COMMISSIONER OF INCOME TAX Vs. TONA JUTE CO LTD

JUDGEMENT

(1.) THIS is a reference at the instance of the revenue for consideration of the question as to whether the shares of the assessee company were freely transferable within the meaning of s. 23A of the Indian IT Act in view of the provision of Art. 39 of its articles of association.

(2.) THE assessee is a "public company" within the meaning of the expression used in the Indian Companies Act of 1913. THE assessment year in question is 1949-50, the relevant previous year having terminated on 7th July, 1948. THE total income of the assessee as finally determined under s. 31(3)(a) on 11th Nov., 1954, was Rs. 1,12,132. THE tax thereon amounted to Rs. 49,058 leaving a balance of Rs. 63,074 available for distribution amongst the shareholders of the company. No dividends were declared at the annual general meeting held on 9th July, 1949.

(3.) ACCORDING to the ITO this provision prevented the free transfer of shares, inasmuch as it was open to the directors to refuse to recognise any transferee whom they did not approve of and as they were not bound to give any reasons for their refusal the power of refusal was unrestricted. There being no dispute that shares of the company were not quoted in any official stock exchange the ITO made an order that the entire undistributed profits of Rs. 63,074 should be deemed to have been distributed as dividends as on 9th July, 1949.