1979 (5) TMI 70

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....rested. According to the assessee it is such a company. According to the Revenue, it is not. As several of the issues which were in controversy having been settled by the Department not challenging the assertions of the assessee, the position in short is that 28,000 shares of the assessee were held by M/s K.C.P. Ltd. which was a public company and their nominees. (the nominees having held 7 shares) and the remaining 28,000 shares were held by another public company M/s Eimco Corporation and its nominee, the nominee having held a single share. Thus it is no longer in dispute that not more than five persons did not hold more than 50% of the voting power. It is also nobody's case that the affairs of the company were also controlled by five or ....

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....ropriately would be tantamount to a restriction on the transfer of shares by the two share-holders, i.e., Eimco and K.C.P. Ltd. to the members of the public. Thus according to the learned Departmental Representative one of the conditions in s. 2(18)(b)(B). namely, sub-cl. (ii) relating to free transferability was not satisfied and, therefore, though all other conditions could be considered as satisfied, the company ceased to be one in which the public were substantially interested. 3. The learned counsel for the assessee, on the other hand, submitted that cl. 6 of the Articles of Association spoke only of the provisions at the time of allotment. Further cl. 6 was "subject to the provisions of the Companies Act as well as other Articles o....

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....eing a restriction on transfer of shares to any member of the public. The conditions, in our view, contain ample safeguards even if there is refusal by the company to transfer any shares in the form of appeal etc. A reading of Art. 6 shows that the said Art. 6 which is subject to the provisions of the Companies Act as well s the other Articles of Association speak of the powers of the Directors at the time of allotment of shares and does not vest in them any powers relating to the transferability of shares after allotment. We have also gone through the Memorandum of Agreement dt. 16th Oct., 1968 which has as annexure an earlier letter of 14th April, 1965. The agreement etc. speaks of initial subscription to the equity capital by Eimco and K....