TMI Blog1993 (10) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... od of 12 months immediately following the expiry of the previous year relevant to the assessment year 1973-74. The Income-tax Officer has issued a show-cause notice to the assessee as to why the provisions of section 104 of the Income-tax Act be not applied and why additional tax should not be levied on the assessee's income. The contention of the assessee was that the provisions of section 104 are not applicable in view of the fact that the majority of the shares were held by Messrs. National Engineering Industries Limited, which is a company in which the public are substantially interested. The details of the shareholders of the company were as under: Sl. No. Name of the shareholders No. of shares held 1. Messrs. National Engg. Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies mentioned above. It was held that if the shares are held by a group or block then it cannot be said that it is a company in which the public is substantially interested. The words "unconditionally" and "beneficially" were interpreted to mean that the voting power of the holders of the shares should be free and not within the control of some other shareholders or other persons, and the registered shareholder should not be a nominee of other. It can also be examined as to whether any individual or a group, acting in concert controls or control the affairs of the company to the exclusion of others and if on the basis of the evidence, it is found that the shareholders are acting in a group, the shares were not freely transferable. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Messrs. Rajasthan Industries Ltd., and 2,500 shares were held by Birla Gwalior Pvt. Ltd. till March 31, 1971. From April 1, 1971, 45,000 shares, were held by Messrs. N. E. I. Ltd. and its nominees and 5,000 shares by Messrs. Rajasthan Industries Ltd. Birla Gwalior Pvt. Ltd. is also a company of the Birla group and its name has been included in the report of the Industrial Licensing Policy Enquiry Committee. Thus, the Income-tax Officer came to the conclusion that from the very beginning the shares have been held by one group and shares have never been transferred to any member of public and that the shares are not freely transferable. The additional tax was accordingly levied. Before the Commissioner of Income-tax (Appeals), the matter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Share Brokers Ltd., Jaipur and Messrs. Rajasthan Industries Ltd., Jaipur, the matter was decided by the Tribunal on January 31, 1979, in favour of the assessee on the point that the provisions of section 104 are not attracted and the said order has not been challenged and has become final. The matter was examined on the merits also and it was held that the conditions of section 2(18)(b)(B)(i)(c), (ii) and (iii) are duly fulfilled and therefore, the appeal was allowed. We have heard the arguments of both learned counsel. It has been submitted by Shri Bapna, on behalf of the Department, that simply because the Department has failed to file the reference in any particular year it may be for any reason then the order of the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by any company to which this clause applies. In the present case, shares of more than 50 per cent. of the voting power have been allotted unconditionally to or acquired unconditionally by a company in which the public are substantially interested. The finding which has been given by the Tribunal in this regard is on the basis of the evidence on the record that the condition is satisfied. Regarding the second condition whether during the previous year the shares were freely transferable or not, the power of the directors not to transfer the shares was held of a general nature and it was observed that there is no evidence of the directors having acted in a manner refusing to transfer at any point of time any share, as no instance was fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered by the apex court to find as to whether the assessee-company could be regarded as one in which the public were substantially interested within the meaning of the Explanation to section 23A(1) of the Indian Income-tax Act, 1922. It was held that in the absence of evidence to show that the directors had been exercising their power under article 37 freely and virtually eliminated the element of free transferability of the shares as provided in the articles of the company and in the absence of restriction in any other articles of the company interfering with the free transfer of shares by one shareholder to another, the mere existence of an article like article 37 would not affect the free transferability of the shares within the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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