De facto control is the correct test for "held by the public" under Section 23A, not mere possible influence.

The expression "held by the public" under the third proviso to Section 23A of the Indian Income-tax Act, 1922 was construed to require that the relevant shareholders exercise voting power independently of the directors. Mere possibility of influence or control, or the existence of a managing agency arrangement, was insufficient to satisfy the statutory enquiry. The material question was whether the directors in fact exercised de facto control over the shareholders concerned. The Tribunal had not applied that legal standard, and the existing record did not contain a definite finding on actual control.

---

---

Issues: Whether shares held by certain shareholders could be treated as held by the public for the purpose of the third proviso to Section 23A of the Indian Income-tax Act, 1922, and whether actual de facto control by directors was the correct legal test.

Analysis: The expression "held by the public" in the explanation to the third proviso to Section 23A was construed as requiring that the relevant shareholders exercise voting power independently of the directors. The statutory enquiry was not satisfied by mere possibility of control, nor by the mere existence of a managing agency arrangement. The material question was whether, on the facts, the directors in fact exercised de facto control over the shareholders concerned. The Tribunal's findings did not rest on that correct legal standard, and the existing record did not contain a definite finding on actual control.

Conclusion: The correct legal test is de facto control, and not a mere possibility of influence or control; the issue could not be finally answered on the existing findings.

---