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Issues Involved:
1. Whether the assessee-company is one in which the public are substantially interested within the meaning of the Explanation to sub-section (9) of section 23A of the Income-tax Act as it stood at the relevant time. 2. Whether the provisions of section 23A as amended in 1955 violated the fundamental rights guaranteed by the Constitution and, as such, were ultra vires the Constitution. Issue-Wise Detailed Analysis: 1. Public Interest in the Assessee-Company: The primary issue was whether the assessee-company could be deemed a company in which the public were substantially interested under section 23A(9) of the Income-tax Act. The assessee, a public limited company engaged in manufacturing, argued that it met the conditions for public interest. The Tribunal identified four cumulative conditions for such a classification: 1. It was not a private company as defined under the Indian Companies Act. 2. Its shares were either dealt with in a recognized stock exchange or were freely transferable to the public. 3. Shares carrying not less than 40% of the voting power were allotted unconditionally to and held by the public. 4. The company's affairs were controlled by not less than six persons or shares carrying more than 60% of the voting power were held by not less than six persons. The Tribunal found that while the first two conditions were met, the third and fourth conditions were not satisfied. Specifically, Indra Singh & Sons Private Ltd., along with three directors, held more than 60% of the voting power, failing the requirement that no less than six persons should hold such a percentage. The Tribunal also rejected the argument that the conditions were disjunctive, affirming that all conditions must be met cumulatively. 2. Constitutionality of Section 23A: The second issue was whether the amended section 23A violated fundamental rights under the Constitution. The court referenced its prior judgment in Sardar Ajaib Singh v. Commissioner of Income-tax, concluding that section 23A was neither confiscatory nor in violation of Articles 14, 19(1)(f), (g), and 265 of the Constitution. The court found a rational basis for the percentages of shareholding specified in the section, asserting that these measures were designed to prevent a small group of shareholders from controlling the company and withholding dividends. The reduction of the public shareholding requirement to 40% for manufacturing companies was intended to foster industrial growth. The court dismissed the argument that fixing the number of controlling persons at six was arbitrary, reasoning that it was a practical and reasonable measure to ensure broader control over the company. Conclusion: The court answered both questions in the negative, ruling against the assessee. The assessee was ordered to pay the costs of the reference.
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