9911796707
TMI Blog1965 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... reof should be deemed to have been distributed as dividends among the shareholders of the assessee as on June 30, 1954, the date of the general meeting at which the accounts for the previous year were laid. He formed this view on two grounds : (1) Equity shares of the assessee, carrying not less than 25 per cent. of the voting power, were not beneficially held by the public at the end of the relevant previous year ; and (2) The shares of the assessee-company were not the subject of dealings in any stock exchange and the shares were not in fact freely transferable by the holders to other members of the public. On appeal by the assessee, the Appellate Assistant Commissioner of Income-tax did not accept these grounds, and reversed his order. He thought that as one of the shareholders of the company, the Saroja Mills, is a company in which the public were substantially interested, it should be held that more than 25 per cent. of the voting power was held by that company. He further held that clause 13 of the articles of the assessee which vested in the directors discretion in the matter of transfer of shares and was but a common feature found in the articles of what are undoubtedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore it. Referring to clause 13 it said that where restrictions were placed on transfer, as in the instant case, the company could be held to be one in which the public were substantially interested, provided the factual position up to the end of the relevant previous year showed that notwithstanding the restriction of free transfer of shares, transfer of shares was allowed freely among the members of the public. But, as we said, in view of clause 13 and of the particulars submitted by the Income-tax Officer, the Tribunal considered that the assessee failed to show that it was a company in which the public were substantially interested. Apparently, anticipating that the Tribunal might allow the appeal, the departmental representative asked the Tribunal for directions under section 34(3), as otherwise assessments of some of the shareholders of the assessee-company under section 23-A would get time-barred. The Tribunal was minded to give these directions stating that in view of its decision, it gave the necessary direction. In the above circumstances, the following questions have been referred to us by the Tribunal under section 66(1) : 1. Whether on a proper construction of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact freely transferable by the holders to other members of the public. "Transferable", ex facie, is not to be equated to "transferred". The word imports a quality, a legal effect arising out of or inherent in the character and nature of the shares themselves. This quality does not stand by itself, for the section says "are in fact freely transferable". We have to give effect to each of these words, and if we did so, transferability is qualified by the fact which in the context, to our minds, means a factual tendency which is unrestrained and which ensures transferability. In other words, we understand by the words " are in fact freely transferable " not that there should necessarily be actual transfers of shares, but a factual tendency towards free transfer of shares, subject, of course, to reasonable restrictions, by holders to other members of the public. If, for instance, the holders of shares are members of a family and the circumstances show that the company is intended to be a closed combine, this may justify an inference, in the light of those and other facts, that there is hardly any tendency either reflected from the treatment of the shares or from the composition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y power which has to be exercised by the directors according to law and reason and not whimsically or arbitrarily. Counsel relies on Muthappa Chettiar v. Salem Rajendra Mills Limited to support his proposition. He also invites our attention to a circular of the Central Board of Revenue dated July 1, 1959. From that circular it appears that the Bombay Bench of the Appellate Tribunal had decided in one case that, as long as there was a right to refuse transfer without assigning any reason, it must hold that the shares were not freely transferable by the holder to other members of the public. The Board of Revenue in effect directed the officers of the income-tax department not to follow this ruling, but suggested that the question whether shares were freely transferable or not was tot be decided. in the light of the circumstances of each case. Learned counsel for the assessee contends that this is a circular which the department officials were bound to; following under section 5(8) Of the Income-tax Act, 1992, as held in Navnit Lal C. Javeri v. K. K. Son, Appellate Assistant Commissioner of Income-tax, Bombay. As to the last argument, it is not necessary to say anything more than that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
