Public interest company test: 51% voting control can establish controlling interest absent concerted shareholder action.

A company is treated as one in which the public are substantially interested where the statutory test, applied by reference to voting power, does not show a single person or concerted group with controlling interest. A 51 per cent holding was sufficient to constitute controlling interest because it ordinarily secures control of ordinary resolutions and a dominant voice in the company, even though it falls short of the 75 per cent needed for a special resolution. Relationship alone does not justify grouping shareholders together, and a director is not excluded from the public merely by reason of office. On the facts, the company fell within the public-interest category and the deeming provision for undistributed income did not apply.

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Issues: Whether the company was one in which the public were substantially interested under section 21 of the Income Tax Ordinance, 8 of 1940, and whether a shareholder holding 51 per cent. or more of the voting power had the controlling interest for that purpose.

Analysis: Section 21 denied the deeming provision only where the company was not one in which the public were substantially interested. The statutory test required identification of the person or group having the controlling interest by reference to voting power. The Court held that 51 per cent. of the voting power was sufficient to constitute controlling interest, since such a holding would ordinarily secure control of ordinary resolutions and a dominant voice in the company, even if it did not amount to the 75 per cent. needed for a special resolution. The Court further held that relationship by itself did not justify grouping shareholders together, and that there was no statutory basis for treating a director, merely because of office, as outside the public. On the facts, the respondent alone had the controlling interest, while the brother's holding was not shown to be part of a concerted group and therefore counted as public shareholding.

Conclusion: The company satisfied the statutory conditions for being treated as one in which the public were substantially interested, and the appeal failed.

Final Conclusion: The tax assessment based on deeming the company's undistributed income as dividend could not stand on the facts found, because the statutory exclusion for companies in which the public were substantially interested applied.

Ratio Decidendi: For the purpose of determining whether a company is one in which the public are substantially interested, controlling interest is ordinarily fixed by 51 per cent. of the voting power, and shareholders are not excluded from the public merely because they are relatives or directors unless concerted control is shown.

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