Case: Commissioner of Income Tax Bihar, Patna Vs. Sahu Jain Limited

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 10, 000 shares and taken with 2, 000 shares of Ashoka Agencies Ltd., the total shareholding comes only to 12, 000 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.16. 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 too k all decisions for the company in the Boards 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, S. 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 companys 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.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 S. 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 S. P. Jain was a Director, such as the Rohtas Industries Ltd., Bharat Collieries Ltd., S. K. G. Sugar Ltd., Dehri Rohtas Light Railway Co. Ltd. and New Central Jute Mills Ltd. As soon as this objective was achieved, Sri S. 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 resigned his directorship to make room for his master Sri S. p Jain".17. The factual position, not the opinion, revealed in the above extract is more than eloquent with regard to the core o f the company.18. 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 companys affairs in common interest of all, this was a company of one paramount mind operating with out the least doubt. The Boards 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 companys 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 Boards meetings and as such was taking independent 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.29. 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The factual position, not the opinion, revealed in the above extract is more than eloquent with regard to the core o f theregard 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 companys affairs in common interest of all, this was a company of one paramount mind operating with out the least doubt. The Boards 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 companys 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 Boards meetings and as such was taking independent 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 thirdHigh 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.