TaxTMI 
TaxTMI 
1993 (2) TMI 41
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.... previous year. For the year under consideration the Income-tax Officer adjudged that the assessee-company was a company in which the public were not substantially interested. The Appellate Assistant Commissioner, however, in appeal accepted the assessee's contention that by virtue of the special resolution passed by the company on April 25, 1972, it should be held that the company had satisfied condition (ii) of section 2(18)(b)(B) of the Incometax Act, 1961. This contention was accepted by the Appellate Assistant Commissioner who directed the Income-tax Officer to grant the necessary relief after verifying the other conditions laid down in section 2(18)(b)(B). In appeal before the Tribunal, the Tribunal upheld all the contentions of the assessee relating to the interpretation of the conditions laid down in section 2(18)(b)(B) and held that the assessee was a company in which the public were substantially interested during the relevant assessment year. From the order of the Tribunal, the following two questions are referred to us at the instance of the Revenue "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding the assessee-co....
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....er members of the public ; and (iii) the affairs of the company, or the shares carrying more than fifty per cent., of its total voting power were at no time, during the relevant previous year, controlled or held by five or less persons. Explanation 1.-In computing the number of five or less persons aforesaid (i) The Government or any corporation established by a Central, State or Provincial Act or a company to which this clause applies or the subsidiary company of such company shall not be taken into account, and (ii) persons who are relatives of one another, and persons who are nominees of any other person together with that other person, shall be treated as a single person. " The first question which is before us relates to the interpretation of condition (ii) in section 2(18)(b)(B). It is the contention of the Revenue that unless the shares were, throughout the relevant previous year, transferable to the other members of the public, condition (ii) would not be satisfied. Since the restriction on transfers was removed in the case of the assessee only a few days prior to the end of the relevant previous year, the assesseecompany does not fulfil condition (ii). In or....
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....ver the entire period. Hence in our view the phrase "during the relevant previous year" in condition (ii) is meant to convey the meaning, viz., at some point during the relevant previous year and not throughout the relevant previous year. Our attention, however, has been drawn by Mr. Jetley, learned counsel for the Revenue, to a decision of the Supreme Court in the case of CIT v. East West Import and Export P. Ltd. [1989] 176 ITR 155. The Supreme Court was concerned with the interpretation of section 23A of the Indian Income-tax Act, 1922. In the case before the Supreme Court also the articles of association which restricted the transferability of the shares were amended a few days before the end of the relevant previous year. The Explanation to section 23A provided : "Explanation.-For the purpose of this sub-section A company shall be deemed to be a company in which the public are substantially interested if shares of the company .... carrying not less than 25 per cent. of the voting power .... are at the end of the previous year beneficially held by the public .... and if any such shares have in the course of such previous year been the subject of dealings in any stock e....
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....pany carrying not less than 50 per cent. of the voting power are held by the Government or by a corporation established by a Central, State or Provincial Act. Similarly, where not less than 50 per cent. of the shares are held by any company to which this clause applies, i.e., any public company, then also the company is to be considered as a company in which the public are substantially interested, and the last category of such a company is a company where not less than 50 per cent. of the voting power is held by the public. Condition (iii) prescribes that in order to qualify as a company in which the public are substantially interested, it is necessary that during the relevant previous year at no time more than 50 per cent. of its shares are controlled or held by five or less persons. On the face of it, therefore, because of this condition, companies where more than 50 per cent. shareholding is by the Government or a corporation established by a Central, State or Provincial Act or by a public limited company, would get excluded from the category of companies in which the public are substantially interested despite their express inclusion under condition (i). This is clearly not....