Civil Appeal Nos 761  762 of 1971
Appeals by Special Leave from the Judgment and order dated the 14 3 1969 of the Patna High Court in MJC Nos
182 and 183 of 1962
B Sen T A Ramachandran and section P Nayar for the appellant
Hardayal Hardy and Bishamber Lal for respondent
The Judgment of the Court was delivered by GOSWAMI J
These two appeals by special leave are directed against the common judgment of March 14 1969 of the Patna High Court in the matter of two references under section 661 of the Indian Income tax Act 1922 relating to assessment years 1953 54 and 1954 55 of the respondent hereinafter to be referred to as the company 
The case has a rather chequered history as will appear from the facts narrated below The company at the material time was a private limited company and at the end of the relevant previous years namely August 31 1952 and August 31 1953 the shareholding was as follows Number of shares on 31 8 1952 31 8 1953
Sri Ashok Kumar Jain 10000 10000 Managing Director
Sri R Sharma Director 10 10 3
Sri N C Jain Director 10 10 4
Sri section P Jain 10000 10000 5
RamaJain 10000 10000 6
Sri Alok Prakash Jain 10000 10000 7
Sri Rishabh Investment Ltd 5000 5000 8
Dalmia Jain Co Ltd 2000 2000 9
Universal Bank of India Ltd 980 980 10Ashoka Agencies Ltd
2000 2000 50000 50000 401 Of these shareholders Rama Jain is the wife of section P Jain and Alok Prakash Jain and Ashok Kumar Jain are the sons of section P Jain and Rama Jain
Ashok Kumar Jain briefly A K Jain the Managing Director attained majority on March 5 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 action 23A of the Income tax Act 1922 briefly the Act prior to its amendment by the Finance Act 1955 applied
section 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 section 23A did not apply
R Sharma and N C Jain holding 10 shares each were employees N C Jain being the Secretary of section P Jain
The Income tax officer by his orders of September 25 1957 and October 30 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 January 26 1961 7 and held that section 23A was not applicable to the company in respect of both the assessment years
At the instance of the Commissioner Income tax 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 section 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 December 9 1965 in view of two decisions of this Court namely Raghuvanshi Mills Ltd vs Commissioner of Income tax Bombayl decided on December 7 1960 and Commissioner of Income tax Bombay vs Jubilee Mills Ltd2 Bombay decided on September 1 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 vs Commissioner of Income tax 41 Income Tax Reports 613 and Commissioner of Income tax Bombay City vs Jubilee Mills Ltd 48 Income Tax Reports 9 Shrimati Rama Jain and Sri Ashok Kumar Jain or either of them could be safely taken to have acted in concert with Sri section P Jain during the years in question in respect of the affairs of the assessee company  1  2 1963 Supp 1 SCR 83 402 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
The Tribunal thereafter after hearing the parties submitted a supplementary statement of case to the High Court on September 30 1966
A controversy arose before the Tribunal with regard to entertainment of additional evidence which the Revenue wanted to adduce before it particularly in view of the direction of the High Court but the Tribunal did not accede to the request and additional evidence was not received
The matter then came up before the High Court resulting in the impugned order against the Revenue
Hence these two appeals by special leave
The Revenue reiterated its grievance before the High Court about the Tribunal s refusal to entertain additional evidence without success and the matter is no longer in controversy in view of a decision of seven Judges of this Court in The Keshav Mills Co Ltd vs Commissioner of Income tax Bombay North1 affirming the earlier decisions of this Court in the case of the New Jehangir Vakil Mills Ltd vs The Commissioner of Income tax Bombay North  and The Petlad Turkey Red Dye Works Co Ltd Petlad vs The Commissioner of Income tax Bombay Ahmedabad3
It is now well settled that when the Tribunal has disposed of the matter and is preparing a statement of the case either under Section 661 or under section 662 there is no scope for any further or additional evidence and the power of the High Court under section 66c can be exercised only in respect of material and evidence which has already been brought on the record
It was contended on behalf of the Revenue before the High Court that the finding of the Tribunal was perverse
Mr Sen appearing on behalf of the Revenue before us has fairly and in our opinion rightly not pressed this submission before us
Similarly on behalf of the company also it was contended before the High Court that there was no principle of law involved in drawing any inference in the cases answer to the plea of the Revenue that the finding whether section 23A was not attracted was a mixed question of law and fact
It is not possible to hold that the question referred to the High Court is not a question of law as undoubtedly on the statement of case an important question of law does arise and the composite reference was competent
The question that arises for consideration is whether on the facts and circumstances that are established before the Tribunal the company in the two assessment years can escape the reach of section 23A of the Act
1  2  3 19631 Supp
1 SCR 871
403 Section 23A prior to its amendment in 1956 and so far as it is material read as follows 23A 1 
Power to assess individual members of certain companies
Where the Income tax officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent of the assessable income of the company of that previous year as reduced by the amount of income tax and super tax payable by the company in respect thereof he shall unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made the payment of a dividend or a larger dividend than that declared would be unreasonable make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income tax purposes and reduced by the amount of income tax and super tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the share holders as at the date of the general meeting aforesaid and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income     Provided further that this sub section shall not apply to any company in which the public are substantially interested Explanation
For the purpose of this sub section a company shall be deemed to be a company in which the public are substantially interested if shares of the company  carrying not less than twenty five per cent of the voting power have been allotted unconditionally to or acquired unconditionally by and are at the end of the previous year beneficially held by the public  and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange or are in fact freely transferable by the holders to other members of the public 
In this case the company did not declare any dividend for the assessment year 1953 54
In the next assessment year 1954 55 only a sum of Rs 50000 was distributed as dividend
It is not in dispute that the company had sufficient requisite assessable income out of which sufficient or larger dividend could have been paid
There is no dispute that the payment of an adequate dividend for the first year and larger dividend for the next year would have been 404 at all unreasonable in respect of these two assessment years
The only controversy between the parties is with regard to the exclusion of the company from the application of section 33A in view of the third proviso read with the Explanation
In other words is the company one in which the public are substantially interested  It could be so in terms of the Explanation if 25 per cent shares of the company or more had been allotted unconditionally to or acquired unconditionally by and are at the end of the previous year beneficially held by the public and if any such shares in the course of such previous year were in fact freely transferable by the holders to other members of the public
It was not in dispute that the shares of the company were in fact freely transferable by the holders to other members of the public
The controversy therefore is within a very narrow compass namely whether as stated earlier the company is one in which the public has 25 per cent or more shares allotted unconditionally to or acquired unconditionally by it and are at the end of the previous year beneficially held by it
It may be mentioned that section 23Al as it stood before the amendment by the Finance Act 1956 did not authorise amalgamation of the shares held by relatives as if they represented a single shareholder
It will therefore be a question of fact and a matter of inference in each case whether any relatives forming themselves into a company acted as a group or block in concert in controlling the affairs of the company
Relationship would not per se lead to such a conclusion
The Tribunal in its order observed Sri A K Jain became major on 5 3 1952
Therefore as at the end of the two previous years his holding of 10000 shares cannot ipso facto be amalgamated with the shareholding of Sri section P Jain as if he was the nominee of his father The shareholding of 10000 shares by Mrs Rama Jain has also to be left out of account since as already observed there is no finding that Sri section P Jain provided the consideration for the acquisition of 10000 shares held by her
Assuming therefore that Sri section P Jain was controlling shareholder the shares held by the members of the public  which would include Sri A K Jain and Mrs Rama Jain would be at least 22000 shares
 G In the supplementary statement of case filed by the Tribunal enclosing various orders and other documents it is shown that section P Jain was Director of the company from August 3 1950 to September 25 1950
He was appointed Managing Director from June 6 1953 subject to approval of the Government
A K Jain was Director of the company from August 3 1950 even when he was a minor his date of birth being March 5 1934 and was appointed Deputy Managing Director from June 6 1953 subject to approval of the Government
R Sharma was Director from 3 8 1950 to 405 7 9 1956
He was Secretary of R K Dalmia and employee of Sahu Jain Limited
H C Jain was Director from 25 9 1950 to 25 3 1954
He was Secretary of section P Jain and employee of Ashoka Agencies Limited
From the above it appears that the Deputy Managing Director and the two other Directors held amongst themselves 10000 shares and out of the balance 30000 shares were held by the relations of the Managing Director namely by the father the mother and the minor brother
It also appears that section P Jain along with Ashok Kumar Jain R Sharma and N C Jain were the promoters and subscribed to the Memorandum of Association at the start of the company in July 1950
It also appears Ashok Kumar Jain Director was getting a remuneration of Rs 6000 per month wef September 1951 in accordance with the resolution passed in an extra ordinary general meeting of the shareholders on October 1 1951
At the meeting of the Board of Directors dated November 29 1950 Ashok Kumar Jain and R Sharma Directors of the company were authorised to execute managing agency agreements with different companies
Ashok Kumar Jain was generally presiding over the meetings from November 1950
The Tribunal further observed in its statement of case that A perusal of the minutes or the proceedings of the general meetings does not lead to any inference that Sri section P Jain Smt
Rama Jain and Sri A K Jain were necessarily acting in concert
On the other hand it appears that despite his young age Sri A K Jain seems to have been taking active interest in the management of the affairs of the asses see company and the companies managed by it
Unless it is to be presumed that because of relationship Sri section P Jain Smt
Rama Jain and Sri A K Jain should be regarded as acting in concert there is no other material on record on the basis of which such a conclusion could be supported
The Tribunal also observed that in spite of opportunity afforded by the Appellate Assistant Commissioner the Income tax officer had not brought on record materials to show that the voting rights of Mrs Rama Jain or Sri A K Jain were controlled by Sri section P G The Tribunal concluded by observing that  The revenue had failed to establish that Sri section P Jain his wife and his son Sri A K Jain were acting in concert
Section 23A again came up for consideration before this Court in Commissioner of Income tax West Bengal vs East Coast Commercial 406 Co Ltdl
This Court made a reference to the Raghuvanshi Mills  case supra where it was observed The word public  is used in the Explanation in contradistinction to one or more persons who act in unions and among whom the voting power constitutes a block
If such a block exists and possesses more than seventy five per cent of the voting power then the company cannot be said to be one in which the public are substantially interested  the test is first to find out whether there is an individual or  group which controls the voting power as a block
If there be such a block the shares held by it cannot be said to be unconditionally  and beneficially  held by members of the public
This Court further observed  The Tribunal had to decide in the first instance whether there was a group of persons acting in concert holding a sufficient number of shares which may control the voting as a block
But the existence of a block is not decisive
If there be a group of persons holding control over voting the Company would still be a Company in which the public are substantially interested if twenty five per cent or more of the voting power has been allotted unconditionally to and beneficially held by the public and the shares were in the previous years subject of dealings in any stock exchange in the taxable territories or were in fact freely transferable by the holders to other members of the public
The two enquiries are distinct
This Court further referred to Jubilee Mills  case supra and Raghuvanshi Mills  case supra and observed as follows But in Commissioner of Income tax Bombay City l vs Jubilee Mills Ltd supra this Court held that no direct evidence of overt act or concert between the members of the group having control over voting was necessary to prove that the Company was not one in which the public were substantially interested
It was observed in Raghuvanshi Mills  case supra that in deciding if there is such a controlling interest there is no formula applicable to all cases
Relationship and position as director are not by themselves decisive
If relative act not freely but with others they cannot be said to belong to that body which is described as public  in the Explanation 
In Jubilee Mills  case supra this Court elaborated those observations and stated The test is not whether they have actually acted in concert but whether circumstances are such that human experience tells us that it can safely be taken that they must 11967 I SCR 821
407 be acting together
It is not necessary to state the kind of evidence that will prove such concerted actings
Each case A must necessarily be decided on its own facts
This Court finally in the above East Coast Commercial Company s case concluded as follows On an analysis of the reasons recorded by the Tribunal and the High Court it is clear that the Tribunal held that the Kedias did not form a controlling group because there was no evidence that they actually controlled the voting even though they held more than seventy five per cent of the shares issued by the Company the High Court observed that the members of the Kedia family held 4016 shares of the Company and were in a position to control the affairs of the Company but there was no evidence to show that they did in fact act in concert and controlled the affairs of the Company as a block
But as already observed if the members of the Kedia family formed a block and held more than seventy five per cent of the voting power it was not necessary to prove that they actually exercised controlling interest
It is the holding in the aggregate of a majority of the shares issued by a person or persons acting in concert in relation to the affairs of the Company which establishes the existence of a block
It is sufficient if having regard to their relation etc their conduct and their common interest that it may be inferred that they must be acting together evidence of actual concerted acting is normally difficult to obtain and is not insisted upon
We may also observe in passing that it does not appear that the East Coast Commercial Company s case supra was referred to during the hearing in nor was lt noticed by the High Court
The Tribunal in the supplementary statement observed as follows  Unless it is to be presumed that because of relationship P Sri section P Jain Smt
Rama Jain and Sri A K Jain should be regarded as acting in concert there is no other material on record on the basis of which such a conclusion could be supported
The High Court also observed to the same effect  It may be that in view of the relationship of the parties as to a group consisting of the father two minor sons and their mother a possible inference was that the relationship was such that they could reasonably be taken to be acting as a group in concert  but the assessee could not be placed in the category of such a company accordingly because of close relationship
Keeping in the forefront the test laid down by this Court in East Coast Commercial Company s case supra Mr Sen on behalf of the 408 Revenue submitted for our consideration the following facts and circumstances from which according to counsel an inference can be reasonably drawn about the controlling power in a block confined to a family group holding more than 75 per cent shares 1 80 per cent of the share capital 40000 out of 50000 is held by section P Jain his wife and two sons one of whom was a minor throughout the period of the two accounting years and the other son A K Jain for a portion of the period upto March 1952
The remaining 20 per cent of the shares was held by the companies which were under the control by section P Jain and out of which 20 shares were held by two employees under the control of section P Jain
2 A K Jain was appointed as Director in the company in August 1950 when he was a minor aged 16 years and he became the Managing Director on 1 2 1954 at a salary of Rs 6000 per month
According to counsel this could not have been possible if he was not the son of the controlling shareholder section P Jain
3 section P Jain who was a Director resigned making room for his Private Secretary N C Jain for appointment as Director
4 During the assessment year 1953 54 the assessee company claimed Rs 202500 as loss in a transaction in hessian through Messrs Kabra  Co in settlement of August 18 1952 and the same amount was shown as profit in hessian through the same broker by Smt
Rama Jain wife of section P Jain in the settlement
5 section P Jain AK Jain R Sharma and N C Jain were the promoters of the company and were the signatories to the Memorandum of Association
Mr Hardy the learned counsel for the respondent on the other hand replied to the submissions as follows 1 Rama Jain and A K Jain are independent assessees
The minutes of the Board s meetings clearly show A K Jain as a competent Director taking independent decisions
Mere relationship therefore would not lead to the conclusion that these two shareholders acted with section P Jain in concert
He however admits that section P Jain may be said to control the voting power of the minor son Alok Prakash Jain as his natural guardian
According to Mr Hardy if Rama Jain and A K Jain are holding 20000 shares out of 50000 they cannot be held to be acting in concert with section P Jain and section 23A will not be attracted
2 With regard tn the second submission of Mr Sen Mr Hardy submits that there is sufficient evidence 409 in the record which is even referred to in the further A statement of the case that A K Jain was an in dependent shareholder and was not under the control of section P Jain or any other Director or shareholder
He further submits that there is no evidence whatsoever that the money for purchasing the shares of A K Jain or even of Rama Jain was advanced by S P Jain
3 With regard to the third submission of Mr Sen Mr Hardy had to admit that N C Jain was Director from 1950 to 1954 and section P Jain was Director from August 3 1950 to September 25 1950 and section P Jain became Managing Director of the company on June 6 1953 subject to the approval of the Government on a remuneration of Rs 8000 per month and A K Jain was appointed as Deputy Managing Director on a remuneration of Rs 6000 per month subject to the approval of the Central Government vide minutes of Board s meeting of June 6 1953
According to Mr Hardy appointment of Directors or even Managing Director is a regular matter of the company and no particular significance should be attached to these appointments
4 With regard to the fourth
submission Mr Hardy submits that such transactions are common with brokers and even the purchaser is not known in most of the cases
Hence no undue importance should be attach ed to the hessain transaction so as to influence the conclusion
It is also pointed out that there was no controversy about the genuineness of the hessian transaction
We are of the view that the genuineness of the aforesaid transaction is however irrelevant for the purpose of considering its effect in acting in concert by the shareholders
5 With regard to the fifth submission Mr Hardy submits that it is true that section P Jain A K Jain R Sharma and N C Jain were the promoters of The company but admittedly two of them namely R Sharma and N C Jain were outsiders
That they were employees would not affect their character as shareholders of the company or even as Directors
It is clear that this company was a family concern with only 20 shares out of 50000 shares allotted to two outsiders who again happened to be paid employees
The presence of these two outsiders is of the least significance in the matter of management of the affairs of the company
It is true that most of the meetings of the Board of Directors were presided over by A K Jain with either of the two employees or one of them attending the same
It must how ever be noted that A K Jain became a Director even when he was a minor aged 16 years
He would not ordinarily be able to play the role he is supposed to have done in the Board s meetings unless section P 410 Jain was confident that the Board was carrying out his mandates with regard to the affairs of the company
It is also true that A K Jain and the other Directors were authorised to sign agreements on behalf of the company but this is not of great significance since this was in pursuance of a decision of the Board s meeting which could not have been passed but for the concurrence of section P Jain
There is no evidence whatsoever to show that Rama Jain wife of section P Jain was at all independently acting
When a company is composed mostly of family members owning lion s share in the entire share capital of the company the onus to keep clear of the reach of section 23Al will be on the shareholders by adducing some positive evidence about the absence of control by the controlling shareholders
So far as Rama Jain is concerned it is not possible to hold that section P Jain would not be able to control his wife s voting power along with that of his minor son Alok Prakash Jain
It is true that mere relationship or being a Director is not decisive
As a matter of fact no single factor can be decisive but having regard to the totality of the circumstances revealed in the case and the conduct of the transactions of the company taken with the relationship which in the circumstances of the case is not a negligible element we are clearly of the opinion that it is a case in which it cannot be said that the public  is substantially interested in 25 per cent or more shares of the company
Even if we allow A K Jain to be a member of the public  he only holds 10000 shares and taken with 2000 shares of Ashoka Agencies Ltd the total shareholding comes only to 12000 shares that is to say 500 less than the minimum shareholding requisite to earn the benefit of the third proviso to section 23A read with the Explanation
Further between August 1 1951 and May 1 1952 A K Jails and two employee Directors the latter having a modicum of 10 shares each apparently took all decisions for the company in the Board s meetings
This is not ordinarily possible but for collaboration with the major shareholders
This is a case where more is meant than meets the eye
We are unable to hold in this case in absence of any reliable evidence to the contrary that the voting power of the three Directors was free and uninhibited and not within the orbit of control of the other major shareholders section P Jain and Rama Jain acting in concert
It is a clear case of all the shareholders acting in concert and in unions and the two employee Directors were merely dummies
There is not the slightest inkling of public  being interested far less substantially interested in this company
There was no one who could come within the term public  outside the ring of the shareholders acting in concert for their own ends with a common purpose
There is no evidence whatsoever in this case that the shareholders did not cohere together in the matter of transaction of the company s affairs
When the reality is manifest some reliable evidence within the special knowledge of the assessee must be forthcoming from its side to contradict the obvious in order to be covered by the exception
This has not happened in this case
411 Unless the two employees were nominees of the major shareholders it is ordinarily absurd to suppose that they could aspire to be and become Directors of the company
The Appellate Assistant Commissioner in his order which is annexed with the statement of the case mentions that In fact Shri section P Jain as a controlling shareholder had brought himself in as a Director of the company right from the inception of the company and was the first Director of the company from 3 8 SO to 25 9 50
From September SO to March 54 however he temporarily gave up the directorship by putting in an employee as a nominee director Sri N C Jain for the intervening period so that there may be no hitch in the appellant company being appointed as Managing Agent of certain other companies under his control on which also Sri section P Jain was a Director such as the Rohtas Industries Ltd Bharat Collieries Ltd section K G Sugar Ltd Dehri Rohtas Light Railway Co Ltd and New Central Jute Mills Ltd
As soon as this objective was achieved Sri section P Jain staged a come back as a Director of the appellant company on 25 3 54 when the nominee director Sri N C Jain re signed his directorship to make room for his master Sri section p Jain
The factual position not the opinion revealed in the above extract is more than eloquent with regard to the core of the company
Having regard to the intimate relationship of the shareholders with not the least evidence of any disconcert amongst them the ordinary expectation for individual profit in commercial undertakings natural reluctance to forego the same the history of the company and its continued smooth working in a manner which is normally inconsistent with anything other than full unison amongst the shareholders in decisions about the conduct of company s affairs in common inter est of all this was a company of one paramount mind operating with out the least doubt
The Board s meetings are evidence of a well organised well knit close unity of views in all affairs and which in ordinary course of human conduct would not have been at all possible but for a single or concerted action in the company s management by a controlling group
When all the above conditions are present in a company the onus would be on the assessee to satisfy by some reliable evidence that what appears on the surface is that which is real
That is not to say that the Revenue has no burden to bring the case within the mischief of section 23A
Application of law cannot be bereft of commonsense
The object of section 23A being to prevent avoidance of super tax by the share holders by piling up the profits of the company in its own hands the facts and circumstances revealed in this case clearly bring the company within the reach of that section
We are unable to accede to the submission of Mr Hardy in this case that because A K Jain and Rama Jain were independent assessees and A K Jain was pre siding in the Board s meetings and as such was taking independent 412 decisions and was also doing extra work for the company in Calcutta on salary basis they should be held to be members of the public  who were substantially interested in the company with the requisite shareholding for the purpose of the Explanation read with the third proviso
The High Court was therefore not right in answering the question in favour of the assessee and against the Revenue
We therefore answer the original question in the negative and the revised question in the affirmative both in favour of the Revenue
The appeals are allowed but we leave the parties to pay and bear their respective costs
PHP Appeals allowed


Summary:
Sahu Jain was a private limited company during the assessment years l952 53 and 1953 54
All the shareholders of the company are the family member J of Mr section P Jain except two employees who held 20 out of 50000 shares and excepting the three Companies which were also sister concerns
Under section 23A of the Income Tax Act 1922 prior to its amendment in the year 1955 where the Income Tax officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any Company are less than 60 per cent of the assessable income of the company as reduced by the Income Tax and Super Tax payable by the company in respect there of he shall unless he is satisfied that having regard to the loss incurred by the company in earlier years or to the smallness of the profit made the payment of a dividend or a larger dividend than declared would be unreasonable make an order in writing that the undistributed portion of the income of the company of that previous year as computed for income tax purposes and reduced by the amount of income tax and supertax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders
The proviso to the said section provides that the provisions of the section would not apply to any company in which the public are substantially interested if shares of the company carrying not less than 25 per cent of the voting power have been allotted unconditionally to or acquired unconditionally by the public or beneficially held by public
The Income Tax officer held that the provisions of section 23A were attracted in the case of the company for both the years
The Appellate Assistant Commissioner confirmed the order of the Income Tax officer
The Tribunal held that section 23A was not applicable to the company in respect of both the assessment years
The Tribunal held that unless
it is presumed that because of relationship Shri section P Jain Smt
Rama Jain and Shri A K Jain should be regarded as acting in concert there is no other material on record on the basis of which such a conclusion could be supported
On a reference made by the Tribunal The High Court answered the question in favour of the assessee and against the Revenue
In an appeal by special leave the appellant contended 1 80 per cent of the share capital was held by section P Jain and his wife and two sons
One of whom was a minor throughout the period and another for a portion of the period and that the remaining shares were held by tho company which were under the control of section P Jain and that only 20 share out of 50000 shares were held by two employees under the control of section P Jain
A K Jain was appointed as a Director when he was a minor and he became a Managing Director on a salary of Rs 6000 per month when he was 20 years old
3 section P Jain who was a Director resigned making room for his Private Secretary for appointment as Director
The Company showed a loss of Rs 2 lacs and odd in a transaction in hessian and the same was shown as profit by Smt
Rama Jain wife of section P Jain
section P Jain A K Jain
R Sharma and N C Jain were the promoters of the company ant were signatories to the Memorandum of Association
399 The respondent contended 1 Smt
Rama Jain and A K Jain were independent assessees
A K Jain was taking independent decisions as a competent Director
Mere relationship would not lead to the conclusion that the said two shareholders acted in concert with section P Jain
A K Jain was an independent shareholder and was not under the control of section P Jain or any other Director or shareholder
N C Jain was Director from 1950 to 1954 and section P Jain became Managing Director subject to the approval of the Government
A K Jain was appointed as Deputy Managing Director on a remuneration of Rs 6000 per month subject to the approval of the Central Government
The transactions like one of hessian are common transactions and no undue importance can be attached to it
Merely because some persons are promoters or employees of a Company that would not affect their character as shareholders of the Company
Allowing the appeals by special leave  HELD 1
The controversy is whether the company is one in which the public has 25 per cent or more shares
404C 2
This Court held in the case of Commissioner of Income Tax West Bengal vs East Coast Commercial Co Ltd that the word public  is used in the explanation to section 23A in contra distinction to one or more persons who act in unison and amongst whom the voting power constitute s a block
This Court also held that the Tribunal had to decide in the first instance wreathe there was a group of persons acting in concert holding a sufficient number of shares which may control the voting as a block
But the existence of block is not decisive
The company would still be a company in which public are substantially interested if 25 per cent or more of the voting power has been allotted unconditionally to and beneficially held by the public
This Court also held that the relationship and position as Director are not by themselves decisive
But if the relatives act not freely but with others they cannot be said to belong to the public
The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together
406A C D H 407A 3
It is clear that this company was a family concern with only 20 shares out of 50000 shares allotted to the two outsiders who again happened to be paid employees
The presence of these two outsiders is of the least significance in the matter of management of the affairs of the company
A K Jain became a Director even when he was a minor
He would not ordinarily be able to play the role he is supposed to have done in the Board meetings unless section P Jain was confident that the Board was carrying out its mandates with regard to the affairs of the Company
The fact that A K Jain and others were authorised to sign agreements on behalf of the Company is not of great significance
There is no evidence whatsoever to show that Rama Jain wife of section P Jain was at all independently acting
409G H 410 4
When a company is composed mostly of family member owning lion s share in the entire share capital of the company the onus to keep clear of the reach of section 23A will be on the shareholders by adducing some positive evidence about the absence of control by the controlling shareholders
410 B 5
No single factor can be decisive but having regard to the totality of the circumstances revealed in the case and the conduct of the transactions of the company taken with the relationship which in the circumstances of this case is not a negligible element this Court is dearly of the opinion that it is a case in which it cannot be said that the public is substantially interested in 25 per cent or more shares of the company
410D E 6
Even if A K Jain is said to be a member of the public his shares together with the shares of Ashoka Agencies Limited is 500 less than the r minimum shareholding requisite to earn the benefit of the third proviso to section 23A read with the explanation
410 E 400 7
Between August 11 1951 and May 1 1952 A K Jain and 2 employee Directors apparently took all decisions for the company in the Board s meetings
This is not ordinarily possible but for collaboration with the major shareholders
This is a case where more is meant than meets the eye
410E F 8
It is A clear case of all the shareholders acting in concert and in unison and the two employee Directors were merely dummies
There is not the slightest inkling of the public being interested far less substantially interested in this company
410G 9
The intimate relationship of the shareholders with not the least evidence of disconcert amongst them the ordinary expectation for individual profit in commercial undertaking the history of the company and its continued smooth working is inconsistent with anything but full unison amongst the shareholders
The Board s meetings are evidence of well organised well knit close unity of vie vs in all affairs which in ordinary course of human conduct would not have been at all possible but for a single or concerted action in the company management by a controlling group
410D F