STAR CO LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the IT Act, 1922, hereinafter called the Act. The Star Company Ltd., Calcutta, is the applicant before us and the following question of law has been referred to this Court for its opinion :

(2.) THE assessment years are 1948-49 and 1949-50 and the corresponding accounting years ended on 31st March, 1948, and 31st March, 1949, respectively. THE assessee is a company limited by shares. In the general meetings of the shareholders for the respective accounting years no dividends were declared, although sufficient profits were available for distribution. It was urged before the ITO that it was a company in which "the public were substantially interested" within the meaning of third proviso to s. 23A(1) r/w the Explanation thereto and, therefore, the provisions of sub-s. (1) of s. 23A were not attracted. THE ITO came to the conclusion, firstly that 75 per cent of the shares and the voting power of the company were held by persons who could not be regarded as belonging to "the public" and, secondly, under the articles of association of the company the shares were not freely transferable. So concluding, he made the order under s. 23A(1) of the Act. His order was affirmed in appeal by the TAC.

(3.) ARTICLE 13 of articles of association of the company runs as follows : "The directors may refuse to register any transfer of a share : (a) Where the company has lien on the share. (b) Where it is not proved to their satisfaction that the proposed transferee is a responsible person. (c) Shares may at any time be transferred by a member to any other member or a non-member by the instrument of transfer in accordance with the procedure provided in cls. 14, 15, 16, 17 and 18 of the articles of association. (d) The directors may also veto any transfer without assigning any reason."