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

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 66(1) 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 thecase has a rather chequered history as will appear from the facts narratedcompany 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.---------------------1. Sri Ashok Kumar Jain, 10, 000 10, 000Managing Director.2. Sri R. Sharma Director 10 103. Sri N. C. Jain Director 10 104. Sri S. P. Jain 10, 000 10, 0005. Smt. RamaJain 10, 000 10, 0006. Sri Alok Prakash Jain 10, 000 10, 0007. Sri Rishabh Investment Ltd 5, 000 5, 0008. Dalmia Jain Co. Ltd. 2, 000 2, 0009. Universal Bank of India Ltd 980 98010.Ashoka Agencies Ltd. . . .. . 2, 000 2, 000----------------------50, 000 50,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 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. 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 section 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.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 Highon 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"High Court by its order of December 9, 1965, in view of two decisions of this Court, namely, Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Bombay, ([1961] 2 S.C.R. 978.) decided on December 7, 1960 and Commissioner of Income-tax Bombay v. Jubilee Mills Ltd.([1963] Supp. 1 S.C.R. 83.) Bombay, decided on September 1, 1962, directed the Tribunal to submit a supplementary statement of case tobearing in mind the principles laid down by the Supreme Court in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax (41 Income Tax Reports 613) and Commissioner of Income-tax, Bombay City v. 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 S. P. Jain during the years in question, in respect of t he 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 directedTribunal 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 specialRevenue reiterated its grievance before the High Court about the Tribunals refusal to entertain additional evidence without success and t he matter is no longer in controversy in view of a decision of seven Judges of this Court in The Keshav Mills Co. Ltd. v. Commissioner of Income-tax, Bombay North, ([1965] 2 S.C.R. 908.) affirming the earlier decisions of this Court in the case of the New Jehangir Vakil Mills Ltd. v. The Commissioner of Income-tax, Bombay North ([1960] 1 S.C.R. 249.) and The Petlad Turkey Red Dye Works Co. Ltd. Petlad v. The Commissioner of Income-tax, Bombay, Ahmedabad([19631 Supp. 1 S.C.R. 871.). 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 66(1) or under section 66(2), there is no scope for any further or additional evidence and the power of the High Court under section 66(c) can be exercised only in respect of material and evidence which has already been brought on thewas contended on behalf of the Revenue before the High Court that the finding of the Tribunal was perverse.

Reasoning: 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.