A) ABSTRACT / HEADNOTE
The Supreme Court of India in Commissioner of Income-tax, West Bengal v. Messrs Jeewanlal Ltd., [1954] S.C.R. 189, ruled on the interpretative scope of Section 2(11) of the Excess Profits Tax Act, 1940. The principal question was whether the respondent company, whose majority shares were owned by a Canadian corporation (Aluminium Ltd.), could be considered a “director-controlled” company merely because one of its directors was authorized by the majority shareholder to vote on its behalf. The court emphatically held that mere agency-based control by a director over shares, which legally belonged to another entity, did not amount to “controlling interest” under the Act. This decision fundamentally clarified how “control” must be interpreted in the context of corporate shareholding and taxation, emphasizing beneficial ownership and share register entries over functional or delegated authority. The judgment sets significant precedent in Indian tax jurisprudence, rejecting broad functional definitions of control in favor of strict legal ownership and capacity.

Keywords: Controlling Interest, Director-Controlled Company, Excess Profits Tax, Income-Tax Act, Corporate Shareholding, Agency Relationship.

B) CASE DETAILS

i) Judgement Cause Title: Commissioner of Income-tax, West Bengal v. Messrs Jeewanlal Ltd.
ii) Case Number: Civil Appeal No. 78 of 1952
iii) Judgement Date: 8th October, 1953
iv) Court: Supreme Court of India
v) Quorum: Patanjali Sastri C.J., S.R. Das, Vivian Bose, Ghulam Hasan, and Bhagwati JJ.
vi) Author: Justice S.R. Das
vii) Citation: [1954] S.C.R. 189
viii) Legal Provisions Involved: Section 2(11) of the Excess Profits Tax Act, 1940; Section 66 of the Indian Income-tax Act, 1922; Article 90 and Article 105 of the Articles of Association of Jeewanlal Ltd.
ix) Judgments overruled by the Case (if any): None explicitly overruled, but certain interpretations of British and Bombay High Court judgments were distinguished.
x) Case is Related to which Law Subjects: Tax Law, Corporate Law, Company Law, Statutory Interpretation.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT
This appeal arose from a reference made under Section 21 of the Excess Profits Tax Act, 1940, read with Section 66(1) of the Indian Income-tax Act, 1922, by the Income-tax Appellate Tribunal to the Calcutta High Court. The key question was whether the respondent company could be considered a director-controlled company under Section 2(11) of the Act due to the voting powers exercised by a director (Mr. L.G. Bash) on behalf of the majority shareholder—Aluminium Ltd., Canada. The Calcutta High Court had answered in the affirmative, prompting the Commissioner of Income-tax to appeal to the Supreme Court, which reversed the High Court’s decision. The broader backdrop included assessments for excess profits tax during World War II accounting periods (1939–1943), where the classification of a company as director-controlled had implications on the applicable statutory profit rate percentage.

D) FACTS OF THE CASE
The respondent, Messrs Jeewanlal Ltd., was an Indian-incorporated company with a share capital of ₹36 lakhs, divided into 360,000 shares of ₹10 each. During the five chargeable accounting periods (1939–1943), a Canadian company, Aluminium Ltd., held nearly all the shares—specifically 359,790 shares in 1939–1940 and 359,600 shares in subsequent periods. Aluminium Ltd., via Article 105 of Jeewanlal’s Articles of Association, nominated Mr. L.G. Bash as a permanent director. Though other nominated directors retired, Mr. Bash continued through all chargeable periods. The board of Aluminium Ltd. had passed a resolution empowering Mr. Bash to vote on its behalf, or to appoint proxies for voting at Jeewanlal’s shareholder meetings. However, Mr. Bash and other directors jointly held only 400 shares at maximum during any relevant period, and Mr. Bash personally held no shares. Article 90 permitted such representative voting under Section 80 of the Indian Companies Act, 1913. The central claim by the company was that its directors had a controlling interest due to this authorized voting, thus warranting a 10% statutory profit rate instead of 8% under the Excess Profits Tax regime.

E) LEGAL ISSUES RAISED
i) Whether under the facts and circumstances of the case, the directors of Messrs Jeewanlal Ltd. had a “controlling interest” within the meaning of Section 2(11) of the Excess Profits Tax Act, 1940.

F) PETITIONER/ APPELLANT’S ARGUMENTS
i) The counsels for the Commissioner of Income-tax contended that actual legal control—not functional or representative control—constituted “controlling interest”. They submitted that for a company to be classified as director-controlled, its directors must personally own or be registered holders of a majority of vote-carrying shares. Citing precedents such as Glasgow Expanded Metal Co. Ltd. v. Commissioners of Inland Revenue (1923) 12 Tax Cases 573, and Inland Revenue Commissioners v. J. Bibby and Sons Ltd. (1946) 14 ITR (Supp.) 7, the petitioner argued that mere delegation of voting rights from a shareholder to a director by agency did not transfer control. They highlighted that beneficial ownership was not mandatory, but legal ownership and registration were essential. Furthermore, the appellant stressed that Aluminium Ltd. retained full legal authority to revoke Mr. Bash’s agency at will, thus negating any claim of stable controlling interest in the directors.

G) RESPONDENT’S ARGUMENTS
i) The counsels for the respondent argued that control could exist even without direct shareholding, provided the directors effectively controlled the voting rights of the majority shares. They invoked reasoning from British American Tobacco Co. Ltd. v. Commissioners of Inland Revenue [1943] AC 335, where the House of Lords considered de facto voting influence as a basis for control. Mr. Bash’s delegated authority to vote the majority shares implied that the will of the company lay in his hands, thereby satisfying the condition of director-controlled status. They emphasized the practical and functional control exercised at shareholder meetings as sufficient under Section 2(11).

H) RELATED LEGAL PROVISIONS
i) Section 2(11) of the Excess Profits Tax Act, 1940: Defines companies “the directors whereof have a controlling interest therein”.
ii) Section 80 of the Indian Companies Act, 1913: Relates to representation of corporate shareholders.
iii) Article 90 and 105 of Jeewanlal Ltd.’s Articles of Association: Permit appointment of representative for voting purposes.

I) JUDGEMENT

a. RATIO DECIDENDI
i) The Court held that to qualify as a “director-controlled” company under Section 2(11) of the Excess Profits Tax Act, it was necessary for directors to be registered holders of a majority of voting shares. Control arising from agency, authorization, or delegated powers—even if long-term and continuous—did not qualify. Mr. L.G. Bash acted as an agent of Aluminium Ltd., and not in his personal or legal capacity as shareholder. Thus, the controlling interest resided with Aluminium Ltd., not with Jeewanlal’s directors.

b. OBITER DICTA 
i) The Court clarified that beneficial ownership was not necessary. Even trustees could have controlling interest if shares were registered in their name. The essential element was registration, not benefit.

c. GUIDELINES 

• Controlling interest must lie in share registration, not in mere delegated power.

• Agency does not amount to control; only registered legal holding does.

• The right to revoke agency demonstrates lack of permanent or de jure control.

• Shareholder proxies or representatives are not equivalent to shareholder-directors.

• Functional or de facto control is irrelevant under Indian tax laws unless backed by legal title.

J) CONCLUSION & COMMENTS
This judgment established a strong precedent in interpreting “controlling interest” narrowly, consistent with legal formalism and corporate registration principles. It shields Indian tax law from ambiguities surrounding delegated control and emphasizes the primacy of legal ownership in determining corporate classifications for tax purposes. The Court declined to blur the distinction between de jure and de facto control, thereby favoring predictable and clear standards. This clarity was especially critical during wartime fiscal regimes like the Excess Profits Tax, where statutory percentages varied based on a company’s character. By reversing the High Court’s broader interpretation, the Supreme Court anchored the legal understanding of control to corporate registry law, thus promoting legal certainty in taxation.

J) REFERENCES

a. Important Cases Referred
[1] Glasgow Expanded Metal Co. Ltd. v. Commissioners of Inland Revenue, (1923) 12 Tax Cases 573.
[2] Commissioners of Inland Revenue v. B.W. Noble, (1926) 12 Tax Cases 911.
[3] Inland Revenue Commissioners v. J. Bibby and Sons Ltd., [1945] 1 All E.R. 667; (1946) 14 ITR (Supp.) 7; 29 Tax Cas. 167.
[4] Commissioner of Income-tax v. Bipin Silk Mills Ltd., AIR 1947 Bom 45; 14 ITR 344.
[5] British American Tobacco Co. Ltd. v. Commissioners of Inland Revenue, [1943] AC 335.
[6] New Shorrock Spinning and Manufacturing Co. Ltd. v. Commissioner of Income-tax, Bombay, [1950] 18 ITR 712; AIR 1950 Bom 391.
[7] Commissioners of Inland Revenue v. James Hodgkinson (Salford) Ltd., (1949) 29 Tax Cases 395.

b. Important Statutes Referred
[8] Excess Profits Tax Act, 1940, § 2(11).
[9] Indian Income-tax Act, 1922, § 66.
[10] Indian Companies Act, 1913, § 80.
[11] Articles 90 and 105, Articles of Association of Jeewanlal Ltd.