Law: Income Tax Act, 1961

Section: 2,2(18)

Income-tax----Company---Company in which public are substantially interested--­Definition ---Assessee company formed to take over Indian business of widely held foreign company---Foreign company to hold 40 per cent. shareholding in assessee-company---Scheme of amalgamation completed by High Court with effect from date of formation---Five persons controlling more than 50 per cent. of voting power in accounting year---Ban on declaration of dividend until assessee fully -constituted ---Assessee a Company in which public are substantially interested---Indian Income Tax Act, 1961, S.2(18). The assessee, an Indian company, was formed on November 1, 1977, to take over the Indian business of a widely held foreign company. Formalities for obtaining approval for an amalgamation were completed by an order of approval of the High Court on December 18, 1979, having effect from the date of-its formation. During the accounting period relevant to the assessment year in question there were only seven shareholders and the Income-tax Officer refused to, accept that the assessee was a company in which the public was substantially interested under section 2(18) of the Income Tax Act, 1961, but, on appeal, the Commissioner (Appeals) held the assessee to be one in which the public were substantially interested in view of the facts (i) that the amalgamation was approved by the High Court with effect from the date of formation of the company; (ii) that the entire scheme envisaged the taking over of the Indian business of a foreign company from November 1, 1977, with a widely based shareholding including the shareholding of 40 per cent: of the foreign company; (iii) that there was a ban on declaration of dividend till the assessee-company was fully…

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