1993 (2) TMI 30 - HC - Income Tax

Summary

Issues:
1. Whether shares beneficially held by charitable trusts could be considered held by the 'public'?
2. Whether shares held by a nominee, being a public limited company, could be excluded in terms of Explanation 1 to section 2(18) when the nominee did not beneficially own the shares?
3. Whether the assessee-company could be considered one in which 'the public were substantially interested' within the meaning of section 2(18) of the Income-tax Act, 1961?

Analysis:
The judgment delivered by the High Court of Bombay addresses two references with a common issue involving assessment years 1968-69 to 1971-72 and 1975-76. The questions raised in the references cover the classification of shares beneficially held by charitable trusts as held by the 'public,' the exclusion of shares held by a nominee public limited company, and the determination of whether the assessee-company can be considered one in which 'the public were substantially interested' under section 2(18) of the Income-tax Act, 1961.

For the assessment years 1968-69 and 1969-70, the court ruled in favor of the Revenue based on a previous decision interpreting the term 'public' to exclude charitable trusts. The court noted changes in the law effective from April 1, 1970, and emphasized the conditions for a company to be considered one in which the public are substantially interested. The Revenue argued against treating the assessee as such a company, while the assessee contended that the company met the criteria due to its shares being listed on a recognized stock exchange and freely transferable.

The court agreed with the Revenue for the years 1968-69 and 1969-70, stating that the Tribunal was not justified in holding the assessee as a company in which the public are substantially interested. However, for the assessment years 1970-71, 1971-72, and 1975-76, the court found in favor of the assessee. The court considered the changes in the law and the Tribunal's findings that the shares of the assessee-company were listed on the stock exchange and freely transferable, leading to a ruling in favor of the assessee for these years.

In conclusion, the court decided in favor of the Revenue for the earlier assessment years and in favor of the assessee for the later years based on the specific criteria and changes in the law, making no order as to costs in this matter.