676/CBDT. - Income Tax - 676/CBDT

INSTRUCTION NO. 676/CBDT Dated : April 5, 1974 Section(s) Referred: 2(18) Statute: Income - Tax Act, 1961 Section 2(18) of the Income-tax Act, 1961, which defines "company in which public are substantially interested" was amended by the Finance Act; 1965 with effect from 1.4.35. The effect of this amendment was - (i) that at company whose equity shares to the extent of not less than 50 per cent.(40% in the case of an industrial company) are held by another company in which the public are substantially interested or by a 100 per cent subsidiary of such a company will be regard, if it satisfies the other conditions of section 2(18). (ii) in ascertaining whether the affairs of the company or shares carrying more than 50 per cent of its total voting power were at no time during the relevant previous year controlled or held by five or less persons, no account will be taken of a company in which the public are substantially interested or a 100 per cent subsidiary of such a company which holds not less than 50 per cent (or 40 per cent as the case may be) of the equity shares of the first-mentioned company. It was explained in the instructions on the Finance Act, 1965 that this liberalised definition of "a company in which the public are substantially interested" would apply for the assessment year 1965-66 and subsequent years. 2. It has been held by the Kerala High Court in CIT Vs Asp-in-wall Co.Ltd. that even prior to the amendment to section 2(18) made by the Finance Act, 1965 the position in law was the same as brought out by the amendment. The amendment only clarified the existing position and did not make any change in the law. The Board have been advised that the position in the law enunciated by the Kerala High Court in the judgment cited, which is in consonance with and follows the Supreme Court decision in Changdeo Sugar Mils Vs C.I.T. (41 ITR.607) set out the correct position in law. In view of this position in law it may be ensured that all proceedings pending on this issue for and upto assessment year 1965-66 be regulated in the light of the above clarification. Steps may also be taken to withdraw reference application/appeals filed in this issue and pending to different stages. Necessary instruction may be issued to all Income-tax Officers working under each charge.