Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, NEW DELHI(NOW RAJASTHAN)
Vs.
RESPONDENT:
EAST WEST IMPORT & EXPORT (P) LTD.,(NOW KNOWN AS ASIAN DISTR
DATE OF JUDGMENT08/02/1989
BENCH:
MISRA RANGNATH
BENCH:
MISRA RANGNATH
PATHAK, R.S. (CJ)
CITATION:
1989 AIR 836 1989 SCR (1) 570
1989 SCC (1) 760 JT 1989 (1) 226
1989 SCALE (1)367
ACT:
Income Tax Act, 1922: Section 23A(1) & Explanation-
Requirement "If any such shares have been in the course of
such previous years"---"Are in fact freely transferable by
the holders to the other members of public"--"In the course
of such previous year"-Interpretation of--Whether means
’throughout the year’ or ’any part of it’.
Statutory Interpretation: Situation differently ex-
pressed by the Legislature--Indication that Legislature
intended to express different intention.
Words and Phrases. ’In the course of such previous
year’--Meaning of
HEADNOTE:
Under articles 4, 81 and 82 of the Articles of Associa-
tion of the respondent assessee company there was restric-
tion on the transfer of the shares of the company by the
shareholders to the other members of the public. These
articles were deleted at an extraordinary general meeting of
the Company held on 26th March, 1951 and consequently the
shares of the Company acquired free transferability. For the
accounting year ending 31st March, 1951 the assessee company
claimed tax benefit u/s 23A(1) on the ground that by reason
of the fact that its shares had acquired free transferabili-
ty ’in the course of the previous year’ the company had
become ’a company in which public are substantially inter-
ested’.
The Income Tax Officer rejected the claim of the asses-
see company by holding that while Explanation to Section
23A(1) requires that the shares should have been freely
transferable by the shareholders to the other members of the
public at every point of time during the previous year and
transferability should be established by actual transfer;
the Company satisfied the requirement only for four or five
days of the previous year.
571
On appeal-the Appellate Assistant Commissioner affirmed
the view taken by the Income Tax Officer. The assessee
company appealed to the ,Tribunal against the decision of
the Appellate Assistant Commissioner. The Tribunal accepted
the contention of the assessee and allowed the appeal.
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A reference under Section 66(1) of the Income Tax Act,
1922 was made to the High Court at the instance of the
Revenue which approved the view taken by the Appellate
Tribunal, and held that the conditions required by the
Explanation to Section 23A(1) were satisfied and the benefit
thereunder was available to the assessee company.
In the appeal by Special leave by the Revenue to this
Court on the question: whether the assessee had satisfied
the requirements of the Explanation to Section 23A(1) of the
Act, and was entitled to the tax benefit claimed.
Allowing the appeal and setting aside the order of the High
Court,
HELD: 1. The Tribunal and the High Court went wrong in
holding that the conditions required by the Explanation to
Section 23A(1) were satisfied and the benefit under the said
section was available to the assessee. [575F]
2. The assessee company could not be held to be a compa-
ny in which the public were substantially interested within
the meaning of the Explanation to Section 23A(1) by reason
of the fact that for a large part of the previous year the
shares were not freely transferable, though they were so
transferable at the end of the previous year. [574G1
3. The word ’Course’ ordinarily conveys the meaning of a
continuous progress from one point to the next in time or
space and conveys the idea of a period of time; duration and
not a fixed point of time. The expression ’in the course of
such previous year’ would refer to the period commencing
with the beginning of the previous year, and terminating
with the end of the previous year. Therefore, it would
necessarily mean that free transferability of the shares by
the holders to other members of the public should be present
throughout the previous year. This was not the position in
the instant case, as the transferability was acquired only
on the 26th of March, 1951. [575D-F]
4. The Explanation to Section 23A(1) has reference to
the point of time at two places: the first one has been
stated as ’at the end of the
572
previous year’ and the second is ’in the course of such
previous year’. When the situation has been differently
expressed the legislature must be taken to have intended to
express a different intention. [575B-D]
C.I.T.v. Arco (P) Ltd. [1963] 48 I.T.R. 76, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1294 (NT)
of 1975.
From the Judgment and order dated 16.7.74 of the Bombay
High Court in I.T. Reference No. 22 of 1965.
S.C. Manchanda, M.K. Sashidharan and Ms. A. Subhashini
for the Appellant.
Harish. N. Salve, Parveen Kumar and V. Gambhir for the
Respondent.
The Judgment of the Court was delivered by
RANGANATH MISRA, J. This appeal is by special leave and
is directed against the judgment of the Bombay High Court
dated 16.7.1974 on a reference made under Section 66(1) of
the Income Tax Act, 1922. The year of assessment is 1951-52
corresponding to the accounting year ending 31.3.1951. The
question referred by the Tribunal to the High Court at the
instance of the Revenue was:
"Whether on the facts and in the circumstances
of the case, the assessee company could not be
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held to be a company in which the public were
substantially interested within the meaning of
Explanation of section 23A(1) by reason of the
fact that the shares of the company carrying
not less than twenty-five per cent of its
voting power were not, in fact, freely trans-
ferable by holders to other members of the
public for a large part of the previous year
even though they were freely transferable as
at the end of the previous year? "
Initially the company was incorporated as a private
limited company at Jaipur on 24.12.1942 and was known as
Messrs Rajputana Investment Company Private Limited. Under
articles 4, 81 and 82 of the Articles of Association of the
company there was restriction on the transfer of the shares
of the Company by the shareholders to other
573
members of the public. These articles were deleted at an
extraordinary general meeting of the Company held on 26th
March, 1951, and following the deletion, the restriction on
transfer of shares was removed. So was the limit of number
of shareholders. On the basis of the amendment the assessee
claimed relief under s. 23A(1) of the 1922 Act by pleading
that all the statutory requirements were satisfied. The
income Tax Officer refused to accept the stand of the asses-
see on the ground that while the Explanation contained in s.
23A(1) of the Act required that in course of the previous
year the shares were freely transferable by the holders to
other members of the public, the company came to satisfy the
requirement only for four or five days of the year. The
Appellate Assistant Commissioner adopted the same view
whereupon the assessee appealed to the Tribunal. The Tribu-
nal accepted the stand of the assessee and allowed the
appeal, whereupon at the instance of the Revenue the afore-
said question was referred and the case was stated to the
High Court under s. 66(1) of the 1922 Act. The High Court
found for the assessee and against the Revenue. That has led
to the present appeal by special leave.
As pointed out above, the short point for consideration
in this appeal is as to whether the assessee satisfied the
requirements of the Explanation to s. 23A(1) of the Act so
as to be entitled to the tax benefit. This Court pointed out
in the case of C.I.T.v. Arco (P) Ltd., [19631 48 ITR 76:
"Section 23A was enacted to prevent evasion of
liability to pay super-tax by shareholders of
certain classes of companies taking advantage
of the disparity between the rates of super-
tax payable by individuals and by the compa-
nies. The rates of super-tax applicable to
companies being lower than the highest rates
applicable to individual assessees, to prevent
individual assessees from avoiding the higher
incidence of super-tax by the expedient of
transferring to companies the sources of their
income, and thereby securing instead of divi-
dends the benefit of the profits of the compa-
ny, the Legislature by Act XXI of 1930, as
modified by Act VII of 1939, enacted a special
provision in s. 23A investing the Income-tax
Officer with power, in certain contingencies
prescribed in the section to order that the
undistributed balance of the assessable income
reduced by the amount of taxes and the divi-
dends shall be deemed to have been distributed
at the date of the general meeting."
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574
The Explanation provided:
"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 (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 have
been allotted unconditionally to, or acquired
unconditionally by, and are at the end of the
previous year beneficially held by, the public
(not including a company to which the provi-
sions of this sub-section apply) and if any
such shares have in the course of such previ-
ous year been the subject of dealings in any
stock exchange in the taxable territories or
are in fact freely transferable by the holders
to other members of the public."
The only question that has engaged the attention of the
Tribunal and the High Court at the instance of the respec-
tive parties is as to whether the shares were freely trans-
ferable by the holders to other members of the public in the
course of the previous year. As we have already pointed out,
the Income Tax Officer and the first appellate authority
held that the terms in the Explanation required that the
shares should have been freely transferable by the share-
holders to other members of the public at every point of
time during the previous year and transferability should be
established by actual transfer. The Tribunal and the High
Court took the view that it was not necessary that as a fact
there should have been some transfer of such shares but
transferability as an incidence should have been at every
point of time during the whole of the previous year. That
being the short question on which this appeal can be effec-
tively disposed of, there is no necessity to refer to other
aspects which had been canvassed at earlier stages.
Indisputably, until 26th of March, 1951, the shares were
not freely transferable in view of the three provisions in
the Articles and with the deletion of those, free transfera-
bility of the shares was acquired. There has been no dispute
before us that the requirement "if any such shares have been
in the course of such previous year" would also apply to the
last requirement "are in fact freely transferable by the
holders to other members of the public". The only conten-
tious aspect is as to whether "in the course of such previ-
ous year" would mean throughout the year or any part of it.
575
There is no direct authority indicating the true meaning
of this requirement in the Explanation one way or the other.
The purpose of enacting s. 23A, as pointed out in Afro’s
case, was to control evasion of tax.
The Explanation has reference to the point of time at
two places: the first one has been stated as "at the end of
the previous year" and the second, which is in issue, is "in
the course of such previous year". Counsel for the Revenue
has emphasised upon the feature that in the same Explanation
reference to time has been expressed differently and if the
legislative intention was not to distinguish and while
stating "in the course of such previous year" it was intend-
ed to convey the idea of the last day of the previous year,
there would have been no necessity of expressing the posi-
tion differently. There is abundant authority to support the
stand of the counsel for the Revenue that when the situation
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has been differently expressed the legislature must be taken
to have intended to express a different intention.
’Course’ ordinarily conveys the meaning of a continuous
progress from one point to the next in time or space and
conveys the idea of a period of time; duration and not a
fixed point of time. "In the course of such previous year"
would, therefore, refer to the period commencing with the
beginning of the previous year and terminating with the end
of the previous year. If that be the meaning of the phrase
"in the course of such previous year", it would necessarily
mean that free transferability of the shares by the holders
to other members of the public should be present throughout
the previous year. Admittedly that was not the position in
this case as transferability was acquired only on 26th of
March, 195 1. We are of the view that the Tribunal and the
High Court went wrong in holding that the conditions re-
quired by the Explanation were satisfied and the benefit
under the section was available to the assessee.
The appeal is allowed. The order of the High Court
approving the view taken by the Appellate Tribunal is set
aside and the question referred to the High Court is an-
swered thus:
"On the facts and in the circumstances of the
case, the assessee company could not be held
to be a company in which the public were
substantially interested within the meaning of
the Explanation to s. 23A(1) by reason of the
fact that for a large part of the previous
year the shares]
576
were not freely transferable though
they were so transfer able at the end of the
previous year."
and against the assessee. Parties are directed to bear their
own costs throughout.
T.N.A. Appeal
allowed.
577