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Determining whether the assessee could be deemed a company in which the public were substantially interested, interpretation of Section 23A, and the application of clause 14 of the Part B States (Taxation Concessions) Order, 1950. Analysis: The main issue in this case revolves around whether the assessee company could be considered a company in which the public were substantially interested. The Tribunal did not accept the argument that the shares held by Mysore Merchants Ltd., should be considered as held by members of the public, leading to this reference to the High Court. The interpretation of the term "substantially interested" is crucial in determining the tax implications for the company. Section 23A of the Income Tax Act is central to this case. Sub-section (1) of the provision deals with the assessment of income in the hands of shareholders if a company has distributed less than 60% of the assessable income. The third proviso of this section exempts companies in which the public are substantially interested from this provision. The explanation attached to this proviso defines a company as substantially interested if certain conditions regarding voting power and public ownership are met. The court analyzed the legislative intent behind Section 23A and emphasized that the provision applies to specific types of companies as defined in the third proviso. The focus should be on whether the company falls within the ambit of Section 23A before considering the application of its provisions. The court clarified that the nature of the company, in terms of public interest, determines the applicability of Section 23A. Regarding the application of clause 14 of the Taxation Concessions Order, 1950, the court dismissed the argument that Mysore Merchants Ltd. was exempt from Section 23A. The court explained that the exemption under clause 14 presupposes the application of Section 23A to the company. Therefore, the exemption does not alter the classification of the company as substantially interested or not. Lastly, the contention that directors of the company should be considered as members of the public was refuted based on a previous court decision. The court cited a relevant case law to support the conclusion that directors cannot be equated with members of the public for the purpose of determining substantial interest. In conclusion, the High Court ruled that the assessee company could not be deemed a company in which the public were substantially interested, based on the analysis of Section 23A, the explanation to the third proviso, and relevant case law. The reference was answered in the negative, affirming the position that the shares held by Mysore Merchants Ltd. did not qualify as held by members of the public for tax assessment purposes.
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