JUBILEE MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE main question that arises for our decision on this reference is whether the assessee company is a company to which Section 23A applies. The facts briefly are that the share -capital of the company consisted of 1 lakh Ordinary Shares of Rs. 10/ - each aggregating to Rs. 10,00,000/ -, 5,000 Cumulative Preference Shares of Rs. 25/ - each aggregating to Rs. 1,25,000/ - and 4,000 Second Preference Shares of Rs. 100/ - each aggregating to Rs. 4,00,000/ -. All the shares were fully paid up.

(2.) NOW , under Section 23A what has got to be considered is the voting power and it is clear from the provisions of Section 23A, as it stood at the relevant date, that the only shares that we have to consider are the Ordinary Shares. The position with regard to the Ordinary Shares was this. Seven Directors between themselves held 35,469 Ordinary Shares. These Directors were also partners in the managing agency firm of Mangaldas Mehta and Co. which managed the assessee company. The managing agency firm consisted of 14 partners, seven of them being the Directors and the other seven partners held between them 41.859 Ordinary Shares. 9,899 Ordinary Shares were held by persons who were represented by the Directors either as Kartas or as guardians. 75 shares were held by the firm of Girdhardas and Co. Ltd., which is a company to which the provisions of Section 23A are applicable. The question that fell for determination by the Tribunal was whether on these facts it could be said that the company was a company in which the public were substantially interested. If the public were substantially interested, then Section 23A had no application.

(3.) WE may notice in passing a contention put forward by Mr. Palkhivala which seems to us to be not very substantial and that is that the Income -tax Officer in the first instance gave a rebate of one anna on the amount of income -tax which the company was liable to pay under the provisions of the Finance Act of 1948 and Mr. Palkhivala says that this rebate could only be granted to a company to which Section 23A had no application and Mr. Palkhivala urges that in granting this rebate the Income -tax Officer came to the conclusion that Section 23A had no application and having once come to that conclusion it is not open to him subsequently to revise his conclusion and arrive at a contrary conclusion that Section 23A should be applied to this company. Now, when we turn to the Finance Act of 1948, all that is required in order to entitle a company to the rebate, apart from other factors with which we are not concerned on this reference, is that no order has been made under Sub -Section (1) of Section 23A. Therefore, this is a factual condition and when the I. T. O. made the assessment order in fact no order under Section 23A had been made and therefore he was competent to grant the rebate to the assessee company which he did. After the assessment order was made he applied his mind to all the materials which were placed before him and came to the conclusion that Section 23A was applicable.There is nothing in law to prevent the I. T. O., after the assessment order has been made, to apply Section 23A to an assessee company. As a matter of fact, it is only after the assessment order is passed that the question of applying Section 23A can arise.