SHREE KRISHNA AGENCY LTD. vs. COMMISSIONER OF INCOME TAX CENTRAL, CALCUTTA
What did the Supreme Court hold?
The Supreme Court held that Article 37 of the Articles of Association, by itself, cannot be considered a restriction on the transfer of shares. Free transferability is a common feature of limited companies, and similar articles are often found in standard Articles of Association. The purpose of such an article is to empower directors to decline registration when it is in the paramount interest of the company. The Court emphasized that for shares to be considered not freely transferable, there must be evidence that directors have exercised this power excessively, virtually eliminating free transferability, or that other articles impose restrictions. In this case, there was no such evidence. The Court approved the reasoning in East India Corporation Ltd. and Raghuvanshi Mills Ltd., stating that 'transferable' implies a quality, and 'are in fact freely transferable' means a factual tendency towards unrestricted transferability, subject to reasonable restrictions. The Court found the High Court in error for holding that the mere existence of Article 37 affects free transferability. The appeals were allowed, and the High Court's judgment was set aside, with the question answered in favour of the assessee.
What were the facts?
The assessee, Shree Krishna Agency Ltd., is a public limited company. The appeals concern assessment years 1952-53 and 1954-55. The core issue revolves around Article 37 of the company's Articles of Association, which grants directors absolute discretion to refuse to register any proposed transfer of shares without assigning any reason. The Income Tax Officer determined that the company was not one in which the public were substantially interested under Section 23A(1) of the Income-tax Act, 1922, due to this article. The Appellate Assistant Commissioner's decision varied by year, but the Appellate Tribunal ruled in favour of the assessee, holding that Article 37 did not impede free transferability. The Commissioner of Income Tax referred the matter to the High Court, which sided with the revenue, finding the shares not freely transferable.
What were the issues?
1. Whether, on a true interpretation of Article 37 of its Articles of Association, the assessee company can be regarded as one in which the public are substantially interested within the meaning of the third proviso to Section 23A(1) of the Income-tax Act, 1922, and Explanation (1) thereto, specifically clause (ii) concerning free transferability of shares. Assessee's Contentions: The assessee argued that Article 37, which allows directors discretion to refuse share transfers without assigning reasons, does not, by itself, restrict the free transferability of shares. They relied on the High Court's previous decisions in East India Corporation Ltd. v. Commissioner of Income-tax, Madras, and Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Bombay, which held that such an article does not affect free transferability. Revenue's Contentions: The revenue contended, and the High Court held, that the absolute discretion of directors to refuse registration of share transfers, as provided in Article 37, effectively curtails the free transferability of shares. They relied on the Calcutta High Court's judgment in Commissioner of Income-tax, West Bengal v. Tona Jute Co. Ltd., which took the view that such an article makes shares not freely transferable to other members of the public.
Which sections of the Income-tax Act were involved?
Section 23A(1), Section 23A(9)
AI-generated summary — verify with the full judgment below
368 SHREE KRISHNA AGENCY LTD. v. COMMISSIONER OF INCOME TAX CENTRAL, CALCUTTA August 24, 1971 [K. S. HEGDE AND A. N. GROVER, JJ.] Income-tax Act, 1922, s. 23A(9')-Exp/nnation (!) cl. (ii)-Free transferability of shares-Directors having absolute discretion to refuse to register transfer of shares without giving any reasons-Shares whether freely transferable-Public whether s:1bstantially interestea in company.
The assessee was a public limited company.
Under Art. 3 7 of its Articles of i\ssociation the Directors could at any time in their disc.:retlon and without assigning any reason decline to register any proposed transfer -of shares.
The question in Income-tax proceedings relating to the assess- ment years 1952-53 and 1954-55 was whether on a true interpretation of Art. 3 7 the assessee company could be regarde.d as one in which the public were substantially interested within the meaning of the third proviso to s. 23A(l) of the Income-tax Act, 1922. In reference the High Court ans\.\'·ered tihe question in favour of the revenue Oll the view that the shares of the company were not freely transferable and therefore it was not a company in which the
The order continues below.
Read the full judgment
A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.
The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.
Recent GST High Court judgments
Search GST case law →- Tvl. Jeyarani Shopping Centre vs. The Deputy State Tax Officer -1/The Deputy Commercial Tax OfficerMadras · 14 Oct 2026
- Rohan Tanna vs. Directorate General Of Goods And Services Tax IntelligenceChhattisgarh · 14 Oct 2026
- Dipak Saikia vs. The Union Of INDIA And 4 OrsGauhati · 14 Oct 2026
- Saraswati Phukan vs. The Union Of INDIA And 4 OrsGauhati · 14 Oct 2026
- Sanjay Maheshwari vs. Union Of INDIA & Ors.Delhi · 14 Oct 2026
