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TMI Blog1966 (10) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ter deducting tax due on the total income was Rs. 4,32,151 for the assessment year 1950-51, and Rs. 1,13,579 for the assessment year 1951-52, and that the company had distributed Rs. 43,910 only as dividend. The Income-tax Officer commenced proceedings under section 23A of the Income-tax Act, 1922, and passed an order that the undistributed portion of the assessable income of the company as computed for income-tax purposes and reduced by the amount of income-tax and super-tax shall be deemed to have been distributed as dividends among the shareholders. The order was confirmed by the Appellate Assistant Commissioner. But the Income-tax Appellate Tribunal reversed the order. The Tribunal held that section 23A did not apply to the company since it was not established that the company was one in which the public were not substantially interested. At the instance of the Commissioner of Income-tax, three questions were referred to the High Court of Judicature at Calcutta. In these appeals the first question alone is material : " Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee-company was one in which the public are subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his son, and they have jointly filed a settlement application. Though these persons are now divided and separate assessments to income-tax are being made on each, they have admitted that, so far as the secret profits in question were concerned, they were earned by all the members jointly and have, therefore, requested that a single assessment may be made treating them as an association of persons and making each member and his joint family jointly and severally liable for the tax." It appears that 2,000 shares of the company were standing in the name of Durgadutt Jhunjhunwalla. who had declared himself to be the sole proprietor of the business styled " Mohanlal Murarilal " carried on in the State of Hyderabad. It was found in the course of the investigation before the Investigation Commission that the shares were held by Durgadutt Jhunjhunwalla benami for the members of the Kedia family. By letter dated December 18, 1951, it was admitted by them that Durgadutt Jhunjhunwalla was only a " working partner " having a tenth share and that the entire capital of the firm had been advanced by the Kedias jointly. Out of the 2,000 shares registered in the name of Mohanlal Murarilal, 1,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were acquired jointly by the members of the family out of their " joint secreted earnings ". The Appellate Assistant Commissioner also proceeded to analyse the minutes of the meetings of the company showing the attendance at the meetings of the company held between April 10, 1946, and December 30, 1951, and held that the members of the Kedia family had controlled the affairs of the company, and on their admissions they had formed an association for acquisition of the shares of the company and for various other purposes, and, therefore, it could be inferred that the members of the association who controlled more than 75% of the total shares and the voting power had acted in concert. But the Income-tax Appellate Tribunal held that the offers made by the members of the Kedia family to the Income-tax Investigation Commission that a single assessment be made in respect of their " secreted income " treating them as an association of persons and that every member of the family be treated as jointly and severally liable to pay tax on that income were not relevant in determining whether the company was one in which the public were not substantially interested, and that from the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buted as dividends by any company were less than sixty per cent. of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof, to make an order that the undistributed portion of the assessable income of the company of that previous year shall be deemed to have been distributed as dividends among the shareholders as at the date of the general meeting. But this power could not be exercised in respect of any company in which the public are substantially interested. By the Explanation to section 23A(1) it was enacted that " 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. This court in Raghuvanshi Mills Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . They were of the view that, even on the finding that the members of the Kedia family were in a position to control the affairs of the company, there was no evidence of any overt act showing that they were acting in concert and thereby constituted a block. In our judgment, that approach to the problem was erroneous. 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 years 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. The Tribunal in paragraph 9 of its order observed that there was no material placed by the department to show that the Kedias in question acted in conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held more than seventy-five per cent. of the voting power, it was not necessary to prove that they actually exercised controlling interest. It is the holding in the aggregate of a majority of the shares issued by a person or persons acting in concert in relation to the affairs of the company which establishes the existence of a block. It is sufficient, if having regard to their relation, etc., their conduct, and their common interest, 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 observe that the High Court appears to have felt some-doubt as to the admissibility of the Report of the Income-tax Investigation Commission. But the income-tax authorities are not strictly bound by the rules of evidence, and the mere fact that certain provisions of the Taxation of Income (Investigation Commission) Act relating to the inquiries to be held were declared to be ultra vires by this court did not render the Commission an unlawful body ; and in any event the admissions which are recorded by the Commission, as having been made before them, cannot be ignored. The report had evid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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