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TMI Blog1982 (2) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------------------- Tata Sons Pvt. Ltd. 1,051 Lady Tata Memorial Trust-Trustees: Lady Navajbai Ratan Tata, Mr. J.R.D. Tata, Sir H. P. Mody, Mr. J. D. Choksi, Mr. D.R.D. Tata, Mrs. V.J. Vesugar and Mr. R.D. Choksi 1,400 Sir D. J. Tata Trust-Trustees: Lady Navajbai Ratan Tata, Mr. J. R. D. Tata, Sir H. P. Mody, Mr. A. D. Shroff, Dr. John Mathai, Mr. N. H. Tata and Mr. R.D. Choksi 2,995 Sir Ratan Tata Charities-Trustees : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. This contention was not accepted by the ITO and the assessee-company challenged the order of the ITO by an appeal before the AAC. The AAC also rejected the contention of the assessee-company that it was a company in which the public were substantially interested and he held that since more than 99% of the voting power is held by three persons, the company was "caught by the mischief of section 2(18)(b)(iii) ". He held that the ITO was justified in not treating the company as a company in which the public are substantially interested. The assessee-company then appealed to the Income-tax Appellate Tribunal. Before the Tribunal the argument advanced on behalf of the assessee-company was that the majority of the shares were ostensibly held by the trusts and as the trusts were for the benefit of the public, the public had an interest in the trust and the shares were beneficially held by the public. It was also argued that the shares were ostensibly held by less than five persons, yet they were, in fact, beneficially held by the public and the public were holding the shares through the trustees. The Tribunal declined to accept the argument that as 81% of the shares of the company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble by the Government on behalf of the public and so, the shares were held by the public. Having accepted the alternative argument advanced before it the Tribunal came to the conclusion that as the shares in the assessee-company were held by the three trusts, the same can be said to be held by the public and the assessee-company should be held as a company in which the, public are, substantially interested. Arising out of this order of the Tribunal, the following question has been referred to this court under s. 256(1) of the Act for opinion : " Whether, on the facts and in the circumstances of the case, the assessee is a company in which the public are substantially interested within the terms of section 2(18) of the Income-tax Act, 1961 ? " Before we notice the arguments advanced on behalf of the Revenue and the assessee-company, it is necessary to reproduce the material part of the definition of "company in which the public are substantially interested " in s. 2(18) of the Act as in force in the relevant assessment year. The definition ran thus: " 2. (18) 'Company in which the Public are substantially interested'. A company is said to be a company in which the public are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, the shares must be treated as having been held by the public. According to the learned counsel, the provisions of s. 187B of the Companies Act have no relevance in the determination of the question as to whether 50% of the shares are unconditionally and beneficially held by the public and it is argued that notwithstanding the provisions of s. 187B of the Companies Act, the shares continued to be held by the trustees of the public trusts and that though the trustees of the public trusts could be members of the public, the shares not having been held by the trustees for their own benefit, they could not be said to be beneficially holding the shares and, Consequently, one of the requirements of s. 2(18) was not satisfied. The learned counsel also contended that having regard to the decisions of the Supreme Court in Raghuvanshi Mills Ltd. v. CIT [1961] 41 ITR 613, CIT v. jubilee Mills Ltd. [1963] 48 ITR 9 (SC) and CIT v. East Coast Commercial Co. Ltd. [1967] 63 ITR 449, the trustees of the three trusts, who among themselves held 81% of the shares, really formed a group who would be in a position to control the business of the company and in whom more than 50% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e latter principle the Supreme Court quoted with approval the observations in Maxwell on the Interpretation of Statutes, 12th Edn. at p. 47 and it will appear from that decision that the Supreme Court was mainly dealing with the principle of casus omissus, as would be clear from the following observations (p. 541): " In other words, under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. 'An intention to produce an unreasonable result, said Danckwerts L.J. in Artemiou v. Procopiou [1966] 1 QB 878 (CA),is not to be imputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise such rights and powers in accordance with the directions of the public trustee. Under the proviso to sub-s. (2) it is provided that where the trustee is appointed by the public trustee as his proxy, the trustee shall be entitled, notwithstanding anything contained in any other provisions of the Companies Act, to exercise such rights and powers in the same manner as he would have been but for the provisions of s. 187B. Sub-section (3) provides that the public trustee may abstain from exercising the rights and powers conferred on him by the section if, in his opinion, the objects of the trust or the interests of the beneficiaries of the trust are not likely to be adversely affected by such abstention. Sub-sections (4) and (5) are not very relevant. Sub-section (6) then provides that in order to enable the public trustee to exercise the rights and powers aforesaid, the public trustee shall also be entitled to receive and inspect all books and papers under the Act which member is entitled to receive and inspect. Now, the limited effect of s. 187B is that the rights and powers exercisable at a meeting of the company or at any meeting of any class of members of a company cease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to, or acquired unconditionally by, the public and these shares must be shown to have been beneficially held by the public throughout the previous year in so far as the present case is concerned. The " public " in sub-cl. (d) of cl. (i) does not include a director or a company to which cl. (d) does not apply. The second condition which is required to be satisfied is that the shares must be shown to be at any time daring the relevant previous year the subject of dealing in any recognised stock exchange in India or it has to be shown that the shares were freely transferable by the holder to other members of the public. With regard to this condition, there does not seem to be any finding recorded by the Tribunal and it does not appear that the question as to whether the condition in this cl. (ii) was satisfied or not was made the subject of controversy either before the tax authorities or before the Tribunal. In addition to the two conditions referred to above, the third condition which is to be satisfied is that the affairs of the company or the shares carrying more than 50 per cent. of the total voting power were at no time during the relevant previous year controlled or held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent. of the voting power must be allotted unconditionally to, or acquired unconditionally by, the public and they must be beneficially held by the public. The essence of the Explanation lies not in the percentage which only shows the limit of the minimum holding by the public, but lies in the words 'unconditionally' and 'beneficially'. These words underline the fact that no Person who holds a share or shares not for his own benefit but for the benefit of another and who does not exercise freely his voting power, can be said to belong to that body, which is designated 'Public'. The word 'public' is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a block. If such a block exists and possesses more than seventy-five percent. of the voting power, then the company cannot be said to be one in which the public are substantially interested. " (Underlining ours). These observations of the Supreme Court will thus indicate that when the definition in s. 2(18)(b) requires that the prescribed number of shares should be beneficially held by the public, it contemplates that person must hold the shares for his own benefit and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated when determining whether a company is a company in which the public are substantially interested were laid down by the Supreme Court in CIT v. East Coast Commercial Co. Ltd.-[1967] 63 ITR 449. Dealing with the provisions of s. 23A(1) of the Indian I.T. Act, 1922, it was observed as follows (p. 455): " It is clear that in deciding whether an order under section 23A(1) is called for, the Income-tax Officer must determine(i) whether there is an individual or a group which can control the voting power as a block. The existence of such a block may be established by showing that the voting power is vested in persons possessing more than fifty per cent. of the shares issued who act in concert ; and (ii) that the block exercises a controlling interest over the affairs of the company. This condition is satisfied only if the voting power of the block or group is seventy-five per cent. or more. If the block holds seventy-five per cent. of the voting power, it shall be deemed that the company is one in which the public are not substantially interested. On the other hand, if the members of the public hold shares of the company (not being shares entitled to a fixed rate of dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anced before us at considerable length on behalf of the assessee that the shares held by the trustees must be treated as shares held by the public, would be sufficient to answer the question referred to us in this reference. We have repeatedly tried to ascertain from Mr. Vyas as to whether the shares held by the three trusts, which between themselves hold about 81% of the shares and they are undoubtedly a group of Tata Charities, can be said to have been beneficially held by any particular person and we have been repeatedly told that public in general, who are the beneficiaries under the trusts, are the beneficial holders of these shares. This runs counter to the decisions of the Supreme Court. As already pointed out, if a person does not hold a share for his own benefit, that person must fall out of the category of " public ", as contemplated by the definition in s. 2(18) of the Act. Admittedly, the shares are held by the trustees in their own names, but they are admittedly not the beneficial holders of the shares. If the shares are not held by the trustees for their own benefit and they are held for the benefit of somebody else, on the law laid down by the Supreme Court, they mus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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