1. The question originally referred for the opinion of the High Court on 26th September, 1952, when the reference was first made was as follows :
'Whether, on the facts and in the circumstances of the case, provisions of section 23A of the Indian Income-tax Act (XI of 1922) are applicable to the petitioners ?'
2. This question as originally framed has come back to this court after a chequered career although it was once reframed by this court. The circumstances under which the question arises may be briefly stated as follows :
3. The Raghuvanshi Mills Ltd., who was the applicant for the reference, was originally incorporated on 28th February, 1929, as a public limited company. This company had a share capital of rupees ten lakhs divided into 10,000 shares of Rs. 100 each. In this company, there were prior to 14th November, 1941, eight directors of whom one Maganlal Parbhudas held 6,344 shares. Maganlal Parbhudas had five sons, Ravindra, Surendra, Bipinchandra, Harishchandra and Krishnakumar. On 14th November, 1941, Maganlal Parbhudas transferred, by way of gift, 5,000 shares out of his 6,344 shares to the said five sons, each getting 1,000 shares. Of the five sons, two of the elder sons, viz., Ravindra and Surendra, were directors of the mills. A few months after this transfer, there was formed a partnership between the five sons of Maganlal Parbhudas styled as Messrs. Ravindra Maganlal & Bros. On 3rd February, 1942, the partnership was converted into a private limited company by name Ravindra Maganlal & Co. Ltd. were appointed the managing agent of the Raghuvanshi Mills Ltd. Thus three of the directors of the mills, viz., Ravindra, Surendra and Bipinchandra, sons of Maganlal, came to be also directors of Messrs. Ravindra Maganlal & Co. Ltd., the managing agents.
4. We are concerned in this reference with the accounting year ending 31st March, 1943, the assessment year being 1943-44. It appears that, in the year in question, the Raghuvanshi Mills declared a dividend which was less than the dividend required to be declared under section 23A of the Indian Income-tax Act and as a result proceedings were set on foot to ascertain whether they were a company which fell within the ambit of section 23A. It was in consequence of those proceedings that the reference first came to be made to this court on 26th September, 1952. In that reference the facts found showed that the eight directors of the company owned between them 4,695 shares out which Maganlal Parbhudas owned 1,344 shares, i.e., after the transfer of 5,000 shares to his five sons. There were other shareholders who were relations of the directors who held between them 4,750 shares and the balance of 551 shares were held by other members of the public. The Tribunal found as a fact that in addition to the 4,695 shares held by the directors, 3,000 shares held by the three sons of Maganlal Parbhudas, namely, Bipinchandra, Harishchandra and Krishnakumar were shares which were under the control of the said Maganlal Parbhudas as a director of the mills and, therefore, they must be counted as shares not beneficially held by the public, with the result that 7,695 shares would be held by directors or persons under the control of the directors. Therefore, the Tribunal came to the conclusion that the company could not take advantage of proviso (3) read with the Explanation to section 23A.
5. The reference originally made was heard on 10th March, 1953, by a Division Bench of this court consisting of Chief Justice Chagla and the late Mr. Justice Tendolkar and the Division Bench found that the principles upon which the Tribunal felt it should act were incorrectly stated and the High Court laid down certain principles themselves. In delivering the judgment on behalf of the Division Bench, the learned Chief Justice observed that having regard to the third proviso to section 23A read with the Explanation thereof, there could be no doubt that the expression 'public' is used therein in contradistinction to the directors and the whole object of the third proviso was that there should be voting power exercised which must be independent of the control of the directors. So far as the question of control is concerned, the learned Chief Justice observed that the legislature itself had expressed its mind that the public would be deemed to be substantially interested in the company if 25 per cent. of the shares are held by members of the public. At that hearing it was also argued on behalf of the mills that the word 'public' must not be read in any sense different from the ordinary meaning of the word. The Division Bench construed the word with reference to an English decision in Tatem Steam Navigation Co. Ltd. v. Commissioners of Inland Revenue. They observed that the public was, so far as the English statute was concerned, treated in contradistinction with 'relatives', for certain relatives were specifically named in the statute as not being members of the public. Having regard to this construction of the words 'public' and 'relative', their Lordships observed that the correct principle of law was that 'if there is a de facto control over a shareholder by a director of the company, then the shareholder cannot be deemed to be a member of the public as he has no independent voting right'. Further, defining what they meant by 'de facto control', they observed, 'the mere possibility of the voting power being controlled is not enough. Anything is possible and any one's voting power may be controlled, but that is not what the law requires. The law requires a de facto control, a control which is in fact exercised, and here again we do not find that the Judicial Member has given that finding.' Their Lordships held, therefore, that the statement of the case had not found whether there was de facto control in that sense and, therefore, they felt constrained to call for a supplementary statement of the case. After the supplementary statement was received the Division Bench held that Maganlal Parbhudas exercised de facto control over his three sons, Bipinchandra, Harishchandra and Krishnakumar and, therefore, the latter could not be considered to be members of the public for the purposes of section 23A, and if that were so, then the public did not have an interest in the company of 25 per cent. shares. That order was passed on 1st September, 1955.
6. Both the orders dated 10th March, 1953, and 1st September, 1955, of the Division Bench were taken in appeal to the Supreme Court upon special leave granted by that court and the decision of the Supreme Court in appeal is to be found in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax. It may be noticed that in coming to their decision in the first of the two orders passed, the Division Bench held that section 23A distinguished between two categories, viz., the directors on the one hand and the public on the other, and that view, therefore, tacitly assumed that the directors could not be members of the public. That was one of the points raised before the Supreme Court and the Supreme Court did not accept the view taken by the Division Bench. The view which the Supreme Court took is expressed at page 620 of the report as follows :
'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 per cent. of the voting power, then the company cannot be said to be one in which the public are substantially interested.'
7. In considering whether in this view a director of a company could be or could not be a member of the public, the Supreme Court observed at page 621 :
'In deciding if there is such a controlling interest, there is no formula applicable to all cases. Relationship and position as director are not by themselves decisive. If relatives act, not freely, but with others, they cannot be said to belong to that body, which is described as 'public' in the Explanation. But it would be otherwise if they were free. Similarly, if directors or some of them do not act as a body or in concert with others, the fact that they are directors is of no significance.'
8. A little later their Lordships further observed :
'Mere relationship thus is not of consequence, unless control of the voting power held by such a relative, by another relative, is proved.
The other test adopted in the case by the Bombay High Court that directors stand outside the 'public' is also not decisive.'
9. Thus the Supreme Court held that the mere fact that a person is a director or a relative of a director does not necessarily import that such person is in control or under the control of a director for the purposes of seeing whether 25% of the shares are held by the public. They, on the other hand, laid down a test as follows :
'In our judgment, the test is first to find out whether there is an individual or a group which controls the voting power as a block. If there be such a block, the shares held by it cannot be said to be 'unconditionally' and 'beneficially' held by members of the public. In the category of shares held by the public, only those shares can be counted which are unconditionally and beneficially held by the public or, in other words, which are uncontrolled by the group which controls the affairs. The group itself may be composed of directors or their nominees or relations in different combinations, but none can be said to belong to that group, be he a director or a relative unless he does not hold the shares unconditionally and beneficially for himself. It is only such a person, who can fall properly outside the word 'public'.'
10. We have quoted somewhat extensively from the decision of the Supreme Court because, not only did it not accept the principle enunciated in the decision of the Division Bench, but the decision which it came to is a decision which apart from operating as an absolutely binding precedent directly concerns the parties here as a decision inter parties. It is also the decision upon which the reference has come back to us. Having reversed the decision on a question of principle, the Supreme Court ordered that, 'The question to be determined still is whether more than 75 per cent. of the shares are not beneficially held by the public.' Therefore, they directed this court to decide the question originally framed and referred to this court on 26th September, 1952. That question we have already quoted in the opening part of this judgment.
11. The principles enunciated in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax were further elaborated by the Supreme Court in Commissioner of Income-tax v. Jubilee Mills Ltd. We have already adverted to the test laid down in the Raghuvanshi Mills case and, in further elaboration of that test, their Lordships observed in the Jubilee Mills case :
'In order to decide whether a company was controlled by a group, the test is not whether they have actually acted in concert but whether 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 as will prove such concerted actings. Each case must necessarily be decided on its own facts.'
12. After the case was remitted to this court on 24th March, 1961, a Division Bench ordered in terms of the decision of the Supreme Court that 'the Income-tax Appellate Tribunal, Bombay Bench 'B', do submit a supplementary statement of the case on the question 'Whether more than seventy-five per cent. of the shares of the applicants are not beneficially held by the public in the light of the said judgment dated the 7th day of December, 1960, delivered by the Supreme Court of India in Civil Appeal No. 30 of 1957'.' The question thus sent down was in substance the question which the Supreme Court itself posed for decision on remand. No doubt, the original question : 'Whether, on the facts and circumstances of the case, the provisions of section 23A of the Indian Income-tax Act (XI of 1922) are applicable to the petitioners ?' remained, but in order to answer that question the precise question that fell to be determined was : 'Whether more than seventy-five per cent. of the shares of the applicants are not beneficially held by the public ?' as stated in the Supreme Court judgment.
13. Consequent upon the order of the Division Bench of this court dated 24th March, 1961, a further supplementary statement has now been submitted - the statement dated 25th June, 1963. This statement was submitted after the Appellate Tribunal had first remitted the case to the Appellate Assistant Commissioner and that officer in his turn had remitted it to the Income-tax Officer for report. After the report was received, the Appellate Assistant Commissioner came to the conclusion that members of the public did not hold shares of 25 per cent. or more in the total holdings of the company. Therefore, the provisions of section 23A were attracted and the company could not take advantage of the third proviso thereof. The Appellate Assistant Commissioner found the following shares to be held by the directors or by persons under their control :
CATEGORY 'A'Directors : Shares SharesRavindra Maganlal 1,168Surendra Maganlal 1,100 2,268--------CATEGORY 'B' :Shares held by the shareholderof the managing agency company :Bipinchandra Maganlal 1,000Harishchandra Maganlal 1,000Krishnakumar Maganlal (minor)by his mother and guardian, Smt.Kantaben Maganlal 1,000 3,000-----------CATEGORY 'C' :Shares held by directors who werepromoter of the company andtheir wives :1. Maganlal Parbhudas :(a) in own name 1,344(b) in the names of hisnominees(i) Babulal Chunilal 100(ii) Chunilal B. Mehta 50(c) in the name of the wifeof the promoter and motherof the shareholders of themanaging agency, Smt. KantabenMaganlal 771 2,265-------- -----------Total 7,533-----------
14. Thus, according to the Appellate Assistant Commissioner, the total shares which constituted the controlling interest numbered 7,533 shares. This constituted more than 75% of the ten thousand shares which was the total capital of the company and, therefore, 25 per cent. Could not be held by the public within the meaning of the third proviso to section 23A.
15. The Appellate Tribunal substantially upheld the findings of the Appellate Assistant Commissioner as to most of these shares except the finding regarding the 100 shares held by Babulal Chunilal and 50 shares held by Chunilal B. Mehta. Regarding the shards held by these two persons as stated above, it held that they could not be taken into account in considering the holding of the group having controlling interest in the affairs of the assessee-company. If these 150 shares are not to be taken into account in considering the holding of the group having the controlling interest, then obviously the total number of shares held by that group would be 7,383 i.e., less than 7,500 shares, which is 75 per cent. Of the total capital of the company. Therefore, it must be held that the public held more than 25 per cent. of the shares which were not in the holdings of the group having the controlling interest or under their control. That was the view which the Appellate Tribunal took - a view favorable to the applicant-mill.
16. On the question whether 25 per cent. of the voting strength in the company is still with the public and is not in the group having the controlling interest in the affairs of the company, the principle point now argued on behalf of the department is directed against the finding regarding the holdings of two persons, viz., Babulal Chunilal and Chunilal B. Mehta.
17. Babulal Chunilal is the brother's son of Maganlal. So far as the 100 shares held by him are concerned, the Appellate Assistant Commissioner relied upon two circumstance to hold that his shares were under the control of Maganlal or other directors of the mills. The two circumstance were that the Babulal Chunilal had declared before the Income-tax Officer at the time of the assessment in 1944-45 that the 100 shares held by him actually belonged to his uncle, Maganlal, and the the dividends on such shares were also appropriated by Maganlal. The other circumstance was that in the statement of dividends filed by Maganlal himself for subsequent assessment years, i.e., 1944-45 and 1945-46, he had declared that the dividends declared upon these shares were received by him, though the shares were standing in the name of the Babulal. Moreover, Maganlal was actually assessee upon the dividends received from these shares in the years 1944-45 and 1945-46 and he took no objection, nor did he appeal against the assessment.
18. The Tribunal has set aside this finding. The Tribunal not only took into account the facts and circumstance stated by the Appellate Assistant Commissioner, but further facts which were not noticed by the Appellate Assistant Commissioner, viz., that Babulal was separate from Maganlal and that certain disputes had commenced between the two branches of the families represented by Chunilal and Maganlal since about the year 1925. The Tribunal found that when the firm, Ravindra Maganlal and Bros., was converted into a limited company, the two sons of Chunilal, viz., Babulal and his brother, Amritlal, were both dropped from the managing agency of the company. It held that though initially Chimanlal, Amritlal and Babulal, the sons of Chunilal, were associated with Maganlal in the management of the mills as partners in the managing agency firm, within about a year thereafter the three brothers left the managing agency firm in 1933 and Maganlal became the sole proprietor of the business of the managing agency. Upon these facts the view which the Tribunal took was that, though no doubt the three sons of Chunilal were associated with Maganlal in business, the dispute between the uncle and the nephews were already there but were latent. It was only in 1947 that they came to the surface, resulting in considerable litigation in 1948.
19. Mr. Joshi on behalf of the department has challenged this finding of the Tribunal and he has urged that it is based mostly on conjecture and is patently incorrect upon the evidence. He has pointed to the evidence of Babulal dated 6th March, 1963, when he was examined by the Appellate Assistant Commissioner and argued that Babulal in that evidence never made a grievance that he had been dropped from the managing agency firm by his uncle. He pointed out that Babulal was not examined by the Tribunal before reversing the finding and the Tribunal should have taken it into account that Babulal was not examined on behalf of the applicants. He has also referred to the affidavit filed by Babulal before the Appellate Assistant Commissioner wherein Babulal admitted the difference which arose among the directors. In answer to question No. 22 : 'Was there any occasion when the difference of opinion among the directors became reflected in the meeting openly ?', his answers was : 'Yes, in 1947, when by brother was not re-elected, I voted for him while the others did not'. Babulal was also asked who were the directors of the mills in 1942-43 and he admitted that the directors were Sir Chunilal B. Mehata, Maganlal Parbundas, Amritlal Chunila, Babulal himself, Ravindra Maganlal, Surendra Maganlal and Bhagwandas Harakchand.
20. A point was also made with reference to the shares of Chunilal B. Mehta. The Appellate Assistant Commissioner found that Chunilal B. Mehta who held 50 shares got those shares by transfer from one P. H. Nagri in 1942. They were transferred to the joint names of Chunilal B. Mehta and his wife, Tapibai Mehta. It was thereafter that Chunilal became a director of the company. The circumstances under which these shares were paid for, we shall presently advert to, but stress was laid upon the position which Chunilal occupied. The Appellate Tribunal has found that Chunilal B. Mehta was a man of great status in the business world and that he was, therefore, invited to join the board of directors of the Raghuvanshi Mills apparently to lend weight of his name to the board of directors. Here therefore was a man of great position and influence brought on the board in order to lend weight and status to the board of directors of the applicant-company and it was urged that he must, therefore, necessarily have been in position to influence the other directors. Alternatively, it was urged that the fact that they, particularly Maganlal, invited him to join the board of directors shows that they all formed one group and that, therefore, the shares held by Chunilal B. Mehta must be held to be part of the holdings of the group which was in control.
21. So far as the finding regarding the shares held by Babulal Chunilal is concerned, we think that the finding reached by the Appellate Tribunal is a finding which is based purely upon the evidence and is a finding of fact. All the circumstances which the Appellate Assistant Commissioner took into account were considered by the Appellate Tribunal and the Appellate Tribunal also pointed out several other facts and circumstances to which we have referred above. The finding reached is, in our opinion, clearly a finding of fact.
22. So far as the shares held by Chunilal B. Mehta are concerned, the finding of the Appellate Assistant Commissioner was that when the shares were transferred to his name they were not paid for by Chunilal Mehta. It appeared that he paid for them only on 11th August, 1944. This is clear from an entry in the cash book of the Pedhi of Shah Maganlal Parbhudas, i.e., of Maganlal himself. There was also a corresponding entry debiting the Central Bank of India with Rs. 5,000. It was, therefore, held that since the shares were transferred in 1942, but actually paid for by Chunilal Mehta on 11th August, 1944, on the relevant date, i.e., on 31st March, 1943, it was really Maganlal who was beneficially holding the shares. Moreover, the dividend warrant pertaining to these 50 shares in the name of Chunilal B. Mehta and his wife was found to have been encashed by Maganlal. The Appellate Assistant Commissioner held that only conclusion that could be reached in the circumstances was that the shares remained in the custody of Maganlal and that the dividends were collected and appropriated by him also. Now the Appellate Tribunal referred to other circumstances : principally the one that, though the shares were transferred in the name of Chunilal Mehta in 1942, the latter had protested regarding the price to be paid for those shares and, therefore, there was a delay in the payment of the amount of Rs. 5,000. The shares which he received were transferred by the seller, Nagri, and since payment had to be made to the seller and the dispute regarding the price between Chunilal Mehta and Maganlal could not deprive the seller of the value of the shares, Maganlal paid Rs. 5,000 to the seller, Nagri, and the former was in his turn reimbursed afterwards in 1944. The Tribunal also held that the receipt of the dividend pertaining to those shares by Maganlal was in lieu of the interest on Rs. 5,000 which Maganlal had paid to the seller, Nagri, in 1942. Coupled with these circumstances, the Tribunal took into account the fact that Chunilal Mehta was a person of position and status, which was not disputed; that he was not in any way related to Maganlal or his sons and that his inclusion in the board of directors and as chairman of the company could not be due to any influence which Maganlal wielded over him. They held that there was no material anywhere or any room for any inference that Chunilal Mehta formed a member of the group with Maganlal and his son. This finding also, in our opinion, is a pure finding of fact based upon evidence relevant for consideration. It was a finding which was within the jurisdiction of the Tribunal. That being so, the court must accept that finding.
23. Mr. Joshi on behalf of the department urged that in considering the holdings of either of the two persons, viz., Babulal Chunilal and Chunilal B. Mehta, the Appellate Tribunal committed an error of law in so far as they omitted to consider whether these two persons held the shares beneficially. The Explanation used the words 'and are at the end of the previous year beneficially held by the public'. The argument was that the fact that the dividends from Chunilal Mehta's shares were in the relevant year taken by Maganlal as also the dividends of the shares held by Babulal, would clearly show that in essence Maganlal was the beneficial owner and not Chunilal Mehta or Babulal Chunilal and that the Tribunal committed an error of law in so far as it ignored the words 'beneficially held' in the Explanation. The expression 'beneficially held' does not appear to have been construed as such in any of the authorities, and, having regard to the normal canons of construction, must be construed in the context not only of the Explanation but of the provisions of section 23A itself and isolated from its context.
24. In the first place, we may say that we do not think that by the use of the word 'beneficially' the draftsman had in mind the well-established distinction in law between beneficial ownership and legal ownership. In our opinion, the expression 'beneficially held' would not in the context in which it is used imply only the relationship of trustees and cestui que trust. The expression may include the cestui que trust, but, in our opinion, it is not used as an equivalent to that expression. The whole object of the third proviso is to ensure that there must be voting power exercised which must be independent of the control of a dominant group, not necessarily the directors and it is in that context that the expression has been used in connection with the shares 'and are at the end of the previous year beneficially held by the public.' The Explanation is concerned with the voting rights with seeing that the voting rights remain free and uncontrolled to a certain extent. No doubt the question as to whom the benefit of the shares goes could not be entirely irrelevant, but it seems to us that the principal consideration in deciding whether the shares are beneficially held by the public or not, is to see whether they have genuine freedom to vote irrespective of whether they are entitled to the dividends or not. In that context upon the facts we found we cannot but hold that the shares held by both Babulal Chunilal and Chunilal Mehta were beneficially held by the public. The conclusion which the Tribunal reached on this question was, therefore, correct.
25. We are fortified in our view by the observations of the Supreme Court in two of the cases already referred to, namely, the decision in the present case itself, Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, and in Commissioner of Income-tax v. Jubilee Mills Ltd. Considering the expressions 'unconditionally' and 'beneficially' in the former case, Hidayatullah J., who delivered the judgment on behalf of the Full Bench, observed :
'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'.'
26. The emphasis, therefore, is on the 'free exercise of his voting power'. The same learned judge affirmed the principle in the Jubilee Mills Ltd. case and observed at page 17 as follows :
'This court pointed out that by the words 'unconditionally' and 'beneficially' is 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 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.'
27. In that view, it must be held that there was no error of law in the findings reached by the Tribunal.
28. Then we turn to another point raised on behalf of the department. Mr. Joshi pointed out that the Explanation to section 23A requires the establishment of three ingredients so far as the 25 per cent. of the voting power is concerned; firstly, that the shares must be allotted unconditionally to or acquired unconditionally by the public; secondly, that those shares should at the end of the previous year be 'beneficially held' by the public and, thirdly, that either those shares should in the course of the previous year have been subjected to any dealings on the stock exchange in the taxable territories or should be 'in fact freely transferable by the holders to other members of the public'. The argument is founded upon the third requirement. There is no dispute here that the shares of this company had no quotation on the stock exchange and, therefore, the first part of the third requirement was not fulfilled so far as these shares were concerned, but it was the case of the assessee that these shares were in fact transferable by the holders to other members of the public. It is this third requirement of the Explanation upon which Mr. Joshi had laid considerable emphasis. What Mr. Joshi urges is that the question referred for our answer is plainly the question whether section 23A is applicable to the applicants on the facts and circumstances established. Therefore, if any complete answer is to be given, this court must have regard to all the ingredients of section 23A and particularly of the Explanation to section 23A. Mr. Joshi says that even assuming that there is no finding given as to this third requirement of the Explanation by the authorities, this court ought to call for such a finding because, without calling for a finding on that question, a complete answer to the question referred cannot possibly be given. Mr. Palkhivala, on behalf of the mills has, on the other hand, urged that no finding could be called for on this question, viz., transferability of the shares, because it was not a point urged before the Tribunal and is not a question referred to in the order of the Tribunal or in the statement of the case.
29. The circumstances as they appear from the record, regarding the question whether the point was raised or not, are as follows : The question was undoubtedly not adverted to directly in the first statement of the case on 26th September, 19522. Thereafter, as we said, a Division Bench of this court called for a supplementary statement on 10th March, 1953. In that order the Division Bench indicated that there was no finding on the question whether there was de facto control and if so, who exercised it and ordered the Tribunal to submit a supplementary statement of the case 'in the light of our judgment'. In the first supplementary statement, therefore, the Tribunal also did not feel called upon to touch upon this requirement in the order calling for the supplementary statement. This question seems to have been referred to in the supplementary statement by the Appellate Tribunal of the 24th June, 1954. In paragraph 18 the Tribunal stated : 'The assessee's attorney contended that paragraphs 3, 15, 16 and 17 should be deleted. It was urged that paragraphs 15 and 16 are outside the direction given to the Tribunal. It is true that we have not been directed by their Lordships to deal with the points mentioned in paragraphs 15 and 16. As the first question was decided in favor of the department it was not thought necessary to deal with the second aspect of the case. Now that it is found that the view taken by the Tribunal was erroneous this question naturally becomes important.' When we turn to paragraphs 15, 16 and 17, however, we find once again that there is no definite decision or finding given by the Tribunal in those paragraphs as to whether the said shares were freely transferable or not. In paragraph 15, the Tribunal found as follows :
'It is not disputed that these shares have not been dealt with on any stock exchange. What is suggested is that these shares were in fact freely transferable by the holders to other members of the public. The articles give complete power to the board of directors whether to accept the transfer or not. We have stated herein before that as a matter of fact these transfers have not been recorded in the director's minute book. How far the transfers made are effective in law is not a matter for us to decide at this stage.'
30. There was no transfer in the subsequent order passed by this court, after this supplementary statement of the case was made, to this aspect of the case. When the matter went before the Supreme Court, however, we find from their judgment that the topic was adverted to in the perambulatory part of the judgment. On page 618 in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax at the end of the first paragraph Mr. Justice Hidayatullah referred to the question as follows :
'At no stage in the case did the Tribunal alter the finding reached by the department that the shares of the company were not, in fact, freely transferable by the holders to members of the public.'
31. There was no other reference to this aspect of the case and it appears that the arguments before the Supreme Court were only confined to the question of the controlling interest and no reference was made to the question, whether the shares were transferable or not. Nevertheless, as we have said, the Supreme Court remitted the same question which was originally referred to this court by the Tribunal, viz., 'Whether, on the facts and circumstances of the case, provisions of section 23A of the Indian Income-tax Act (XI of 1922) are applicable to the petitioners.' After the matter came back to this court and this court called for a further statement by its order dated 24th March, 1961, the Appellate Assistant Commissioner observed in paragraph 15 of his order as follows :
'Coming to the alternate contention of the Income-tax Officer that the provisions should be held to be applicable to the present case as the shares were not freely transferable as per article 55 of the articles of association, a finding to such an effect has already been given by the Hon. Appellate Tribunal in its first supplementary statement of case dated June 24, 1954. The relevant material has already been included in the said first supplementary statement of the case. I have only to point out an observation made by their Lordships of the Supreme Court in the course of their judgment in the appellate case (reported in 1961 41 I.T.R. 13) at page 618'
32. and then the Appellate Assistant Commissioner quoted the self-same passage from the judgment of the Supreme Court which we have quoted above. The Tribunal referred to the question in paragraph 18 of its statement of the case, but decided that considering the express terms of this court's order directing them to submit a supplementary statement of the case only on one question, viz., whether more than seventy-five per cent. of the shares of the applicants were not beneficially held by the public They did not feel called upon to go into that aspect of the matter.
33. We have stated the facts and quoted the findings in extenso because it was in the first place a matter of acute controversy at the Bar whether the question has been decided at all. Secondly, and assuming that it was not decided, Mr. Joshi on behalf of the department urged that this court should now either decide it itself or call for a further supplementary statement from the Tribunal in order to decide the question. Mr. Palkhivala of course countered that the question cannot now be decided by this court, for it was never raised on behalf of the department when the case was first referred to this court and there is now no power in this court to call for a supplementary statement in order to decide the question.
34. The Tribunal in paragraph 15 of its supplementary statement dated 24th June, 1954, touched upon this question and referring to article 55 of the articles of association of the company held that that article gives complete power to the board of directors to accept or not to accept a transfer of shares. In paragraph 17 it referred to the fact that Maganlal was all in all in this company and could not do whatever he liked and there was nobody to question him. Then he held, 'we think that on the facts produced it is not proved that the shares of the assessee-company were in fact freely transferable by the holders to other members of the public'. While this conclusion was reached at this stage of stating the case and in a supplementary statement of the case, it does not appear that the Tribunal similarly held when it passed the order out of which the supplementary statement arose and indeed this was the important circumstance which the Supreme Court itself noted when it stated in its judgment that at no stage in the case did the Tribunal alter the finding reached by the department that the shares of the company were not in fact transferable by the holders to other members of the public. By this observation of the Supreme Court we are absolutely bound and the observation indicates two things, firstly, that there was a finding by the departmental authorities that the shares of the company were not freely transferable by the holders to the members of the public and secondly, that the Tribunal did not at any stage alter the finding reached by the department. In view of that weighty observation and in view of the fact that despite that observation the Supreme Court referred back the question to this court, whether on the facts and circumstances of the case section 23A was applicable to the petitioners, it seems to us that any answer which we may give to the question remitted to us must necessarily depend upon our answering the question, whether the third requirement of the Explanation is fulfilled or not.
35. Apart from authority, it is clear upon the terms of the Explanation itself that if the shares are held not to be freely transferable by the holders to other members of the public, the mills cannot take advantage of the third proviso and section 23A would be applicable. Therefore, it is a very material point which falls for consideration and must be decided before the applicability of section 23A can be pronounced upon, and since the question referred is whether section 23A is applicable to the case of the petitioners, the question whether the shares are freely transferable or not is vital.
36. But it is urged by Mr. Palkhivala relying upon several authorities that it is no longer open to this court to consider that question or even to call for a further statement of the case with a view to considering that question. Mr. Palkhivala has relied in this aspect upon five cases, Kusumben D. Mahadevia v. Commissioner of Income-tax, Rajkumar Mills Ltd. v. Income-tax Appellate Tribunal, New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. and Raghuvanshi Mills Ltd. v. Commissioner of Income-tax.
37. In Kusumben D. Mahadevia v. Commissioner of Income-tax the Supreme Court dealing with the provisions of section 66 of the Income-tax Act (II of 1922) observed that it did not confer jurisdiction on the High Court to decide a question of law different from the question referred and not arising out of the order of reference. In that case, the question referred was, whether certain income had accrued to the assessee in the former Baroda State or whether it had accrued or would be deemed to have accrued to the assessee in British India. When the matter came before the High Court, the High Court framed a further question whether the assessee was entitled to any concession under the Merged States (Taxation Concession) Order, 1949, with regard to the net dividend income involved in the case. It was in that connection that the Supreme Court held that since the Appellate Tribunal had not gone into the question of applicability of the Merged States (Taxation Concessions) Order, 1949, to the assessee and had not expressed any opinion thereof, the High Court exceeded its jurisdiction in going outside the point of law which was different from the point of law considered by the Tribunal and which was not referred to in the order of the Tribunal. That was thus a case where the point did not directly fall within the ambit of the question referred and was altogether a new point which was not before the Tribunal nor referred to in the statement of the case.
38. In the very case, however, their Lordships were concerned to point out that it is possible that the same question of law may involve different approaches for its solution, and in that event the High Court may amplify the question to take in all the approaches. Even so, the question must be one which was before the Tribunal and was decided by it and it must not only be a question entirely different from the question which fell for consideration by the Tribunal.
39. Applying these principles to the present case, we find that in the first order which the Appellate Tribunal passed on 2nd January, 1951, sitting in appeal, viz., the question of the transferability of the shares was not at all raised, argued or dealt with. Indeed the Tribunal prefaced their whole order by saying 'the only contention of the assessee in this appeal is that the appellant company is a company in which the public are substantially interested within the meaning of the Explanation to the third proviso to section 23A(I) and therefore section 23A is not applicable to the assessee-company.' It was not challenged on behalf of the applicants that this statement in the Tribunal's order was incorrect.
40.The principles laid down in Mahadevia's case have been applied to varying facts in the subsequent decisions to which we have already referred. The question that has always to be considered upon these authorities is whether the new question which is raised is a question which comes within the ambit of the question referred or may be characterised as one of the facets of that question or, as the Supreme Court put it, 'one of the approaches' to that question in which case it could be considered as part of the question referred but if the question which arises is a question completely different from the question referred, it cannot be considered by this court nor can a further statement of the case be called for on such a question.
41. The principle is clear, but as is not unusual, is difficult in its application. In the present case, we have already indicated that the question referred is whether section 23A is applicable in the case of the petitioners. The question brings in a consideration of the third proviso and the Explanation to section 23A. That, in its turn, requires findings upon three questions, whether the shares were allotted unconditionally, whether they were beneficially held by the public and whether they were freely transferable by the holders to other members of the public (we will leave out of consideration the question whether they were quoted on the stock exchange or not, for it is nobody's case that they were). We have already dealt with the question whether they were beneficially held or not and the question as to the effect of the words 'unconditionally allotted' and only the third ingredient of the Explanation remains to be considered. Now, if the question is whether section 23A is applicable, we fail to see how we can decide that question without adverting to one of the very ingredients of the section, viz., the question of transferability of shares. That, in our opinion, is an integral part of the question referred and is implicit in the question whether section 23A applies or not. In other words, it is only a facet of or approach to the same question which has been referred to this court for opinion. It is, therefore, a question which we will have to decide before the question referred is answered.
42. In the passage which we have already quoted, which occurs at page 618 in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, the Supreme Court itself indicated that at no stage in that case did the Tribunal alter the finding reached by the department that the shares of the company were not in fact freely transferable by the holders to the members of the public. This observation is plenary and it is clear from that observation that the question was raised and a finding reached by the department, but the Tribunal did not at any stage alter that finding. We have referred to a finding of the Tribunal in the statement of the case, but there is no finding in the appellant order of the Tribunal. The question, therefore, arises upon the statement of the case, but since there was no consideration of the question by the Tribunal in its appellant order, it is clear that such a finding must be called for. In connection with the powers of this court under section 66(I) the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., at page 611, indicated four possible positions that may arise when a question is raised for consideration in a reference and, after stating those four positions, the Supreme Court observed :
'Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order... All that section 66(I) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(I) of the Act. That was the view taken by this court in Commissioner of Income-tax v. Ogale Glass Works Ltd. and in Zoraster and Co. v. Commissioner of Income-tax and we agree with it.'
43. In that view, we consider the question as to the transferability of the shares, as an aspect of the question referred to us and not a distinct question for the purpose of section 66(I) of the Act.
44. In the result, we call upon the Tribunal to make a supplementary statement of the case on this aspect of the question referred, i.e., whether the shares which we have found by this order are beneficially held by the public, are in fact freely transferable by the holders thereof to other members of the public within the meaning of the Explanation to section 23A
45. At this stage Mr. Joshi on behalf of the revenue urges that the question should be, whether all shares of the company are in fact freely transferable by the holders to other members of the public, etc. He urges that upon the language of the Explanation, the question should not be limited to only the shares which we have found are beneficially held by the public, but to all the shares of the company. The relevant words of the Explanation are as follows :
'... and are at the end of the previous year beneficially held by the public... and if any such shares... are in fact freely transferable by the holders to other members of the public.'
46. The clause, therefore, refers to the shares beneficially held by the public and then goes on to say 'and if any such shares are in fact freely transferable by the holders to other members of the public.' The word 'such' necessarily refers back to the shares 'beneficially held by the public' and not to all the shares of the company. In our opinion, the question of transferability can only arise in respect of such shares as we have found are beneficially held by the public. We, therefore, call for a supplementary statement in the light of the direction given above. Four months' time allowed for the statement of the case.
47. Mr. Palkhivala prays for the costs incurred in the High Court. So far as the costs incurred in the Supreme Court are concerned, the Supreme Court awarded costs to the applicants, but they ordered that the costs in the High Court shall abide the result. Since we have not finally pronounced upon the question referred, but have called for a supplementary statement in order to enable us to decide the question, there is no result yet. The question of costs will, therefore, be decided when the question referred is finally answered.