Public interest company status turns on stock-exchange dealings or free transferability, excluding section 23A(1) where trading is proved.

Shares carrying not less than 25% of the voting power were required to be beneficially held by the public, and the further statutory condition was satisfied if those shares were either dealt in on a stock exchange during the previous year or were freely transferable. The Tribunal found actual dealings in the Calcutta Stock Exchange, with daily transactions, quotations and price fluctuations, which was sufficient to meet the alternative second limb. The company therefore fell within the statutory exception for a company in which the public were substantially interested, and section 23A(1) did not apply.

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Issues: Whether the assessee-company was a company in which the public were substantially interested within the meaning of section 23A(1) of the Income-tax Act, 1922, so that the order made under that provision for the assessment years 1948-49 and 1949-50 could stand.

Analysis: For the statutory exception to apply, the explanation to section 23A(1) required two cumulative conditions: first, that shares carrying not less than 25% of the voting power were beneficially held by the public; and secondly, that such shares were either the subject of dealings in a stock exchange during the previous year or were in fact freely transferable. After the supplementary statement, the Tribunal found that the shares were quoted in the cash section of the Calcutta Stock Exchange, the bulletin reflected actual transactions, there were fluctuations in price, and transactions took place daily. These findings established that the shares were the subject of dealings in a stock exchange. As the two limbs of the second condition were alternative, it was unnecessary to examine free transferability further.

Conclusion: The assessee-company satisfied the statutory requirements, so section 23A(1) did not apply and the question was answered in the negative in favour of the assessee.

Ratio Decidendi: Where the statutory explanation treats stock-exchange dealings and free transferability as alternative means of satisfying the second condition, proof of actual dealings in the relevant stock exchange is sufficient to attract the exception and exclude the operation of section 23A(1).

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