Law:

Section:

Section 2(18)(b)(B)(iii) [as it stood before its amendment with effect from 2-4-1983] of the Income-tax Act, 1961 - Company in which public are substantially interested - Assessee-company's total shares numbered 90,000, of which R held 15,001 and four others held 41,000 shares - 'R' died on 23-10-1969 and his heirs were registered as members only on 19-10-1979 - Articles of association specifically provided that until shares were registered in names of heirs, heirs had no voting power - Whether for purpose of determining status of assessee, total voting power of company under section 2(18)(b)(B)(iii) during relevant assessment years 1976-77 and 1977-78, shares held by late R, had to be excluded, and since four persons holding 41,000 shares would have more than fifty per cent of voting power of remaining 74,999 shares, status of assessee would be that of a company in which public was not substantially interested - Held, yes Facts The total number of paid-up shares of the assessee-company was 90,000, a majority of which was held by five persons, viz., R who held 15,001 shares and four others who held 41,000 shares. 'R' died on 23-10-1969. His heirs were registered as members only on 19-10-1979. The articles of association specifically provided that until the date of transmission and until shares had been registered in the names of the heirs, the heirs had no voting power. For the assessment years 1976-77 and 1977-78 the status of the assessee was determined by the ITO as a company in which the public are not substantially interested on the ground that the shares carrying more than fifty per cent of the total voting power of the assessee was held by four persons during the relevant accounting years, so that it was hit by section 2(18)(b )(B)( iii).In arriving at this conclusion, the ITO ignored the shares held by late 'R' as these had not yet been registered in the name of the legal heirs. The Tribunal confirmed the finding of the ITO. On reference, the contention advanced on behalf of the assessee was that in construing the expression 'the shares carrying more than fifty per cent of its total voting power' under sub-clause (iii), what was to be reckoned was the…

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