PUNJAB PRODUCE AND TRADING CO. LTD. vs. C.I.T WEST BENGAL, CALCUTTA

CIVIL APPEAL No. 1344/1967Supreme Court1971 INSC 17229 July 1971Bench: 2 JudgesAuthor: K.S. HEGDE, A.N. GROVER PUNJAB PRODUCE AND7 pages
AI SummaryDismissed

What were the facts?

The assessee, Punjab Produce and Trading Co. Ltd., incorporated under the Gwalior Companies Act, faced a levy of additional super-tax under Section 23A of the Income-tax Act, 1922, for the assessment year 1955-56. The Income-tax Officer held that the company was not one in which the public were substantially interested, as shares carrying over 50% of the voting power were held by less than six persons. The company's paid-up capital was Rs. 25,00,000, with 25,000 ordinary shares held by 17 shareholders. No dividend was distributed despite a net profit of Rs. 6,81,298. The Appellate Assistant Commissioner and the Appellate Tribunal dismissed the assessee's appeals, as did the Calcutta High Court on a reference. The assessee appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held as follows: 1. Regarding the interpretation of sub-clause (b)(iii) of the Explanation to Section 23A, the Court found that the language of sub-clauses (ii) and (iii) is different. While sub-clause (ii) relates to a positive state of affairs, sub-clause (iii) lays down negative conditions. The Court reasoned that the word 'or' in sub-clause (b)(iii) is used to express an alternative of terms or explanation in different words. However, the clear import of the opening part of clause (b) read with the negative conditions in sub-clause (b)(iii) is that the assessee must satisfy that its affairs were at no time during the previous year controlled by less than six persons AND shares carrying more than 50% of the total voting power were during the same period not held by less than six persons. Therefore, if either of the two negative conditions in sub-clause (b)(iii) remains unfulfilled, the conditions laid down in the entire clause cannot be said to have been satisfied. The Court distinguished the case of *Star Company Ltd.*, noting the difference in language. The finding that the assessee did not fulfill the conditions was upheld. 2. Regarding the applicability of Section 34(1), the Court followed its decision in *M. M. Parikh, I.T.O. v. Navanagar Transport and Industries Ltd. & Another*, holding that an order made by the Income-tax Officer directing payment of additional super-tax under Section 23A is not an order of assessment within the meaning of Section 34(3) of the Act, and therefore, the period of limitation prescribed therein does not apply.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the assessee company is one in which the public are substantially interested within the meaning of sub-clause (b)(iii) of the Explanation to Section 23A of the Income-tax Act, 1922, considering that shares carrying more than 50% of the total voting power were held by less than six persons, and whether the word 'or' in sub-clause (b)(iii) is disjunctive or conjunctive. - Assessee's contention: The word 'or' in sub-clause (b)(iii) is disjunctive, meaning if either condition (control of affairs by less than six persons OR holding of shares carrying more than 50% voting power by less than six persons) is not met, the company is deemed to be one in which the public is substantially interested. Relied on *Star Company Ltd.*. - Revenue's contention: Not recorded, but impliedly argued that both conditions in sub-clause (b)(iii) must be fulfilled. 2. Whether, on the facts and in the circumstances of the case, the imposition of additional super-tax under Section 23A without recourse to the provisions of Section 34(1) was legal and valid. - Assessee's contention: Imposition of additional super-tax under Section 23A without recourse to Section 34(1) was not valid. - Revenue's contention: Not recorded, but impliedly argued for the validity of the imposition.

Which sections of the Income-tax Act were involved?

Section 23A,Section 34(1),Section 34(3),Section 66(1)

AI-generated summary — verify with the full judgment below

977 PUNJAB PRODUCE AND TllADING CO. LID. v. c.J.T. WFSf BENGAL, CALCUTIA July 29, 1971. [K. S. HEGDE AND A. N. GROVER, JJ.] Income-tax Act, 1922, •· 23A(9) Explanation (b) (ii1)-Share• of com- pany carrying more than 50% voting ·power held by less than six persotU- AOairs of company not controlled by le11 than six /HTIOM-Company whether one in which public are subst1111tially i.nttre1ted-Whether one condition or both conditions in cl. (b) (iii) of Explanation should be ful- filled-Limitation under •· 34(1) of Act whether applicable where additional 1u~r·tax is imposed under 1. 23.A.

The assessee company was incorporated under the erstwhile Gwalior Companies Act which did not make any distinction between public and private companies. The affairs of the company were not controlled by ICIS than six persons but shares carrying more than 50% of the total votin1 power were during the relevant previous year held by less than 6 persons.

After the company's assessment for the assessment year 1955-56 had been completed the Income-tax Officer levied additional super-tax on the com- pany under s. 23A of the Income-tax Act, 1922 holding that it wa• not a company in which the pu

The order continues below.

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