TMI Blog1965 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 10 each were fully paid up and the balance of 26,580 shares of ₹ 10 each was paid up to the extent of Re. 1 per share only. The shareholding of the managing agents and directors were as follows: Shares (1)M/s. Indra Singh Sons Private Ltd., managing agents (represented on the board by its nominee, J.C. Mukherjee) 1,92,945 (2)Sir Indra Singh (a director) 575 (3)Sardar Ajaib Singh (a director) (ordinary shares) 510 1,94,030 Besides the above, one P.C. Mustafi held 500 shares and was also a director of the company. At the assessment stage and before the appellate authorities, he was considered to be a director during the two relevant accounting periods and this fact was not challenged. For the assessment year 1955-56 the company was assessed on a total income of ₹ 66,17,507; the tax liability thereon amounted to ₹ 28,74,484. Although the balance available for distribution as dividends came to ₹ 37,43,023, the company at its g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public (not including a company to which the provisions of this sub-section apply): Provided that in the case of any such company as is referred to in sub-section (4) this sub-clause shall apply as if for the words 'not less than fifty per cent.', the words 'not less than forty per cent.' had been substituted; (ii)the said shares were at any time during the previous year the subject of dealings in any recognised stock exchange in India or were freely transferable by the holder to other members of the public; and (iii)the affairs of the company or the shares carrying more than fifty per cent, of the total voting power were at no time during the previous year controlled or held by less than six persons (persons who are related to one another as husband, wife, lineal ascendant or descendant, brother or sister, as the case may be, being treated as a single person and persons who are nominees of another person together with that other person being likewise treated as a single person): Provided that in the case of any such company as is referred to in sub-section (4), this clause shall apply as if for the words 'more than fifty per cent.', the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of the company were at no time during the previous year controlled by less than six persons, or (b)the shares carrying more than sixty per cent, of the total voting power at no time held by less than six persons. It would therefore appear that the Tribunal correctly appreciated the law on this point. According to the Tribunal all the above conditions were cumulative and not alternative and all of them had to be satisfied before a company could stand out of the mischief of section 23A. The Income-tax Officer as well as the Appellate Assistant Commissioner and the Tribunal were of the view that the first and the second conditions had been satisfied. With regard to the third condition the Income-tax Officer's opinion noted by the Tribunal was to the following effect: The assessee being engaged in the manufacture or processing of goods, sub-section (4) of section 23A is applicable. One has therefore got to see whether the shares of the assessee carrying not less than forty per cent, of the voting power have been allotted unconditionally to the members of the public. Public is not to include a company to which the provision of section 23A applies. In this case such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumulative. The Tribunal did not consider whether the third condition was fulfilled and came to the conclusion that the fourth condition had not been satisfied. In my opinion, the Tribunal was right in its conclusion that the four conditions enumerated by it were cumulative and not alternative. The Explanation to sub-section (9) does not, in my opinion, make the sub-clauses (i), (ii ) and (iii) of clause (b) disjunctive. It is true that the word and does not appear in between sub-clause (1) and sub-clause (ii). In my opinion that does not matter. For instance, when we want to convey the impression that three persons, namely, A, B, C, together do not own three lakhs of rupees, we express ourselves correctly when we say A, B and C do not own three lakhs of rupees . We do not have to say A and B and C do not own three lakhs of rupees. If the conditions are cumulative and if one of them has not been fulfilled, the mischief of section 23A(1) would come into play. Regarding the fourth condition, the Tribunal observed from the position of the shareholding described in paragraph 8 above (which is the same as that quoted earlier in the judgment taking into consideration the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent way. As indicated by me above, sub-clause (iii) is aimed at enforcing that not less than six persons should control the affairs of the company or hold shares carrying more than 60% of the total voting power during the previous year. In other words, we have got to analyse the shareholding as also examine the control of the affairs of the company during the previous year and find out whether less than six persons were in control or less than six persons held shares carrying more than 60% of the voting power. Judged in this light, the condition prescribed in sub-clause (iii) would not be satisfied by mere compliance with one branch of it. Both branches, namely, the control of the affairs by not less than six persons and the holding of shares carrying 60% of the total voting power by not less than six persons would have to be fulfilled. In the view taken by us with regard to the fourth condition regarding sub-clause (iii) of clause (b), it is unnecessary to examine the applicability of the third condition which the Tribunal did not apply. Our attention was drawn to the judgment of the Supreme Court in Mehta Parikh Co. v. Commissioner of Income-tax [1956] 30 ITR 181 ; [1956] SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er have been allotted unconditionally to or acquired unconditionally by and were throughout the previous year held by the public, that would be a good ground for holding that a small coterie of shareholders were not in full control of the company. The legislature was not content to say that the company should be judged only by the shareholding. It further provided that the shares of the company should have been dealt with in any recognised stock exchange in the previous year or the conditions of transferability were such that there was no impediment to free transfer. The third condition was that the affairs of the company should not have been controlled by less than six persons and the shares carrying more than 50% of the voting power were held by not less than six persons. It was argued that there was no rational basis for fixing the number of persons at six. I do not agree. The legislature in its wisdom thought that six was a sufficiently large but not an unwieldy number to control the affairs of the company. Usually a company does not have more than six to eight directors as it is well known that the presence of a large number of directors does not help the proper management of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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