) of theExplanation to Section 245C of the Act, 1961. 25.The submission of counsel that the Director of the Companyhas 100% interest in the business or profession of the specifiedperson as fulfilling the substantial interest, cannot be accepted. 26.The submission of counsel for the petitioner that collectivestake of all three specified persons exceeds 20% in the petitioner-Company and alternatively it gets covered under clause (vi)(B) ofExplanation (a) of Section 245C(1) of the Act, 1961, this courtfinds that the said contention is not to be accepted as capping of20% is a requirement under the Act. 27.This court has taken into account the averment of thepetitioner-Company where share percentage of three shareholders is individually is under:- 28.The bare perusal of definition of ‘substantial interest, as perclause (a) of clause (vi) of Explanation to Section 245(1) of theAct, 1961 clearly reveals that a share holder should carry not lessthan 20% of the voting power of a Company. Clubbing of share (13 of 18) holding by different share holders to make it 20% of havingsubstantial interest, is not permissible under the law. 29.The submission of learned counsel for the petitioner that therelevant provisions need to be suitably read down to hold thepetitioner-Company being covered under the expression, is whollywithout substance. 30.This court also does not agree to the submission of learnedcounsel for the petitioner that alternatively, the case of thepetitioner-Company will fall under clause (vi)(A) of Explanation ofclause (1)(a) of Section 245C of the Act, 1961, as the petitioner-Company is covered by the expression of ‘any person’ who carrieson a business or profession in which the specified person i.e. ShriRam Jashandas Bhatia holds substantial interest, this court findsthat the submission is wholly without any substance and even theprovisions of Section 13 of the General Clauses Act to readsingular as plural for the term ‘person’ used under clause (B) ofExplanation, cannot be construed in the manner, as has beencanvassed. 31.This court finds that the Delhi High Court in the case ofRockland Hotels Ltd. Vs. Income Tax Settlement Commission,Principal Bench and Ors. [Writ Petition (Civil) No.3557/2014] andother connected writ petitions by its judgment dated 20.10.2015has interpreted the entire Section 245C of the Act, 1961 dealingwith the applications for settlement of the cases. The Delhi HighCourt has interpreted the clauses of Section 235C of the Act, 1961 and the portions of the judgment, relevant for the present purpose, are quoted hereunder:- “5. From a reading of clause (a) (v) of the Explanation tosubsection (1) to section 245C, it emerges that the followingtwelve categories of persons are covered in the definition ofrelated parties for the purposes of clause (ia) of the Provisoto sub-section (1) to section 245C of the Act under thatclause. (i) a company, a director of which, has asubstantial interest in the business orprofession of the specified person; orsubstantial interest in the business orprofession of the specified person; or (ii) a firm, a partner of which, has a substantialinterest in the business or profession of thespecified person; orinterest in the business or profession of thespecified person; or (iii) an association of persons, a member of which,has a substantial interest in the business orprofession of the specified person; orhas a substantial interest in the business orprofession of the specified person; or (i) a company, a director of which, has asubstantial interest in the business orprofession of the specified person; orsubstantial interest in the business orprofession of the specified person; or (ii) a firm, a partner of which, has a substantialinterest in the business or profession of thespecified person; orinterest in the business or profession of thespecified person; or (iii) an association of persons, a member of which,has a substantial interest in the business orprofession of the specified person; orhas a substantial interest in the business orprofession of the specified person; or (iv) a Hindu undivided family, a member of which, hasa substantial interest in the business or professionof the specified person; ora substantial interest in the business or professionof the specified person; or (v) any director, of such a company or (vi) any partner, of such a firm or (vii) any member, of such an association of persons; or (viii) any member, of such a Hindu undivided family; or(ix) any relative of such a director of suchcompany; or(ix) any relative of such a director of suchcompany; or (x) any relative of such a partner of such firm; or (xi) any relative of such a member of such associationof persons; orof persons; or (xii) any relative of such a member of such Hinduundivided family.undivided family. (highlight & underlining supplied) 6. From a reading of clause (a) (vi) of the Explanation tosubsection (1) to section 245C, it emerges that, if, (i) the specified person (being a company), thatcompany; orcompany; or (ii) the specified person (being a firm), that firm; or(iii) the specified person (being an association ofpersons), that association; or(iii) the specified person (being an association ofpersons), that association; or (iv) the specified person (being a Hindu undividedfamily), that family; orfamily), that family; or (v) any director of such specified person(company); or(company); or (vi) any partner of such specified person (firm); or(vii) any member of such specified person (associationof persons); or(vii) any member of such specified person (associationof persons); or (viii) any member of such specified person (Hinduundivided family); orundivided family); or (ix) any relative of such director of such aspecified person (company); orspecified person (company); or (x) any relative of such partner, of such a specifiedperson (firm); orperson (firm); or (xi) any relative of such member, of such specifiedperson (association of persons); orperson (association of persons); or (xii) any relative of such member, of such specifiedperson (Hindu undivided family),person (Hindu undivided family), (highlight & underlining supplied) has a substantial interest, in the business and profession ofany person, who carries on a business or profession, then,such person is also covered in the definition of relatedparties for the purposes of clause (ia) of the Proviso to sub-section 1 to section 245C of the Act. 7. So, under clause (a)(v), only if a director of the applicantcompany has a substantial interest in the specified person(company), then, the applicant company, its directors andrelatives of its directors qualify as related parties. A companywould not qualify as a related party merely because anyrelative of one of its directors has a substantial interest inthe specified person. However, under clause (a)(vi), theapplicant would qualify as a related party, if a specifiedperson (company) or any of its directors or any relative ofany of its directors have a substantial interest in theapplicant. 8. The following flow chart would explain the provisiongraphically: XXX XXX XXX 18. Applying the parameters of clauses (a)(v) and (a)(vi),only if a director of the petitioner companies has asubstantial interest in the specified person (company), then, 8. The following flow chart would explain the provisiongraphically: XXX XXX XXX 18. Applying the parameters of clauses (a)(v) and (a)(vi),only if a director of the petitioner companies has asubstantial interest in the specified person (company), then, the petitioner companies, their directors and relatives oftheir directors qualify as related parties. The Petitionercompanies would not qualify as a related party merelybecause any relative of one of its directors has a substantialinterest in the specified person. Further, the petitionercompanies would qualify as a related party, if a specifiedperson (company) or any of its directors or any relative ofany of its directors have a substantial interest in thepetitioner companies. 19. In the case of the abovementioned 9 petitioners clause(a)(vi) is stated to be applicable and they are stated to berelated parties to M/s Rockland Hospitals Ltd. Therefore thespecified person (i.e. M/s Rockland Hospitals Ltd.) or any ofits directors or any relative of any of its directors shouldhave a substantial interest in the petitioner companies.Admittedly, neither M/s. Rockland Hospitals Ltd. nor any ofits directors or their relatives hold any substantial interest inthe applicant companies. In all the 9 petitioners, M/s.Rockland Pvt. Ltd and not the specified person (M/s RocklandHospitals Ltd.) is the only shareholder having substantialinterest. Though, 3 directors of the specified person (M/sRockland Hospitals Ltd.) claim to have substantial interest inRockland Pvt. Ltd. Individually, however, these 3 Directorseither do not have shareholdings in the 9 petitioners or theirshareholding is less than 9%. Consequently, these Directorsdo not have a substantial interest in either of the 9petitioners. The plea that the directors of the specifiedperson (M/s Rockland Hospitals Ltd.) hold an indirect sharein the Petitioner company, i.e. through M/s Rockland Pvt.Ltd. and is thus qualified, in our view, is not sustainable in asmuch as we have held that the use of the word “means”signifies the intention of the legislature to make thedefinition “hard and fast”. If the intention of the legislaturehad been to permit scope of the same to be enlarged toinclude having substantial interest indirectly through anotherentity, the legislature would have specified so as has beendone in the case of Explanation (b)(A). 20. Beneficial owner of the share as referred to inExplanation (b)(A) refers to shares held in a company by aperson either in his own name or in the name of other,persons. A corporate entity is a separate legal entity. Merelybecause a director of the specified person holds shares in acompany which in turn holds shares in the Petitioner wouldnot make the director the beneficial holder of the shares ofthe Petitioner and thus qualify the petitioner as a relatedparty. We do not find any infirmity with the reasoning of theSettlement Commission. Since the conditions of Explanation(a)(vi)(B) are not satisfied, these writ petitions are thusliable to be dismissed. XXX XXX XXX 20. Beneficial owner of the share as referred to inExplanation (b)(A) refers to shares held in a company by aperson either in his own name or in the name of other,persons. A corporate entity is a separate legal entity. Merelybecause a director of the specified person holds shares in acompany which in turn holds shares in the Petitioner wouldnot make the director the beneficial holder of the shares ofthe Petitioner and thus qualify the petitioner as a relatedparty. We do not find any infirmity with the reasoning of theSettlement Commission. Since the conditions of Explanation(a)(vi)(B) are not satisfied, these writ petitions are thusliable to be dismissed. XXX XXX XXX 23. The finding of the Settlement Commission is that there isno shareholder having substantial interest in this companyi.e. there is no shareholder having more than 20% shares inthe Petitioner companies. As there is no person holdingsubstantial interest in these 3 companies, conditionsmentioned in Explanation (a)(vi)(B) are not satisfied. Thewords used are “any director of such company” and “anyrelative of such director”. If the intention of the legislature ofhad been to cumulatively consider the shareholding of morethan one directors or more than one relative of suchdirectors to constitute substantial interest, then it wouldhave specified so. Since the legislature has not provided forclubbing of the shareholding of different persons todetermine substantial interest, the same cannot beconsidered. The fact that the legislature has catered for asituation of beneficial ownership of shares shows that theomission of clubbing of shareholding is not unintentional. 24. The alleged fact that four directors of the specifiedperson (M/s Rockland Hospitals Ltd.) hold 50% shares of thepetitioner companies does not satisfy the condition. Therequirement is that an individual director must hold morethan 20% shares, which apparently is not the case. Thefurther plea that the family members of Srivastava familyand the Bhandari Family hold more than 20% of the sharesof the specified person (M/s Rockland Hospitals Ltd.) and thepetitioner companies and further that the petitionercompanies have invested 100% share capital in the specifiedperson (M/s Rockland Hospitals Ltd.)is of no avail. Aselucidated hereinabove, under clause (a)(v), only if adirector of the Petitioner companies had a substantialinterest in the specified person (M/s Rockland HospitalsLtd.), then, the petitioner companies, their directors andrelatives of their directors qualify as related parties. Underclause (a)(vi), the petitioner companies would qualify asrelated parties, if the specified person (M/s RocklandHospitals Ltd.) or any of its directors or any relative of any ofits directors had a substantial interest in the petitionercompanies. This is clearly not the case. Thus, we do not findany infirmity with the reasoning of the SettlementCommission. These writ petitions are also liable to bedismissed.” 32.So far as the reliance placed by the learned counsel for thepetitioner on the judgment of the High Court of Karnataka in thecase of Commissioner of Income-tax Vs. Khoobchand M. Makhijareported in(2014) 43 Taxmann.com 143(Karnataka) is concerned, the perusal of the said judgmentreveals that Section 54 of the Act, 1961 read with Section 13 of the General Clauses Act for the purpose of capital gain was underconsideration. The High Court of Karnataka considered thedefinition of residential house and if by selling one residentialhouse, the assessee invested the sale consideration in purchasingof two residential houses, the acquisition of two residential housesby assessee out of capital gain was to fall within the phrase ‘aresidential house’ and accordingly the assessee was entitled tobenefit conferred under Section 54(1) of the Act, 1961. Makhijareported in(2014) 43 Taxmann.com 143(Karnataka) is concerned, the perusal of the said judgmentreveals that Section 54 of the Act, 1961 read with Section 13 of the General Clauses Act for the purpose of capital gain was underconsideration. The High Court of Karnataka considered thedefinition of residential house and if by selling one residentialhouse, the assessee invested the sale consideration in purchasingof two residential houses, the acquisition of two residential housesby assessee out of capital gain was to fall within the phrase ‘aresidential house’ and accordingly the assessee was entitled tobenefit conferred under Section 54(1) of the Act, 1961. 33.This court finds that the case cited by the learned counsel forthe petitioner, has no application in the instant case. 34.This court does not find any illegality in the impugned orderdated 03.01.2018 passed by the Income Tax SettlementCommission, Principal Bench, New Delhi and as such the presentwrit petition is dismissed. No costs. (ASHOK KUMAR GAUR),J Solanki DS, PS