AJAX PRODUCTS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was a public limited liability company. When the company was formed with a share capital of Rs. 6 lakhs, the objectives of the company as set out in cl. 5 of the memorandum of association were to manufacture abrasives and steel products. The late Dewan Bahadur A.M. Murugappa Chettiar and his three sons, Murugappa, Vellayan (since deceased) and Arunachalam, who constituted Murugappa and Sons, were the managing agents of the assessee -company. Besides the managing agency, that family had a large interest in the shareholding. The Tribunal observed that Murugappa and his sons were "vitally interested" in the company. Details of the shareholding were not furnished in the record, and when we asked the learned counsel for the assessee if that information was available, he said that out of 6,000 shares, Murugappa and his sons held 1,063 shares, while their wives held another 2,855 shares. None the less, the position remained that it was a public company in which the members of the public who held shares had a substantial interest. In the rest of this judgment we shall refer to the late Dewan Bahadur Murugappa, the father, as Murugappa.

(2.) IN September, 1943, Murugappa along with three others purchased the Chhoi Silk Mills Ltd. at Bombay, which was engaged in the manufacture of filature silk. It was the period of the Second World War, and there was a good demand for the manufactured product for parachutes. Murugappa had an eight annas share. Soon, however, he bought out the other three members of the syndicate, and by June, 1944, Murugappa became the sole owner of the silk mills. The total outlay for the purchase was Rs. 2,88,750. It was common ground that, though the purchases had been effected in the name of Vellayan, the mills belonged only to Murugappa. It was equally common ground that Vellayan was in charge of the silk mills at Bombay.

(3.) NEGOTIATIONS for the sale of the silk mills to the assessee -company commenced, as we pointed out earlier, even in April, 1944, though the transaction was completed only in September, 1944. From June, 1944, the assessee -company took steps to improve the silk mills after completing the purchase, and some correspondence was entered into with American business interests for the import of additional machinery.