Voting cap under banking law and authorised representative powers determined tax reference competence and public-interest status.
For section 23A of the Income-tax Act, 1922, the banking-company voting cap under section 12(iv) was applied to the total voting rights before the cap was worked out, and on that basis the two principal shareholders together controlled more than half the voting power, so the company did not qualify as one in which the public were substantially interested. On the procedural point, authority given to an authorised representative to appear, plead and act for the tax authority was treated as including power to sign the reference petition, and the signing was capable of valid ratification. The substantive issue and the reference competence were both resolved against the assessee.
Issues: (i) Whether the assessee-bank was a company in which the public were substantially interested for the purpose of section 23A of the Income-tax Act, 1922, having regard to the voting restriction under section 12(iv) of the Banking Companies Act, 1949. (ii) Whether the reference application filed on behalf of the Commissioner of Income-tax was competent when signed by an Income-tax Officer as authorised representative.
Issue (i): Whether the assessee-bank was a company in which the public were substantially interested for the purpose of section 23A of the Income-tax Act, 1922, having regard to the voting restriction under section 12(iv) of the Banking Companies Act, 1949.
Analysis: The voting restriction in section 12(iv), and the corresponding article in the articles of association, limited the voting rights of any shareholder to five per cent. of the total voting rights of all shareholders, calculated on the pre-limitation total voting power and not on a second application of the cap after polling. On that basis, the two principal shareholders together controlled voting rights far exceeding fifty per cent. of the total voting rights. The condition in the Explanation to section 23A that the shares carrying more than fifty per cent. of the total voting power were at no time during the previous year controlled or held by less than six persons was therefore not satisfied.
Conclusion: The assessee-bank was not a company in which the public were substantially interested; this issue is decided in favour of the Revenue and against the assessee.
Issue (ii): Whether the reference application filed on behalf of the Commissioner of Income-tax was competent when signed by an Income-tax Officer as authorised representative.
Analysis: The authority given under the Appellate Tribunal Rules to an authorised representative to appear, plead and act for an income-tax authority included the authority to sign a reference petition. The subsequent notification operated from an earlier date, and the act of signing was capable of valid ratification.
Conclusion: The reference application was competent; this issue is decided against the assessee.
Final Conclusion: The reference was answered against the assessee on both questions, and the Revenue succeeded on the substantive controversy.
Ratio Decidendi: For a banking company, the statutory five per cent voting cap is to be applied to the total voting rights before the limitation is worked out, and an authorised representative empowered to appear, plead and act may validly sign a reference application on behalf of the Commissioner.