Judgment - Chagla, C.J.

1. The question that arises on this reference is whether the assessee company is entitled to the benefit of the third proviso to Section 23A, Income-tax Act, which provides that Sub-section (1) of Section 23A shall not apply to any company in which the public are substantially interested.

2. The assessee company has a subscribed capital of Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each, and during the relevant accounting period, which is the assessment year 1943-44, the company had eight directors who held between them 4695 shares. One of the directors was one Maganlal Prabhudas who held 1344 shares and his two sons Ravindra Maganlal and Surendra Maganlal were also directors who held each 1168 and 1100 shares. 4754 shares were held by various relations of the directors and 1,000 shares each were held by three other sons of Maganlal, viz. Bipinchandra, Harishchandra and Krishnakumar, and the balance of 551 shares were held by members of the public unconnected with the directors of the .assessee company. There is an Explanation to the third proviso to Section 23A, and to the extent that it is material it reads as follows :

"A company shall be deemed to

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