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1960 (12) TMI 7 - SC - Income TaxWhether the company could be said to be one to which section 23A(1) of the Act was applicable, regard being had to the third proviso and the Explanation under it? Held that - the judgment and order of the High Court cannot be upheld. Directors cannot, by reason of being directors, be said not to be members of the public. To that extent, the judgment is erroneous. There is a finding by the Tribunal in the supplementary statement of the case that the shares held by Bipinchandra, Harishchandra and Krishnakumar were under the control of their father, Maganlal Parbhudas. Their holding was 3,000 and with Maganlal s holding of 1,344 shares, makes up a total of 4,344 shares. Though the question as framed by the High Court appears to have been correctly answered in the negative, it does not dispose of the matter. The question to be determined still is whether more than 75 per cent. of the shares are not beneficially held by the public. We accordingly set aside the judgment and order of the High Court and direct the High Court to decide the question originally framed by it, viz. Whether on the facts and circumstances of the case the provisions of section 23A of the Indian Income-tax Act (XI of 1922) are applicable to the petitioners ? - Appeal allowed. Case remanded.
Issues Involved:
1. Applicability of Section 23A of the Indian Income-tax Act, 1922. 2. Interpretation of "held by the public" in the context of voting power. 3. Determination of de facto control over shareholders. Detailed Analysis: 1. Applicability of Section 23A of the Indian Income-tax Act, 1922: The primary issue was whether the provisions of Section 23A of the Indian Income-tax Act, 1922, were applicable to the assessee company. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal had all held that the company was not one in which the public were substantially interested, thus applying Section 23A. The High Court initially directed the Tribunal to submit a supplementary statement and later reframed the question, ultimately answering it against the assessee. The Supreme Court, however, remanded the case back to the High Court to decide the original question, emphasizing the need to determine whether more than 75% of the shares were not beneficially held by the public. 2. Interpretation of "held by the public" in the context of voting power: The High Court interpreted the expression "held by the public" to mean that the voting power exercised by the public should be independent of the control of the directors. The High Court concluded that shares held by directors or their nominees could not be considered as held by the public. The Supreme Court disagreed with this interpretation, stating that directors cannot, by reason of being directors, be said not to be members of the public. The Court emphasized that the essence of the Explanation lies in the words "unconditionally" and "beneficially," indicating that shares must be beneficially held by the public without any control by a group acting in concert. 3. Determination of de facto control over shareholders: The High Court had remitted the case to the Tribunal to determine whether the directors were exercising de facto control over the shareholders. The Tribunal found that the shares held by Bipinchandra, Harishchandra, and Krishnakumar were under the control of their father, Maganlal Parbhudas. The Supreme Court noted this finding but highlighted that the critical question was whether more than 75% of the shares were not beneficially held by the public. The Court directed the High Court to reconsider this aspect and decide the original question framed by it. Conclusion: The Supreme Court set aside the judgment and order of the High Court, directing it to decide the original question of whether the provisions of Section 23A of the Indian Income-tax Act, 1922, were applicable to the assessee company. The High Court was instructed to call for a supplemental statement of the case from the Tribunal if necessary. The appeal was allowed, and the respondents were ordered to bear the costs of the appeal, with costs in the High Court to abide by the result.
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