HIDAYATULLAH J. - (1.) THIS is an appeal on a certificate of fitness granted by the High Court of Bombay against the judgment of the High Court dated March 13, 1958, on a reference made by the Income-tax Appellate Tribunal. The Commissioner of Income-tax, Bombay City I, is the appellate and the Jubilee Mills Ltd., Bombay, the respondent. The only question raised in this appeal is the application of section 23A of the income tax to the assessee company.
(2.) THE assessee company is a limited liability company with a paid up capital of Rs. 15, 25, 000. Its paid up capital is made up as under : 1 lakh ordinary shares of Rs. 10 each Rs. 10, 00, 000 5, 000 cumulative preference shares of Rs. 25 paid up Rs. 1, 25, 000 4, 000 second preference shares of Rs. 100 each fully paid up Rs. 4, 00, 000 The second preference shares do not entitle the holders to vote. Thus shares of the assessee company carrying votes are 1, 05, 000. This was the position on June 30, 1947. We are concerned with the assessment year 1948-49 corresponding to the previous year ended on June 30, 1947. In that year, the company was assessed on a total income of Rs. 7, 47, 639. The Income-tax Officer calculated the tax at Rs. 4, 20, 548. In that year, the company ought, if section 23A was applicable, to have distributed 60% of the above amount. The company, however, declared dividends which is the aggregate amounted to Rs. 24, 750. The Income-tax Officer, with the previous approval of section 23A, of the Income-tax Act and held that the company was deemed to have declared dividend of Rs. 3, 97, 788.
(3.) THE assessee company was being managed by a firm called Mangaldas Mehta & Co. That firm consisted of fourteen partners of whom seven were the directors of the assessee company. The members of the managing agents who were also directors held between them 35, 469 ordinary shares and 880 first preference shares. The remaining seven members of the managing agents, who were not directors of the assessee company, held respectively 41, 659 and 370 shares of the two categories. Seventy-five shares were held by Girdhardas & Co. Ltd., to which company admittedly section 23A was applicable. Some of the members of the managing of the managing agency firm held on behalf of their minor children or on behalf of their families 9, 899 ordinary shares and 937 first preference shares. The following is a detailed break-up of the share holdings : CATEGORY A Shares held by directors Holding of Share in the Holding of who are partners in the ordinary partnership the 1st firm of managing agents shares firm of managing preference shares agents' firm 1. Shri Homi Mehta 50 8/128 Nil 2.Sheth Mathurdas Mangaldas Parekh 6, 466 14/128 273 3. " Madan Mohan Mangaldas 11, 052 14/128 273 4. " Madhusudan Chamanlal Parekh 3, 616 7/128 20 5. " Mahendra Chamanlal Parekh 3, 616 7/128 20 6. " Surendra Mangaldas Parekh 7, 053 14/128 274 7. " Indrajit Chamanlal Parekh 3, 616 7/128 20 35, 469 880 CATEGORY B Shares held by partners of Holding of Share in the the managing agents firm ordinary partnership Holding of excluding the holding of shares firm of 1st prefe- directors who are also managing rence shares parties as shown above agents firm shares 1.Shri Harshavadan Mangaldas 11, 053 14/128 274 2.Mrs.Savitagavri Chamanlal Parekh 3, 750 7/128 16 3.Shri Virendra a minor by his Chamanlal mother and Parekh guardian Mrs.Savitagavri Chamanlal Parekh 6, 328 7/128 20 4.Shri Manmohan Chamanlal Parekh do. 4, 462 7/128 20 5.Shri Kamal-Nayan Chamanlal Parekh do. 4, 962 7/128 20 6.Shri Nutan Chamanlal Parekh do 4, 962 7/128 20 7.Shri Hussein Essa 6, 142 8/128 Nil 41, 659 370 CATEGORY C Shares represented by the Holding of Holding of the 1st directors ordinary shares preference shares 1.Sheth Madhusudan Chamanlal Parekh (No. 4, in 'A' above) as karta of the joint family estate of Sheth Chamanlal Girdhardas Parekh 3, 899 937 2.Sheth Mathuradas MangaldasParekh (No.2 in 'A' above) as guardian and father of minor, Ben Purnima Mathuradas. 3. do do Ben Veena 1, 000 4. do do Ben Sunita 1, 000 5. do do Jagatkumar 1, 000 Mathuradas 6.Sheth Surendra Mangladas Parekh (No.6 in 'A' above) as guardian and father of minor, Darshan Surendra Parekh 1, 000 7. do. as guardian and father of minor Ben Babi Suren- dra Parekh 1, 000 9, 899 937 ;