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TMI Blog1976 (2) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... k Prakash Jain 10,000 10,000 7. Rishabh Investment Ltd. 5,000 5,000 8. Dalmia Jain Co. Ltd. 2,000 2,000 9. Universal Bank of India Ltd. 980 980 10. Ashoka Agencies Ltd. 2,000 2,000 50,000 50,000 Of these shareholders Rama Jain is the wife of S. P. Jain and Alok Prakash Jain and Ashok Kumar Jain are the sons of S. P. Jain and Rama Jain. Ashok Kumar Jain (briefly A. K. Jain), the managing director, attained majority on March 5, 1952, while Alok Prakash Jain was a minor during both the accounting years. The three companies, namely, Rishabh Investment Ltd., Dalmia Jain Co. Ltd. and Universal Bank of India Ltd. are companies to which the provisions of section 23A of the Indian Income-tax Act, 1922 (briefly the Act), prior to its amendment by the Finance Act, 1955, applied. S. P. Jain was the principal shareholder of the Universal Bank of India Ltd. holding 980 shares. Ashoka Agencies Ltd. with 2,000 shares was a company to which admittedly section 23A did not apply. R. Sharma and N. C. Jain holding 10 shares each were employees, N. C. Jain being the secretary of S. P. Jain. The Income-tax Officer by his orders of September 25, 1957 and October 30, 1957, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court resulting in the impugned order against the revenue. Hence, these two appeals by special leave. The revenue reiterated its grievance before the High Court about the Tribunal's refusal to entertain additional evidence without success and the matter is no longer in controversy in view of a decision of seven judges of this court in Keshav Mills Ltd. v. Commissioner of Income-tax affirming the earlier decisions of this court in the case of New Jahangir Vakil Mills Ltd. v. Commissioner of Income-tax and Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax. It is now well-settled that when the Tribunal has disposed of the matter and is preparing a statement of the case either under section 66(1) or under section 66(2), there is no scope for any further or additional evidence and the power of the High Court under section 66(4) can be exercised only in respect of material and evidence which has already been brought on the record. It was contended on behalf of the revenue before the High Court that the finding of the Tribunal was perverse Mr. Sen, appearing on behalf of the revenue before us, has fairly and, in our opinion, rightly not pressed this submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be deemed to be a company in which the public are substantially interested if shares of the company...carrying. not less than twenty-five per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by and are at the end of the previous year beneficially held by the public...and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange...or are in fact freely transferable by the holders to other members of the public." In this case the company did not declare any dividend for the assessment year 1953-54. In the next assessment year 1954-55, only a sum of Rs. 50,000 was distributed as dividend. It is not in dispute that the company had sufficient requisite assessable income out of which sufficient or larger dividend could have been paid. There is no dispute that the payment of an adequate dividend for the first year and larger dividend for the next year would have been at all unreasonable in respect of these two assessment years. The only controversy between the parties is with regard to the exclusion of the company from the application of section 23A in view of the third proviso read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Government. A. K. Jain was director of the company from August 3, 1950, even when he was a minor (his date of birth being March 5, 1934) and was appointed deputy managing director from June 6, 1953, subject to approval of the Government. R. Sharma was director from August 3, 1950, to September 7, 1956. He was secretary of R. K. Dalmia and employee of Sahu Jain Limited. N. C. Jain was director from September 25, 1950, to March 25, 1954. He was secretary of S. P. Jain and employee of Ashoka Agencies Limited. From the above it appears that the deputy managing director and the two other directors held amongst themselves 10,020 shares and out of the balance 30,000 shares were held by the relations of the managing director, namely, by the father, the mother and the minor brother. It also appears that S. P. Jain along with Ashok Kumar Jain, R. Sharma and appears N. C. Jain were the promoters and subscribed to the memorandum of association at the start of the company in July. 1950. It also appears Ashok Kumar Jain, director, was getting a remuneration of Rs. 6,000 per month with effect from September, 1951, in accordance with the resolution passed in an extraordinary general meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r there was a group of persons acting in concert holding a sufficient number of shares which may control the voting as a block. But the existence of a block is not decisive. If there be a group of persons holding control over voting, the company would still be a company in which the public are substantially interested, if twenty-five per cent. or more of the voting power has been allotted unconditionally to and beneficially held by the public and the shares were in the previous year subject of dealings in any stock exchange in the taxable territories or were in fact freely transferable by the holders to other members of the public. The two enquiries are distinct." This court further referred to Jubilee Mills' case and Raghuvanshi Mills' case and observed as follows : " But in Commissioner of Income-tax v. Jubilee Mills Ltd. this court held that no direct evidence of overt act or concert between the members of the group having control over voting was necessary to prove that the company was not one in which the public were substantially interested. It was observed in Raghuvanshi Mills' case that in deciding if there is such a controlling, interest, there is no formula applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as acting in concert there is no other material on record on the basis of which such a conclusion could be supported." The High Court also observed to the same effect : " It may be that in view of the relationship of the parties as to a group consisting, of the father, two minor sons and their mother, a possible inference was that the relationship was such that they could reasonably be taken to be acting as a group in concert ............................" but "the assessee could not be placed in the category of such a ; company merely because of the close relationship." Keeping in the forefront the test laid down by this court in East Coast Commercial Co.'s case, Mr. Sen, on behalf of the revenue, submitted for our consideration the following facts and circumstances from which, according to counsel, an inference can be reasonably drawn about the controlling power in a block confined to a family group holding more than 75 per cent. shares : (1) 80 per cent. of the share capital (40,000 out of 50,000) is held by S. P. Jain, his wife and two sons, one of whom was a minor throughout the period of the two accounting years and the other son, A, K.Jain, for a portion of the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Hardy had to admit that N. C. Jain was director from 1950 to 1954 and S. P. Jain was director from August 3, 1950, to September 25, 1950, and S. P. Jain became the managing director of the company on June 6, 1953, subject to the approval of the Government on a remuneration of Rs. 8,000 per month and A. K. Jain was appointed as deputy managing director on a remuneration of Rs. 6,000 per month subject to the approval of the Central Government (vide minutes of the board's meeting of June 6, 1953). According to Mr. Hardy, appointment of directors or even managing director is a regular matter of the company and no particular significance should be attached to these appointments. (4) With regard to the fourth submission Mr. Hardy submits that such transactions are common with brokers and even the purchaser is not known in most of the cases. Hence no undue importance should be attached to the hessian transaction so as to influence the conclusion. It is also pointed out that there was no controversy about the genuineness of the hessian transaction. We are of the view that the genuineness of the aforesaid transaction is, however, irrelevant for the purpose of considering its effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re clearly of the opinion that it is a case in which it cannot be said that the "public" is substantially interested in 25 per cent. or more shares of the company. Even if we allow A. K. Jain to be a member of the "public", he only holds 10,000 shares and taken with 2,000 shares, of Ashoka Agencies Ltd., the total shareholding comes only to 12,000 shares, that is to say, 500 less than the minimum shareholding requisite to earn the benefit of the third proviso to section 23A read with he Explanation. Further, between August 11, 1951, and May 1, 1952, A. K. Jain and two employee-directors, the latter having a modicum of 10 shares each, apparently took all decisions for the company in the board's meetings. This is not ordinarily possible but for collaboration with the major shareholders. This is a case where more is meant than, meets the eye. We are unable to hold in this case, in the absence of any reliable evidence to the contrary, that the voting power of the three directors was free and uninhibited and not within the orbit of control of the other major shareholders, S. P. Jain and Rama Jain, acting in concert. It is a clear case of all the shareholders acting in concert and in u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner which is normally inconsistent with anything other than full unison amongst the shareholders in decisions about the conduct of the company's affairs in common interest of all, this was a company of one paramount mind operating without the least doubt. The board's meetings are evidence of a well-organised, well-knit, close unity of views in all affairs and which in the ordinary course of human conduct would not have been at all possible but for a single or concerted action in the company, management by a controlling group. When all the above conditions are present in a company, the onus would be on the assessee to satisfy by some reliable evidence that what appears on the surface is that which is real. That is not to say that the revenue has no burden to bring the case within the mischief of section 23A. Application of law cannot be bereft of common sense. The object of section 23A being to prevent avoidance of super-tax by the shareholders by piling up the profits of the company in its own hands, the facts and circumstances revealed in this case clearly bring the company within the reach of that section. We are unable to accede to the submission of Mr. Hardy in this case tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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