Free transferability throughout the previous year was required to treat the company as publicly substantially interested.

For the Explanation to section 23A(1) of the Indian Income-tax Act, 1922, shares carrying at least 25% of the voting power had to be freely transferable during the whole of the previous year, not merely at some point within it. The Court construed the phrase "in the course of such previous year" as referring to the entire previous year, because the provision used different temporal expressions for beneficial ownership at year-end and for free transferability during the year. As transfer restrictions continued until 26 March 1951, the statutory condition was not satisfied and the company was not treated as one in which the public were substantially interested.

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Issues: Whether, for the purpose of the Explanation to section 23A(1) of the Indian Income-tax Act, 1922, shares carrying not less than twenty-five per cent of the voting power had to be freely transferable throughout the previous year in order for the company to be treated as one in which the public were substantially interested.

Analysis: The Explanation used different temporal expressions, referring first to shares being beneficially held by the public at the end of the previous year and then requiring that such shares have in the course of the previous year been in fact freely transferable by the holders to other members of the public. The phrase "in the course of such previous year" was construed as denoting the whole duration of the previous year, not merely any part of it. Since the restrictions on transfer continued until 26 March 1951, the condition of free transferability throughout the relevant period was not met.

Conclusion: The company did not satisfy the Explanation to section 23A(1) because the shares were not freely transferable during the whole of the previous year, and the Revenue succeeded.

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