Registered shareholder test under public-interest company status and inclusion of erection assets in capital base upheld for assessee.

For determining whether a company is one in which the public are substantially interested, shares held by two banks as nominees of the same trust were counted as held by two separate persons because the relevant test focused on the identity of the registered shareholders and there was no concerted action merging their holdings. The court also followed its earlier ruling in the assessee's own case and held that the value of building and machinery under erection, together with advances for machinery and raw material, formed part of the capital base under rule 19A for relief under section 80J. Both referred questions were answered for the assessee.

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Issues: (i) Whether, for determining if the assessee-company was a company in which the public were substantially interested, shares held by two banks as nominees of the same trust had to be counted as held by one person or two persons; (ii) Whether the value of building and machinery under erection and advances for purchase of machinery and raw material were includible in the capital base under rule 19A for computing relief under section 80J.

Issue (i): Whether, for determining if the assessee-company was a company in which the public were substantially interested, shares held by two banks as nominees of the same trust had to be counted as held by one person or two persons.

Analysis: The relevant test under section 2(18)(b)(B)(iii) and Explanation I turns on the identity of the registered shareholders for the purpose of counting persons holding the voting power. Although the two banks were nominees of the same trust, the Tribunal had found that they were the registered shareholders in their own right and had not acted in concert or unison. On that basis, the registered shareholding could not be collapsed into a single person merely because of the nominee relationship.

Conclusion: The two banks were to be treated as two separate persons, and the first question was answered in the affirmative in favour of the assessee.

Issue (ii): Whether the value of building and machinery under erection and advances for purchase of machinery and raw material were includible in the capital base under rule 19A for computing relief under section 80J.

Analysis: The issue was governed by the court's earlier decision in the assessee's own case, which had already determined the treatment of these items for the purpose of rule 19A and section 80J. Following that binding precedent, the capital base was to include the disputed items.

Conclusion: The second question was answered in the affirmative in favour of the assessee.

Final Conclusion: Both referred questions were decided for the assessee, and the Revenue's reference failed.

Ratio Decidendi: For the purpose of determining whether a company is one in which the public are substantially interested, shares are counted by reference to the registered shareholders, and a nominee relationship does not by itself merge distinct registered shareholders into one person absent concerted action.

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