Law:

Section:

Section 2(18) of the Income-tax Act, 1961 - Company in which public are substantially interested - Assessee-company's articles of association conferred absolute discretion on board of directors to decline to register transfer of shares - Whether mere existence of such an article affected free transferability of shares and, consequently, assessee-company was not a company in which public were substantially interested - Held, no - Substantial portion of shares of assessee-company was held by its collaborator Japanese company in which, according to auditor's certificate, public were substantially interested - Whether it would be correct to hold that said Japanese company could not be regarded as company in which public were substantially interested simply on ground that public interested in it were Japanese and not Indian, leading to conclusion that assessee-company was not one in which public were substantially interested - Held, no Words and phrases - Expression 'public' occurring in section 2(18) of the Income-tax Act, 1961 Facts The assessee-company, in collaboration with a Japanese company, manufactured plasticizers. Out of 27,000 shares issued by the assessee, 8,344 shares were held by a private company while 9,900 shares were held by the Japanese company which, as per the auditor's certificate, was a company in which public were substantially interested. Article 53 of the articles of association of the assessee-company conferred absolute and uncontrolled discretion on the board of directors to decline to register a transfer of shares. For the assessment year 1964-65, the assessee claimed that it was a company in which the public were substantially interested but the revenue asserted that it was not. The Tribunal upheld the assesses's claim. On reference, the revenue questioned the Tribunal's decision not only on the ground of the existence of the aforesaid article 53 but also by arguing that the assessee-company's shareholder Japanese company, was not a company in which the public were substantially interested as the public interested in it were Japanese and not Indian. Held Applying the principle laid down by the Supreme Court in Shree Krishna Agency Ltd.…

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