COMMISSIONER OF INCOME TAX Vs. SAHU JAIN LIMITED

JUDGEMENT

(1.) THESE two references relate to the assessment years 1953-54 and 1954-55 in which the assessee-company was held by the Income-tax Appellate Tribunal, Calcutta Bench "E", Calcutta, as not liable under Section 23A for the year 1955. The company is incorporated under the Indian Companies Act, with the following shareholders: <FRM>JUDGEMENT_628_ITR76_1970Html1.htm</FRM>

(2.) THE point for consideration before the Income-tax Officer was whether the provisions of Section 23A would be applicable to the dividends earned by this company. "Section 23A-company" has been defined under Section 23A(1) and if the conditions specified therein are fulfilled in relation to the affairs of a company, the undistributed dividends are deemed to have been notionally distributed to the shareholders in accordance with the quantum of their shares and taxable as part of their total income. But this provision does not apply to a company the shares of which (not being shares entitled to a fixed rate of dividends whether with or without a further right to participate in profits), carrying not less than 25 per cent. of the voting power, have been allotted unconditionally to or acquired unconditionally by and are at the end of the previous year beneficially held by the public (not including another Section 23A-company). Secondly, the shares of the company should have been at any time during the previous year the subject of dealings in any recognised stock exchange in India or be freely transferable by the holder to other members of the public. THE main question for consideration, in these proceedings throughout, was whether the opposite-party-company could be deemed to be a company in which the public are substantially interested within the meaning of the Explanation to Section 23A(1), THE Income-tax Officer, on a consideration of the materials on record, decided that the assessee-company could not be regarded as a company 25 per cent. of whose shares were held unconditionally or beneficially by the public. THE reasoning adopted by the Income-tax Officer, approved on appeal by the Appellate Assistant Commissioner, Income-tax, Patna Range, was that the company, in substance, was a one-man company or a controlled company as all the shareholders were under the control of Shri Shanti Prasad Jain, who was originally the managing director, holding 10,000 shares. Shri Ashok Kumar Jain was originally a minor, holding 10,000 shares under the guardianship of his father, Shri Shanti Prasad Jain. Shri Alok Prakash Jain was also a minor son of Shri Shanti Prasad Jain holding 10,000 shares and under his guardianship. Shrimati Rama Jain, being the wife of Shri Shanti Prasad Jain, holding 10,000 shares, was also under his control. Out of 50,000 shares, 40,000 shares were thus held by members of the same family. THE other two minor shareholders, Shri R. Sharma and Shri N. C. Jain, were also employees of Shri Shanti Prasad Jain. Shri Rishabh Investment Ltd. and Dalmia Jain Co. Ltd. were held to be Section 23A companies, and Universal Bank of India Ltd., and Ashok Agencies Ltd. were also primarily under the control of Shri Shanti Prasad Jain. In order to come to the conclusion that the company in question is a company exempt from the restricting provisions of Section 23A of the Act, at least 12.500 shares of the company must be held by the public. THE assessee contended that the various shareholders must be held to be independent of one another, and members of the family of Shri Shanti Prasad Jain must not be lumped together as being under the control of Shri Shanti Prasad Jain. THE Income-tax, Officer, in his original order, dated the 25th of September, 1957, proceeded on the footing that, since, at least, 40,000 shares were held by a number of close relations of the managing director, they could not be regarded as shares held by the public.

(3.) THE Tribunal, however, once more came to the same conclusion as before. THE finding of the Tribunal stands as follows: