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Commissioner of Income-tax, Bombay City-i Vs. Indian Hotels Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation;Company
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 70 of 1973
Judge
Reported in[1983]53CompCas500(Bom); (1982)30CTR(Bom)12; [1983]141ITR343(Bom)
ActsCompanies Act 1956 - Sections 187B, 187B(2), 187B(3) and 256(1)
AppellantCommissioner of Income-tax, Bombay City-i
RespondentIndian Hotels Co. Ltd.
Excerpt:
company - voting power - sections 187b, 187b (2) and 187b (3) of companies act, 1956 - whether assessee-company is a company in which public are substantially interested as majority of shares are held by charitable trusts - more than 50% shares held by three charitable trusts - more than 99% of voting power is held by three persons - it cannot be said that public are substantially interested in assessee-company. - indian succession act (39 of 1925), section 63: [s.b. sinha & cyriac joseph, jj] will validity - deceased, was a very wealthy person - he floated several companies - he left behind his daughters, s and j - he was suffering from various diseases including some neurological ones - for his treatment, he used to frequently visit united states of america accompanied by his wife.....chandurkar, j.1. the main question which arises in this reference is whether the assessee-company, the indian hotels co. ltd., is a company in which the public are substantially interested as the majority of the shares are held by charitable trusts.2. the year of assessment in this reference is 1967-68, for which the previous year ended on 31st march, 1967. the share capital of the assessee-company consists of 6,000 shares of rs. 500 each held by various shareholders as indicated below :--------------------------------------------------------------------names of shareholders no. of shares--------------------------------------------------------------------tata sons pvt. ltd. 1,051lady tata memorial trust - trustees :lady navajbai ratan tata, mr. j. r. d. tata,sir h.p.mody, mr. j. d......
Judgment:

Chandurkar, J.

1. The main question which arises in this reference is whether the assessee-company, the Indian Hotels Co. Ltd., is a company in which the public are substantially interested as the majority of the shares are held by charitable trusts.

2. The year of assessment in this reference is 1967-68, for which the previous year ended on 31st March, 1967. The share capital of the assessee-company consists of 6,000 shares of Rs. 500 each held by various shareholders as indicated below :

--------------------------------------------------------------------Names of shareholders No. of shares--------------------------------------------------------------------Tata Sons Pvt. Ltd. 1,051Lady Tata Memorial Trust - Trustees :Lady Navajbai Ratan Tata, Mr. J. R. D. Tata,Sir H.P.Mody, Mr. J. D. Choksi, Mr. D. R. D.Tata, Mrs. V. J. Vesugar and Mr. R. D. Choksi 1,400Sir D. J. Tata Trust - Trustees : LadyNavajbai Ratan Tata, Mr. J. R. D. Tata,Sir H. P. Dody, Mr. A. D. Shroff, Dr. JohnMathai, Mr. N. H. Tata and Mr. R.D. Choksi 2,995Sir Ratan Tata Charities - Trustees :Lady Navajbai Ratan Tata, Mr. N. H. Tata,Sir H. P. Dastur, Mr. N. H. Coyajee,Mr. N. K. Suntook and Mr. K. A. D. Naorojee 500Mr. D. R. D. Tata 6Tata Sons Pvt. Ltd. and Mr. J. R. D. Tata 6Tata Sons Pvt. Ltd. and Mr. Sir. H. P. Mody 6Tata Sons Pvt. Ltd. and J. D. Choksi 6Tata Sons Pvt. Ltd. and Mr. K. C. Bakhle 6Tata Sons Pvt. Ltd. and Mr. T. V. Baddeley 6Tata Sons Pvt. Ltd. and Mr. L. Sawhny 6Tata Sons Pvt. Ltd. and Mr. J. J. Bhabha 6Tata Sons Pvt. Ltd. and Mr. R. D. Choksi 6

3. Thus out of 6,000 shares, 4,895 shares, which come to about 81% of the total number of shares of the assessee-company, are held by the three trusts referred to above. All the three trusts are public charitable trusts.

4. In the assessment proceedings for the assessment year 1967-68, the company claimed that it should be treated as a 'company in which the public are substantially interested' in terms of s. 2(18) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), on the ground that the majority of the shares are held by the public charitable trusts. This contention was not accepted by the ITO and the assessee-company challenged the order of the ITO by an appeal before the AAC. The AAC also rejected the contention of the assessee-company that it was a company in which the public were substantially interested and he held that since more than 99% of the voting power is held by three persons, the company was 'caught by the mischief of section 2(18)(b)(iii)'. He held that the ITO was justified in not treating the company as a company in which the public are substantially interested.

5. The assessee-company then appealed to the Income-tax Appellate Tribunal. Before the Tribunal the argument advanced on behalf of the assessee-company was that the majority of the shares were ostensibly held by the trusts and as the trusts were for the benefit of the public, the public had an interest in the trust and the shares were beneficially held by the public. It was also argued that the shares were ostensibly held by less than five persons, yet they were, in fact, beneficially held by the public and the public were holding the shares through the trustees. The Tribunal declined to accept the argument that as 81% of the shares of the company were held by the three public charitable trusts, the shares should be taken to have been held by the public for the purpose of s. 2(18) of the Act. The Tribunal held that in the case of a trust the trustees have merely to carry out the wishes of the settlor and the beneficiaries have no say as to how those wishes have to be carried out and if shares of a company are held by charitable trusts, primarily, the voting power in respect of those shares will be governed by the directions given by the settlor and in the absence of such directions, the voting power will be exercised according to the wishes of the trustees. Consequently, according to the Tribunal, it was not possible to hold that in the case of a public charitable trust, the voting power vested in the public.

6. An alternative argument was also advanced before the Tribunal on behalf of the assessee-company that having regard to the provisions of s. 187B of the Companies Act, 1956, the shares, in respect of which the voting power is exercisable by the public trustee under that section, should be regarded as held by the 'public'. It was argued before the Tribunal that public trusts which are shareholders of the assessee-company fell within the ambit of s. 187B of the Companies Act and, consequently, the voting power in respect of more than 50% of the shares of the assessee-company was exercisable by the 'public trustee' under s. 187B. It was further argued before the Tribunal that the 'public trustee', being a nominee of the Government, would represent the public and the control of the voting power by the public trustee should be taken as control by the public and, therefore, the shares held by the public charitable trusts should be regarded as held by the public and the assessee-company should have been treated as a company in which the public were substantially interested. This alternative argument was accepted by the Tribunal, which took the view that under s. 187B of the Companies Act, in the case of every trust, the rights and powers including the right to vote exercisable at any meeting of the company of which shares are held by the trust, shall be exercisable by the public trustee and since the public trustee was a nominee of the Government and the Government would represent the people, it could be said that the voting power in respect of the shares held by the trust is ultimately exercisable by the Government on behalf of the public and so, the shares were held by the public. Having accepted the alternative argument advanced before it the Tribunal came to the conclusion that as the shares in the assessee-company were held by the three trusts, the same can be said to be held by the public and the assessee-company should be held as a company in which the public are substantially interested.

7. Arising out of this order of the Tribunal, the following question has been referred to this court s. 256(1) of the Act for opinion :

'Whether, on the facts and in the circumstances of the case, the assessee is a 'company in which the public are substantially interested' within the terms of section 2(18) of the Income-tax Act, 1961 ?'

8. Before we notice the arguments advanced on behalf of the Revenue and the assessee-company, it is necessary to reproduce the material part of the definition of 'company in which the public are substantially interested' in s. 2(18) of the Act as in force int the relevant assessment year. The definition ran thus :

'2. (18) 'Company in which the public are substantially interested'. - A company is said to be a company in which the public are substantially interested - ...

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and

(i) its shares (not being entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by - ...

(d) the public (not being a director, or a company to which this clause does not apply);

(ii) the said shares were at any time during the relevant previous year the subject of dealing in any recognised stock exchange in India or were freely transferable by the holder to the other members of the public; and

(iii) the affairs of the company, or the shares carrying more than fifty per cent. of its total voting power were at not time during the relevant previous year controlled or held by five or less persons.'

9. The Explanation which provides for the manner in which the number of five or less persons is to be computed is not relevant for our purpose. It may be pointed out that this definition is analogous to the provision in Expln. 1 in s. 23A of the Indian I.T. Act. 1922. under which 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 fifty per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the previous year beneficially held by the Government or a corporation established by a Central, State or Provincial Act or the public (not including a company to which the provisions of s. 23A apply). The proportion of fifty per cent referred to above was originally 25%.

10. Now, the argument on behalf of the Revenue advanced before us is that the Tribunal having held that the shares held by the three charitable trusts could not be considered as shares by the public, the Tribunal should have held that the assessee-company was not a company in which the public were substantially interested. According to the learned counsel for the Revenue, the Tribunal was in error in holding that in view of the provisions of s. 187B of the Companies Act, the shares must be treated as having been held by the public. According to the learned counsel, the provisions of s. 187B of the Companies Act have no relevance in the determination of the question as to whether 50% if the shares are unconditionally and beneficially held by the public and it is argued that notwithstanding the provisions of s. 187B of the Companies Act, the shares continued to be held by the trustees of the public trusts and that though the trustees of the public trusts could be members of the public, the shares not having been held by the trustees for their own benefit, they could not be said to be beneficially holding the shares and, consequently, one of the requirements of s. 2(18) was not satisfied. The learned counsel also contended that having regard to the decisions of the Supreme Court in Raghuvanshi Mills Ltd. v. CIT : [1961]41ITR613(SC) , CIT v. Jubilee Mills Ltd, [1963] 48 ITR and CIT v. East Coast Commercial CO. Ltd. : [1967]63ITR449(SC) , the trustees of the three trusts, who among themselves held 81% of the shares, really formed a group who would be in a position to control the business of the company and in whom more than 50% of the voting power was concentrated and the shares held by them could not be said to be unconditionally and beneficially held by the public.

11. Mr. Vyas appearing on behalf of the assessee-company has contended that the provisions of s. 2(18) must be reasonably construed and, according to the learned counsel, the beneficiaries under the three trusts, who held the shares, were members of the public and on a reasonable construction of the provisions of s. 2(18), it must be held that the shares were acquired by the trustees as members of the public and were held for the benefit of the public. Thus, according to the learned counsel, though the shares are held by a person, it is possible that beneficial interest in those shares is held by the members of the public and the shares standing in the names of the trustees must be held as having been acquired by members of the public. The learned counsel argued that for the purposes of s. 2(18) of the Act it is enough that the shares are held by the public and in a case where there are beneficiaries of a public trust, the shares must be treated as being beneficially held by the beneficiaries through the trusts. The learned counsel went a step further and contended that in such a case, the voting power vests in the public but through the trustees. The learned counsel posed a question that the shares have to be held beneficially by somebody and answered it by saying that if it was not suggested that the shares were held by the trustees themselves for their own benefit, then the shares must be said to have been held beneficially by the public. In support of the contention that the statute must be reasonably construed and a construction in consonance with justice should be adopted, the learned counsel has relied on the decision of the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT : [1971]82ITR570(SC) , in which the Supreme Court has observed that though it is true that equitable considerations are irrelevant in interpreting tax laws, those laws like all other laws have to be interpreted reasonably and in consonance with justice. Our attention was also invited to another decision of the Supreme Court in CIT v. National Taj Traders [1980] 121 ITR 535, where the Supreme Court was dealing with two principles of construction, namely, one relating to casus omissus and the other in regard to reading the statute as a whole. With regard to the latter principle the Supreme Court quoted with approval the observations in Maxwell on the Interpretation of Statutes, 12th Edn. at p. 47 and it will appear from that decision that the Supreme Court was mainly dealing with the principle of casus omissus, as would be clear from the following observation (p. 541) :

'In other words, under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. 'An intention to produce an unreasonable result', said Danckwerts L.J. in Artemiou v. Procopiou [1966] 1 QB 878,'is not to be imputed to a statute if there is some other construction available'. Where to apply words literally would 'defeat the obvious intention of the legislation and produce a wholly unreasonable result' we must 'do some violence to the words' and so achieve that obvious intention and produce a rational construction ....'

12. While it is hard dispute the proposition that tax laws are to be interpreted reasonably and in consonance with justice, it is also well established that any equitable considerations are wholly irrelevant in interpreting tax laws. It is not contended on behalf of the Revenue that the provisions of s. 2(18) should be construed in any manner other than the one permissible by the established principles of constructions of statutes and the argument of the learned counsel for the Revenue has mainly proceeded on the construction placed on a similar concept of a company in which the public are substantially interested propounded by the Supreme Court in the three cases referred to above in the context of the provisions of s. 23A of the Indian I.T. Act, 1922.

13. Before, however, we go to the provisions of s. 2(18) of the Act, we must dispose of the contention advanced on behalf of the Revenue that the Tribunal was in error in holding that in a case where s. 187B operates or is attached, the shares must be taken to be held by the public merely on the ground that the voting power is exercised by the public trustee. In all fairness to the learned counsel for the assessee-company, we must mention that it was not possible for the learned counsel to support the reasoning of the Tribunal in para. 8 its appellate order.

14. It is undoubtedly true that the effect of the provisions of s. 187B of the Companies Act is that where any shares in a company are held in trust by a person referred to as 'trustee' in the section, the right and powers (including the right to vote by proxy), exercisable at any meeting of the company or at any meeting of any class of members of the company by the trustee as a member of the company cease to be exercisable by the trustee as such member and becomes exercisable by the public trustee. Under sub-s. (2) of s. 187B, it is open to the public trustee instead of himself attending the meeting and exercising his rights and powers as aforesaid, to appoint as his proxy an officer of Government or the trustee himself to attend such meeting and to exercise such rights and powers in accordance with the directions of the public trustee. Under the proviso to sub-s. (2) it is provided that where the trustee is appointed by the public trustee as his proxy, the trustee shall be entitled, notwithstanding anything contained in any other provisions of the Companies Act, to exercise such rights and powers in the same manner as he would have been but for the provisions of s. 187B. Sub-section (3) provides that the public trustee may abstain from exercising the rights and powers conferred on him by the section if, in his opinion, the objects of the trust or the interests of the beneficiaries of the trust are not likely to be adversely affected by such abstention. Sub-sections (4) and (5) are not very relevant. Sub-section (6) then provides that in order to enable the public trustee to exercise the rights and powers aforesaid, the public trustee shall also be entitled to receive and inspect all books and papers under the Act which a member is entitled to receive and inspect.

15. Now, the limited effect of s. 187B is that the rights and powers exercisable at a meeting of the company or at any meeting of any class of members of a company cease to be exercisable by the trustee and those rights and powers become exercisable by the public trustee. The scope of s. 187B is, therefore, of a very limited character. It does not have the effect of divesting a trustee who is a shareholder of all rights which vest in him as a shareholder. The trustee does not cease to be a member of the company and s. 187B does not have the effect of substituting the public trustee as a member of the company in place of a trustee who holds shares as a trustee. If a member is not divested of the shares held by him and only his right to vote which he exercises as a member of the company at any meeting is taken away and vested in the public trustee, it is difficult to appreciate the view taken by the Tribunal that because the public trustee exercises the right to vote, the right to vote must be treated as being exercised by the Government itself and further that since Government acts on behalf of the public at large, the shares must be treated as having been held by the public. Apart from the fact, that, as well shall presently point out, the word 'public' is used in a particular sense in s. 2(18), the ground on which the Tribunal has held that the assessee-company must be treated as a company in which the public are substantially interested is wholly untenable and the view of the Tribunal is based on a misconception of the scope, purpose and the effect of s. 187B of the Companies Act.

16. Coming now to the main argument on behalf of the Revenue that shares carrying not less than 50% of the voting power have not been allotted unconditionally to, or acquired unconditionally by, and were not throughout the relevant previous year beneficially held by the public, it is necessary to analyse the relevant provisions in s. 2(18)(b). The three clauses, viz., cls. (i), (ii) and (iii) of s. 2(18)(b) will show that the conditions prescribed in those clauses have to be cumulatively satisfied. In so far as cl. (i) is concerned, it is necessary that the company must not be a private company as defined in the Companies Act, 1956, and this will apply to all the three clauses, and further the shares in 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 fifty per cent. of the voting power must be shown either to have been allotted unconditionally to, or acquired unconditionally by, the public and these shares must be shown to have been beneficially held by the public throughout the previous year in so far as the present case is concerned. The 'public' in sub-cl. (d) of cl. (i) does not include a director or a company to which cl. (d) does not apply.

17. The second condition which is required to be satisfied is that the shares must be shown to be at any time during the relevant previous year the subject of dealing in any recognised stock exchange in India or it has to be shown that the shares were freely transferable by the holder to other members of the public. With regard to this condition, there does not seem to be any finding recorded by the Tribunal and it does not appear that the question as to whether the condition in this cl. (ii) was satisfied or not was made the subject of controversy either before the tax authorities or before the Tribunal.

18. In addition to the two conditions referred to above, the third condition which is to be satisfied is that the affairs of the company for the shares carrying more than 50 per cent. of the total voting power were at no time during the relevant previous year controlled or held by five or less persons.

19. The effect of the conditions incorporated in the three clauses mentioned above is that if any one of the conditions is not satisfied, the company cannot be taken to be a company in which the public are substantially interested. With regard to this third condition, we shall deal later.

20. Now, so far as the condition in cl. (i) is concerned, the question as to whether shares carrying not less than 50% of the voting power have been allotted unconditionally also does not seem to have been gone into by the Tribunal. We, are, therefore, called upon to deal only with the question as to whether, on the facts of the present case, the shares carrying not less than 50% of the voting power have been acquired unconditionally by and were throughout the relevant previous year beneficially held by the public. The test to determine whether the required and the prescribed percentage of shares was acquired unconditionally by and was beneficially held by the public is now well established by the three decisions of the Supreme Court referred to above. In Raghuvanshi Mills Ltd. v. CIT : [1961]41ITR613(SC) , the Supreme Court was dealing with the Explanation to s. 23A of the Indian I.T. Act, 1922, the terms of which, as we have already pointed out, were similar to the provisions contained in s. 2(18)(b) of the Act except that at the time when the Supreme Court was considering the relevant provision, the percentage of shares was 25 and not 50 as in the present case. The material part of the Explanation was quoted by the Supreme Court as follows :

'Explanation. - For the purpose of this sub-section, -

a company shall be deemed to be a company in which the public are substantially interested if shares of the company .... 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 .... and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange ... or are in fact freely transferable by the holders to other members of the public.'

21. Dealing with the Explanation, the Supreme Court observed as follows (p. 620) :

'The Explanation lays down, among the tests, the minimum interest which can be called 'substantial' by saying that shares of the company carrying not less than 25 per cent. of the voting power must be allotted unconditionally to, or acquired unconditionally by, the public and they must be beneficially held by the public. The essence of the Explanation lies not in the percentage which only shows the limit of the minimum holding by the public, but lies in the words 'unconditionally' and 'beneficially'. These words underline the fact that no person who holds a share or shares not for his own benefit but for the benefit of another and who does not exercise freely his voting power, can be said to belong to that body, which is designated 'public'. The word 'public is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a block. If such a block exists and possesses more than seventy-five percent. of the voting power, then the company cannot be said to be one in which the public are substantially interested.'

22. These observations of the Supreme Court will thus indicate that when the definition in s. 2(18)(b) requires that the prescribed number of shares should be beneficially held by the public, it contemplates that a person must hold the shares for his own benefit and no person who holds a share or shares not for his own benefit but for the benefit of another will fall within the body which is designated 'public' in s. 2(18)(b)(i). One of the important considerations, therefore, for deciding whether a company can be said to be a company in which the public are substantially interested is whether the prescribed number of shares are held by the member concerned for his own benefit or for the benefit of another. 'Beneficially holding a share' is not the same thing as 'holding a share for the benefit of another' or 'some other person being the beneficiary of the share', as contended for the assessee.

23. The Supreme Court has also pointed out that the word 'public' is used in contradistinction with one or more persons who act in unison and amongst whom the voting power constitutes a block. Therefore, one of the other important considerations which has to be taken into account while applying the definition in s. 2(18)(b) is whether there are one or more persons who act in unison and amongst whom the voting power constitutes a block and only those members of the public who are outside this block will, therefore, be covered by the 'public' as contemplated by s. 2(18)(b) of the Act. This is made further clear by the Supreme Court in the Jubilee Mills' case : [1963]48ITR9(SC) . Referring to the decision in Raghuvanshi Mills' case : [1961]41ITR613(SC) , the Supreme Court observed as follows (p. 17) :

'This court pointed out that by the words 'unconditionally' and 'beneficially' are indicated that the voting power arising from the holding of those shares should be free and not within the control of some other shareholder and the registered holder should not be a nominee of another. It was pointed out again by this court in Shree Changdeo Sugar Mills Ltd. v. Commissioner of Income-tax : [1961]41ITR667(SC) , that by 'unconditional' and 'beneficial' holding is meant that the shares are held by the holders for their own benefit only and without any control of another ..... This court pointed out that what one has to find out is whether there is an individual who, or a group acting in concert which, controls or control the affairs of the company to the exclusion of others by reason of his or their voting power. Such person or group of persons do not answer the description 'public'.'

24. The scope and the nature of an enquiry which is contemplated when determining whether a company is a company in which the public are substantially interested were laid down by the Supreme Court in CIT v. East Coast Commercial Co. Ltd. : [1967]63ITR449(SC) . Dealing with the provisions of s. 23A(1) of the Indian I.T. Act, 1922, it was observed as follows (p. 455).

'It is clear that the deciding whether an order under section 23A(1) is called for, the Income-tax Officer must determine - (i) whether there is an individual or a group which can control the voting power as a block. The existence of such a block may be established by showing that the voting power is vested in persons possessing more than fifty per cent. of the shares issued who act in concert; and (ii) that the block exercises a controlling interest over the affairs of the company. This condition is satisfied only if the voting power of the block or group is seventy-five per cent. or more. If the block holds seventy-five per cent. of the voting power, it shall be deemed that the company is one in which the public are not substantially interested. On the other hand, if the members of the public hold 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 allotted unconditionally to, or acquired unconditionally by, them, the company shall be deemed to be one in which the public are substantially interested.'

25. These observations were made in the context of the Explanation to s. 23A (1) which then prescribed 25% of the voting power as the required percentage of being allotted unconditionally to, or acquired unconditionally by, and beneficially held by the public. The Supreme Court also reiterated the view taken in the Jubilee Mill's case : [1963]48ITR9(SC) and the Raghuvanshi Mills' case : [1961]41ITR613(SC) , that no direct evidence of overt act or concert between the members of the group having control over voting was necessary to prove that the company was not one in which the public were substantially interested and that in deciding whether there is such a controlling interest, there is no formula applicable to all cases. In the Jubilee Mills' case, the Supreme Court had observed as follows (p. 20) :

'The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts.'

26. It is not necessary to multiply authorities and cite decisions of this court which dealt with similar questions because they followed the decisions of the Supreme Court, but we will merely mention that similar questions fell or consideration in Indian Hume Pipe Co. Ltd. v. CIT : [1969]74ITR762(Bom) , and Seksaria Biswan Sugar Factory Ltd. v. CIT [1975] 101 ITR 705 .

27. Now, the arguments before the Tribunal in the instant case had proceeded on the footing that 81% of the shares held by the three public trusts must be treated as being held by the public. As indicated by the decisions referred to above, two questions will have to be answered. Firstly, whether there is any group of shareholders who can be considered as a block and whose voting power is more than 50% and, secondly, are 50% of the shares acquired unconditionally and beneficially held by the public. As a matter of fact, any view which we may take on the argument which is advanced before us at considerable length on behalf of the assessee that the shares held by the trustees must be treated as shares held by the public, would be sufficient to answer the question referred to us in this reference. We have repeatedly tried to ascertain from Mr. Vyas as to whether the shares held by the three trusts, which between themselves hold about 81% of the shares and they are undoubtedly a group of Tata Charities, can be said to have been beneficially held by any particular person and we have been repeatedly told that public in general, who are the beneficiaries under the trusts, are the beneficial holders of these shares. This runs counter to the decisions of the supreme Court. As already pointed out, if a person does not hold a share for his own benefit, that person must fall out of the category of 'public', as contemplated by the definition in s. 2(18) of the Act. Admittedly, the shares are held by the trustees in their own names, but they are admittedly not the beneficial holders of the shares. If the shares are not held by the trustees for their own benefit and they are held for the benefit of somebody else, on the law laid down by the Supreme Court, they must be out of the category of 'public'. The total number of shares held by these three trusts comes to about 81%. This by itself will rule out any possibility of the prescribed 50% of the shares being held by the public.

28. The shares are also not acquired by the beneficiaries. The shares are acquired by the trustees for the beneficiaries. The conclusion appears to us to be inescapable that the 81% of shares which are held by the trustees for the beneficiaries under the public trusts cannot be said to be shares held by the public. Even so far as the controlling interest is concerned, it is difficult to resist the conclusion that the three public trusts hold a controlling interest in the company. No doubt, some of the trustees in the three trusts are different. But so far as the Lady Tata Memorial Trust and Sir D. J. Tata Trust are concerned, three trustees are common and the first trust has 1,400 shares and the second trust has 2,995 shares. As a matter of fact in all the three trusts, the first name of the trustee, which would normally be the name first recorded as the holder of the shares, is the same, namely, Lady Navajbai Ratan Tata. Normally, these trustees would be expected to act in concert. Similarly, the remaining shares are held either by Tata sons Pvt. Ltd. to the extent of 1,051, that is, 17.5% exclusively or by Tata Sons Pvt. Ltd. jointly with another person and there are 8 such groups of 6 shares each, out of which the joint holders in 4 groups are trustees in one or the other trust. Looking at the manner in which the shares are held, either way, therefore, it appears to us to be clear that the prescribed 50% of the shares, as required by cl. (i) of s. 2(18)(b), cannot be said to be held by the public. If this condition is not satisfied, then irrespective of the question as to whether the second or the third condition is satisfied or not, the company will not be one which falls within s. 2(18)(b) of the Act.

29. It is no doubt true that Mr. Vyas has contended that whether the third condition with regard to the affairs of the company or the shares carrying more than 50% of its total voting power being at no time, during the relevant previous year, controlled or held by five or less persons, is fulfilled or not is a matter on which no finding has been recorded. But the argument before the Tribunal itself seems to have proceeded on the fact that more than 50% of the shares are concentrated in the hands of the three trusts. All the joint trustees will have to be treated as a single unit for the purposes of the control and since the three trusts control 81% of the shares, in our view, even the third condition is not satisfied. Looking at the matter either way, therefore, it is difficult for us to uphold the view of the Tribunal that the assessee-company is a company in which the public are substantially interested.

30. Accordingly, the question referred is answered in the negative and in favour of the Revenue. The assessee to pay the costs for this reference.


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