1969 (3) TMI 23 - HC - Income Tax

Assessee-company - Applicability of provisions of section 23A to the dividends earned by this company

Issues Involved:
1. Applicability of Section 23A of the Income-tax Act.
2. Definition and interpretation of "public" under Section 23A.
3. Control and beneficial ownership of shares.
4. Consideration of additional evidence by the Tribunal.
5. Perverse finding of fact by the Tribunal.

Issue-wise Detailed Analysis:

1. Applicability of Section 23A of the Income-tax Act:
The primary issue was whether the provisions of Section 23A were applicable to the assessee-company for the assessment years 1953-54 and 1954-55. Section 23A provides that undistributed dividends of certain companies are deemed to have been distributed to shareholders and taxed as their income. The Income-tax Officer initially held that the assessee-company did not meet the conditions to be exempt from Section 23A, as it was effectively controlled by Shri Shanti Prasad Jain and his family, who held a majority of the shares.

2. Definition and Interpretation of "Public" under Section 23A:
The term "public" under Section 23A was crucial in determining whether the assessee-company was exempt from the provisions. The Income-tax Officer and the Appellate Assistant Commissioner concluded that the company was not substantially held by the public as required under the Explanation to Section 23A. They reasoned that the majority of shares were held by close family members of Shri Shanti Prasad Jain, who controlled the company. The Tribunal, however, found that merely being relatives of the director did not automatically exclude them from being considered part of the public.

3. Control and Beneficial Ownership of Shares:
The Tribunal had to determine whether Shri Shanti Prasad Jain controlled the voting power of the shares held by his family members. It was found that Shri Ashok Kumar Jain and Shri Alok Prakash Jain, both minors, held shares under the guardianship of their father, and hence, their voting power was controlled by him. However, the Tribunal later held that after attaining majority, there was no evidence that Shri Ashok Kumar Jain was under his father's control. Consequently, the shares held by him and his mother, Shrimati Rama Jain, were considered as held by the public.

4. Consideration of Additional Evidence by the Tribunal:
The High Court directed the Tribunal to reconsider the case, taking into account the principles laid down by the Supreme Court in relevant cases. The Tribunal, however, declined to admit additional evidence from the Income-tax department, interpreting the High Court's direction as discretionary. The Tribunal reaffirmed its previous decision, stating that there was no material evidence to prove that the family members were acting in concert under the control of Shri Shanti Prasad Jain.

5. Perverse Finding of Fact by the Tribunal:
The department argued that the Tribunal's finding was perverse, as it failed to consider significant evidence, such as speculative transactions favoring Shrimati Rama Jain and the appointment of Shri Ashok Kumar Jain as managing director while still a minor. The High Court, however, held that the Tribunal's finding was not perverse. It emphasized that the Tribunal had considered the relevant evidence and that the mere relationship among shareholders did not prove they were acting in concert. The High Court concluded that the Tribunal's decision was based on a reasonable assessment of the facts and was binding.

Conclusion:
The High Court ultimately answered the reference in favor of the assessee, holding that the Tribunal was justified in concluding that the provisions of Section 23A were not applicable to the assessee-company for the assessment years 1953-54 and 1954-55. The Tribunal's finding that the shares were held by the public, as defined under Section 23A, was upheld. The department's arguments regarding the perverse nature of the Tribunal's findings were rejected.

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