COMMISSIONER OF INCOME TAX Vs. SUNDARAM CLAYTON LIMITED

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal has referred the following questions for the opinion of this court under section 256(1) of the Income-tax Act, 1961, for the assessment years 1975-76 and 1979-80 Assessment year 1975-76

(2.) ASSESSMENT year 1979-80 (i) Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 2(18)(b) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that the assessee should be treated as a company in which the public are substantially interested " (ii) Whether the Appellate Tribunal's view that since the assessee is a public company under section 43A of the Companies Act, 1956, the assessee should be treated as a company in which the public are substantially interested under section 2(18)(b) of the Income-tax Act, 1961, is sustainable in law " (iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that weighted deduction under section 35B should be allowed at 1 1/2 times of the expenditure and not 1 1/3rd times as allowed by the Income-tax Officer "(iv) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the entertainment expenditure of Rs. 2, 09, 269 disallowed under section 37(2A) of the Act "

(3.) THE point for consideration is whether the assessee is a public company under section 43A of the Companies Act, 1956, and the assessee should be treated as a company in which the public are substantially interested under section 2(18)(b) of the Income-tax Act, 1961, and, therefore, the assessee is entitled to weighted deduction under section 35B to the extent of 1 1/2 times or 1 1/3rd times. In view of the fact that under section 43A of the Companies Act and the articles of association providing for free transferability of shares and 43.39 per cent. voting power was held by three companies of the Sundaram group, he held that the assessee-company was one in which the public were substantially interested and, therefore, the assessee is entitled to weighted deduction at 1 1/2 times. But, on the other hand, in CIT v. Lucas TVS Ltd. 1995 (214) ITR 700, 1995 (128) CTR 210, 1995 (128) CTR(Mad) 210 this court held that the assessee-company was one in which the public are not substantially interested and, therefore, the assessee-company is entitled to 1 1/3rd per cent. in the matter of granting weighted deduction under section 35B of the Act. In view of the foregoing reasons, the Tribunal was not correct in holding that the assessee is a company in which the public are substantially interested and, therefore, the assessee is entitled to weighted deduction under section 35B of the Act at the rate of 1 1/2 per cent. In that view of the matter, we answer the first three questions preferred in the assessment year 1979-80 and all the questions relating to the assessment year 1975-76 in the negative and in favour of the DepartmentSo far as the fourth question is concerned, it relates to the assessment year 1979-80.