SHREE CHANGDEO SUGAR MILLS, LTD. vs. THE COMMISSIONER OF INCOME TAX, BOMBAY

CIVIL APPEAL No. 380/1957Supreme Court[1961] 2 S.C.R. 99007 December 1960Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH6 pages
AI SummaryRemanded

What were the facts?

The assessee, Shree Changdeo Sugar Mills Ltd., is challenging an order under Section 23A(1) of the Indian Income-tax Act, 1922, for the assessment year 1948-49. The Income-tax Officer passed this order because the company did not distribute 60% of its profits as dividends. The company's appeal to the Appellate Assistant Commissioner and the Tribunal were unsuccessful. The Tribunal referred a question to the Bombay High Court: whether the assessee company could be deemed a company in which the public were substantially interested, meaning they held 25% of the voting power. The High Court answered this negatively, following its earlier decision in Raghuvanshi Mills v. Commissioner of Income-tax. The Supreme Court is hearing an appeal against this High Court decision.

What did the Supreme Court hold?

The Supreme Court held that the test applied by the Bombay High Court, which stated that no holding by the Directors of a company could be regarded as one in which the public were substantially interested, was not the correct test. The Court referred to its decision in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, which set out the correct test. Regarding the shares held by Mysore Merchants Ltd., the Court upheld the High Court's conclusion that these shares could not be counted as part of the public's holding. The Court reasoned that the paramount condition in applying the proviso and explanation to Section 23A(1) is that the public should be beneficially interested in 25% of the voting power. Since Mysore Merchants Ltd. was a private company and not a company in which the public were substantially interested, its shares could not be counted as held by the public due to the exclusion in the Explanation to Section 23A. The Court also dismissed the contention that Clause 14 of the Part B States (Taxation Concession) Order, 1950, prevented the application of Section 23A to Mysore Merchants Ltd. for the purpose of determining its shareholding in another company. The appeal was allowed, and the case was remitted to the High Court for reconsideration in light of the Supreme Court's observations.

What were the issues?

1. Whether the test applied by the High Court, that no holding by the Directors of a company can be regarded as one in which the public are substantially interested, is the correct test for determining substantial interest under Section 23A(1) of the Indian Income-tax Act, 1922? Assessee's Contention: The assessee argued that for shares held by Mysore Merchants Ltd. to be excluded from the public's holding, three conditions must be met: (a) the public must not be substantially interested in Mysore Merchants Ltd., (b) it must have assessable profits for the relevant year, and (c) it must not have distributed 60% of its net assessable profits. The assessee claimed Mysore Merchants Ltd. had no assessable income and suffered a loss, thus failing conditions (b) and (c), and therefore Section 23A was not applicable to it, making its shares count towards the public's holding. The assessee also contended that Clause 14 of the Part B States (Taxation Concession) Order, 1950, prevented the application of Section 23A to Mysore Merchants Ltd. Revenue's Contention: The revenue implicitly argued that the High Court's negative answer was correct, and that the shares held by Mysore Merchants Ltd. could not be counted as part of the public's holding. The judgment does not explicitly record the revenue's arguments on the specific points raised by the assessee regarding Mysore Merchants Ltd. or the Concession Order.

Which sections of the Income-tax Act were involved?

Section 23A(1),Section 23A

AI-generated summary — verify with the full judgment below

l?a~huvanshi 1Wills, ttd. v. Co1n'1tissioner of Income-tat'", Bon1flay Hidayatullah J. December 7. 990 SUPREME COURT REPORTS [1961] case the provisions of s. 23A of the Indian Income-tax Act, XI of 1922, are applicable to t.he petitioners?" The High Court may call for a supplemental state- ment of the case from the Tribunal, if it finds it neces- sary.

The appeal is allowed. the costs of this appeal. shall abide the result. The respondents shall bear The costs in the High Court Appeal allowed. SHREE CHANGDEO SUGAR MILLS, LTD. ti. THE COMMISSIONER OF INCOME TAX, BOMBAY (J. L. KAPUR, M. HIDAYATULLAH, and J. c. SHAH, JJ.) Income-tux-Undistributed income-Company in w/licl• Public' are substantially interested-Powers to assess Super Tax-Test- Part B States (Taxation Concession) Order, I9j0, cl. I4-lndian Income-tax Act, I922 (II of I922), s. 23A(I). During the assessment year, the company had not distri- buted dividends to the extent of 60% of its profits and an order under s. 23A(1) of the Act was passed by the Income-tax Officer. The question referred by the Tribunal to the High Court was whether at the relevant time the assessee company could be deemed

The order continues below.

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