Khanna, J. - (1.) These two appeals on certificate are directed against the judgment of Calcutta High Court whereby it answered the following question in the affirmative and in favour of the revenue:"Whether in the facts and circumstances of the case, the provisions of Section 23-A were rightly invoked."
(2.) The matter relates to assessment years 1952-53 and 1953-54. It would, however, be convenient to set out the facts relating to the year 1952-53 because the decision in regard to the assessment for that year would also govern the assessment for the following year. The assessee-appellant is a limited company. Proceedings under Sec. 23-A of the Indian Income Tax Act, 1922 (hereinafter referred to as the Act) were started against the appellant company as it had not declared any dividend during the year. The Income-tax Officer found that the income of the assessee company had been determined in regular assessment to be Rs. 22,65,227 and despite that it had not declared any dividend. The Income-tax Officer observed that there were only two big shareholders of the assessee company, namely, Jiyajeerao Cotton Mills Ltd., Birlanagar (Gwalior) (hereinafter referred to as JC Mills) and Punjab Produce and Investment Co. Ltd. (hereinafter referred to as PPI Co.). JC Mills, in the opinion of the Income-tax Officer, could not be regarded as a member of the public as it was being represented on the Board of Directors through its General Manager D. P. Mandalia, PPI Co. was found to be a company to which the provisions of Section 23-A of the Act were applicable. These two companies between themselves held 3,21,594 shares out of the total shareholding of 3,70,000 shares. As the shares held by the public in the opinion of the Income-tax Officer, came to less than 25 per cent of the total shareholding the assessee company was held to fall within the purview of Section 23-A of the Act. The Income-tax Officer also referred to Article 33 of the Memorandum and Articles of Association of the assessee company, according to which the directors could without assigning any reason decline to register a transfer to a transferee of whom they did not approve. This fact was held to be a definite restriction on the transfer of shares. It was further observed that the shares of the assessee company were not quoted on stock exchange. After deducting Rs. 8,40,524 on account of tax payable on Rs. 22,65,227, the balance of Rupees 14,23,703 was deemed by the Income-tax Officer to have been distributed amongst the shareholders.
(3.) On appeal before the Appellate Assistant Commissioner, it was urged on behalf of the assessee company that J. C. Mills and PPI Co. were companies in which the public was substantially interested and, as such, the shareholding of these public companies should be considered to be shares held by the members of the public. The Appellate Assistant Commissioner did not go into the question as to whether or not the above mentioned two companies were such in which the public was substantially interested. He observed that groups of the two companies were controlling the affairs of the assessee company and, as such, the shares held by them could not be considered to be shares held by the members of the public. The appeal filed by the assessee was accordingly dismissed.;