Ramaswami, J. - (1.) This appeal is brought, by special leave, on behalf of the Commissioner of Income-tax against the judgment of the Bombay High Court dated September 18, 1962 in Income Tax Reference No. 34 of 1961 whereby the High Court held that the order passed against the respondent, hereinafter referred to as the 'assessee' under Sec. 23A of the Income Tax Act, 1922 (hereinafter referred to as the "Act') was not justified and valid for the assessment year 1951-52.
(2.) The assessee is a public limited company registered under the Indian Companies Act. Its share capital consists of 50,000 shares subscribed and paid up. Out of these shares, 47,493 are held by Shree Raghunath Investment Trust Ltd., a company incorporated as a private company under the laws of Jammu and Kashmir (hereinafter referred to as "The Jammu Co.") and having its registered office there. Out of the remaining 2507 shares, 2500 shares were held by another private limited company incorporated in India and having its registered office in New Delhi and the remaining 7 shares were held by seven individuals. The shares of the assessee are not quoted on the Stock Exchange any where in India. There is nothing, however, in its Memorandum and Articles of Association placing any restriction on the free transfer of its shares. The assessee entered into a partnership on April 20, 1950 with a firm called "The Indian Steel Syndicate". There was a reconstitution of this firm on December 2, 1950. The shares of profit of the assessee from this firm (which was registered under Section 26-A of the Act) as upto November 30, 1950 and upto March 31, 1951 totalling Rs. 70,895 were included in the assessment of the assessee for the assessment year 1951-52.
(3.) During the assessment years 1950-51 and 1951-52, for which the previous years ended on September 30, 1949 and September 30, 1950, the Income Tax Officer determined the assessable income of the assessee at Rs. 60,350 and Rupees 93,884 respectively. After deduction of the taxes payable the balance was Rs. 35,834 in the first year and Rs. 53,103 in the second year. As the assessee had not declared any dividend at its Annual General Meetings during either of the aforesaid two years or within six months thereafter, the Income Tax Officer issued notices to the assessee to show cause why an order under Section 23A (1) of the Act should not be passed for the two years. The assessee, however, contended that Section 23A was not applicable inasmuch as the public were substantially interested within the meaning of the Explanation appended to the third proviso to Section 23-A (1):Overruling this contention the Income Tax Officer made an order under Section 23A against the assessee in respect of the undistributed profits for the said two years. Against these orders the assessee appealed to the Appellate Assistant Commissioner. A further ground was taken in the appeal that the order under Section 23A was unwarranted so far as assessment year 1950-51 was concerned inasmuch as the assessable profits included a sum of Rs. 70,895 being the share of the assessee's income which arose in its partnership with the Indian Steel Syndicate as upto November 30, 1950 and March 31, 1951, and that the income accrued after the accounting year of the assessee which ended on September 30, 1950. The Appellate Assistant Commissioner dismissed the appeals and his order was affirmed by the Appellate Tribunal on June 28, 1959 for both the assessment years. At the instance of the assessee the Appellate Tribunal stated a case to the High Court under S. 66 (1) of the Act on the following question of law: "Whether the order passed against the assessee for assessment years 1950-51 and 1951-52 under Section 23A are justified and valid - By its judgment dated September 18, 1962, the, High Court answered the question in so far as it pertained to assessment year 1950-51 in the affirmative and in so far as it pertained to assessment year 1951-52 in the negative and against the appellant.;