COMMISSIONER OF INCOME-TAX, BOMBAY vs. JUBILEE MILLS LTD., BOMBAY

CIVIL APPEAL No. 599/1961Supreme Court1962 INSC 26217 September 1962Bench: 3 JudgesAuthor: J.L. KAPUR, A.K. SARKAR, M. HIDAYATULLAH16 pages
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What were the facts?

The assessee, Jubilee Mills Ltd., is a limited liability company. The assessment year in question is 1948-49, corresponding to the previous year ended June 30, 1947. The Income Tax Officer applied Section 23A of the Income-tax Act, 1922, to the company, deeming a dividend of Rs. 3,97,788/- to have been declared, as the company had declared only Rs. 24,750/-. The company was managed by a firm, Mangaldas Mehta & Co., comprising 14 partners, seven of whom were directors of Jubilee Mills Ltd. The dispute centers on whether the public was substantially interested in the company, which would render Section 23A inapplicable. The High Court had answered this question in the affirmative, leading to the present appeal by the Commissioner of Income-tax.

What did the Supreme Court hold?

The Supreme Court held that the company was not one in which the public was substantially interested, and therefore, Section 23A of the Income-tax Act, 1922, was applicable. The Court reasoned that the words 'unconditionally' and 'beneficially' in the Explanation to the proviso imply that the voting power must be free and not within the control of another shareholder, and the holder should not be a nominee. The Court found that the partners of the Managing Agency firm, along with shares held on behalf of minor children and joint families under their control, held shares carrying more than 75% of the voting power. This group, acting in concert for mutual gain, could not be considered part of the 'public'. The Court emphasized that where a group holds shares carrying more than 75% of the voting power, it can be safely inferred that they act together and control the company's affairs. The High Court's affirmative answer to the question was set aside. The appeal was allowed, and the question was answered in the negative.

What were the issues?

1. Whether, for the purposes of Section 23A of the Income-tax Act, 1922, the company is one in which the public is substantially interested, considering the shareholding pattern and the definition of 'public' as laid down in the Explanation to the proviso of Section 23A. This is a question of law and mixed fact. Assessee's Contention (implied through High Court's decision): The public is substantially interested in the company. The High Court relied on the judgment in Commissioner of Income-tax v. H. Bjordal, [1955] 28 I. T. R. 25. Revenue's Contention: The public is not substantially interested in the company. The revenue relied on Shri Changdeo Sugar Mills Ltd. v. Commissioner of Income-tax, Bombay, [1961] 41 I. T. R. 667 and Raghuvanshi Mills Ltd. v. Commissioner of Income-tax [1961] 41 I. T. R. 613. The revenue argued that the partners of the Managing Agency firm, along with shares held on behalf of minor children and joint families, constituted a group holding more than 75% of the voting power, and this group could not be considered part of the 'public' as they would act in concert for their own interest.

Which sections of the Income-tax Act were involved?

Section 23A

AI-generated summary — verify with the full judgment below

1 S.C.R. SUPREME COURT REPORTS 83 though not to increase it. The document was altered while in the possession of the very person who, as the agent of Anirudhan, brought it to the Bank on both the occasions. Anirudhan must be deemed to have held out Sankaran as his agent for this purpose and this creates an estoppel against Anirudhan, because the Bank believed that Sankaran had the authority.

The offer thus remains in its amended form an offer of Anirudhan to the Bank and the Bank by accepting it turned it into a contract of guarantee which was backed by the past consideration on which the offer of Anirudhan was originally based.

In my opinion, the appeal must fail. I would, therefore, dismiss it. BY COURT : In accordance with the opinion of the majority, the appeal is dismissed. There would be no order as to costs.

Appeal dismissed. COMMISSIONER OF INCOME-TAX, BOMBAY v. JUBILEE MILLS LTD., BOMBAY (J. L. KAPUR, A. K. SARKAR AND M. HrnAYATULLAH, JJ.)

Irwmie Tax-Individual members of companiu, aa"8&11lent of-Public s11bstantially interested, meaning of-Group control· ling more thnn 15% voting power-Managing Agents forming such II group-lndia11 Income-tax

The order continues below.

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