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TMI Blog1982 (2) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... hoksi, Mr. D.R.D. Tata, Mrs. V.J. Vesugar and Mr. R.D. Choksi 1,400 Sir D. J. Tata Trust-Trustees: Lady Navajbai Ratan Tata, Mr. J. R. D. Tata, Sir H. P. Mody, Mr. A. D. Shroff, Dr. John Mathai, Mr. N. H. Tata and Mr. R.D. Choksi 2,995 Sir Ratan Tata Charities-Trustees : Lady Navajbai Ratan Tata, Mr. N. H. Tata, Sir H. P. Dastur, Mr. N. H. Coyajee, Mr. N. K. Suntook and Mr. K. A. D. Naorojee 500 Mr. D. R. D. Tata 6 Tata Sons Pvt. Ltd. and Mr. J. R. D. Tata 6 Tata Sons Pvt. Ltd. and Sir H. P. Mody 6 Tata Sons Pvt. Ltd. and J. D. Choksi 6 Tata Sons Pvt. Ltd. and Mr. K. C. Bakhle 6 Tata Sons Pvt. Ltd. and Mr. T. V. Baddeley 6 Tata Sons Pvt. Ltd. and Mr. L. Sawhny 6 Tata Sons Pvt. Ltd. and Mr. J. J. Bhabha 6 Tata Sons Pvt. Ltd. and Mr. R. D. Choksi 6 Thus out of 6,000 shares, 4,895 shares, which come to about 81% of the total number of shares of the assessee-company, are held by the three trusts referred to above. All the three trusts are public charitable trusts. In the assessment proceedings for the assessment year 1967-68, the company claimed that it should be treated as a " company in which the public are substantially inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c trustee under that section, should be regarded as held by the " public ". It was argued before the Tribunal that public trusts which are shareholders of the assessee-company fell within the ambit of s. 187B of the Companies Act and, consequently, the voting power in respect of more than 50% of the shares of the assessee-company was exercisable by the " public trustee " under s. 187B. It was further argued before the Tribunal that the " public trustee ", being a nominee of the Government, would represent the public and the control of the voting power by the public trustee should be taken as control by the public and, therefore, the shares held by the public charitable trusts should be regarded as held by the public and the assessee-company should have been treated as a company in which the public were substantially interested. This alternative argument was accepted by the Tribunal, which took the view that under s. 187B of the Companies Act, in the case of every trust, the rights and powers including the right to vote exercisable at any meeting of the company of which shares are held by the trust, shall be exercisable by the public trustee and since, the public trustee was a nomin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des for the manner in which the number of five or less persons is to be computed is not relevant for our purpose. It may be pointed out that this definition is analogous to the provision in Expln. 1 in s. 23A of the Indian I.T. Act, 1922, under which a company was to be deemed to be a company in which the public are substantially interested if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits), carrying not less than fifty per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the previous year beneficially held by the Government or corporation established by a Central, State or Provincial Act or the public (not including a company to which the provisions of s. 23A apply). The proportion of fifty per cent. referred to above was originally 25%. Now, the argument on behalf of the Revenue advanced before us is that the Tribunal having held that the shares held by the three charitable trusts could not be considered as shares held by the public, the Tribunal should have held that the assessee-company was not a company in which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are beneficiaries of a public trust, the shares must be treated as being beneficially held by the beneficiaries through the trusts. The learned counsel went a step further and contended that in such case, the voting power vests in the public but through the trustees. The learned counsel posed a question that the shares have to be held beneficially by somebody and answered it by saying that if it was not suggested that the shares were held by the trustees themselves for their own benefit, then the shares must be said to have been held beneficially by the public. In support of the contention that the statute must be reasonably construed and a construction in consonance with justice should be adopted, the learned counsel has relied on the decision of the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, in which the Supreme Court has observed that though it is true that equitable considerations are irrelevant in interpreting tax laws, those laws like all other laws have to be interpreted reasonably and in consonance with justice. Our attention was also invited to another decision of the Supreme Court in CIT v. National Taj Traders [1980] 121 ITR 535, where the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of s. 23A of the Indian I.T. Act, 1922. Before, however, we go to the provisions of s. 2(18) of the Act, we must dispose of the contention advanced on behalf of the Revenue that the Tribunal was in error in holding that in a case where s. 187B operates or is attracted, the shares must be taken to be held by the public merely on the ground that the voting power is exercised by the public trustee. In all fairness to the learned counsel for the assessee-company, we must mention that it was not possible for the learned counsel to support the reasoning of the Tribunal in para. 8 of its appellate order. It is undoubtedly true that the effect of the provisions of s. 187B of the Companies Act is that where any shares in a company are held in trust by a person referred to as "trustee" in the section, the right and powers (including the right to vote by proxy), exercisable at any meeting of the company or at any meeting of any class of members of the company by the trustee as a member of the company cease to be exercisable by the trustee as such member and becomes exercisable by the public trustee. Under sub-s. (2) of s. 187B, it is open to the public trustee instead of himself at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt from the fact, that, as we shall presently point out, the word " public " is used in a particular sense in s. 2(18), the ground on which the Tribunal has held that the assessee-company must be treated as a company in which the public are substantially interested is wholly untenable and the view of the Tribunal is based on misconception of the scope, purpose and the effect of s. 187B of the Companies Act. Coming now to the main argument on behalf of the Revenue that shares carrying not less than 50% of the voting power have not been allotted unconditionally to, Or acquired unconditionally by, and were not throughout the relevant previous year beneficially held by the public, it is necessary to analyse the relevant provisions in s. 2(18)(b). The three clauses, viz., cls. (i), (ii) and (iii) of s. 2(18)(b) will show that the conditions prescribed in those clauses have to be cumulatively satisfied. In so far as cl. (i) is concerned, it is necessary that the company must not be a private company as defined in the Companies Act, 1956, and this will apply to all the three clauses, and further the shares in the company (not being shares entitled to a fixed rate of dividend whether with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Supreme Court referred to above. In Raghuvanshi Mills. Ltd. v. CIT [1961] 41 ITR 613, the Supreme Court was dealing with the Explanation to s. 23A of the Indian I.T. Act, 1922, the terms of which, as we have already pointed out, were similar to the provisions contained in s. 2(18)(b) of the Act except that at the time when the Supreme Court was considering the relevant provision, the percentage of shares was 25 and not 50 as in the present case. The material part of the Explanation was quoted by the Supreme Court as follows: "Explanation.-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." Dealing with the Explanation, the Supreme Court observed as follows (p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd amongst whom the voting power constitutes a block and only those members of the public who are outside this block will, therefore, be covered by the " public " as contemplated by s. 2(18)(b) of the Act. This is made further clear by the Supreme Court in the jubilee Mills' case [1963] 48 ITR 9 (SC). Referring to the decision in Raghuvanshi Mills' case [1961] 41 ITR 613, the Supreme Court observed as follows (p. 17): " This court pointed out that by the words 'unconditionally' and 'beneficially' are indicated that the voting power arising from the holding of those shares should be free and not within the control of some other shareholder and the registered holder should not be a nominee of another. It was pointed out again by this court in Shree Changdeo Sugar Mills Ltd. v. Commissioner of Income-tax [1961] 41 ITR 667 (SC), that by ' unconditional ' and ' beneficial ' holding is meant that the shares are held by the holders for their own benefit only and without any control of another ...... This court pointed out that what one has to find out is whether there is an individual who, or a group acting in concert which, controls or control the affairs of the company to the exclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jubilee Mills' case, the Supreme Court had observed as follows (p. 20): " The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts." It is not necessary to multiply authorities and cite decisions of this court which dealt with similar questions because they followed the decisions of the Supreme Court, but we will merely mention that similar questions fell for consideration in Indian Hume Pipe Co. Ltd. v. CIT [1969] 74 ITR 762 (Bom), and Seksaria Biswan Sugar Factory Ltd. v. CIT [1975] 101 ITR 703 (Bom). Now, the arguments before the Tribunal in the instant case had proceeded on the footing that 81% of the shares held by the three public trusts must be treated as being held by the public. As indicated by the decisions referred to above, two questions will have to be answered. Firstly, whether there is any group of shareholders who can be considered as a block and whose voting power is more than 50% and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would normally be the name first recorded as the holder of the shares, is the same, namely, Lady Navajbai Ratan Tata. Normally, these trustees would be expected to act in concert. Similarly, the remaining shares are held either by Tata Sons Pvt. Ltd. to the extent of 1,051, that person and there are 8 such groups of 6 shares each, out of which the joint holders in 4 groups are trustees in one or the other trust. Looking at the manner in which the shares are held, either way, therefore, it appears to us to be clear that the prescribed 50% of the shares, as required by cl. (i) of s. 2(18)(b), cannot be said to be held by the public. If this condition is not satisfied, then irrespective of the question as to whether the second or the third condition is satisfied or not, the company will not be one which falls within s. 2(18)(b) of the Act. It is no doubt true that Mr. Vyas has contended that whether the third condition with regard to the affairs of the company or the shares carrying more than 50% of its total voting power being at no time, during the relevant previous year, controlled or held by five or less persons, is fulfilled or not is a matter on which no finding has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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