EAST INDIA CORPORATION LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference relates to the propriety of an order under S. 23-A of the Income-tax Act 1922 and a direction given by the Tribunal under S. 34(3) of the same Act to re-assess the shareholders as a consequence of S. 23-A proceedings.

(2.) THE asseseee was originally a private limited company incorporated in July 1942, but converted into a public limited company on 25-8-1948. For the assessment year 1954-55, for which the previous year ended on 31-12-1953, the Income-tax Officer found that it was not a company in which the public were substantially interested. On that view, he directed a sum of Rs. 2,43,588 being the undistributed portion of the assessable income of the company during the previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the assessee in respect thereof should be deemed to have been distributed as dividends among the share-holders of the assessee as on 30-6-1954, the date of the general meeting at which the accounts for the previous year were laid. He formed this view on two grounds: (1) 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(2) THE shares of the assessee company were not 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.

(3.) THAT takes us to the second question relating to the validity of the direction given by the Tribunal under S. 34(3). The tribunal's direction is this:--