G.K.MITTER, J. - (1.) THE questions referred to this Court under s. 66(1) of the IT Act are as follows : "(1) Whether, on the facts and in the circumstances of the case, the assessee-company is one in which the public are substantially interested within the meaning of the Explanation to sub-s. (9) of s. 23A of the IT Act as it stood at the relevant time ? (2) Whether, on the facts and in the circumstances of the case, the provisions of s. 23A as amended in 1955 violated the fundamental rights guaranteed by the Constitution and, as such, ultra vires the Constitution?"
(2.) THE facts appearing in the statement of the case are as follows : THE assessee is a public limited company engaged in the manufacture or processing of goods. Out of a total number of shares issued by the company, 3,22,000 ordinary shares of Rs. 10, each were fully paid up and the balance of 26,580 shares of Rs. 10 each was paid up to the extent of Re. 1 per share only. THE shareholding of the managing agents and directors were as follows : Besides the above, one P.C. Mustafi held 500 shares and was also a director of the company. At the assessment stage and before the appellate authorities, he was considered to be a director during the two relevant accounting periods and this fact was not challenged. For the asst. yr. 1955-56 the company was assessed on a total income of Rs. 66,17,507; the tax liability thereon amounted to Rs. 28,74,484. Although the balance available for distribution as dividends came to Rs. 37,43,023, the company at its general meeting held on 29th Dec., 1955, declared dividends to the extent of Rs. 9,67,974 which worked out to 25.8 per cent of the distributable profits.
(3.) FOR the asst. yr. 1956-57, the total income was determined at Rs. 88,50,164, the tax liability being determined at Rs. 39,55,170. Out of the balance of Rs. 48,94,994 available for distribution, the company in the general meeting held on 22nd July, 1957, declared dividends to the extent of Rs. 9,67,974 which came to about 20 per cent of the distributable profits. The ITO held that the assessee-company came within the mischief of cl. (b) of the proviso to sub-s. (1) of s. 23A as it stood at the relevant time (after the amendment in 1955) and, consequently, there was a shortfall in the distribution of dividends for the year 1955-56, amounting to Rs. 27,75,049 and for the year 1956- 57, Rs. 39,97,020. After due notice to the company and with the previous approval of the IAC, the ITO passed orders under s. 23A(1) levying a super-tax of Rs. 6,93,763 for the first year and Rs. 9,81,755 for the second year under consideration. The contention of the assessee that it was a company in which the public were substantially interested within the meaning of the Explanation to sub-s. (9) of s. 23A was rejected. There is no dispute that the dividends distributed by the company were not such as to exclude the applicability of s. 23A(1). Sub-s. (9) of the section provided that it was not to apply to any (1) M/s Indra Singh and Sons Private Ltd., managing agents (represented on the board by its nominee, J.C. Mukherjee) 1,92,945 (2) Sir Indra Singh (a director) 575 (3) Sardar Ajaib Singh (a director) (ordinary shares) 510 . 1,94,030 company in which the public were substantially interested. The Explanation to the sub-section ran as follows : "For the purpose of this section, a company shall be deemed to be a company in which the public are substantially interested-- (a) if it is a company owned by the Government or in which not less than forty per cent of the shares are held by the Government; (b) if it is not a private company as defined in the Indian Companies Act, 1913 (VII of 1913), and (i) its shares (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the previous year beneficially held by the public (not including a company to which the provisions of this sub- section apply) : Provided that in the case of any such company as is referred to in sub-s. (4) this sub-clause shall apply as if for the words 'not less than fifty per cent', the words 'not less than forty per cent' had been substituted; (ii) the said shares were at any time during the previous year the subject of dealings in any recognised stock exchange in India or were freely transferable by the holder to other members of the public; and (iii) the affairs of the company or the shares carrying more than fifty per cent of the total voting power were at no time during the previous year controlled or held by less than six persons (persons who are related to one another as husband, wife, lineal ascendant or descendant, brother or sister, as the case may be, being treated as a single person and persons who are nominees of another person together with that other person being likewise treated as a single person) : Provided that in the case of any such company as is referred to in sub-s. (4), this clause shall apply as if for the words 'more than fifty per cent', the words 'more than sixty per cent' had been substituted." ;