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TMI Blog1984 (6) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax to be applied. The assessee-company was a company, which was treated as a company in which public were substantially interested for the purposes of the rate to be applied. However, the ITO took the view that it should be treated as one in which public are not substantially interested, following the reasoning for the assessment year 1978-79. It appears that the assessee had acquiesced to such treatment for the assessment year 1978-79 in view of smallness of the tax effect. For these years, the assessee contended that such treatment was wrong. The first appellate authority found that the assessee-company, being under voluntary liquidation, was governed by section 536 of the Companies Act, 1956, which had laid down that the transfer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which public were substantially interested prior to liquidation. He pointed out to the decisions of the Supreme Court in Shree Krishna Agency Ltd. v. CIT [1971] 82 ITR 372 and Pilani Investment Corpn. Ltd. v. CIT [1973] 89 ITR 53. In both these cases, the above restriction was not considered to be an impediment to the inference that the shares are freely transferable unless there was evidence to show that they were actually not so freely transferable. He pointed out that there was no such evidence in the assessee's case. Section 518 of the Companies Act only ensures a similar power on behalf of the liquidator so that the obligation of the contributories (shareholders) does not get defeated so as to prejudice the rights of the creditors an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the shares are very widely held. It is for this reason that it is a public company in which public are substantially interested. Even a cursory look at the list of shareholders would show that the assessee would be entitled to the claim with reference to such list. The revenue would, however, like to canvass that in view of article 30, giving the board of directors an absolute and uncontrolled discretion, to refuse any transfer of shares, the shares could not be held to be 'freely transferable by the holders to the other members of the public' within the meaning of section 2(18)(b)(B)(ii) of the Income-tax Act, 1961 ('the Act'). The impugned article 30 reads as under : "The Board may, at their own absolute and uncontrolled discretion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person becoming a member to the prejudice of the company. It was a power to be reasonably exercised for the protection of the interests of the company. It was a normal and common feature of such limited companies and the existence of this provision by itself cannot vitiate the claim of transfer of any shares unless there is evidence to show that the directors had acted 'in concert' and had in fact eliminated 'the element of transferability of shares'. In view of the two Supreme Court decisions, it is not necessary to discuss the matter further. The impugned article, with reference to which the learned departmental representative tried to justify the decision of the authorities below, cannot support the revenue's case. The learned departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 or less persons. In absence of such position, the stand taken by the authorities is academic especially because it is not the case that there was any transfer, whether sanctioned or not sanctioned, by the liquidator. 5. As for the argument that the fact that the liquidator is in charge of the company's affairs and, therefore, should be taken to be a single person controlling the affairs of the company ; this argument, in our opinion, is too naive. The liquidator is only a holder of office. The number of liquidators makes no difference to this position as each liquidator may have different functions entrusted to them even when there is more than one liquidator. Hence, the number of liquidators is absolutely of no relevance for consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator is under obligation to call general meeting as at the end of each year within three months of such end and account his acts and dealings before such meeting. In fact, if he fails to do so, he is liable for a fine under sub-section (2) of section 496. Final accounts have also to be presented to a general meeting under section 497 of the Companies Act. Hence, there is no justification for the confusion as between the position of the shareholders and the liquidator. The learned departmental representative placed great reliance on the decision of the Bombay High Court in the case of Indian Hotels Ltd. for the proposition that even a public trustee is treated as a single shareholder. However, the facts, in our opinion, are clearly di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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