CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 761 & 762. of 1971.
(Appeals by Special Leave from the Judgment and order dated the 14-3-1969 of the Patna High Court in M.J.C. Nos. 182 and 183 of 1962).
B. Sen, T. A. Ramachandran and S. P. Nayar, for the appellant.
Hardayal Hardy, and Bishamber Lal, for respondent.
The Judgment of the Court was delivered by
GOSWAMI, J. These two appeals by special leave are directed against the common judgment of March 14, 1969, of the Patna High Court in the matter of two references under section 66(1) of the Indian Income-tax Act, 1922, relating to assessment years 1953-54 and 1954-55 of the respondent (hereinafter to be referred to as the company) .
The case has a rather chequered history as will appear from the facts narrated below:-
The company at the material time was a private limited company and at the end of the relevant previous years, namely, August 31, 1952 and August 31, 1953, the shareholding was as follows:-
Number of shares on:
31-8-1952 31-8-1953. 1. Sri Ashok Kumar Jain, 10,000 10,000
Managing Director. 2. Sri R. Sharma Director 10 10 3. Sri N. C. Jain Director 10 10 4. Sri S. P. Jain 10,000 10,000 5. Smt. RamaJain 10,000 10,000 6. Sri Alok Prakash Jain 10,000 10,000 7. Sri Rishabh Investment Ltd 5,000 5,000 8. Dalmia Jain Co. Ltd. 2,000 2,000 9. Universal Bank of India Ltd 980 980 10.Ashoka Agencies Ltd. . . .. . 2,000 2,000
Of these shareholders Rama Jain is the wife of S. P. Jain and Alok Prakash Jain and Ashok Kumar Jain are the sons of S. P. Jain and Rama Jain. Ashok Kumar Jain (briefly A. K. Jain), the Managing Director, attained majority on March 5, 1952, while Alok Prakash Jain was a minor during both the accounting years. The three companies, namely, Rishabh Investment Ltd., Dalmia Jain Co. Ltd. and Universal Bank of India Ltd., are companies to which the provisions of action 23A of the Income-tax Act, 1922 (briefly the Act) prior to its-amendment by the Finance Act 1955, applied. S. P. Jain was the principal shareholder of the Universal Bank of India Ltd. holding 980 shares. Ashoka Agencies Ltd. with 2000 shares was a company to which admittedly section 23A did not apply. R. Sharma and N. C. Jain holding 10 shares each were employees, N. C. Jain being the Secretary of S. P. Jain.
The Income-tax officer by his orders of September 25, 1957 and October 30, 1957, held that section 23A was attracted in the case of the company for both the years. On appeal, the Appellate Assistant Commissioner remanded the matter back to the Income-tax officer for a finding on certain additional facts. The Income-tax officer in his remand report submitted certain additional facts to the Appellate Assistant Commissioner who in due course affirmed the orders of the Income-tax officer. The company appealed to the Income-tax Appellate Tribunal, Bihar, at Patna. The Tribunal allowed the appeal by its order of January 26, 1961 (7) and held that section 23A was not applicable to the company in respect of both the assessment years. At the instance of the Commissioner Income-tax, Bihar, the following question was referred by the Tribunal to the High Court:
"Whether on the facts and circumstances of the
case the Tribunal was justified in holding that the
provisions of section 23A of the Income-tax Act were
not applicable to the assessee company for the
assessment years 1953-54 and 1954-55" ?
The High Court by its order of December 9, 1965, in view of two decisions of this Court, namely, Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Bombay,(l) decided on December 7, 1960 and Commissioner of Income-tax Bombay v. Jubilee Mills Ltd.(2) Bombay, decided on September 1, 1962, directed the Tribunal to submit a supplementary statement of case to it:
"Whether bearing in mind the principles laid down
by the Supreme Court in Raghuvanshi Mills Ltd. v.
Commissioner of Income-tax (41 Income Tax Reports 613)
and Commissioner of Income-tax, Bombay City v. Jubilee
Mills Ltd. (48 Income Tax Reports 9) Shrimati Rama Jain
and Sri Ashok Kumar Jain, or either of them could be
safely taken to have acted in concert with Sri S. P.
Jain during the years in question, in respect of the
affairs of the assessee company" ?
(1) [1961] 2 S.C.R. 978. (2) [1963] Supp. 1 S.C.R. 83. The High Court also directed that "the Tribunal may take additional evidence, if it considers it necessary to enable it to state the supplementary case as directed above".
The Tribunal thereafter, after hearing the parties, submitted a supplementary statement of case to the High Court on September 30, 1966. A controversy arose before the Tribunal with regard to entertainment of additional evidence which the Revenue wanted to adduce before it, particularly in view of the direction of the High Court, but the Tribunal did not accede to the request and additional evidence was not received. The matter then came up before the High Court resulting in the impugned order against the Revenue. Hence these two appeals by special leave. The Revenue reiterated its grievance before the High Court about the Tribunal’s refusal to entertain additional evidence without success and the matter is no longer in controversy in view of a decision of seven Judges of this Court in The Keshav Mills Co. Ltd. v. Commissioner of Income-tax, Bombay North,(1) affirming the earlier decisions of this Court in the case of the New Jehangir Vakil Mills Ltd. v. The Commissioner of Income-tax, Bombay North(’) and The Petlad Turkey Red Dye Works Co. Ltd. Petlad v. The Commissioner of Income-tax, Bombay, Ahmedabad(3). It is now well-settled that when the Tribunal has disposed of the matter and is preparing a statement of the case either under Section 66(1) or under section 66(2), there is no scope for any further or additional evidence and the power of the High Court under section 66(c) can be exercised only in respect of material and evidence which has already been brought on the record.
It was contended on behalf of the Revenue before the High Court that the finding of the Tribunal was perverse. Mr. Sen appearing on behalf of the Revenue before us has fairly and, in our opinion, rightly not pressed this submission before us. Similarly on behalf of the company also it was contended before the High Court that there was no principle of law involved in drawing any inference in the cases answer to the plea of the Revenue that the finding whether section 23A was not attracted was a mixed question of law and fact. It is not possible to hold that the question referred to the High Court is not a question of law as undoubtedly on the statement of case an important question of law does arise and the composite reference was competent.
The question that arises for consideration is whether on the facts and circumstances that are established before the Tribunal the company in the two assessment years can escape the reach of section 23A of the Act.
(1) [1965] 2 S.C.R. 908.
(2) [1960] 1 S.C.R. 249.
(3) [19631 Supp. 1 S.C.R. 871.
Section 23A prior to its amendment in 1956 and so far as it is material read as follows:-
"23A (1) . Power to assess individual members of certain companies.-
Where the Income-tax officer is satisfied that in
respect of any previous year the profits and gains
distributed as dividends by any company up to the end
of the sixth month after its accounts for that previous
year are laid before the company in general meeting are
less than sixty per cent, of the assessable income of
the company of that previous year, as reduced by the
amount of income-tax and super-tax payable by the
company in respect thereof he shall, unless he is
satisfied that having regard to losses incurred by the
company in earlier years or to the smallness of the
profit made, the payment of a dividend or a larger
dividend than that declared would be unreasonable, make
with the previous approval of the Inspecting Assistant
Commissioner an order in writing that the undistributed
portion of the assessable income of the company of that
previous year as computed for income-tax purposes and
reduced by the amount of income-tax and super-tax
payable by the company in respect thereof shall be
deemed to have been distributed as dividends amongst
the share-holders as at the date of the general meeting
aforesaid, and thereupon the proportionate share
thereof of each shareholder shall be included in the
total income of such shareholder for the purpose of
assessing his total income:
* * * *
Provided further that this sub-section shall not
apply to any company in which the public are
substantially interested
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’‘.
In this case the company did not declare any dividend for the assessment year 1953-54. In the next assessment year 1954-55, only a sum of Rs. 50,000/- was distributed as dividend. It is not in dispute that the company had sufficient requisite assessable income out of which sufficient or larger dividend could have been paid. There is no dispute that the payment of an adequate dividend for the first year and larger dividend for the next year would have been at all unreasonable in respect of these two assessment years. The only controversy between the parties is with regard to the exclusion of the company from the application of section 33A in view of the third proviso read with the Explanation. In other words, is the company one in which the public are substantially interested ? It could be so in terms of the Explanation if 25 per cent shares of the company or more had 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 in the course of such previous year were in fact freely transferable by the holders to other members of the public. It was not in dispute that the shares of the company were in fact freely transferable by the holders to other members of the public. The controversy, therefore, is within a very narrow compass, namely, whether, as stated earlier, the company is one in which the public has 25 per cent or more shares allotted unconditionally to, or acquired unconditionally by it and are at the end of the previous year beneficially held by it.
It may be mentioned that section 23A(l), as it stood before the amendment by the Finance Act 1956, did not authorise amalgamation of the shares held by "relatives" as if they represented a single shareholder. It will, therefore, be a question of fact and a matter of inference in each case whether any "relatives" forming themselves into a company acted as a group or block in concert in controlling the affairs of the company. Relationship would not, per se, lead to such a conclusion.
The Tribunal in its order observed:
"Sri A. K. Jain became major on 5-3-1952.
Therefore, as at the end of the two previous years, his
holding of 10,000 shares cannot ipso facto be
amalgamated with the shareholding of Sri S. P. Jain as
if he was the nominee of his father The shareholding of
10,000 shares by Mrs. Rama Jain has also to be left out
of account since, as already observed, there is no
finding that Sri S. P. Jain provided the consideration
for the acquisition of 10,000 shares held by her.
Assuming, therefore, that Sri S. P. Jain was
controlling shareholder, the shares held by the members
of the ’public’ which would include Sri A. K. Jain and
Mrs. Rama Jain would be at least 22,000 shares". " G
In the supplementary statement of case filed by the Tribunal enclosing various orders and other documents, it is shown that S. P. Jain was Director of the company from August 3, 1950 to September 25, 1950. He was appointed Managing Director from June 6, 1953, subject to approval of the Government. A. K. Jain was Director of the company from August 3, 1950 even when he was a minor (his date of birth being March 5, 1934) and was appointed Deputy Managing Director from June 6, 1953, subject to approval of the Government. R. Sharma was Director from 3-8-1950 to 7-9-1956. He was Secretary of R. K. Dalmia and employee of Sahu Jain Limited. H. C. Jain was Director from 25-9-1950 to 25-3-1954. He was Secretary of S. P. Jain and employee of Ashoka Agencies Limited.
From the above it appears that the Deputy Managing Director and the two other Directors held amongst themselves 10,000 shares and out of the balance 30,000 shares were held by the relations of the Managing Director, namely, by the father, the mother and the minor brother. It also appears that S. P. Jain along with Ashok Kumar Jain, R. Sharma and N. C. Jain were the promoters and subscribed to the Memorandum of Association at the start of the company in July 1950. It also appears Ashok Kumar Jain, Director, was getting a remuneration of Rs. 6,000/- per month w.e.f. September 1951 in accordance with the resolution passed in an extra-ordinary general meeting of the shareholders on October 1, 1951. At the meeting of the Board of Directors dated November 29, 1950, Ashok Kumar Jain and R. Sharma, Directors of the company, were authorised to execute managing agency agreements with different companies. Ashok Kumar Jain was generally presiding over the meetings from November 1950.
The Tribunal further observed in its statement of case that-
"A perusal of the minutes or the proceedings of
the general meetings does not lead to any inference
that Sri S. P. Jain, Smt. Rama Jain and Sri A. K. Jain
were necessarily acting in concert. On the other hand,
it appears that despite his young age, Sri A. K. Jain
seems to have been taking active interest in the
management of the affairs of the asses see-company and
the companies managed by it. Unless it is to be
presumed that because of relationship, Sri S. P. Jain,
Smt. Rama Jain and Sri A. K. Jain should be regarded as
acting in concert, there is no other material on record
on the basis of which such a conclusion could be
supported".
The Tribunal also observed:
"that in spite of opportunity afforded by the Appellate
Assistant Commissioner, the Income-tax officer had not
brought on record materials to show that the voting
rights of Mrs. Rama Jain or Sri A. K. Jain were
controlled by Sri S. P. G
The Tribunal concluded by observing that-
" The revenue had failed to establish that Sri S. P.
Jain, his wife and his son Sri A. K. Jain were acting
in concert".
Section 23A again came up for consideration before this Court in Commissioner of Income-tax, West Bengal v. East Coast Commercial Co. Ltd.(l). This Court made a reference to the Raghuvanshi Mills’ case (supra) where it was observed:
"The word ’public’ is used (in the Explanation) in
contradistinction to one or more persons who act in
unions 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 ...... the test is first
to find out whether there is an individual or -. 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". This Court further observed: "
The Tribunal had to decide in the first instance whether there was a group of persons acting in concert holding a sufficient number of shares which may control the voting as a block. But the existence of a block is not decisive. If there be a group of persons holding control over voting, the Company would still be a Company in which the public are substantially interested, if twenty-five per cent or more of the voting power has been allotted unconditionally to and beneficially held by the public and the shares were in the previous years subject of dealings in any stock exchange in the taxable territories or were in fact freely transferable by the holders to other members of the public. The two enquiries are distinct". This Court further referred to Jubilee Mills’ case (supra) and Raghuvanshi Mills’ case (supra) and observed as follows:-
"But in Commissioner of Income-tax, Bombay City-l v. Jubilee Mills Ltd. (supra) this Court held 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. It was observed in Raghuvanshi Mills’ case (supra) that ’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 relative act, not freely, but with others, they cannot be said to belong to that body, which is described as ’public’ in the Explanation’. In Jubilee Mills’ case (supra) this Court elaborated those observations and stated:
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
(1)[1967] I S.C.R. 821.
be acting together. It is not necessary to state the
kind of evidence that will prove such concerted
actings. Each case A must necessarily be decided on its
own facts".
This Court finally in the above East Coast Commercial Company’s case concluded as follows:-
"On an analysis of the reasons recorded by the Tribunal
and the High Court, it is clear that the Tribunal held
that the Kedias did not form a controlling group
because there was no evidence that they actually
controlled the voting, even though they held more than
seventy-five per cent of the shares issued by the
Company: the High Court observed that the members of
the Kedia family held 4,016 shares of the Company and
were in a position to control the affairs of the
Company, but there was no evidence to show that they
did in fact act in concert and controlled the affairs
of the Company as a block. But, as already observed, if
the members of the Kedia family formed a block and held
more than seventy-five per cent of the voting power, it
was not necessary to prove that they actually exercised
controlling interest. It is the holding in the
aggregate of a majority of the shares issued by a
person or persons acting in concert in relation to the
affairs of the Company which establishes the existence
of a block. It is sufficient, if having regard to their
relation etc., their conduct, and their common
interest, that it may be inferred that they must be
acting together; evidence of actual concerted acting is
normally difficult to obtain, and is not insisted
upon".
We may also observe in passing that it does not appear that the East Coast Commercial Company’s case (supra) was referred to during the hearing in, nor was lt noticed by, the High Court.
The Tribunal in the supplementary statement observed as follows:-
" Unless it is to be presumed that because of
relationship, P Sri S. P. Jain, Smt. Rama Jain and Sri
A. K. Jain should be regarded as acting in concert,
there is no other material on record on the basis of
which such a conclusion could be supported".
The High Court also observed to the same effect:
" It may be that in view of the relationship of the
parties as to a group consisting of the father, two
minor sons and their mother, a possible inference was
that the relationship was such that they could
reasonably be taken to be acting as a group in
concert...." but "the assessee could not be placed in
the category of such a company accordingly because of
close relationship".
Keeping in the forefront the test laid down by this Court in East Coast Commercial Company’s case (supra), Mr. Sen on behalf of the Revenue submitted for our consideration the following facts and circumstances from which, according to counsel, an inference can be reasonably drawn about the controlling power in a block confined to a family group holding more than 75 per cent shares:
(1) 80 per cent of the share capital (40,000 out
of 50,000) is held by S. P. Jain, his wife
and two sons, one of whom was a minor
throughout the period of the two accounting
years and the other son, A. K. Jain, for a
portion of the period upto March 1952. The
remaining 20 per cent of the shares was held
by the companies which were under the control
by S. P. Jain and out of which 20 shares were
held by two employees under the control of S.
P. Jain.
(2) A. K. Jain was appointed as Director in the
company in August 1950 when he was a minor,
aged 16 years, and he became the Managing
Director on 1-2-1954 at a salary of Rs.
6,000/- per month. According to counsel this
could not have been possible if he was not
the son of the controlling shareholder, S. P.
Jain.
(3) S. P. Jain who was a Director resigned making
room for his Private Secretary N. C. Jain for
appointment as Director.
(4) During the assessment year 1953-54 the
assessee company claimed Rs. 2,02,500/- as
loss in a transaction in hessian through
Messrs Kabra & Co. in settlement of August
18, 1952, and the same amount was shown as
profit in hessian through the same broker by
Smt. Rama Jain wife of S. P. Jain in the
settlement.
(5) S. P. Jain, A.K. Jain, R. Sharma and N. C.
Jain were the promoters of the company and
were the signatories to the Memorandum of
Association.
Mr. Hardy, the learned counsel for the respondent, on the other hand, replied to the submissions as follows:-
(1) Rama Jain and A. K. Jain are independent
assessees. The minutes of the Board’s
meetings clearly show A. K. Jain as a
competent Director taking independent
decisions. Mere relationship, therefore,
would not lead to the conclusion that these
two shareholders acted with S. P. Jain in
concert. He, however, admits that S. P. Jain
may be said to control the voting power of
the minor son, Alok Prakash Jain, as his
natural guardian. According to Mr. Hardy if
Rama Jain and A. K. Jain are holding 20,000
shares out of 50,000, they cannot be held to
be acting in concert with S. P. Jain and
section 23A will not be attracted.
(2) With regard tn the second submission of Mr.
Sen, Mr. Hardy submits that there is
sufficient evidence
in the record, which is even referred to in
the further A statement of the case, that A.
K. Jain was an in dependent shareholder and
was not under the control of S. P. Jain or
any other Director or shareholder. He further
submits that there is no evidence whatsoever
that the money for purchasing the shares of
A. K. Jain or even of Rama Jain was advanced
by S P Jain.
(3) With regard to the third submission of Mr.
Sen, Mr. Hardy had to admit that N. C. Jain
was Director from 1950 to 1954 and S. P. Jain
was Director from August 3, 1950 to September
25, 1950 and S. P. Jain became Managing
Director of the company on June 6, 1953,
subject to the approval of the Government on
a remuneration of Rs. 8,000/- per month and
A. K. Jain was appointed as Deputy Managing
Director on a remuneration of Rs. 6,000/ per
month subject to the approval of the Central
Government (vide minutes of Board’s meeting
of June 6, 1953). According to Mr. Hardy,
appointment of Directors or even Managing
Director is a regular matter of the company
and no particular significance should be
attached to these appointments.
(4) With regard to the fourth. submission Mr.
Hardy submits that such transactions are
common with brokers and even the purchaser is
not known in most of the cases. Hence no
undue importance should be attach ed to the
hessain transaction so as to influence the
conclusion. It is also pointed out that there
was no controversy about the genuineness of
the hessian transaction.
We are of the view that the genuineness of the aforesaid transaction is, however, irrelevant for the purpose of considering its effect in acting in concert by the shareholders.
(5) With regard to the fifth submission Mr. Hardy
submits that it is true that S. P. Jain, A.
K. Jain R. Sharma and N. C. Jain were the
promoters of The company but admittedly two
of them, namely, R. Sharma and N. C. Jain
were outsiders. That they were employees
would not affect their character as
shareholders of the company or even as
Directors.
It is clear that this company was a family concern with only 20 shares out of 50,000 shares allotted to two outsiders who again happened to be paid employees. The presence of these two outsiders is of the least significance in the matter of management of the affairs of the company. It is true that most of the meetings of the Board of Directors were presided over by A. K. Jain with either of the two employees or one of them attending the same. It must, how- ever, be noted that A. K. Jain became a Director even when he was a minor aged 16 years. He would not ordinarily be able to play the role he is supposed to have done in the Board’s meetings unless S. P. Jain was confident that the Board was carrying out his mandates with regard to the affairs of the company. It is also true that A. K. Jain and the other Directors were authorised to sign agreements on behalf of the company, but this is not of great significance since this was in pursuance of a decision of the Board’s meeting which could not have been passed but for the concurrence of S. P. Jain. There is no evidence whatsoever to show that Rama Jain, wife of S. P. Jain, was at all independently acting.
When a company is composed mostly of family members owning lion’s share in the entire share capital of the company the onus to keep clear of the reach of section 23A(l) will be on the shareholders by adducing some positive evidence about the absence of control by the controlling shareholders.
So far as Rama Jain is concerned it is not possible to hold that S. P. Jain would not be able to control his wife’s voting power along with that of his minor son, Alok Prakash Jain. It is true that mere relationship or being a Director is not decisive. As a matter of fact no single factor can be decisive but having regard to the totality of the circumstances revealed in the case and the conduct of the transactions of the company taken with the relationship which, in the circumstances of the case is not a negligible element, we are clearly of the opinion that it is a case in which it cannot be said that the ’public’ is substantially interested in 25 per cent or more shares of the company. Even if we allow A. K. Jain to be a member of the ’public’, he only holds 10,000 shares and taken with 2,000 shares of Ashoka Agencies Ltd., the total shareholding comes only to 12,000 shares, that is to say, 500 less than the minimum shareholding requisite to earn the benefit of the third proviso to section 23A read with the Explanation.
Further, between August 1], 1951 and May 1, 1952, A. K. Jails and two employee-Directors, the latter having a modicum of 10 shares each, apparently took all decisions for the company in the Board’s meetings. This is not ordinarily possible but for collaboration with the major shareholders. This is a case where more is meant than meets the eye. We are unable to hold in this case, in absence of any reliable evidence to the contrary, that the voting power of the three Directors was free and uninhibited and not within the orbit of control of the other major shareholders, S. P.‘ Jain and Rama Jain acting in concert. It is a clear case of all the shareholders acting in concert and in unions and the two employee-Directors were merely dummies. There is not the slightest inkling of ’public’ being interested, far less substantially interested, in this company. There was no one who could come within the term ’public’ outside the ring of the shareholders acting in concert for their own ends with a common purpose. There is no evidence whatsoever in this case that the shareholders did not cohere together in the matter of transaction of the company’s affairs. When the reality is manifest some reliable evidence within the special knowledge of the assessee must be forthcoming from its side to contradict the obvious in order to be covered by the exception. This has not happened in this case.
Unless the two employees were nominees of the major shareholders it is ordinarily absurd to suppose that they could aspire to be and become Directors of the company. The Appellate Assistant Commissioner in his order, which is annexed with the statement of the case, mentions that-
"In fact Shri S. P. Jain as a controlling
shareholder had brought himself in as a Director of the
company right from the inception of the company and was
the first Director of the company from 3-8-SO to 25-9-
50. From September ’SO to March ’54, however, he
temporarily gave up the directorship by putting in an
employee as a nominee-director, Sri N. C. Jain, for the
intervening period so that there may be no hitch in the
appellant-company being appointed as Managing Agent of
certain other companies under his control on which also
Sri S. P. Jain was a Director, such as the Rohtas
Industries Ltd., Bharat Collieries Ltd., S. K. G. Sugar
Ltd., Dehri Rohtas Light Railway Co. Ltd. and New
Central Jute Mills Ltd. As soon as this objective was
achieved, Sri S. P. Jain staged a come back as a
Director of the appellant company on 25-3-54 when the
nominee-director Sri N. C. Jain re signed his
directorship to make room for his master Sri S. p
Jain". The factual position, not the opinion, revealed in the above extract is more than eloquent with regard to the core of the company.
Having regard to the intimate relationship of the shareholders, with not the least evidence of any disconcert amongst them, the ordinary expectation for individual profit in commercial undertakings, natural reluctance to forego the same, the history of the company and its continued smooth working in a manner which is normally inconsistent with anything other than full unison amongst the shareholders in decisions about the conduct of company’s affairs in common inter est of all, this was a company of one paramount mind operating with out the least doubt. The Board’s meetings are evidence of a well organised, well-knit close unity of views in all affairs and which in ordinary course of human conduct would not have been at all possible but for a single or concerted action in the company’s management by a controlling group. When all the above conditions are present in a company, the onus would be on the assessee to satisfy by some reliable evidence that what appears on the surface is that which is real. That is not to say that the Revenue has no burden to bring the case within the mischief of section 23A.
Application of law cannot be bereft of commonsense. The object of section 23A being to prevent avoidance of supertax by the share holders by piling up the profits of the company in its own hands, the facts and circumstances revealed in this case clearly bring the company within the reach of that section. We are unable to accede to the submission of Mr. Hardy in this case that because A. K. Jain and Rama Jain were independent assessees and A. K. Jain was pre siding in the Board’s meetings and as such was taking independent decisions and was also doing extra work for the company in Calcutta on salary basis, they should be held to be members of the ’public’ who were substantially interested in the company with the requisite shareholding for the purpose of the Explanation read with the third proviso.
The High Court was therefore, not right in answering the question in favour of the assessee and against the Revenue. We, therefore, answer the original question in the negative and the revised question in the affirmative both in favour of the Revenue. The appeals are allowed but we leave the parties to pay and bear their respective costs. P.H.P. Appeals allowed.