- (1.) This is a reference under Section 256(1) of the I.T. Act, 1961. It arises out of proceedings under Section 104 of the I.T. Act, 1961, for the assessment years 1963-64 and 1964-65, the relevant previous years ending on March 31, 1963, and March 31, 1964, respectively.
(2.) Section 107 deals with super-tax on undistributed income of certain companies. Section 108 provides, inter alia, that nothing in Section 104 shall apply to any company in which the public are substantially interested.
(3.) In order to find out what is meant by " company in which the public are substantially interested" one has to go to Section 2(18). The portions of Section 2(18) relevant for our purposes are as follows : " company in which the public are substantially interested '- A company is said to be a company in which the public are substantially interested- (b) If it is not a private company as denned in the Companies Act, 1956 (1 of 1956), and (i) its shares...... carrying not less than fifty per cent, of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous years beneficially held by......the public (not being a director, or a company, to which this clause does not apply)," The assessee, in the instant reference, is a company with the issued, subscribed and paid-up capital of 12,500 ordinary shares of Rs. 100 each. The said shares were held as follows: The ITO levied additional super-tax of Rs. 55,112 and Rs. 32,141.50, respectively. The AAC found that- " (a) the shares were quoted on the Calcutta Stock Exchange, and (b) the affairs of the company or the shares carrying more than 50% of the voting power were at no time, during the relevant previous years, controlled or held by five or less persons." The AAC then went into the question whether trusts could be taken as members of the public. He said : " It is not really the shareholders who are registered in the share register but the beneficial owners of the shares who have to be considered. Undoubtedly, the beneficial owners are the trusts. The charitable trusts are public bodies and the income in their hands have been held to be exempt from taxation. The representative has cited the decision of the Tribunal's Calcutta Bench in the case of Bangur Bros. Ltd., where the Tribunal has held that Mugneeram Ramcoo-war Bangur Charitable Trust is a member of the public. In view of the circumstances stated above, I hold that the ITO was not justified in saying that the trusts cannot be considered as members of the public. In my opinion, trusts are members of the public and, therefore, the assessee is a company in which the public are substantially interested.";