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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 ..... rred. We, accordingly, set aside the order passed by the High Court and direct that the Tribunal do submit a supplementary statement of the case under section 66(4) of the Income-tax Act, 1922, because in our view the statement of the case already referred to is not sufficient to enable determination of the case raised thereby. The Tribunal may make such additions or alterations in the statement of the case in the light of the observations made in the course of this judgment. The Tribunal will submit the supplementary statement of the case to the High Court. The High Court will then proceed to determine the question according to law. The costs of this hearing will be costs in the proceedings before the High Court. Appeal allowed. - Appeal (civil) 672 of 1965 - - - Dated:- 11-10-1966 - Judge(s) : V. RAMASWAMY., J. C. SHAH., V. BHARGAVA S.T. Desai R. Ganapathy Iyer and R.N. Sachthey, for the appellant (in both the appeals). A.K. Sen and D.N. Mukherjee, for the respondent (in both the appeals). JUDGMENT The judgment of the court was delivered by SHAH J.-- -Messrs. East Coast Commercial Company Ltd.---hereinafter called the company ---disclosed in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (died on 16-5-61) Prosad -------------------------------------------------- Mahabir Prosad Puranmal The joint status between the members of the family was severed on July 4, 1943, and the members of the family formed themselves into a partnership and carried on the family business. Some time thereafter, Benarshi Prosad and Puranmal retired from the partnership and started an independent business with an outsider in partnership. This business was taken over by a private company styled East Coat Commercial Company Ltd. Later, the private company was converted into a public limited company bearing the same name and having a paid-up capital of ₹ 4,39,100 divided into 4,391 shares of ₹ 100 each. Investigation was started against the members of the Kedia family under the Taxation of Income (Investigation Commission) Act, 1947. In the course of the investigation the heads of the four branches of the Kedia family admitted that the shares in the respondent-company numbering 4,115 were purchased by them out of their joint income which had not been disclosed land a majority of the shares in the company was held benami. An offer of settlement was then made by the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tember 17, 1952, the members of the Kedia family got all the shares transferred to their own names from the benamidars. The shareholding of the various members of the family thereafter was as follows : 1. Madangopal Kedia 120 shares. 2. Benarshi Prosad Kedia 495 shares. 3. Prohladrai Kedia 1,389 shares. 4. Puranmal Kedia 650 shares. 5. Mahabir Prosad Kedia 461 shares. (Out of 1,389 shares held in the name of Prohladrai Kedia, 1,000 shares were those which were transferred by Durgadutt Jhunjhunwalla.) Taking into account 900 shares---being 9/10th share of the holding of 1,000 shares which were transferred on January 30, 1951, in the name of Durgadutt Jhunjhunwalla, the total holding of the members of the Kedia family in the company, therefore, stood at 4,015 shares. This holding was in excess of seventy-five per cent. of the total number of the shares issued by the company. The Income-tax Officer held that Madangopal Kedia and others formed an association of persons. In his view 4,115 shares had been purchased benami out of the income earned jointly by the members of the family and that the income was invested by them as an association of persons, and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily acted in concert, we hold that no case has been made out by the department for holding that the assessee-company is one in which the public were not substantially interested. The High Court expressed a doubt that the report made by the Income-tax Investigation Commission may not be evidence of anything contained therein , and proceeded to observe : There is no doubt upon the facts stated above that the five Kedias who held between them 3,115 shares, and also had an interest in the 1,000 shares of Messrs. Mohanlal Murarilal, were in a position to control the affairs of the company ... In my opinion, the Tribunal came to the right conclusion. It may be that the holders of the shares are in a position to control the company. The majority of shareholders may be directors or relatives of directors or relatives of shareholders. But, that is not by itself sufficient to satisfy the test. There must not only be evidence to show that a number of individuals are in a position to control the company, but it must be shown that they are in fact acting in concert and they have constituted a ' block ' so as to control the affairs of the company by themselves. This requires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trols the voting power as a block. It 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 is clear that in deciding whether an order under section 23A(1) is called for, the Income-tax Officer must determine--(i) whether there is an individual or a group which can control the voting power as a block. The existence of such a block may be established by showing that the voting power is vested in persons possessing more than fifty per cent. of the shares issued who act in concert ; and (ii) that the block exercises a controlling interest over the affairs of the company. This condition is satisfied only if the voting power of the block or group is seventy-five per cent. or more. If the block holds seventy-five per cent. of the voting power, it shall be deemed that the company is one in which the public are not substantially interested. On the other hand, if the members of the public hold 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 twenty-five per cent. of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, but there was no evidence of any overt act or concert between them. But in Commissioner of Income-tax v. jubilee Mills Ltd. this court held that no direct evidence of overt act or concert between the members of the group having control over voting was necessary to prove that the company was not one in which the public were substantially interested. It was observed in Raghuvanshi Mills' case that in deciding if there is such a controlling interest, there is no formula applicable to all cases. Relationship and position as director are not by themselves decisive. If relatives act, not freely, but with others, they cannot be said to belong to that body, which is described as ' public ' in the Explanation. In Jubilee Mills' case this court elaborated those observations and stated : 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. On an analysis of the reasons r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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