Law:

Section:

Section 104 of the Income-tax Act, 1961 [Corresponding to section 23A of the Indian Income-tax Act, 1922] - Additional income-tax on undistributed profits of certain companies - Assessment year 1948-49 & 1949-50 - Tribunal held that shares in assessee-company carrying more than 25 per cent of voting power were beneficially held by public and that assessee's shares were quoted in cash section of Calcutta Stock Exchange, that heading in bulletins represented actual transactions, which had taken place, that there were fluctuations in price of shares and that transactions in shares took place daily - Whether in view of Tribunal's findings assessee-company must be deemed a company in which public were substantially interested - Held, yes - Whether, therefore ITO was not justified in passing an order under section 23A(1) of 1922 Act on assessee-company - Held, yes FACTS For the assessment years 1948-49 and 1949-50, the assessee-company did not declare dividends although sufficient profits were available for distribution, on the plea that it was a company in which 'the public were substantially interested' within the meaning of the third proviso to section 23A(1), read with the Explanation thereto, and, therefore, the provisions of section 23A(1) were not attracted. The ITO, however, passed orders under section 23A(1) holding, firstly, that 75 per cent of the shares and voting power of the company were held by persons who would not be regarded as belonging to 'the public', and secondly, that under the articles of association of the company, the shares were not freely transferable. On second appeal, the Tribunal held that the shares in the assessee-company carrying more than 25 per cent of the voting power were beneficially held by the public. The Tribunal, however, further held that though the official bulletin of the Calcutta Stock Exchange quoting shares was produced, the company was not one in which the public were substantially interested since there was no evidence to show any dealings in the shares by the beneficial owners and also since the articles of association empowered the directors to refuse to register any transfer of share without assigning any…

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