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TMI Blog1976 (2) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding was as follows : Number of shares on 31-8-1952 31-8-1953 1. Sri Ashok Kumar Jain, Managing Director. 10,000 10,000 2. Sri R. Sharma, Director 10 10 3. Sri N. C. Jain, Director 10 10 4. Sri S. P. Jain 10,000 10,000 5. Smt. Rama Jain 10,000 10,000 6. Sri Alok Prakash Jain 10,000 10,000 7. Rishabh Investment Ltd. 5,000 5,000 8. Dalmia Jain Co. Ltd. 2,000 2,000 9. Universal Bank of India Ltd. 980 980 10. Ashoka Agencies Ltd. 2,000 2,000 50,000 50,000 Of these shareholders Rama Jain is the wife of S. P. Jain and Alok Prakash Jain and Ashok Kumar Jain are the sons of S. P. Jain and Rama Jain. Ashok Kumar Jain (briefly A. K. Jain), the managing director, attained majority on March 5, 1952, while Alok Prakash Jain was a minor during both the accounting years. The three companies, namely, Rishabh Investment Ltd., Dalmia Jain Co. Ltd. and Universal Bank of India Ltd. are companies to which the provisions of section 23A of the Indian I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplementary case as directed above ". The Tribunal thereafter, after hearing the parties, submitted a supplementary statement of case to the High Court on September 30, 1966. A controversy arose before the Tribunal with regard to entertainment of additional evidence which the revenue wanted to adduce before it, particularly in view of the direction of the High Court, but the Tribunal did not accede to the request and additional evidence was not received. The matter then came up before the High Court resulting in the impugned order against the revenue. Hence, these two appeals by special leave. The revenue reiterated its grievance before the High Court about the Tribunal's refusal to entertain additional evidence without success and the matter is no longer in controversy in view of a decision of seven judges of this court in Keshav Mills Ltd. v. Commissioner of Income-tax affirming the earlier decisions of this court in the case of New Jahangir Vakil Mills Ltd. v. Commissioner of Income-tax and Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax. It is now well-settled that when the Tribunal has disposed of the matter and is preparing a statement of the case ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income :... Provided further that this sub-section shall mot apply to any company in which the public are substantially interested... Explanations.-- For the purpose of this sub-section, 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 twenty-five 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...and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange...or are in fact freely transferable by the holders to other members of the public." In this case the company did not declare any dividend for the assessment year 1953-54. In the next assessment year 1954-55, only a sum of Rs. 50,000 was distributed as dividend. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares held by her. Assuming, therefore, that Sri S. P. Jain was the controlling shareholder, the shares held by the members of the 'public' which would include Sri A. K. Jain and Mrs. Rama Jain would be at least 22,000 shares." In the supplementary statement of case filed by the Tribunal enclosing various orders and other documents, it is shown that S. P.Jain was director of the company from August 3, 1950, to September 25, 1950. He was appointed managing director from June 6, 1953, subject to approval of the Government. A. K. Jain was director of the company from August 3, 1950, even when he was a minor (his date of birth being March 5, 1934) and was appointed deputy managing director from June 6, 1953, subject to approval of the Government. R. Sharma was director from August 3, 1950, to September 7, 1956. He was secretary of R. K. Dalmia and employee of Sahu Jain Limited. N. C. Jain was director from September 25, 1950, to March 25, 1954. He was secretary of S. P. Jain and employee of Ashoka Agencies Limited. From the above it appears that the deputy managing director and the two other directors held amongst themselves 10,020 shares and out of the balance 30,000 shares were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k exists and possesses more than seventy-five per cent. of the voting power, then the company cannot be said to be one in which the public are substantially interested............the test is first to find out whether there is an individual or group which controls the voting power as a block. If there be such a block, the shares held by it cannot be said to be "unconditionally" and "beneficially" held by members of the public'." This court further observed : " The Tribunal had to decide in the first instance whether there was a group of persons acting in concert holding a sufficient number of shares which may control the voting as a block. But the existence of a block is not decisive. If there be a group of persons holding control over voting, the company would still be a company in which the public are substantially interested, if twenty-five per cent. or more of the voting power has been allotted unconditionally to and beneficially held by the public and the shares were in the previous year subject of dealings in any stock exchange in the taxable territories or were in fact freely transferable by the holders to other members of the public. The two enquiries are distinct." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est, that it may be inferred that they must be acting together ; evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon." We may also observe in passing that it does not appear that the East Coast Commercial Co.'s case was referred to during the hearing in, nor was it noticed by, the High Court. The Tribunal, in the supplementary statement observed as follows : " Unless it is to be presumed that because of relationship, Sri S.P. Jain, Smt. Rama Jain and Sri A. K. Jain should be regarded as acting in concert there is no other material on record on the basis of which such a conclusion could be supported." The High Court also observed to the same effect : " It may be that in view of the relationship of the parties as to a group consisting, of the father, two minor sons and their mother, a possible inference was that the relationship was such that they could reasonably be taken to be acting as a group in concert ............................" but "the assessee could not be placed in the category of such a ; company merely because of the close relationship." Keeping in the forefront the test laid down by this court in East Coas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be attracted. (2) With regard to the second submission of Mr. Sen, Mr. Hardy submits that there is sufficient evidence in the record, which is even referred to in the further statement of the case, that A. K. Jain was an independent shareholder and was not under the control of S. P. Jain or any other director or shareholder. He further submits that there is no evidence whatsoever that the money for purchasing the shares of A. K. Jain or even of Rama Jain was advanced by S. P. Jain. (3) With regard to the third submission of Mr. Sen, Mr. Hardy had to admit that N. C. Jain was director from 1950 to 1954 and S. P. Jain was director from August 3, 1950, to September 25, 1950, and S. P. Jain became the managing director of the company on June 6, 1953, subject to the approval of the Government on a remuneration of Rs. 8,000 per month and A. K. Jain was appointed as deputy managing director on a remuneration of Rs. 6,000 per month subject to the approval of the Central Government (vide minutes of the board's meeting of June 6, 1953). According to Mr. Hardy, appointment of directors or even managing director is a regular matter of the company and no particular significance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrolling shareholders. So far as Rama Jain is concerned it is not possible to hold that S. P. Jain would not be able to control his wife's voting power along with that of his minor son, Alok Prakash Jain. It is true that mere relationship or being a director is not decisive. As a matter of fact no single factor can be decisive but having regard to the totality of the circumstances revealed in the case and the conduct of the transactions of the company taken with the relationship, which in the circumstances of the case is not a negligible element, we are clearly of the opinion that it is a case in which it cannot be said that the "public" is substantially interested in 25 per cent. or more shares of the company. Even if we allow A. K. Jain to be a member of the "public", he only holds 10,000 shares and taken with 2,000 shares, of Ashoka Agencies Ltd., the total shareholding comes only to 12,000 shares, that is to say, 500 less than the minimum shareholding requisite to earn the benefit of the third proviso to section 23A read with he Explanation. Further, between August 11, 1951, and May 1, 1952, A. K. Jain and two employee-directors, the latter having a modicum of 10 shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25-3-54, when the nominee-director, Sri N. C. Jain, resigned his directorship to make room for his master, Sri S. P. Jain." The factual position, not the opinion, revealed in the above extract is more than eloquent with regard to the core of the company. Having regard to the intimate relationship of the shareholders, with not the least evidence of any disconcert amongst them, the ordinary expectation for individual profit in commercial undertakings, natural reluctance to forgo the same, the history of the company and its continued smooth working in a manner which is normally inconsistent with anything other than full unison amongst the shareholders in decisions about the conduct of the company's affairs in common interest of all, this was a company of one paramount mind operating without the least doubt. The board's meetings are evidence of a well-organised, well-knit, close unity of views in all affairs and which in the ordinary course of human conduct would not have been at all possible but for a single or concerted action in the company, management by a controlling group. When all the above conditions are present in a company, the onus would be on the assessee to satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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