K. C. SEN, J. - (1.) THIS is a reference under s. 66(1) of the IT Act, 1922, hereinafter called the Act. The Star Company Ltd., Calcutta, is the applicant before us and the following question of law has been referred to this Court for its opinion : "Whether, on the facts and in the circumstances of the case, the ITO was justified in passing an order under s. 23A(1) of the Indian IT Act on the assessee-company for the asst. yrs. 1948-49 and 1949-50 ?"
(2.) THE assessment years are 1948-49 and 1949-50 and the corresponding accounting years ended on 31st March, 1948, and 31st March, 1949, respectively. THE assessee is a company limited by shares. In the general meetings of the shareholders for the respective accounting years no dividends were declared, although sufficient profits were available for distribution. It was urged before the ITO that it was a company in which "the public were substantially interested" within the meaning of third proviso to s. 23A(1) r/w the Explanation thereto and, therefore, the provisions of sub-s. (1) of s. 23A were not attracted. THE ITO came to the conclusion, firstly that 75 per cent of the shares and the voting power of the company were held by persons who could not be regarded as belonging to "the public" and, secondly, under the articles of association of the company the shares were not freely transferable. So concluding, he made the order under s. 23A(1) of the Act. His order was affirmed in appeal by the TAC. In the appeal before the Tribunal the same points were urged in support of the assessee's contention. The Tribunal upon consideration of the materials before it found that, in the relevant accounting period, the total share capital of the applicant-company consisted of 10,400 shares of which the real and beneficial shareholders were as follow : (1) Mugneeram Bangur & Co ... 125 (2) Ramcoomar Bangur ... 1,950 (3) Naraindas Bangur ... 1,000 (4) Govindlal Bangur ... 350 (5) Gokulchand Bangur ... 180 (6) Narsingdas Bangur ... 65 (7) Bond Co. Ltd. Didwana ... 1,400 (8) Indian Investment Co. Ltd., Didwana ... 340 (9) Swadeshi Investment Co. Ltd ... 300 (10) Eastern Trading Syndicate Ltd.,, Sambar Lakes ... 4,300 (11) Cambay Trading Co. Ltd., Cambay ... 550 Amongst the shareholders stated above six were individuals of whom Govindlal Bangur and Gokulchand Bangur were directors holding respectively, 350 and 180 shares and five were companies in Rajasthan. Excluding the two directors, the other four individual shareholders held as between themselves 3,140 out of 10,400 shares. On these facts, the Tribunal came to the conclusion that the shares of the company carrying more than 25 per cent of the voting power were, at the end of the previous year, beneficially held by the public within the meaning of s. 23A (1). Although such a finding was made, it came to the conclusion that the assessee did not satisfy the second condition of the Explanation under s. 23A(1) which will be referred to in detail later on. The reasons which weighed with the Tribunal were that there was no evidence that the shares of the company were actually the subject of dealings in any stock exchange in the course of the relevant previous years. An official bulletin of the Calcutta Stock Exchange in which the shares were quoted were produced before the IT authorities. The quotations as given therein did not carry any weight with the Tribunal on the ground that the shareholding of the beneficial owners remained unaltered. This indicated that there was absence of any dealing in shares by them. The applicant-company according to the Tribunal did not show by production of its register of shareholders or otherwise, that there had, in fact, been dealings in the shares in the course of the relevant previous years. The Tribunal also found that the assessee did not satisfy the other alternative condition regarding the free transferability of its shares as Art. 13 of the articles of association of the company lays down that the directors may refuse to register any transfer of a share and also "veto any transfer without assigning any reason". As the second condition of the Explanation to the third proviso was not fulfilled, the Tribunal refused to give any relief to the assessee.
(3.) ARTICLE 13 of articles of association of the company runs as follows : "The directors may refuse to register any transfer of a share : (a) Where the company has lien on the share. (b) Where it is not proved to their satisfaction that the proposed transferee is a responsible person. (c) Shares may at any time be transferred by a member to any other member or a non-member by the instrument of transfer in accordance with the procedure provided in cls. 14, 15, 16, 17 and 18 of the articles of association. (d) The directors may also veto any transfer without assigning any reason." Mr. Meyer has contended before us on behalf of the assessee that once the Tribunal had found that more that more than 25 per cent of the shareholdings are not controlled by any group, the second branch of the finding of the Tribunal as stated before cannot be warranted in law. His second contention is that the Tribunal has found that in the official quotation of the stock exchange in both the relevant accounting years, the shares have been quoted and that the caption at the top of the official quotation has not also been disbelieved by the Tribunal. After coming to such a conclusion the Tribunal's attack that the assessee failed to produce any evidence to show dealings in the shares of the relevant previous years cannot be treated as reasonable. The approach, according to Mr. Meyer, is wrong as the expression "dealings" in the Explanation of s. 23A(1) referred to above only means that it must refer to dealings in the stock exchange which was clearly apparent on the face of the bulletin. Thirdly, his contention is that the Tribunal has indulged in surmises and conjectures in supposing that there might have been fictitious and colourable transactions in respect of these shares in the past without coming to any finding that such was indeed the fact. Further the Tribunal's judgment is self-contradictory as it has already found that the shares of the assessee are the properties of the Bangur group. This finding, according to Mr. Total . 10,400 Meyer, is based on conjecture and surmise on the face of its previous finding that 25 per cent of the shares is held by the public. Lastly, it was contended that the Tribunal ought not to have ignored the official quotation inasmuch as the recognised stock exchange official bulletin is the best evidence of public transaction in shares.;