Public interest status under Section 23A turns on the company's nature, not later statutory conditions or exemptions.

Section 23A of the Income-tax Act, 1922 and its third proviso were construed together to identify the class of companies treated as companies in which the public were substantially interested. The explanation to the proviso excluded from "public" a company to which the sub-section applied, so the enquiry focused on the nature of the company rather than on whether the power under sub-section (1) had already been attracted. On that reading, Mysore Merchants Ltd. could not be counted as part of the public, and Clause 14 of the Part B States (Taxation Concessions) Order, 1950 did not change that position because it assumed the application of section 23A and only granted limited exemption. The view that directors were members of the public was rejected by binding precedent.

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Issues: Whether the assessee company could be treated as a company in which the public were substantially interested for the purposes of section 23A of the Income-tax Act, 1922, and whether the shares held by Mysore Merchants Ltd. and the directors were to be counted as holdings by members of the public.

Analysis: Section 23A and its third proviso were read together to determine the class of companies to which the provision applied. The explanation to the proviso excluded from the expression "public" a company to which the sub-section applied, and the relevant inquiry was the nature of the company, not whether the statutory conditions for exercise of the power under sub-section (1) had already been satisfied. On that construction, Mysore Merchants Ltd. could not be treated as part of the public. Clause 14 of the Part B States (Taxation Concessions) Order, 1950, also did not alter this position, because it assumed the application of section 23A to the company and only granted an exemption in specified circumstances. The contention that directors were members of the public was foreclosed by binding precedent.

Conclusion: The assessee was not a company in which the public were substantially interested, and the answer to the reference was in the negative.

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