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Hon'ble Mr.Justice Syed Shah Mohammed Quadri (Chairman)

Dr.B.A.Agrawal (Member)


Order No.AAR/05(ST)/2006


Application No.AAR/09/ST/2006



Applicant                                                                     M/s IJM (India) Infrastructure Limited

                                                                                    606-607, Bhandari House

                                                                                    91, Nehru Place

                                                                                    New Delhi-110019



Commissioner concerned                                          Commissioner of Service Tax



Present for the applicant                                             Mr. Surender Gupta, C.A.


Present for the Commissioner                                   Mr. A.K. Roy, Joint CDR

concerned                                                                   CESTAT, New Delhi

                                                                                    Mr. Bipin Sapra

                                                                                    Additional Commissioner

                                                                                    Service Tax, Delhi






(Hon'ble Mr. Justice Syed Shah Mohammed Quadri)



The applicant, in this application under Section 96C of the Finance Act, 1994 (for short "the Service Act"), claims to be a wholly owned subsidiary of M/s IJM Corporation, Berhad, a foreign company incorporated in Malaysia (for short the holding company).  It is stated that the holding company is having 97.31% of paid up equity of the applicant.  The holding company was awarded the contract of Civic Centre construction work at Jawahar Lal Nehru Marg, Minto Road, New Delhi  by the Municipal Corporation of Delhi (MCD).   The holding company has sub-contracted the work of Civic Centre construction to the applicant.  In the application against column 6, it is stated that the construction work is in progress.  On these facts, the applicant seeks advance ruling of the Authority on the following question :

"Whether the Civic Centre Construction Work awarded by the MCD is liable to service tax under section 65(105)(zzq) read with section 65(25b) of the Chapter V of Finance Act, 1994"


2.         On the scrutiny of the application, the Secretariat of the Authority pointed out the following defects in the application :


(i)                 the applicant is not a wholly owned subsidiary Indian company within the meaning of Section 96A(b) of the Service Act;  and

(ii)               the service in relation to which an advance ruling is sought has already commenced.


 On 18.10.2006 a show cause notice was therefore issued to the applicant to explain as to why the application should not be rejected on the aforementioned grounds.

No reply is filed to the notice by the applicant.  The case is put up for orders before us today.


3.         Mr. Surender Gupta, learned Counsel appears for the applicant, and argues that the expression "wholly owned subsidiary Indian company"  is not defined either in the Service Act or in the Indian Companies Act and that it is an impossibility because no company can be registered in India without at least one Indian shareholder and therefore one or more shares ought to be allotted to an Indian.  In this case the Indian share holders are having 2.69 shares  and the holding company is having 97.31% shares in the applicant.   He prays that in the circumstances the applicant  be treated as wholly owned subsidiary.  Mr. Bipin Sapra, Additional Commissioner, Service Tax, who appears for the Commissioner contends that though at least one Indian shareholder has to be there in the applicant,  the holding company should have not less than 99% shares in the applicant to be treated as a wholly owned subsidiary of the holding company.


4.         To appreciate the grounds of rejection, we refer to the definition of "advance ruling" and "applicant" in clauses (a) and (b) respectively of section 96A of the Service Tax Act, which read as under:

Section 96A.  Definitions - In this Chapter, unless the context otherwise requires -


(a)   "advance ruling" means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided, by the applicant;


 [(b)  "applicant" means -


(i)(a) a non-resident setting up a joint venture in India in collaboration with a non-resident or a resident; or


   (b) a resident setting up a joint venture in   India in collaboration with a non-resident; or


 (c)    a wholly owned subsidiary Indian company, of which the holding company is a foreign company,


who or which, as the case may be, proposes to undertake any business activity in India;


xx               xx            xx                 xx


In so far as the first ground is concerned, the applicant claims to fall under clause (b)(i)(c).   Under that sub-clause a wholly owned subsidiary Indian company of which the holding company is a foreign company may be an applicant in an application under section 96C of the Service Tax Act.  Clause (e) of section 96A says that "non-resident",  "Indian company" and "foreign company" have the meanings respectively assigned to them in clauses (30), (26) and 23A  of section 2 of the Income-tax Act, 1961.  But the definitions of those terms will not solve our problem as we are concerned with the expression "wholly owned subsidiary Indian company".


 It is true that the said expression is not defined either in the Service Tax Act or in the Companies Act.  The definition of the expressions, 'holding company' and 'subsidiary company' are contained in Section 4 of the Companies Act.   To be a wholly owned subsidiary of another company, in addition to satisfying the requirements of sub-sections(1) and (3) of section 4 of the Companies Act the holding company shall hold all the equity shares of the subsidiary company.   The requirements of a foreign holding company and subsidiary company are contained in sub-section(7) of Section 4 of the Companies Act which reads as under:-

Sub-section (7) of Section 4 of the Companies Act

A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India.



In view of the provision of sub-section (7) of Section 4 of  the Companies Act the entire share capital in the subsidiary should not be held by the holding foreign company, therefore pragmatically an Indian company can be treated as a wholly owned subsidiary Indian company when all its shares except one, are held  by the holding company.  Therefore, it follows that at least one share in the Indian owned wholly subsidiary company should be held by a person other than the holding company. Section 12 of the Companies Act requires that a public limited company (which must have a minimum paid up capital of five lakhs rupees) shall have at least seven share holders and for a private limited company (which must have a minimum share capital of one lakh rupees) there shall be at least two share holders.  So to comply with the requirement of a wholly owned subsidiary company, in its equity, in a unit of 100 shares or and multiple thereof, one share must be held by person other than the holding company and the balance of 99 shares have to be held by the holding company.   As admittedly in this case the foreign company which is the holding company, is not having 99% but only 97.31% shares in the applicant it is difficult to treat the applicant as a wholly owned subsidiary of the foreign holding company.


5.         Another formidable ground i.e. the second ground in the show cause notice is that the service in relation to which the advance ruling is sought has already been commenced, stares at the applicant.  We have noted above that the applicant has mentioned against Column 6 in the application that "construction work is in progress". 


We have already quoted Section 96A(a) of the Service Tax Act. A perusal of section 96A(a) shows that the liability to pay service tax can be determined by way of an advance ruling by the Authority in relation to a service proposed to be provided by the applicant.  As admittedly the construction work has already commenced on the date of the application and is in progress, it ceases to be a service proposed to be provided and therefore the service will not be within the meaning of the advance ruling.  We have taken the same view in the case of M/s McDonald's India Pvt. Ltd., Mumbai - Order No. AAR/44/103/2003 dated 23.2.2004 and of Pfizer Limited Order No. AAR/02(ST)/2006 dated 29.8.2006.


6.         For the aforementioned reasons we reject the application as non -maintainable. 



                        (Justice S.S.M.Quadri)                          (B.A.Agrawal)

                                 Chairman                                       Member



Dated : 9th November, 2006