EAST INDIA CORPORATION LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was originally a private limited company incorporated in July, 1942, but later on converted into a public limited company on 25th August, 1948. For the assessment year 1954-55, corresponding to the previous year ending 31st December, 1953, the assessee had not declared any dividend. THE Income-tax Officer found that it was not a company in which the public were substantially interested. In that view, he passed an order under Section 23A(1) of the Indian Income-tax Act, 1922, (hereinafter called "the Act"), treating the sum of Rs. 2,43,588, being the undistributed portion of the assessable income, as dividend deemed to have been distributed among the shareholders of the company. This order was made on the finding that equity shares of the assessee carrying not less than 25 per cent, of the voting power were not beneficially held by the public at the end of the relevant previous year and that the shares of the assessee-company were not the subject of dealings in any stock exchange and the shares were not in fact freely transferable by the holders to other members of the public. On appeal, the Appellate Assistant Commissioner was of the view that one of the shareholders of the company, namely, the Saroja Mills, was a company in which the public were substantially interested and since this company held more than 25 per cent, of the voting power in the assessee-company, the first condition relating to 25 per cent, of the voting power being vested in the public is satisfied. THE Appellate Assistant Commissioner was also of the view that Clause 13 of the articles of association of the company, which vested in the directors a discretion in the matter of transfer of shares, does not in any way go to show that the shares were not freely transferable to the other members of the public. In that view, he held that Section 23A of the Act is not applicable. THE revenue preferred an appeal to the Tribunal. Before the Tribunal, the assessee filed a statement listing out the transfers of shares effected in the company from the date of its incorporation till the date of the filing of the appeal. That statement showed that two transactions of transfers were effected in the years 1942 and 1948 prior to the end of the previous year relevant to the assessment year 1954-55 and there were about 19 transactions subsequent to the end of the previous year. THE Tribunal took the view that the position as it stood up to the end of the relevant previous year was only relevant and the transfers which took place after the end of the relevant year have no bearing on the interpretation or the applicability of Section 23A. In that view, the Tribunal called for a report from the Income-tax Officer regarding the two transfers effected in 1942 and 1948 on the question of free transferability of the shares to the public. After receipt of that report, the Tribunal, while upholding the finding of the Appellate Assistant Commissioner that 25 per cent, of the voting power in the assessee-company was held by the public at the end of the relevant assessment year in view of the fact that one of the shareholders, namely, the Saroja Mills, which was holding 25 per cent, of the shares, was a company in which the public were substantially interested, did not agree with the Appellate Assistant Commissioner that the shares were freely transferable to the public. At the instance of the assessee, the following question was referred to this court in T. C. No. 155 of 1962 (East India Corporation Ltd. v. Commissioner of Income-tax):

(2.) THE other question, which was referred relating to the direction given by the Tribunal under Section 34(3), is not material for the purpose of deciding the present reference. THErefore, it is unnecessary to note the same in this judgment. It was argued by the learned counsel for the assessee in that case that the transfer of shares of the assessee-company made subsequent to the relevant previous year would be germane to a consideration of the character of the company for the purposes of Section 23A and that the Tribunal was wrong in holding that the transfers subsequent to the previous year were not germane. This court held in the decision reported in East India Corporation Ltd. v. Commissioner of Income-tax, that in testing whether the company is one in which the public are substantially interested transfers of shares even subsequent to the relevant previous year could be taken into account, like the transfer of shares during and prior to that period. In that view, this court observed:

(3.) IN this view, the Bombay High Court held that if a question of law arises out of the final decision made subsequent to the opinion of the High Court in the earlier reference, that could also be referred under Section 66. But, they made it clear that the question of law which can be agitated in the second reference would only be those which do not arise out of the first order passed by the Tribunal and which have not been considered by it in its first order. If a question has been considered and no reference is sought, then it is not open to the assessee or the revenue to seek a reference at the subsequent stage.