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TMI Blog1964 (2) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... company in which "the public were substantially interested" within the meaning of third proviso to section 23A(1) read with the Explanation thereto and, therefore, the provisions of sub-section (1) of section 23A were not attracted. The Income-tax Officer came to the conclusion, firstly, that 75 per cent. of the shares and the voting power of the company were held by persons who could not be regarded as belonging to "the public" and, secondly, under the articles of association of the company the shares were not freely transferable. So concluding, he made the order under section 23A(1) of the Act. His order was affirmed in appeal by the Appellate Assistant Commissioner. In the appeal before the Tribunal the same points were urged in support of the assessee's contention. The Appellate Tribunal upon consideration of the materials before it found that, in the relevant accounting period, the total share capital of the applicant-company consisted of 10,400 shares of which the real and beneficial shareholders were as follows: 1.Mugneeram Bangur & Co. ... 125 2.Ramcoomar Bangur ... 1,950 3.Naraindas Bangur ... 1,000 4.Govindlal Bangur ... 350 5.Gokulc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company runs as follows: "The directors may refuse to register any transfer of a share: (a)Where the company has lien on the share. (b)Where it is not proved to their satisfaction that the proposed transferee is a responsible person, (c)Shares may at any time be transferred by a member to any other member or a non-member by the instrument of transfer in accordance with the procedure provided in clauses 14, 15, 16, 17 and 18 of the articles of association. (d)The directors may also veto any transfer without assigning any reason." Mr. Meyer Las contended before us on behalf of the assessee that once the Tribunal bad found that more than 25 per cent. of the shareholdings are not controlled by any group, the second branch of the Finding of the Tribunal as stated before cannot be warranted in law His second contention is that the Tribunal has found that in the official quotation of the stock exchange in both the relevant accounting years, the shares have been quoted and that the caption at the too of the official quotation has not also been disbelieved by the Tribunal. After coming to such a conclusion the Tribunal's attack that the assessee failed to produce an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by, and are at the end of the previous year beneficially held by, the public (not including a company to which the provisions of this sub-section apply), and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange in the taxable territories or are in fact freely transferable by the holders to other members of the public." The scope of this Explanation has been dealt with by their Lordships of the Supreme Court in the case of Raghuvanshi Mills Ltd. v. Commissioner of Income-tax [1961] 41 ITR 613 ; [1961]2 SCR 970, the relevant portions whereof have been summarised by a Reference Bench of this court (P.S. Mukharji and Niyogi JJ.) in a case James Alexander & Co Ltd. v. Commissioner of Income-tax [1963] 49 ITR 82 . We proceed to quote below only the points which are necessary for deciding the instant case: "This decision of the Supreme Court lays down clearly the following principles: (1)The statutory Explanation to section 23A(1) of the Income-tax Act lays down, among the tests, the minimum interest which can be called ' substantial' by saying that shares of the company carrying not less than 25 per cent, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gredients which should be considered with regard to the first part of the Explanation and this decision does not point to the question whether both the conditions should be fulfilled in order to obtain an exemption from the operation of section 23A(1). This section contains a penal provision and, as such, the initial burden is on the Income-tax Officer to show that his order is in compliance with the terms of the section. Since his order, which was ultimately confirmed by the Tribunal, shows that the initial burden was discharged by him, the onus of proving that a company is one where both the ingredients of the said Explanation are applicable, so as to avoid the operation of section 23A(1), is on the assessee-company. In the circumstances, it is necessary to consider whether both the above conditions in the said Explanation are necessary to be fulfilled or whether the assessee could escape the penal provision by only proving one of the two elements set forth above. The word "and" used in the said Explanation unmistakably shows that the conditions are conjunctive and both of them must be proved for avoiding the penal provision and the proof of one of the elements does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive ingredient in the second condition was fulfilled. In giving the above reasons the Tribunal has observed that "the shares of the assessee-company are the properly of the Bangur group and if there had been any fictitious or colourable transactions in respect thereof in the past and on that basis quotations were made in the official bulletin of the Calcutta Stock Exchange, that does not satisfy the requirement of law." Mr. Meyer has criticised this part of the order on the ground that the Tribunal has committed an error by stating that the shares of the assessee-company are the property of the Bangur group inasmuch as such a finding was made on conjecture and surmise. According to him after making a finding that not less than 25 per cent. of the shares were held by the public, such an observation was unwarranted by law. It is true that in appropriate cases this court may interfere if it appears that the Tribunal has misunderstood the statutory language or that it has made a finding for which there is no evidence or which is inconsistent with the evidence and contrary to it. But in the instant case there appears to be no reason for interference as this finding was made w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in so far as the second condition therein was concerned, it was its imperative duty to adduce further evidence in addition to the stock exchange bulletin to prove conclusively the ingredients of the second condition of the Explanation. It appears from the paper book that although an opportunity was given to the assessee to produce satisfactory evidence in this regard, it was at no point of time availed of. Accordingly, we are of opinion that as the assessee has failed to discharge the onus to prove that it is entitled to the exemption from the operation of section 23A(1), no benefit arising out of the third proviso and the Explanation can be bestowed upon it. It has further been argued on behalf of the assessee that as the Tribunal has made a finding on the fringe of evidence, it cannot be sustainable in law. We do not think that this court can enter into the questions of sufficiency or insufficiency of evidence as the Tribunal being the last court of facts was the final judge as to the sufficiency of evidence on this point discussed above. As regards the question whether the restrictive clause in the articles of association regarding transfer of shares deprives the company of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition of the said Explanation, it cannot be said to be a company in which the members of the public are substantially interested. Accordingly, the order under section 23A(1) of the Act passed by the Income-tax Officer on the assessee-company is not liable to attack. Our conclusion may be summarised as follows: (1)The Explanation of the third proviso to section 23A(1) envisages two conditions under which an assessee can claim exemption from the penal provisions of section 23A(1) and the burden of proving these conditions is on the assessee. (2)The conditions in the said Explanation are conjunctive and, there fore, the proof of one of the two conditions only does not exonerate the assessee from the operation of the penal provision of section 23A(1). (3)In the instant case the Tribunal has found as a fact that not less than 25% of the voting power is held by the members of the public un conditionally and beneficially. This finding alone is not sufficient to bestow any benefit on the assessee-company inasmuch as the second condition of the said Explanation has not been proved. (4)The second part of the Explanation provides that there must be one more test, i.e., such share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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