The judgment of the court was delivered by
M. S. MENON C.J. - This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922. The question referred i :
'Whether, on the facts and in the circumstances of the case, the Cochin Malleables (P.) Ltd. was a company in which the public were substantially interested as contemplated by section 23 ?'
The question has to be resolved in the light of Explanation I to section 23A of the Indian Income-tax Act, 1922. The relevant portion of that Explanation reads as follow :
'For the purposes of this section, a company shall be deemed to be a company in which the public are substantially interested -
(a) if it is a company owned by the Government or in which not less than forty per cent. of the shares are held by the Government.....'
The assessee is not a company owned either by the Central or a State Government. The only question for determination is whether it can be considered to be a company in which not less than forty per cent. of the shares are held by the Government of Kerala.
4. The statement of the case say :
'The paid-up share capital was Rs. 3,79,660 divided as under :
(i) 862 Cumulative preference shares of Rs. 100 each
(ii) 29,346 Ordinary shares of Rs. 10 each
Of the above, the Government of Kerala held the following share :
(i) 852 Cumulative preference shares of Rs. 100 each
(ii) 8,510 Ordinary shares of Rs. 10 each
The proportion of the shares held by the Government to the total paid up capital of the company worked out t : (1) 44.8 per cent. by monetary value, and (2) 30.99 per cent. by number.'
Which of the two percentages is the material percentage for deciding whether the assessee is a company in which the public are substantially intereste We take the view that it is the former and not the latter, and that as a result, the question referred has to be answered in favour of the assessee and against the department.
According to Halsbury, a share is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities while the company is a going concern and in its winding up (3rd edition, volume VI, page 234). In Prabhudas v. Ramlal Couch C.J. sai :
'A share in a company signifies a definite portion of its capital, and a contract to sell is a contract to sell and transfer that right'
and in Borlands Trustee v. Steel Brothers & Co. Limited Farwell J. sai :
'A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second......'
The expression 'share' is defined in section 2(46) of the Companies Act, 1956. The definition i :
'share means share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied....'
All the shares of a company need not be of an equal amount, nor need they be all of the same class. It must follow that the existence or otherwise of a substantial interest will have to be gauged with reference to the participation in the share capital of a company and not by the number of shares held irrespective of their value and character. The commentary of Sampath Iyengar is to the same effect. It say :
'In 1955, section 23A was recast largely following the recommendations of the Mathai Committee. The definition of a company in which public was substantially interested was enlarged so as to include a company owned by the Government or a company in which the Government held 40 per cent. or more of the share capital' (5th edition, volume III, page 1281).
We entertain no doubt that the question referred has to be answered in the affirmative as indicated in paragraph 4 above. We do so, but without any order as to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.
Question answered in the affirmative.