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TMI Blog1964 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ase within the third proviso. Appeal dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(1) of the Indian Income-tax Act, the Tribunal referred three questions to the High Court of Judicature at Madras. The third question, which alone is material in these appeals, reads as follows : " Whether the provisions of section 23A were correctly applied for the three relevant years ? " The High Court held that the respondent company was one in which the public were substantially interested, and, therefore, the Income-tax Officer had no jurisdiction to pass the order under section 23A of the Income-tax Act for any of the three years and on that footing answered the question in the negative. Against the order passed by the High Court, with certificate of fitness the Commissioner of Income-tax has appealed to this court. Section 23A of the Indian Income-tax Act, 1922, before it was amended by the Finance Act, 1955, stood as follows : " Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to non-corporate assessees by refusing to agree to distribution of profits, section 23A was enacted by the legislature. The Income-tax Officer was thereby authorised, if satisfied, when less than sixty per cent. of the assessable income of the company, subject to reductions permitted thereby, was not distributed, to pass an order under which the income was deemed to be distributed among the shareholders entitled thereto. By the order so made a fictional or notional income which was not in fact received by the shareholders was deemed to be distributed, and in the hands of the shareholders such deemed income was liable to tax as if it had arisen or accrued to them. But by the express provision contained in section 23A, as it stood at the material time, no order could be passed in respect of any company in which the public were substantially interested and to a subsidiary company of such a company if the whole of the share capital of such subsidiary company was held by the parent company or by the nominees thereof. The Act, however, did not define the expression " company in which the public are substantially interested ". Normally a company would be deemed to be one in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. of the voting power is allotted unconditionally to, or is acquired unconditionally by or is beneficially held by the public, it shall be presumed that the company is one in which the public are substantially interested. But in considering whether shares carrying not less than twenty-fire per cent. of the voting right are held by the public, shares entitled to a fixed rate of dividend have to be excluded. The reason of the rule which excludes from the computation of voting power holders of shares entitled to a fixed rate of dividend is that section 23A is directed primarily against the accumulation of undistributed dividends to avoid payment of non-corporate rates of super-tax. But shareholders who are entitled to a fixed rate of dividend are not directly interested in such accumulation, it matters little to them whether the dividend is immediately distributed to the ordinary shareholders or is accumulated, and therefore in assessing whether the twenty-five per cent. of the shares are vested in persons other than the controlling group, the shares yielding a fixed rate of dividend have to be ignored. But for the purpose of ascertaining the voting power, voting rights attached ..... X X X X Extracts X X X X X X X X Extracts X X X X
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