HUTHEESINGH P M AND SONS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the Indian IT Act by the Tribunal for the opinion of the Court on the following question :

(2.) THE question relates to the asst. yrs. 1939-40 and 1940-41, and the previous years in question therefore are the calender years 1938 and 1939. THE relevant facts as can be gathered from the statement of case and the judgment are these : M/s. P.M. Hutheesingh & Sons Ltd., are a limited company. THE share capital of Rs. 1,000 is divided into one thousand shares of Re. 1 each, out of which 750 are promoters' shares and 250 are ordinary shares. THE 750 promoters' shares were taken up by the eleven persons at the time the first allotment was made by the company. Mr. Narotam Lalbhai was one of the persons to whom 94 promoters' shares were allotted. THE 250 ordinary shares of the company were issued in the ordinary course and one share was applied for and allotted to Mr. Narotam Lalbhai. None of the holders of the other promoters' shares applied for any ordinary shares. THE company was incorporated in 1928. THE memorandum of association of the company shows that before the formation of this company the partnership firm of M/s. P.M. Hutheesingh & Sons was doing business. It appears that the Aruna Mills Ltd. was then floated and the assessee company were to work as the managing agents of the Aruna Mills. In the years 1938 and 1939 one ordinary share was held by Mr. Narotam Lalbhai while the remaining 249 shares were held by the members of the public. THE taxing authorities considered that the profits of the assessee-company were not distributed in the normal way, and acting under s. 23A(1) an order was passed directing that the proportionate share of the profits which were not distributed should be considered as the income of each shareholder and included in the total income for the purpose of assessing his total income. THE relevant provisions of the IT Act are in s. 23A(1) which runs as follows :

(3.) IN order to find out the necessary facts arts. 3 and 6 of the articles of association of the company are relevant to be considered. They are in these terms :--