1. In this reference, the question referred to us by the Income-tax Appellate Tribunal is as under :
'Whether shares held by a company in which the public are substantially interested within the meaning of section 2(18) of the Income-tax Act, 1961, are shares held by the public within the meaning of section 2(18)(b) ?'
2. Thus, in the orders of the Income-tax Officer, Appellate Assistant Commissioner and the Tribunal from which this reference ultimately came to the High Court, the question being canvassed was whether the assessee company can be regarded as a company in which the public are substantially interested The question involves the proper construction and application of the provisions contained in section 2(18) as the statutory provisions stood for the assessment years 1970-71 and 1972-73.
3. If we peruse the order of the Income-tax Officer, it is found that the Income-tax Officer came to the conclusion that the assessee company could not be treated as a company in which the public was substantially interested, because the triple conditions laid down by the statutory provisions in section 2(18)(b)(i) were not complied with.
4. In making the reference, it would appear that only a very limited question has been referred to the High Court and the answer to be given to that question would seem to depend only on the applicability of the first of the three conditions.
5. The learned advocate for the assessee has drawn our attention to a decision of the Division Bench of this Court (to which I was a party), in which decision this point has been considered and where the answer has been given in favour of the assessee in a similar set up.
6. In the present case, a few facts may be stated. The assessee was originally known as Murphy Radio of India Ltd., but from December 17, 1963, the name was changed to Murphy India Ltd. On December 31, 1963, after the issue of bonus shares, its total capital consisted of 2,98,606 shares of the face value of Rs. 10 each. The shareholdings in the assessee company are indicated in paragraph 1 of the statement of the case and it would appear that Rank Bush Murphy Ltd., a U.S. company, held about 49% shares of the assessee company. The Revenue did not dispute the position that the said Rank Bush Murphy Ltd. was a company in which the public were substantially interested within the meaning of section 2(18) of the Income-tax Act, 1961. It may be mentioned, which fact is referred to in the statement of the case, that the auditors of Rank Organisation Ltd. had certified this by their letter dated July 7, 1964, the relevant portion of which is mentioned in paragraph 1 of the statement of the case.
7. The learned advocate for the assessee company has drawn our attention to the case of CIT v. Baroda Investment Co. Ltd. : 119ITR14(Bom) , in which it has been held that if the three companies holding more that fifty per cent. of shares of the assessee company were companies in which the public were substantially interested, then those three companies were covered by the term 'public' occurring in section 2(18)(b)(B)(d). Consequently, the provisions of section 23A of the Indian Income-tax Act, 1922, or section 104 of the Income-tax Act, 1961, were held not applicable to the assessee company concerned in the said reference, namely, the Baroda Investment Co. Ltd. In that reference, reliance was also placed by the said assessee on a circular issued by the Central Board of Direct Taxes dated April 5, 1974. The relevant portion of the said circular has been extracted in the said judgment.
8. In our opinion, on the facts and on the admitted position in our case, the answer to be given to the question referred to us is concluded by the decision in Baroda Investment Co. Ltd.'s case : 119ITR14(Bom) . We are of opinion that it is unnecessary to refer to the large number of authorities discussed in the order of the Tribunal. As far as this court is concerned, the answer to be given to the question is concluded by its decision in Baroda Investment Co.'s case : 119ITR14(Bom) and we answer the said question in accordance with the said decision in the affirmative and in favour of the assessee. The Revenuewill pay the costs of the reference to the assessee.