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SUPREME COURT OF INDIA
P.K.Goswami : M.Fazal Ali Syed
Commissioner Of Income Tax, Bihar, Patna
Versus
Sahu Jain Limited
Case No. : 761 , 762 of 1973
Date of Decision : 2/16/76
Advocates Appeared: Hardy Hardayal : Khanna Bishambar Lal : Nair S.P. : Nayar S.P. : Ramachandran T.A. : Sen B.
Indian Income tax Act, 1922 – Section 66(1), 23A(1) and 23A - Finance Act, 1955 - Company - Shareholders - Managing Director, attained majority while Alok Prakash Jain was a minor during both accounting years - Three companies, namely, Rishabh Investment Ltd., Dalmia Jain Co. Ltd. and Universal Bank of India Ltd., are companies was principal shareholder of Universal Bank of India Ltd. holding 980 shares - Ashoka Agencies Ltd. with 2000 shares was a company to which admittedly S. 23A did not apply - R. Sharma and N. C. Jain holding 10 shares each were employees, N. C. Jain being secretary of S. P. Jain - Whether on facts and circumstances of case tribunal was justified in holding that provisions of S. 23A of Income-tax Act were not applicable to assessee company for assessment years - Whether S. 23A was not attracted was a mixed question of law and fact - Whether on facts and circumstances that are established before tribunal company in two assessment years can escape reach of S. 23A of Act - Whether, as stated earlier, company is one in which public has 25 per cent or more shares allotted unconditionally to, or acquired unconditionally by it and are at end of previous year - Whether any "relative" forming themselves into a company acted as a group or block in concert in controlling affairs of company - Whether there is an individual or group which controls voting power as a block - Whether there was a group of persons acting in concert holding a sufficient number of shares which may control voting as a block - Whether they have actually acted in concert but whether circumstances are such that human experience tells that it can safely be taken that they must be acting together – Held, Having regard to intimate relationship of shareholders, with not least evidence of any disconcert amongst them, ordinary expectation for individual profit in commercial undertakings, natural reluctance to forego same, history of company and its continued smooth working in a manner which is normally inconsistent with anything other than full unison amongst shareholders in decisions about conduct of companys affairs in common interest of all, this was a company of one paramount mind operating without least doubt - Application of law cannot be bereft of common sense - Object of S. 23A being to prevent avoidance of super-tax by shareholders by piling up profits of company in its own hands, facts and circumstances revealed in this case clearly bring company within reach of that section – Court is unable to accede to submission of Mr. Hardy in this case that because A. K. Jain and Rama Jain were independent assessees and A. K. Jain was presiding in Boards meetings and as such was taking independent decisions and was also doing extra work for company in Calcutta on salary basis, they should be held to be members of public who were substantially interested in company with requisite shareholding for purpose of explanation read with third proviso - High court was, therefore not right in answering question in favour of assessee and against Revenue - Court, therefore, answer original question in negative and revised question in affirmative both in favour of Revenue - Appeals allowed.
P.K.GOSWAMI, J.
(1) THESE two appeals by special leave are directed against the common judgment of 14/03/1969, of the Patna High court in the matter of two references under S. 66(1) of the Indian Incometax Act, 1922, relating to assessment years 1953-54 and 1954-55 of the respondent (hereinafter to be referred to as the company).
(2) THE case has a rather chequered history as will appear from the facts narrated below.
(3) THE company at the material time was a private limited company and at the end of the relevant previous years, namely, 31/08/1952 and Au 31/08/1953, the shareholding was as follows:
Number
of shares on:
August 31, 1952
August 31, 195:
1.
Sri Ashok Kumar Jain,
Managing Director
.. 10,000
10,000
2.
Sri R. Sharma, Director.
10
10
3.
Sri N. C. Jain, Director.
10
10
4.
Sri S, P. Jain
.. 10,000
10,000
5.
Smt. Rama Jain
.. 10,000
10,000
6.
Sri Alok Prakash Jain
.. 10,000
10,000
7.
Rishabh Investment Ltd.
.. 5,000
5,000
8.
Dalmia Jain Co. Ltd.
.. 2,000
2,000
9.
Universal Bank of India Ltd.
980
980
10.
Ashoka Agencies Ltd.
2,000
2,000
50,000
50,000
Of these shareholders Rama Jain is the wife of S. P. Jain and Alok Prakash Jain and Ashok Kumar Jain are the sons of S. P. Jain and Rama Jain. Ashok Kumar Jain (briefly A. K. Jain), the Managing Director, attained majority on 5/03/1952, while Alok Prakash Jain was a minor during both the accounting years. The three companies, namely, Rishabh Investment Ltd., Dalmia Jain Co. Ltd. and Universal Bank of India Ltd., are companies to which the provisions of S. 23A of the Income-tax Act, 1922 (briefly the Act) prior to its amendment by the Finance Act, 1955, applied. S. P. Jain was the principal shareholder of the Universal Bank of India Ltd. holding 980 shares. Ashoka Agencies Ltd. with 2000 shares was a company to which admittedly S. 23A did not apply. R. Sharma and N. C. Jain holding 10 shares each were employees, N. C. Jain being the secretary of S. P. Jain.
(4) THE Income-tax Officer by his orders of 25/09/1957 and 30/10/1957, held that Section 23A was attracted in the case of the company for both the years. On appeal, the Appellate Assistant Commissioner remanded the matter back to the Income-tax Officer for a finding on certain additional facts. The Income-tax Officer in his remand report submitted certain additional facts to the Appellate Assistant Commissioner who in due course affirmed the orders of the Income-tax Officer. The company appealed to the Income-tax Appellate tribunal, Bihar, at Patna. The tribunal allowed the appeal by its order of 26/01/1961(?) and held that S. 23A was not applicable to, the company in respect of both the assessment years. At the instance of the Commissioner of Incometax, Bihar, the following question was referred by the tribunal to the High court:
WHETHER on the facts and circumstances of the case the tribunal was justified in holding that the provisions of S. 23A of the Income-tax Act were not applicable to the assessee company for the assessment years 1953-54 and 1954-55?
The High court by its order of 9/12/1965, in view of two decisions of this court, namely, Raghuvanshi Mills Ltd. v. C .I.T., Bombay decided on 7/12/1960 and C.I. T., Bombay v. Jubilee Mills Ltd., Bombay, decided on 1/09/1962, directed the tribunal to submit a supplementary statement of case to it:
WHETHER bearing in mind the principles laid down by the Supreme court in Raghuvanshi Mills Ltd. v. C. i. T. and C. i. T., Bombay City v. Jubilee Mills Ltd. Srimati Rama Jain and Sri Ashok Kumar Jam, or either of them could be safely taken to have acted in concert with Sri S. P. Jain during the years in question in respect of the affairs of the assessee company.
The High court also directed that the tribunal may take additional evidence, if it considers it necessary to enable it to state the supplementary case as directed above.
(5) THE tribunal thereafter, after hearing the parties, submitted a supplementary statement of
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