COMMISSIONER OF INCOME TAX BIHAR, PATNA versus SAHU JAIN LIMITED

Citation: [1976] 3 S.C.R. 398 · Decided: 16-02-1976 · Supreme Court of India · Bench: P.K. GOSWAMI · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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398 
COMMISSIONER OF INCOME TAX BIHAR, PATNA 
v. 
SAHU JAIN LIMITED 
February 16, 1976 
[P. K. GOSWAMI AND S. MURTAZA FAZAL ALI, JJ.) 
lncon1e Tax Act, 1922-Section 23A(l)-Undistributed profits of a company 
-Company in which public are substantially interested-Acting in co1Icert-
Rclatio11ship aniongst shareholders if decisive-Family concern. 
Sahu Jain was a private limited company during the assessment years 1952-53 
and 1953-54. 
All the shareholders of the company are the family members 
of ~Ir. S. P. Jain except two employees who held 20 out of 50,000 shares and 
excepting the three Companies ,.vhich were also sister concerns. 
Under s. 23A 
of the lncome Tax Act. 1922, prior to its amendment in the year 1955, where 
the Income Tax Officer is satisfied that in respect 
of 
any 
previous 
year 
the profits and gains distributed as dividends by any Company are less than 
60 per cent of the assessable income of the company as reduced by 
the Income Tax and Super 
1~ax payable by the company in respect there-
of, he shall unless he is satisfied that having regard to the loss 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 declared would be un 4 
reasonable, make an order in writing that the undistributed portion of the 
income of the company of that previous year as compllted for incon1e tax 
purposes and reduced by the amo.unt of income tax and supertax payable by 
the company in respect thereof shall be deemed to have been distributed as 
dividends amongst the shareholders. 
The proviso to the said section provides 
that the provisions of the section \VOuld not apply to any company in which 
the public are substantially interested if shares of the company carrying not 
less than 25 per cent of the voting power have been allotted unconditionally 
to or acquired unconditionally by the public or beneficially held by public. The 
Income Tax Officer held that the provisions of s. 23A were attracted in the 
case of the company for both the years. 
The Appellate Assistant Commissioner 
confirmed the order of the Income Tax Officer. The Tribunal held that s. 23A 
\Vas not applicable to the co1npany in respect of both the assessment years. 
The Tribunal held that unless it is presumed that because 
of 
relationship 
Shri S. P. Jain, Smt. Rama Jain and Shri 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. 
On a reference made by the Tribunal, 
the High Court answered the question in favour of the assessee and against 
the Revenue. 
In an appeal by special leave the appellant contended : 
1. 80 per cent of the share capital was held by S. P. Jain and his wife 
and t\vo sons; one of whom \vas a minor throughout the period and another 
for a portion of the period and that the remaining shares were held by the 
company which \Vere under the control of S. P. Jain and that only 20 sh3res-
out of 50,000 shares were held by two employees under the control of 
S. P. Jain. 
2. A. K. Jain was appointed as a Director when he \Vas a minor and he 
became a Managing Director on a salary of Rs. 6,000/ · per month when he 
\Vas 20 years old. 
3. S. P. Jain who was a Director resigned making room for his Private 
Secretary for appointment as Director. 
4. The Company showed a loss of Rs. 2 lacs and odd in a transaction iR 
H 
hessian and the same was shown as profit by Smt. Rama Jain wife of S. P. 
Jain. 
5. S. P. Jain, A. K. Jain. R. Sharma and N. C. Jain were the promoters 
pf the company and were signatories to the Memorandum of Association. 
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C.l.T. V. SAHU JAIN LTD. 
399 
The respondent contended : 
1. Smt. Rama Jain and A. K. Jain were independent assessees. 
A .. _. ~· Ja~n 
was taking independent decisions as a competent Director. Mere re1ationsh1p 
would not lead to the conclusion that the said two shareholders acted in 
concert with S. P. Jain. 
2. A. K. Jain was an independent shareholder and was not under the 
control of S. P. Jain or any other Director or shareholder. 
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3. N. C. Jain was Director from 1950 to 1954 and S. P. Jain 
became 
B 
Managing Director subject to the approval of the Government. A. K. Jain 
was appointed as Deputy Managing Director on a remuneration of Rs. 6,0001-
per month subject to the approval of the Central Government. 
4. The transactions like one of hessian are common transactions a

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