Public shareholding under section 23A depends on beneficial interest and statutory exclusion, not a separate tax concession.

For section 23A(1) of the Indian Income-tax Act, public interest in a company was tested by whether at least 25% of the voting power had been unconditionally allotted to, or acquired by, and beneficially held by, the public. Shares held through another company could not be treated as public holdings unless that company itself satisfied the statutory requirement of public beneficial interest. The shareholding of Mysore Merchants Ltd. therefore could not be counted as public holding in the assessee company, and clause 14 of the Part B States (Taxation Concessions) Order, 1950 did not displace the statutory exclusion in the Explanation.

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Issues: (i) Whether the assessee company could be treated as a company in which the public were substantially interested for the purposes of section 23A(1) of the Indian Income-tax Act. (ii) Whether shares held by Mysore Merchants Ltd. could be counted as shares held by the public, and whether clause 14 of the Part B States (Taxation Concessions) Order, 1950 affected that position.

Issue (i): Whether the assessee company could be treated as a company in which the public were substantially interested for the purposes of section 23A(1) of the Indian Income-tax Act.

Analysis: The applicable test was whether shares carrying not less than twenty-five per cent of the voting power had been allotted unconditionally to, or acquired unconditionally by, and were beneficially held by, the public. The earlier view that holdings by directors could not be regarded as public holdings was not accepted as the correct test, and the matter was to be reconsidered on the correct principle stated in the connected appeal.

Conclusion: The issue was not finally determined against the assessee and was left to be reconsidered by the High Court on remand.

Issue (ii): Whether shares held by Mysore Merchants Ltd. could be counted as shares held by the public, and whether clause 14 of the Part B States (Taxation Concessions) Order, 1950 affected that position.

Analysis: The Explanation to section 23A(1) excluded shares held by a company to which the sub-section applied. Mysore Merchants Ltd. was itself not a public company and the public were not beneficially interested in it to the requisite extent, so its shareholding could not be treated as public holding in the assessee company. The Taxation Concessions Order only conferred a limited exemption on Mysore Merchants Ltd. and did not alter the statutory test under section 23A for determining public shareholding in another company.

Conclusion: The shares held by Mysore Merchants Ltd. could not be counted as public holdings, and the concession order did not change that result.

Final Conclusion: The appeal succeeded to the extent that the matter was sent back for reconsideration, while the exclusion of Mysore Merchants Ltd.'s shares from public holdings was affirmed.

Ratio Decidendi: For section 23A(1), shares held by a company cannot be treated as public holdings unless that company itself satisfies the statutory requirement of public beneficial interest, and a separate tax concession does not displace the statutory exclusion in the Explanation.

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