Public interest shareholding under section 23A requires proof of actual voting control; managerial links alone are insufficient.

For section 23A, a company is treated as one in which the public are substantially interested only if shares carrying at least 25% of the voting power are beneficially held by the public; directors are excluded from the public only where actual control of their voting power is proved. Mere managerial connection or participation in the managing agency is insufficient. On the facts stated, the Department had not shown that the public holding fell below the statutory threshold, so section 23A did not apply. The Court also held that a supplemental statement of the case was unjustified because the Department could not use section 66(4) to remedy its failure to lead the necessary evidence.

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Issues: Whether the assessee company was a company in which the public were substantially interested for the purposes of section 23A; and whether a supplemental statement of the case should be called for to enable the Department to fill the evidentiary gap.

Analysis: The expression "the public are substantially interested" under section 23A requires that shares carrying at least 25 per cent of the voting power be beneficially held by the public. Directors are not to be treated as part of the public if they control the voting power, and a shareholder can be excluded from the public only if actual control of his voting power by the directors is established. Mere managerial connection with the company or the fact that shareholders form part of the managing agency is not enough. On the facts stated, 41,659 out of 1,00,000 shares were held by seven shareholders who were neither directors nor shown to be under the directors' control, so the Department had not established that the public holding fell below the statutory threshold. The Court also held that no supplemental statement of the case was justified, since the Department had known the legal position and had failed to lead the necessary evidence; section 66(4) could not be used to give it a second opportunity to make up the deficiency.

Conclusion: The assessee company was a company in which the public were substantially interested, section 23A did not apply, and no supplemental statement of the case was required.

Final Conclusion: The reference was answered in favour of the assessee, with costs awarded accordingly.

Ratio Decidendi: For section 23A, exclusion from the public depends on proof of actual control of voting power, not on mere association with the managing agency or managerial control, and a supplemental reference cannot be used to cure the Department's failure to adduce evidence where the legal position was already settled.

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