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TMI Blog1962 (9) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ons hold the remaining three shares one each. The shares of the assessee company are not quoted on the stock exchange anywhere in India. There is, however, nothing in the memorandum or articles of association of the company putting any restriction on the free transfer of the shares of the company. During the assessment years 1950-51 and 1951-52 corresponding to the previous years of the assessee ending on the 30th of September, 1949, and 30th of September, 1950, respectively, the assessable income of the assessee was determined at ₹ 60,350 and ₹ 93,884 respectively. After the deduction of the taxes, which were payable, there was a balance of ₹ 35.834 in the first year and ₹ 53,103 in the second year. Since the assessee had not declared any dividends at its general meetings during either of these two years or within six months thereof the Income-tax Officer issued a notice to the assessee to show cause why an order under section 23A(1) should not be passed against it for the two years. The assessee contended before the Income-tax Officer that section 23A was not applicable to it as it was a company in which the public were substantially interested within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y dividend during the relevant assessment years, the order of the Income-tax Officer under section 23A was rightly passed against it. As to the further contention raised before him relating to the assessment year 1951-52, he took the view that what was to be considered for the purpose of section 23A was the assessable income of the company for the previous year and this income included the share of the assessee's profits in its partnership with the Indian Steel Syndicate. According to him the circumstance that the account year of the assessee and the account year of the partnership were different did not make any difference, because at the date of the general meeting of the assessee company held on the 17th of May, 1951, the accounting year of the partnership firm had also come to an end. The assessee then took further appeals to the Appellate Tribunal. The Tribunal agreed with the view taken by the income-tax authorities that the assessee company was one in which the public were not substantially interested within the meaning of section 23A and that the order under section 23A passed against the assessee by the income-tax authorities was valid and justified for both the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny carrying twenty-five per cent. or more of the voting power must have been allotted unconditionally to or acquired unconditionally by the public and the shares of the company must either have been dealt with on any stock exchange in the taxable territories in the course of the previous year or must have been, in fact, freely transferable by the holders to other members of the public. In prescribing the requirements that twenty-five per cent. or more of the voting power must be held by the public, it is provided that the word public will not include a company to which the provisions of this sub-section apply. Now, so far as the shareholding of the assessee company is concerned 47,493 out of the 50,000 shares of the company have been held by the Jammu Company. If these shares cannot be regarded as the shares allotted unconditionally or acquired unconditionally, and held at the end of the previous year beneficially by the public, the assessee company could not be said to be a company in which the public are substantially interested. Mr. Palkhivala's argument is that a company comes within the expression public as used in this Explanation unless it is a company to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... z., that the company, in order that section 23A should apply to it, must be a company as defined under the Indian Income-tax Act, has been lost sight of and ignored by the income-tax authorities as well as by the Tribunal. He has urged that he should be allowed to urge that aspect or if it is found necessary to call for a further supplementary statement of the case relating to this aspect before the point could be considered and determined, such a further statement should be called for from the Tribunal. He has invited our attention to the grounds of appeal, which he had taken before the Tribunal, where this specific contention was raised by him. It does appear to us from a perusal of the grounds of appeal, which the assessee had taken before the Tribunal, that the assessee had raised the contention before the Tribunal, that the Jammu Company, not being a company as defined under the Indian Income-tax Act, could not be a company to which the provisions of section 23A of the Act would apply so as to treat the shares of the assessee company held by it as shares not held by the public. From the order of the Tribunal as well as from the statement of the case, it also appears that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies in the words 'unconditionally' and 'beneficially'. These words underline the fact that no person who holds a share or shares not for his own benefit but for the benefit of another and who does not exercise freely his voting power, can be said to belong to that body, which is designated 'public'. The word 'public' is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a block. If such a block 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...Such a group may be formed by the directors of a company acting in concert, or by some directors acting in concert with others, or even by some shareholder or shareholders, none of whom may be a director. Their Lordships further held: The test is first to find out whether there is an individual or a 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. It would follow from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be validly passed against it. No contention has been raised as to the merits of the order passed for the assessment year 1950-51, and it must, therefore, be concluded that the order passed by the Income-tax Officer for the said assessment year was valid and justified. As to the assessment year 1951-52, however, we have to consider further the contention of Mr. Palkhivala that even assuming that an order under section 23A could be validly passed against the assessee company, such an order was not justified for the assessment year 1951-52. In our opinion, there is considerable force in the submission which has been urged by Mr. Palkhivala. It may be pointed out that the first assessment for the year 1951-52 was completed on the 29th of February, 1952. At the time of this assessment, the assessment on the partnership of the assessee with the Indian Steel Syndicate was not made and the assessee's share in the profits of the said partnership was not determined. The assessable profits computed in the said assessment, which was completed on the 29th of February, 1952, therefore, did not include the profits from the partnership, and the income was assessed at ₹ 34,211. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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