1966 (10) TMI 37 - SC - Indian Laws

Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee-company was one in which the public are substantially interested within the meaning of section 23A of the Indian Income-tax Act? Held that - The report had evidentiary value and could be taken into account. Undoubtedly the Report had to be brought to the notice of the company, and the company had to be given an opportunity to make its representation against the report and to tender evidence against the truth of the recitals contained therein. It is not suggested that this opportunity was not given. It was for the Tribunal to determine having regard to ordinary human experience whether it may be safely taken that the members of the Kedia family must have acted together as a controlling block. That enquiry has not been made, and the case has been decided on the application of a test which is erroneous. We are, therefore, unable on the statement of case to answer the question referred. We, accordingly, set aside the order passed by the High Court and direct that the Tribunal do submit a supplementary statement of the case under section 66(4) of the Income-tax Act, 1922, because in our view the statement of the case already referred to is not sufficient to enable determination of the case raised thereby. The Tribunal may make such additions or alterations in the statement of the case in the light of the observations made in the course of this judgment. The Tribunal will submit the supplementary statement of the case to the High Court. The High Court will then proceed to determine the question according to law. The costs of this hearing will be costs in the proceedings before the High Court. Appeal allowed.

Issues Involved:

1. Whether the assessee-company was one in which the public are substantially interested within the meaning of section 23A of the Indian Income-tax Act, 1922.
2. The applicability of section 23A to the company based on the control of shares by a block of persons acting in concert.
3. The evidentiary value of the Report of the Income-tax Investigation Commission in determining the control of the company.

Issue-wise Detailed Analysis:

1. Substantial Interest of the Public:

The primary issue was to determine if the assessee-company was one in which the public were substantially interested within the meaning of section 23A of the Indian Income-tax Act, 1922. The Income-tax Officer noted that the company had not distributed a significant portion of its profits as dividends and initiated proceedings under section 23A, deeming the undistributed profits as distributed among shareholders. The Appellate Assistant Commissioner confirmed this order, but the Income-tax Appellate Tribunal reversed it, stating that it was not established that the company was one in which the public were not substantially interested. The High Court upheld the Tribunal's decision, leading to the appeal to the Supreme Court.

2. Control by a Block of Persons Acting in Concert:

The Tribunal and the High Court focused on whether the members of the Kedia family acted in concert and controlled the company as a block. The Tribunal held that there was no evidence that the members acted in concert, and thus, the company could not be deemed one in which the public were not substantially interested. The High Court agreed, emphasizing the need for evidence of overt acts showing concerted action. However, the Supreme Court clarified that the existence of a controlling block does not require proof of actual concerted action. It is sufficient if the circumstances suggest that the members must be acting together, considering their relations, conduct, and common interest.

3. Evidentiary Value of the Investigation Commission's Report:

The Supreme Court addressed the admissibility of the Report of the Income-tax Investigation Commission, which recorded admissions by the Kedia family members about their joint acquisition of shares. The Court noted that the income-tax authorities are not strictly bound by the rules of evidence, and the Report had evidentiary value. The admissions made before the Commission could be considered, provided the company was given an opportunity to respond to the Report. The Tribunal had to determine, based on ordinary human experience, whether the members of the Kedia family acted together as a controlling block.

Conclusion:

The Supreme Court found that the Tribunal and the High Court erred in their approach by requiring evidence of actual concerted action. The correct test is whether the circumstances indicate that the members must be acting together as a block. The Court set aside the High Court's order and directed the Tribunal to submit a supplementary statement of the case, considering the observations made in the judgment. The High Court was then to determine the question according to law. The appeal was allowed, and the matter was remanded to the High Court for a decision based on the supplementary statement.

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