# l?a~huvanshi 1Wills, ttd v. Co1n'1tissioner of Income-tat'", Bon1flay

- **Citation:** [1961] 2 S.C.R. 990
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** CIVIL APPELLJ.TE JURISDICTION: Civil Appeal Commisstoner of No. 380 of 1957
- **Bench:** J. L. Kapur, M. Hidayatullah, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/l-a-huvanshi-1wills-ttd-v-co1n-1tissioner-of-income-tat-bon1flay-1932
- **Pages:** 6

## Headnote

Income-tux-Undistributed income-Company in w/licl• Public'
are substantially interested-Powers to assess Super Tax-TestPart B States (Taxation Concession) Order, I9j0, cl. I4-lndian
Income-tax Act, I922 (II of I922), s. 23A(I).
During the assessment year, the company had not distributed dividends to the extent of 60% of its profits and an order
under s. 23A(1) of the Act was passed by the Income-tax
Officer. The question referred by the Tribunal to the High
Court was whether at the relevant time the assessee company
could be deemed to be a company in which the public were substantially interested, i.e., held 25% of the voting power, was
answered in the negative.
Held, that the test that no holding by the Directors of a
company could be regarded as one in which the public were substantially interested was not the correct test to apply. The
test as laid down in Raghuvanshi Mills v. Commissioner of
Income-tax, [1961] 2 S.C.R. 978, would apply to this Case.
Held, further, that the paramount condition in applying the
proviso and the explanation of s. 23A(r) was that the public
should be beneficially int.rested in 25% of the voting power.
The explanation to s. 23A required that shares held by the
company should be considered as held by the public, only if
s. 23A did not apply to it. The concession order in cl. 14 of the
Part B States \Taxation Concession) Order, 1950, did not seek
to negative that test, it only conlerred a benefit on a company,
>
•
2 S.C.R. SUPREME COURT REPORTS
991
to which cl. 14 applied, and the company could avail that concession, and still might fall within s. 23A for other purposes.
The Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Slwu Changdeo
Bombay, [1961] 2 S.C.R. 978, applied.
Sugar ~11/s, Ltd.
CIVIL APPELLJ.TE JURISDICTION:
Civil
Appeal Commisstoner of
No. 380 of 1957.
r..com•-ta,,,
Appeal from the judgment apd order dated March
8, 1956, of the Bombay High Court in Income-tax
Reference No. 4of1956.
Q. A. Palkhivala, S. N. Andley, Rameshwar Nath,
J.B. Dad,achanji and P. L. Vohra, for the appellant.
A. N. Kripal and D. Gupta, for the respondent.
1960. December 7.
The Judgment of the Court
was delivered by
Bombay
HIDAYATULLAH, J.-This appeal, on a certificate by Hidayatullah J.
the High Court, has been filed by Shree Cbangdeo
Sugar Mills, Ltd., to which s. 23A of the Income-tax
Act (prior to its amendment by the Finance Act, 1955)
.:
was applied in respect of the assessment year, 1948-49.
The question which was referred to the High Court
was whether at the relevant time the assessee Company could be deemed to be a Company, in which the
public were substantially interested. This question
was answered in the negative by the High Court.
During the assessment year, the Company had not
distributed dividends to the extent of ·60 per cent. of
its profits, and an order under s. 23A(l) of the Indian
Income-tax Act was passed by the Income-tax Officer.
The Company appealed to the Appellate Assistant
Commissioner, who dismissed the appeal. It next
appealed to the Tribunal, but was unsuccessful.
The
Tribunal, however, referred the above question which,
as already stated, was answered in the negative by
the High Court.
The issued, subscribed a.nd paid-up capital ef the
assessee Company consisted of 60,000 shares, which
were distributed as follows:
1960
Shree Changden
Sugar Mills, Ltd.
v.
Commissioner of
I mo me-tax,
Bombay
Hidayatullah ].
992
SUPREME COURT REPORTS
[1961]
(1) 11 Directors of the Company
(2) The Managing Agency Firm
(3) Mysore Merchants Ltd.
(4) Others
.. . 41,500 shares.
2,300 shares.
. . . 11,880 shares.
4,320 shares.
60,000 shares.
The question arose in determining .whether the public were substantially interested in the Company, that
is to say, held 25 per cent. of the voting power. The
Bombay High Court in determining this point followed its decision in Raghuvanshi Mills v. Commissioner
of Income-tax (' ), and held that no holding by the
Directors of a company could be regarded as one in
wh

## Text

l?a~huvanshi
1Wills, ttd.
v.
Co1n'1tissioner of
Income-tat'",
Bon1flay
Hidayatullah J.
December 7.
990
SUPREME COURT REPORTS
[1961]
case the provisions of s. 23A of the Indian Income-tax
Act, XI of 1922, are applicable to t.he petitioners?"
The High Court may call for a supplemental statement of the case from the Tribunal, if it finds it necessary.
The appeal is allowed.
the costs of this appeal.
shall abide the result.
The respondents shall bear
The costs in the High Court
Appeal allowed.
SHREE CHANGDEO SUGAR MILLS, LTD.
ti.
THE COMMISSIONER OF INCOME TAX,
BOMBAY
(J. L. KAPUR, M. HIDAYATULLAH, and J. c. SHAH, JJ.)
Income-tux-Undistributed income-Company in w/licl• Public'
are substantially interested-Powers to assess Super Tax-TestPart B States (Taxation Concession) Order, I9j0, cl. I4-lndian
Income-tax Act, I922 (II of I922), s. 23A(I).
During the assessment year, the company had not distributed dividends to the extent of 60% of its profits and an order
under s. 23A(1) of the Act was passed by the Income-tax
Officer. The question referred by the Tribunal to the High
Court was whether at the relevant time the assessee company
could be deemed to be a company in which the public were substantially interested, i.e., held 25% of the voting power, was
answered in the negative.
Held, that the test that no holding by the Directors of a
company could be regarded as one in which the public were substantially interested was not the correct test to apply. The
test as laid down in Raghuvanshi Mills v. Commissioner of
Income-tax, [1961] 2 S.C.R. 978, would apply to this Case.
Held, further, that the paramount condition in applying the
proviso and the explanation of s. 23A(r) was that the public
should be beneficially int.rested in 25% of the voting power.
The explanation to s. 23A required that shares held by the
company should be considered as held by the public, only if
s. 23A did not apply to it. The concession order in cl. 14 of the
Part B States \Taxation Concession) Order, 1950, did not seek
to negative that test, it only conlerred a benefit on a company,
>
•
2 S.C.R. SUPREME COURT REPORTS
991
to which cl. 14 applied, and the company could avail that concession, and still might fall within s. 23A for other purposes.
The Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Slwu Changdeo
Bombay, [1961] 2 S.C.R. 978, applied.
Sugar ~11/s, Ltd.
CIVIL APPELLJ.TE JURISDICTION:
Civil
Appeal Commisstoner of
No. 380 of 1957.
r..com•-ta,,,
Appeal from the judgment apd order dated March
8, 1956, of the Bombay High Court in Income-tax
Reference No. 4of1956.
Q. A. Palkhivala, S. N. Andley, Rameshwar Nath,
J.B. Dad,achanji and P. L. Vohra, for the appellant.
A. N. Kripal and D. Gupta, for the respondent.
1960. December 7.
The Judgment of the Court
was delivered by
Bombay
HIDAYATULLAH, J.-This appeal, on a certificate by Hidayatullah J.
the High Court, has been filed by Shree Cbangdeo
Sugar Mills, Ltd., to which s. 23A of the Income-tax
Act (prior to its amendment by the Finance Act, 1955)
.:
was applied in respect of the assessment year, 1948-49.
The question which was referred to the High Court
was whether at the relevant time the assessee Company could be deemed to be a Company, in which the
public were substantially interested. This question
was answered in the negative by the High Court.
During the assessment year, the Company had not
distributed dividends to the extent of ·60 per cent. of
its profits, and an order under s. 23A(l) of the Indian
Income-tax Act was passed by the Income-tax Officer.
The Company appealed to the Appellate Assistant
Commissioner, who dismissed the appeal. It next
appealed to the Tribunal, but was unsuccessful.
The
Tribunal, however, referred the above question which,
as already stated, was answered in the negative by
the High Court.
The issued, subscribed a.nd paid-up capital ef the
assessee Company consisted of 60,000 shares, which
were distributed as follows:
1960
Shree Changden
Sugar Mills, Ltd.
v.
Commissioner of
I mo me-tax,
Bombay
Hidayatullah ].
992
SUPREME COURT REPORTS
[1961]
(1) 11 Directors of the Company
(2) The Managing Agency Firm
(3) Mysore Merchants Ltd.
(4) Others
.. . 41,500 shares.
2,300 shares.
. . . 11,880 shares.
4,320 shares.
60,000 shares.
The question arose in determining .whether the public were substantially interested in the Company, that
is to say, held 25 per cent. of the voting power. The
Bombay High Court in determining this point followed its decision in Raghuvanshi Mills v. Commissioner
of Income-tax (' ), and held that no holding by the
Directors of a company could be regarded as one in
which the public were substantially interested. We
have heard Civil Appeal No. 30 of 1957 from the
decision of the Bombay High Court in the Raghuvanshi Mills case (1), in which judgment has been pronounced today, and have held that that is not the
correct test to apply. We have remanded the said
appeal, after setting out the .correct test to apply.
What we have said there applies equally here.
There is yet another question, which arose in this ·
appeal but not in the appeal of the Raghuvanshi
Mills.
As we have already stated, Mysore Merchants
Ltd., held 11,880 shares of the assessee Company. If
these shares could be said to be held by the public
along with 4,3~0 shares, the public would be holding
25 per cent of the voting power, whether or not th_e
Directors of the Company held the rest of the shares.
It was, therefore, necessary for the High Court to
consider whether the shares held by Mysore Merchants
Ltd., could be said to be held by the public. The
High Court held against the assessee Company that
they could not be counted as part of the holding by
the public, and, in our judgment, the High Court has
reached the correct conclusion.
The matter has to be judged under the third proviso to s. 23A(l), which read as follows:
"Provided further that this sub-section shall not
apply to any company in which the public are
(1) [19,3] .. I.T.R. 338.
r _.,. __
2 S.C.R. SUPREME COURT REPORTS
993
.i.
substantially interested or to a subsidiary company of
r96o
such a. company if the whole of the share capital of
-
. ' .(
such subsidiary com_Pany is held by the parent com- s~.h·:: z~~;.'~1~.
pany or by the nommees thereof.
c
v.
Explanation.-For the purpose of this sub-section, Commissioner of
-a company shall be deemed to be a company in
Income-las,
which the public are substantially interested if shares
Bombay
of the company· (not being shares entitled to a fixed
rate of dividend, whether with or without a further Hidayatullah J.
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, and are at the end of the previous year
beneficially held by, the public (not including a company to which the provisions of this sub-section
apply), and if any such shares have in the course of
such previous year been the subject of dealings in any
stock exchange in British India or are in fact freely
transferable by the holders to other members of the
public."
In applying the proviso and the Explanation, we
have to give effect to the words "not including a company to which the provisions of this sub-section
apply", and have to determine whether Mysore Merchants Ltd., is a. Company, to which the provisions of
s. 23A can be said to be applicable. , Learned counsel
for the assessee Company contends that in deciding
this, we have to be satisfied on three points, which he
summarises as follows:
(a) The public should not be substantially interested in that Company;
(b) It must have assessable profits for the relevant assessment year; and
(c) It must not have distributed 60 per cent of its
net assessable profits.
He contends that unless these three conditions are ful.
filled, s. 23A will not apply to Mysore Merchants Ltd.,
and that . the shares held by it will be deemed to be
held by the public. He points out that Mysore Merchants Ltd., had no assessable income -in the corresponding assessment year and had suffered a loss, that
conditions (b) and (c) did not,. therefore, apply, and
994
SUPREME COURT REPORTS
(1961]
'960
that s. 23A is not applicable to that Company. In
Sh'" --;;-;:..14, 0 our opinion, the para~ount condition is tha~ even. in
s«ia• Mills, Ltd. that Company the public should be benefi01ally mv.
terested in 25 per cent. of the voting power, and
Commissioner of it was admitted before us that it was not a public
Income-tax,
Company at all but a private Company, and that,
Bombay
therefore, the public were not interested in that ComHidayatull•h J. pany. The shares held by Mysore Merchants Ltd.,
cannot at all be counted as a holding in which the
public are beneficially interested, in view of the exclusion contained in the Explanation. This point will
not, therefore, be open for the determination of the
High Court, when the question is reconsidered by the
High Court in the light of our observations in The
Raghuvanshi Mills Ltd. v. Commissioner of Income-tax,
Bombay('), decided today.
Learned counsel for the assessee Company also contended that in view of cl. 14 of the Part B States
(Taxation Concessions) Order, 1950, the provisions of
s. 23A could not be applied to Mysore Merchants Ltd.
That clause reads as follows:
"14. Requiring distribution of div·idends by private
companies.-
The provisions of section 23A of the Act shall
not be applied in respect of the profits and gains of
any previous year ending before the appointed day
unless the State law contained a provision corresponding thereto."
This Concession would be open to Mysore Merchants
Ltd., if it satisfied the terms of Cl. 14. That, however,
cannot detract from the.application of s. 23A to determine whether the shares held by it can be described
as those in which the public are beneficially interested
in another company. The Explanation requires that
the shares held by a company should be considered as
held by the public, only if s. 23A does not apply to it.
The Concessions Order does not seek to negative this
test; it only confers a benefit on a company, to which
cl. 14 applies. Mysore Merchant! Ltd., may be able
to avail of that concession, and still fall within
(1) [1961) • S.C.R. 978.
>
2 S.C.R. SUPREME COURT REPORTS
995
-<
s. 23A for other purposes. This contention has no
I960
force.
Sliree Changd•o
The appeal is allowed, and the case is remitted to sugar Mills, Ltd.
the High Court for deciding the question in ~he light
v,
of the observations in our decision in the Rag'//,uvanski Commissioner of
Mills case (1).
As the case is remanded, the cost~ of
Income-ta"·
this appeal shall be paid by the respondent, but the
Bo.,,bay
costs in the High Court will abide the result.
HSJayatullali J .
.Appeal allowad .
. WORKMEN OF THE HERCULES INSURANCE
CO., LTD.
v.
HERCULES INSURANCE CO., LTD., CALCUTTA
(P. B. GAJENDRAGADXAR, K. N. WANCHOO
and K. C. DAS GUPTA, JJ.)
Industrial Dispute-Claim of bonus-General Insurance business-Validity of reference-Industrial Disputes Act, z947 (r4 of
r947), s. IO(I)-Insurance Act, z938 (IV of z938), s. 3rA(I)(c),proviso (vii).
In view of the unqualified and absolute prohibition contain~
ed ins. 31A(1)(c) of the Insurance Act, 1938, against payment
of bonus to the employees in general insurance business, the
exception made by proviso (vii) to that section must be strictly
confined to the limits prescribed by the said proviso.·
The policy underlying the proviso clearly is to exclude the
intervention of Industrial Tribunals·and leave the question of
payment of such bonu!! entirely to the discretion of the Central
Government.
Consequently, where the w.orkmen in general insurance
business claimed bonus and the Central Government referred
the dispute for adjudication to the Industrial Tribunal under
s. 10(1) of the Industrial Disputes Act, i947, and the Tribunal,
on a preliminary ·objection under s. 31A(1}(c) of the Insurance
Act, 1938, read with proviso (vii) thereof, held that· the reference was invalid,
_
-
·- · >f'
t•J [t96•l 2 s.c.R. 978.
z960
De&ember 7.