Law:

Section:

JUDGMENT Chagla, CJ.-The main question that arises for our decision on this reference is whether the assessee company is a company to which section 23A applies. The facts briefly are that the share capital of the company consisted of 1 lakh ordinary shares of Rs. 10 each aggregating to Rs. 10,00,000, 5,000 cumulative preference shares of Rs. 25 each aggregating to Rs. 1,25,000, and 4,000 second preference shares of Rs. 100 each aggregating to Rs. 4,00,000. All the shares were fully paid up. Now, under section 23A what has got to be considered is the voting power and it is clear from the provisions of section 23A, as it stood at the relevant date, that the only shares that we have to consider are the ordinary shares. The position with regard to the ordinary shares was this. Seven directors between themselves held 35,469 ordinary shares. These directors were also partners in the managing agency firm of Mangaldas Mehta & Co. which managed the assessee company. The managing agency firm consisted of 14 partners, seven of them being the directors, and the other seven partners held between them 41,659 ordinary shares. 9,899 ordinary shares were held by persons who were represented by the directors either as kartas or as guardians. 75 shares were held by the firm of Girdhardas & Co. Ltd., which is a company to which the provisions of section 23A are applicable. The question that fell for determination by the Tribunal was whether on these facts it could be said that the company was a company in which the public were substantially interested. If the public were substantially interested, then section 23A had no application. The expression "the public are substantially interested" has been defined in section 23A and that is to be found in the explanation to sub-section (1), which provides : "...a company shall be deemed to be a company in which the public are substantially interested if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than twenty-five per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by,…

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