MARTIN BURN LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court :

(2.) We are concerned in this case with the assessment years 1968-69 and 1969-70, relevant accounting years being the year ending 30th September, 1967, and 30th. September, 1968. The assessee is a public limited company, The Income-tax Officer treated the assessee-company as a non-manufacturing company in which public were substantially interested. Accordingly, the Income-tax Officer charged income-tax on the income so computed at the lower rates prescribed as compared to the rates of income-tax prescribed for companies in which the public were not substantially interested. In the assessment orders, the Income-tax Officer did not give any reasons as to why he treated the assessee-company as one in which the public were substantially interested. The Additional Commissioner of Income-tax, West Bengal-I, thereafter passed an order for the two years under consideration under Section 263 of the Income-tax Act, 1961, because, in his opinion, the two assessment orders passed by the Income-tax Officer were erroneous and prejudicial to the interest of the Revenue. The said Commissioner directed the Income-tax Officer to treat the assessee-company as one in which the public were not substantially interested and to modify the two assessments accordingly.

(3.) There was an appeal preferred from the said order of the Additional Commissioner of Income-tax to the Tribunal. There was hardly any dispute about the facts. There were two types of share capital, namely, equity share capital and preference share capital. If the position of holdings of both equity and preference shares was looked into together, it can be found out that the affairs of the company during the two years were not controlled by five persons as envisaged in Section 2(18) of the Income-tax Act, 1961, which alone would have made the company one in which the public were not substantially interested. But if the position of only equity shares was taken into consideration, the assessee-company was admittedly one in which the public were not substantially interested. It was urged on behalf of the assessee that the position of the shareholders should be considered by adding both preference shareholdings and equity shareholdings. According to the assessee, the Additional Commissioner had erred by taking into consideration the holdings of only equity shares and coming to the conclusion that only 5 shareholders were controlling the majority of the equity shares of the company; and, accordingly, it could not be held that the affairs of the company during the two relevant years were controlled by five persons.