SHAH, - (1.) THE following Judgment of the court was delivered by:
(2.) M/s East Coast Commerical Company Ltd. hereinafter called 'the Company'-disclosed in its return for the assessment years 1950-51 and 1951-52, a consolidated net profit of Rs. 8,89,241.00 for the account period 7/04/194 9/07/1950. The Income-tax Officer computed the income of the Company for the assessment year 1950-51 at Rs. 7,27,824.00 and for the assessment year 1951-52 at Rs. 2,00,803.00. It came to the notice of the Income-tax Officer that the Company was one in which the public were not substantially interested within the meaning of s. 23A of the Income-tax Act, 1922, and that the distributable profit after deducting tax due on the total income was Rs. 4,32,151.00 for the assessment year 1950-51, and Rs. 1,13,579.00 for the assessment year 1951-52, and that the Company had distributed Rs. 43,910.00 only as dividend. The Income-tax Officer commenced proceedings under S. 23A of the Income-tax Act, 1922, and passed an order that the undistributed portion of the assessable income of the Company as computed for income-tax purposes and reduced by the amount of income-tax and super-tax shall be deemed to have been distributed as dividends among the shareholders. The order was confirmed by the Appellate Assistant Commissioner. But the Income-tax Appellate tribunal reversed the order. The tribunal held that s. 23A did not apply to the Company since it was not established that the Company was one in which the public were not substantially interested. At the instance of the Commissioner of Income-tax, three questions were referred to the High court of Judicature at Calcutta. In these appeals the first question alone is material : 'Whether on the facts and in the circumstances of the case the tribunal erred in law in holding that the assessee-company was one in which the public are substantially interested within the meaning of S. 23A of the Indian Income-tax Act ?' The High court answered that question in the negative. The Commissioner of Income-tax has, with certificate under s. 66A(2) of the Income-tax Act, 1922, appealed to this court. Relationship between the members of the family jointly referred to as 'the Kedias' is explained by the following genealogy: JUDGEMENT_768_AIR(SC)_1967Image1.jpg The joint status between the members of the family was severed on 4/07/1943, and the members of the family formed themselves into a partnership and carried on the family business. Some time thereafter Benarashi Prosad and Puranmall retired from the partnership and started an independent business with an outsider in partnership. This business was taken over by a private company styled 'East Coast Commercial Company Ltd. Later the private company was converted into a public limited company bearing the same name and having a paid-up capital of Rs. 4,39,100.00 divided into 4,391 shares of Rs. 100.00 each.
(3.) INVESTIGATION was started against the members of the Kedia family under the Taxation of Income (INVESTIGATION Commission) Act, 1947. In the course of the investigation the heads of the four branches of the Kedia family admitted that the shares in the respondent company numbering 4,115 were purchased by them out of their joint income which had not been disclosed and a majority of the shares in the Company was held benami. An offer of settlement was then made by the members of the Kedia family before the INVESTIGATION Commission. In paragraph-26 of the report, the Commission observed as follows 'These figures have been accepted by Madangopal Kedia for himself and as manager of the joint Hindu family consisting of himself and his minor sons, Prosad Kedia for himself and as manager of family consisting of himself and his minor son as the executor and legal representative of his elder brother Prohladrai, Puranmal Kedia, and Prosad Kedia for himself and as manager of family consisting of himself and his son, and they have jointly filed a settlement application. Though these persons are now divided and separate assessments to income-tax are being made on each, they have admitted that so far as the secret profits in question were concerned, they were earned by all the members jointly and have, therefore, requested that a single assessment may be made, treating them as an Association of Persons and making each member and his joint family jointly -and severally liable for the tax.' It appears that 2,000.00 shares of the Company were standing in the name of Durgadutt Jhunjhunwalla who had declared himself to be the sole proprietor of the business styled 'Mohanlal Murarilal' carried on in the State of Hyderabad. It was found in the course of the investigation before the INVESTIGATION Commission that the shares were held by Durgadutt Jhunjhunwalla benami for the members of the Kedla family. By letter dated 18/12/1951 it was admitted by them that Durgadutt Jhunjhunwalla was only a ' working partner' having a tenth share and that the entire capital of the firmhad been advanced by the Kedias jointly. Out of the 2,000.00 shares -registered in the name of Mohanlal Murarilal, 1,000.00 ,shares were then transferred to the executor of the estate of Prohladrai Kedia and the balance was taken over by Durgadutt Jhunjhunwalla on 30/01/1951, when his account was finally settled, his personal account being credited with the sum of Rs. 1,00,000.00 representing his remuneration for services rendered till 20/10/1949 and he being debited with that sum representing the value of 1,000.00 shares made over to him. Therefore upto the account year 1951-52 in the 1,000.00 shares held in the name of Durgadutt Jhunjhunwalla the members of the Kedia family had a 9/10th share. By 17/09/1952 the members of the Kedia family got all the shares transferred to their own names from the benamidars. The share-holding of the various, members of the family thereafter was as follows JUDGEMENT_768_AIR(SC)_1967Html1.htm (Out of 1,389 shares held in the name of Prohaldrai Kedia, 1,000.00 shares were those which were transferred by Durgadutt Jhunjhunwalla). Taking into account 900 shares-being 9/10th share of the holding of 1,000.00 shares which were transferred on 30/01/1951 in the name of Durgadutt Jhunjhunwalla, the total holding of the members of the Kedia family in the Company therefore stood at 4,015 shares. This holding was in excess of seventy-five per cent of the total number of the shares issued by the Company.;