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TMI Blog1953 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... xmi Mohanlal } daughters 50 2 2. Mrs. Prabhavati Nanalal Harilal } of a director 50 3 3. Mrs. Kantabai Maganlal (wife of a director) 771 4 4. Bipinchandra Maganlal } 1000 5 5. Harischandra Maganlal } sons of a director 1000 6 6. Krishnakumar Maganlal] 1000 7 7. Chimanlal Vithaldas (cousin of a director) 833 8. Hirjibhai Purshottam and Haridas Purshottam (brothers of a director) 25 9. Dhanjibhai Purshottam and Haridas Purshottam (brothers of a director) 25 Total 4754 Besides the shares held by the directors and their relations, only 551 shares were held by other members of the public. On 14th November, 1941, Maganlal Prabhudas made a gift of 1000 shares to each of his 5 sons out of the 6,344 shares held by him at the material time. 3. By a deed dated the 7th day of March, 1942, the applicant company appointed Ravindra Maganlal & Co. Ltd., as its managing agents. The managing agency agreement dated 7th March, 1942, is annexure ' A ' and forms part of the case. The total issued and subscribed capital of the private limited company of the managing agents was a sum of Rs. 5,000, Rs. 1,000 each was subscribed by the 5 sons of Maganlal Prabhudas, viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 shares and his two sons Ravindra Maganlal and Surendra Maganlal were also directors who held each 1,168 and 1,100 shares. 4,754 shares were held by various relations of the directors and 1,000 shares each were held by three other sons of Maganlal, viz., Bipinchandra, Harischandra and Krishnakumar, and the balance of 551 shares were held by members of the public unconnected with the directors of the assessee company. There is an explanation to the third proviso to Section 23A, and to the extent that it is material it reads as follows : " A company shall be deemed to be a company in which the public are substantially interested if shares of the company carrying not less than 25 per cent. of the voting power have been allotted unconditionally to or acquired unconditionally by, and are at the end of the previous year beneficially held by the public. " The question that the Tribunal had to consider was whether 25 per cent. of the shares of the assessee company were held by the public within the meaning of this explanation, and in order to decide that question the only material issue that arose before the Tribunal was whether the 3,000 shares held by Bipinchandra, Harischandr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The English law on the subject is slightly different from our law. In order that an assessee company should be subjected to the provisions of Section 23A under our law it is necessary that the public should not be substantially interested. Under the English law one further condition is necessary and that is that it should not be controlled by more than five persons, and the English decision to which we are about to refer must be appreciated in the light of this additional condition which is present in the corresponding English section. In that particular case 16,000 shares of the assessee company were transferred by Lord Glanely, who was a director of that assessee company, to his niece as a personal gift and she in her turn settled those shares upon the trusts of her marriage settlement, and the question that arose was whether the niece was a member of the public within the meaning of the section. In the judgment of Mr. Justice Lawrence there is a passage on which Mr. Palkhivala has placed strong reliance, and that is that the word " public " must not be read in any different sense from the ordinary meaning of the word. But Mr. Justice Lawrence goes on to observe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that particular shareholder for the purposes of Section 23A will not be considered as a member of the public. It is from this point of view that we must consider the statement of the case submitted to us, and the question raised for our decision. Now, in the order the Accountant Member, with respect, has approached the matter from a point of view which seems to us to be not quite correct. The view he takes is that when you have a managing agency given to a limited company, then every shareholder of that limited company is under the control of the directors of the managed company. This opinion of the Accountant Member has been formed on certain facts which still remain to be stated. On the 7th May, 1942, the assessee company appointed Ravindra Maganlal & Co. Ltd., as its managing agents. The total issued and subscribed capital of this private limited company was a sum of Rs. 5,000 and Rs. 1,000 each was subscribed by the five sons of Maganlal Prabhudas, viz., Ravindra, Surendra, Bipinchandra, Harischandra and Krishnakumar. It is important to note that of these five shareholders, as already pointed out, Ravindra and Surendra were directors of the managed company and Ravindra, Surend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon as a finding of fact that these shareholders are under the control of the directors of the assessee company. But in the very next sentence he says : " I think the shareholders are nominees whose voting power may be controlled ". As we have already pointed out, the mere possibility of the voting power being controlled is not enough. Anything is possible and any one's voting power may be controlled, but that is not what the law requires. The law requires a de facto control, a control which is in fact exercised, and here again we do not find that the Judicial Member has given that finding. We therefore find ourselves in this difficulty that it is not possible for us to answer either the question which we ourselves had directed the Tribunal to raise or which the Tribunal suggests should be raised, unless we have got the necessary facts from the point of view of the correct principle of law which we have just enunciated. It is only when we get those facts that we would be in a position to answer whether on the facts and circumstances of the case the provisions of Section 23A of the Income-tax Act are applicable to the assessee company, or whether on the facts and ci ..... 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