PILANI INVESTMENT CORPORATION LTD. versus THE COMMISSIONER OF INCOME TAX (CENTRAL)

Citation: [1973] 3 S.C.R. 206 · Decided: 09-01-1973 · Supreme Court of India · Bench: P. JAGANMOHAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

.,, 
206 
PILANI INVESTMENT CORPORATION LTD. 
v. 
THE COMMISSIONER OF INCOME TAX (CENTRAL) 
January 9, 1973 
[P. ]AGANMOHAN REDDY AND H. R. KHANNA, JJ.] 
/11co11;e-tax Act (11 of 1922), s. 23A and 
Explanation-Men1ora,1-
::iu1n and Articles of Association e1npo1vering directors to 
refu~ 
to. 
register transfer of shares without assigning any reason-It 
elen:ent 
vf free trc.nsfer eliminated. 
This Court, in Shree Krishna 
Agency 
Ltd. v. 
C. f. T. (Central) 
Calcutta,· (1971) 82 I.T.R. 372, had held that in 
the 
absence 
of 
evidence to show that the directors had been exercising their pov.'er to 
decline to register any transfer of shares freely and had thus ''ll'tually 
eliminated t)le element of free transferability of the 
shares 
in 
the 
company, the mere existe,oce of a power in the 
:t-.iemorandum 
and 
Articles of Association giving such a discretion could not be said to 
<1fiect the free transferability of the shares as 
contemplated 
by 
the 
Explanation to s. 23A, of the Income·tax Act, 1972. [20GD-E] 
In the present case, more than 75% of the shares of the assessee· 
con1pany \\'ere held not by a group. of partners but 
by 
two public 
curllpani·es i,n which the Tribunal found, the public were substantially 
interested : there \vas no material to show that any group acting 
in 
concert was in control of the assessee-company, 
and,-
though 
the 
1v1emorandum and Articles of Association gave a 
discretion 
to 
the 
directors to decline to register a transfer of shares. 
thef'e 
was 
!DO 
evidence to show that the directors had eliminated ·the 
element ·of 
transferability of shares. 
Sliree Krishna Agency Lt.ti. v. Co111n1issioner of Jncon1e-tax, (Central) 
Calcwta, [1971] 82 l.T.R. 372, followed 
Conunissioner of Jnco1ne-tax, West Bengal v. Tona 
late Co. Ltd., 
[1963] 48 J.T.R. 902, overruled. 
A , 
B 
c 
D 
E 
Ee.st India Corporation Ltd. v. t:ommissione.r of InccnJe·tax, [1966] 
F 
61 I. T. R. 16 and Raghuvanshi Mi!is Ltd. v, Commissioner of Jncome-
tax. [1969] 74 I.T.R. 823, approved. 
Commissioner of Income-tax v. Jubilee Mills Ltd., (1963] 48 I.T.R. 
9, referred to. 
. 
· · 
CIVIL APPELLATE JURISDICTION : Ci:vil :Appeal Nos. 2177 & 
2178 of 1969. 
Appeals by certificate from the judgment and order dated 
February 24, 1969 of the Calcutta High Court in Income-tax Re-
ference Nos. 210 and 211 of 1964. 
B. Sen, Leila Seth, U. K. Khai/an and B. P. Maheshwari for 
G 
the appellant. 
H 
B. B. Ahuja, S. P. Nayar and R. N. Sachthey, for the respon-
dent. 
. 
/ 
A. 
_,, \ 
B 
c 
D 
E 
F 
G 
H 
PILANI INVESTMENT CORP. v. c.I.T. (Khanna, J.) 
207 
The Judgment of the Courts was delivered by 
KHANNA, J. These two appeals on certificate are directed · 
against the judgment of Calcutta High Court whereby it answered 
the following question in the affirmative and in favour of the 
revenue: 
.-
. "Whether in the facts and circumstances of the case, 
the provisions of section 23A were rightly invoked." 
The matter relates to assessment years 1952-53 and 1953-54. 
It would, however; be convenient to set out the facts relating to 
the year 1952-53 because the decision in regard to the assessment 
for that year would also govern the assessment for the following . 
year. The assessee-appellant is a limited company. Proceedings 
under section 23A of the Indian Income Tax Act, 1922 (herein-
after referred to as the Act) were started against the appellant 
company as it had not declared any dividend during the year. The 
Income Tax Officer found that the income of the assessee company 
had been tletermined in regular assessment to be Rs. 22,65,227 
and despite that· it had not declared any dividend. The Income 
Tax Officer observed that there were only two big shareholders of ; 
the assessee company, namely, Jiyajeerao Cotton Mills Ltd .• 
Birlanagar (Gwalior) (hereinafter referred to as JC Mills) and 
Punjab Produce and Investment Co. Ltd. (hereinafter referred to _ 
as PP! Co.). JC Mills, in the opinion of the Income Tax Officer, 
could not be regarded as a member of the public as it was being 
represented on the Board of Directors through its General Manager 
D. P. Mandalia. PPI Co. was found to be a company to which 
the provisions of section 23A of the Act were applicable. These 
two companies between themselves held 3,21,594 shares oui of 
the total shareholding of 3,70.000 shares. A> the shares held by 
the public, in the opinion of the Income Tax Officer, came to less 
than 25 per cent of the total shareholding, 

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