Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Saurashtra Cement And Chemical ... on 30 May, 1986
Equivalent citations: [1986]18ITD414(AHD)
ORDER
K.T. Thakore, Accountant Member
1. This set of four appeals which relate to the assessment years 1965-66, 1966-67, 1968-69 and 1969-70, are filed by the revenue. As common grounds are raised, these appeals were heard together and are being disposed of by this common order, for the sake of convenience. The relevant grounds which are common for all the years under appeal, read as follows :
1. The learned Commissioner (Appeals) erred in law and on facts in holding that the status of the company should be taken as widely held domestic company instead of 'closely held domestic company' adopted by the ITO.
2. The learned Commissioner (Appeals) erred in law and, on facts, in holding that the ITO's action in reopening the case Under Section 147(a) of the Income-tax Act, 1961, is not in order. He further erred in holding that the time limit for reopening assessment had already been over and the reopening itself was time barred.
3. The learned Commissioner (Appeals) failed to appreciate the fact that the entire income of the assessee in each of the assessment years 1965-66, 1966-67, 1968-69 and 1969-70 which was prior to the issue of notice Under Section 148 of the Income-tax Act, had escaped assessment in so far as the entire income had been taxed at too low a rate. Further, the total income each of the years exceeded Rs. 50,000 and, thus, the conditions stipulated in Section 149(1)(a)(ii) of the Income-tax Act were satisfied.
2. The assessee is a company having its registered office at Ranavav, near Porbander, in the State of Gujarat. It carries on mainly the business of manufacture and sale of portland cement. The original assessments were completed for the respective years under appeal, by treating the assessee as a company in which public are substantially interested, as follows:
Assessment year Date 1965-66 21-7-1969 1966-67 30-9-1969 1968-69 26-3-1971 1969-70 20-3-1972
The ITO accordingly levied the tax on the assessee-company as a company in which the public are substantially interested ('widely held company'). Thereafter, the ITO had reason to believe that by reason of failure to disclose fully and truly certain material facts relating the aforesaid assessment years, the company was charged to tax at too low a rate as a widely held company. According to the ITO, the company ought to have been treated as a company in which public are not substantially interested ('closely held company'). The tax leviable on a closely held company is higher than the one levied on a widely held company. The ITO, therefore, took recourse to provisions of Section I47(a) of the Income-tax Act, 1961 ('the Act') and as, according to the ITO, the assessments were completed for a period beyond 8 years, he referred the matter to the Board for grant of sanction to the proposed action Under Section 147(a). The Board having been satisfied with the action proposed by the ITO, granted the requisite sanction as required under the provisions of Section 151(1) of the Act. The assessee on whom the notice for reassessments were served raised many objections against the proposed reassessment, both on legal grounds as well as on merits. In the first place, it was submitted that the notices Under Section 147(a) were void ab initio. In this connection, it was pointed out that there was no escapement of income exceeding Rs. 50,000 or more in case of the assessee and, as such, the notice was bad so far as the provisions of Section 149(1)(a)(ii) of the Act were concerned. It was next pointed out that the shares of the assessee-company which was a widely held company were listed on the recognized stock exchange since 1964 and, as such, under the provisions of Section 2(18) of the Act, the assessee was required to be treated as a widely held company, 2.1 It was also submitted on merit that the shareholdings of the assessee-company were substantially held by non-resident public limited companies and, therefore, the assessee could not have been treated as a closely held company. It was also submitted that full information in regard to the shareholdings was submitted to the ITO in course of original proceedings and, as such, this was merely a change of opinion on the part of the successor ITO, more so, when the action of the ITO was motivated by the report of the audit party, which had pointed out that the ITO was not justified in course of original assessment proceedings in holding that the assessee was a widely held company. It was, thus, pointed out that the ITO had no jurisdiction both in law and on facts in reopening the assessments in question.
2.2 The above objections were overruled by the ITO by pointing out, viz., that the notices were issued with the previous sanction of the Board. Therefore, the action was validly initiated. The ITO also pointed out that the assessment at too low a rate is deemed to be escapement of income within the meaning of Section 147 and, therefore, the conditions of escapement of income exceeding Rs. 50,000 was not required to be satisfied, in the instant case, as pointed out by the assessee. This was a case, the ITO observed, where the entire income has escaped the assessment having been charged at too low a rate by assessing the same as a closely held company. The ITO, therefore, concluded that in the instant case, the tax was required to be recovered at the rate applicable to the closely held domestic company for the respective years under appeal and in this view of the matter, he levied the tax accordingly on the said income as was previously assessed for the respective assessments under appeal.
3. Being aggrieved the assessee carried the matter in appeal before the Commissioner (Appeals) who has extensively set out the reasons which had persuaded the ITO to take action Under Section 147(a) and also stated in detail the reasons which had persuaded the ITO in holding the assessee as a closely held company.
3.1 The assessee reiterated the same submissions as were placed before the ITO, before the Commissioner (Appeals) pointing out that the assessments were void ab initio, that the notice Under Section 148 of the Act could not have been issued after the lapse of 8 years from the end of the relevant assessment year as the income exceeding Rs. 50,000 or more had not escaped the assessment, which was a condition precedent for assuming jurisdiction with the sanction of the Board. It was next pointed out that there was no failure on the part of the assessee to make full and truthful disclosure of all the relevant facts, particularly in regard to the shareholdings because, the requisite information was duly furnished to the ITO, at the time of original assessment. Thus, the inference of the conclusion drawn by the ITO that there was a failure on the part of the assessee-company to furnish the required particulars was not borne out by the material and the facts on record. That apart the action of the ITO was as a result of the audit objection which could have permitted him to take action Under Section 147(6) but the time limit for invoking the jurisdiction under the said provision had already elapsed, the action Under Section 147(a) was uncalled for and unsustainable in law and on facts. Again, the ITO had committed an error, according to the learned representative, by applying the criteria applicable to a non-manufacturing company for deciding the status as to whether the company was widely held company or not. The ITO erroneously adopted the criteria of shareholdings exceeding 50 per cent while the correct criteria which was required to be adopted was that the shareholdings should exceed 60 per cent in case of the assessee-company which was a manufacturing company, if it were to be held as a closely held company. These contentions found favour with the Commissioner (Appeals) who held in the first place that the particulars asked for by the ITO were duly submitted in course of original proceedings, particularly by the letter dated 29-8-1969. Thus, no further particulars were called for by, the ITO beyond what was asked for under its said letter. The ITO having considered the particulars filed by the assessee had come to the conclusion in course of original assessment proceedings that the assessee was widely held company. Therefore, according to the Commissioner (Appeals), the present action of the ITO to reopen the assessment was merely a change of opinion and, as such, the action Under Section 147(a) was not in order. Secondly, according to the Commissioner (Appeals), the time limit for reopening the assessment also required careful consideration. In the instant case, there was no escapement of income exceeding Rs. 50,000 and, as such, as per Section 149(1)(a)(ii) the action could not be taken under the provisions of Section 147(a). Thirdly, the ITO had initiated the action on the basis of the report of the audit party. This report could only enable the ITO to take action Under Section 147(6) by treating the same as 'information', but in no case the ITO could take recourse to the provisions of Section 147(a). Fourthly, the ITO had applied a wrong criteria in deciding the question of status as aforesaid. In this connection, the Commissioner (Appeals), examined the shareholdings of the non-resident companies which had held substantial shares of the assessee-company and according to the Commissioner (Appeals), it could not be said that the Mehta Group had any control or interest in the assessee-company, and, lastly, for the aforesaid reasons, the Commissioner (Appeals) was satisfied that the ITO was not justified in reopening the assessments and considering the status of the company as a closely held company. Consequently, he cancelled the reassessment as made by the ITO for the years under appeal.
4. Being aggrieved the revenue has come up in appeal before us.
4.1 The learned departmental representative supporting the order of the ITO submitted that there was no valid basis in challenging the action of tit the ITO on the ground that the income exceeding Rs. 50,000 having not escaped the assessment ; no action would lie under the provisions of Section 147(a) beyond 8 years. He relied on the Explanation 1 to Section 147(a) and submitted that the assessment at a lower rate would also be covered by the expression, 'income escaping assessment' and, therefore, the ITO had validly assumed jurisdiction with the approval and sanction of the Board.
4.2 The learned departmental representative then pointed out that the assessee had failed to furnish information relating to the shareholdings by non-resident companies which had a material bearing in determining the correct status of the assessee-company, i.e., as a widely-held company or otherwise. In this connection, he pointed out that the assessee-company commenced its business in the assessment year 1958-59. It had issued capital of one lakh ordinary shares of Rs. 100 each and Rs. 50,000 preferential shares of Rs. 100 each. 50,000 ordinary shares of Rs. 100 each were held by one non-resident company, viz., Uganda Tea Estate Ltd. (UTEL) right from the inception of the assessee-company. The UTEL was declared to be a company Under Section 2(17) vide Board's order dated 5-9-1959. However, the assessee had failed to file any particulars in regard to the shareholdings of UTEL in relation to the assessment years 1966-67 and onwards to show that the paid company was a company in which public are substantially interested. The said information had a material bearing on the assessment in order to determine the correct status of the assessee-company. The UTEL had entered into an agreement with another non-resident company, viz., Roy Nominees Ltd. ('Roy') and under the agreement, the Roy was to hold the shares of UTEL. Thus, the dividend declared by the assessee-company was paid to Roy for the assessment year 1966-67. Now Roy was declared as a 'company' by the Board by its order dated 2-3-1967. The UTEL, in the meanwhile, entered into another agreement on 1-10-1965 with a newly floated company in New Jersey, viz., Jagmi Investment Ltd. ('Jagmi') and out of 5,000 equity shares of £1 each 4,979 shares were acquired by UTEL. Jagmi had approached the Board for being declared as a company Under Section 2(17) and Roy had applied for a no objection certificate for transfer of shares to Jagmi. But these applications were still pending. Having regard to this background, the learned departmental representative submitted that the question was whether UTEL was a company in which the public are substantially interested. 99 per cent of the shares of UTEL were held by one Mehta group, i.e., family members of Shri Nanji Kalidas Mehta. Having regard to this fact, therefore, the assessee-company was required to be treated as a closely-held company for 1958-59.
4.3 Now coming to the assessment year 1965-66, UTEL which, inter alia, had been authorised capital of 4.15 lakhs ordinary shares of Shillings of 20 each. The company had issued capital of Rs. 2.90 lakhs ordinary shares held by another Uganda Company, viz., Uketa Development Corpn. Ltd. ('Uketa'). The capital structure of Uketa was not furnished by the assessee. Therefore, according to the learned departmental representative, the inevitable conclusion was that the majority shares of the assessee-company having been held by closely-held company, viz., UTEL, the assessee-company was wrongly treated as a widely held company and in this respect, it was failure on the part of the assessee to submit before the ITO true and correct material facts. Therefore, the action of the ITO was fully justified and the Commissioner (Appeals) was in error in holding otherwise.
5. The learned representative of the assessee, on the other hand, pointed out firstly that the reopening of the assessment was bad because there was nothing which was kept by the assessee in course of original assessments. The assessee had furnished full particulars of the shareholdings as required by the ITO and, thereafter, furnished information in regard to the change of shareholdings as per the normal practice followed in this regard. There was no major change in the shareholdings for the subsequent years. It was not practicable to give complete list of the shareholders every year, as it could involve voluminous task resulting in a time consuming process. Asa matter of practice, therefore, only changes in shareholdings were communicated to the ITO. Again for the assessment years 1965-66 and 1966-67, there was no specific column in the return of income to show the list of shareholdings, and, therefore, it could not be said that the assessee has purposefully kept the material information from the ITO. The allegation of the ITO, therefore, on this point, was without any basis. Again, according to the representative of the assessee the motivating force behind the ITO's action was audit objection and as pointed out earlier, no action could have been taken by the ITO to meet the audit objection such action Under Section 147(b) had already become barred by limitation. Again the ITO had applied the wrong criteria in order to determine the status of the assessee which being a manufacturing company, as pointed out earlier, the shareholdings over 60 per cent was required to be held by a group of persons, if the assessee-company were to be held as a closely-held company. The ITO had applied the rate of 50 per cent applicable to a non-manufacturing company which was not in order. As a result, the conclusion reached by the ITO in this regard was erroneous and, accordingly, unsustainable in law. The action of the ITO also should be held to be invalid as he has applied a wrong criteria without application of mind.
5.1 On the legal ground, Shri Sharda reiterated his contentions relating to the provisions of Section 149(1)(a)(ii), which we have set out earlier.
5.2 On merits Shri Sharda submitted that the assessee was registered as a public limited company. It shares exceeding 40 per cent were held by the public and the shares were quoted on the recognised stock exchange. Therefore, the requisite criteria to treat the company as a widely-held company is fully satisfied in the instant case and the conclusion reached by the ITO to the contrary was accordingly unsustainable.
5.3 Referring to the shareholdings (to which we shall refer little later), Shri Sharda pointed out that the shares exceeding 40 per cent were held by the public as pointed out earlier. Shri Sharda also challenged the submission of the learned departmental representative founded on the ground that there were restrictions on transfer of the shares and, therefore, the company should be treated as a closely-held company. In this connection he relied on the decision in Shree Krishna Agency Ltd. v. CIT [1971] 82 ITR 372 (SC).
5.4 Shri Sharda, therefore, concluded that the action of the ITO was not sustainable both in law and on facts, and, therefore, supporting the order of the Commissioner (Appeals) submitted that the order of the Commissioner (Appeals) did not require any interference.
6. We have considered the rival submissions. The controversy before us broadly falls into two parts. The first part relates to the validity of reassessment proceedings and the second part relates to the merit of the claim for treating the assessee-company as a widely-held company.
6.1 The first part has two limbs. The first limb relates to the validity of sanction granted by the Board Under Section 149(1)(a)(ii), read with Section 151(1) of the Act; and the second limb relates to the full and true disclosure of primary facts.
6.2 So far as the first limb aforesaid is concerned, it has been submitted on behalf of the assessee, as pointed out earlier, that in absence of escapement of assessment exceeding Rs. 50,000 for the assessment year/years under appeal are concerned, the notices issued Under Section 147(a) for the respective years were invalid. It may be stated that this contention has been accepted by the Commissioner (Appeals). In our view though the submission canvassed on behalf of the assessee looks attractive at the first blush, it does not stand a test of a closer scrutiny, for the reasons stated hereinafter.
6.3 Now Section 149(1)(a)(ii), inter alia, permits the ITO to take action to reopen a completed assessment between the period of 8 years and 16 years from the end of the assessment year when the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 50,000 or more for that year. Section 151(1) provides that no notice shall be issued Under Section 148 after the expiry of 8 years from the end of the relevant assessment year unless the Board is satisfied about the reasons recorded by the ITO, that it is a fit case for issue of such notice. To put it briefly, a combined reading shows that when the income chargeable to tax has escaped assessment amounts or is likely to exceed Rs. 50,000 or more, notice Under Section 148 could only be issued with the previous sanction of the Board. Now it is contended that the 'income escaping assessment' for the purpose of Section 147 includes by fiction enacted in Explanation, inter alia, such income which has been assessed at too low a rate. Thus, it is the submission of the learned representative that by virtue of Explanation 1, the income which has been assessed at too low a rate would be covered by the expression 'has escaped assessment'. But the said fiction would not operate in construing the provisions of Section 149. It is true that Explanation 1 as appended to Section 147 which creates the aforesaid fiction does not find place in Section 149. It is over simplification of the assessee to state that in absence of deeming provision, the expression 'escaped assessment' for purpose of Section 149 should be construed so as to exclude the income which has been assessed at too low a rate. In other words, the fiction of Section 147, Explanation 1 would not operate in construing the provisions of Section 149. It is, necessary, in our opinion, to give a harmonious construction to provisions contained in Sections 147, 149 and 151. These Section s are admittedly machinery section. Therefore, they must be so interpreted as to make the provisions workable and, as such, a broad or liberal construction is required to be made while interpreting the expression 'escaped assessment' Under Section 149.
6.4 Section 149(1)(a)(ii) reads as follows :
(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year;
Since the expression 'escaped assessment' is defined in Explanation 1 to Section 147, the said expression will have to be given the same meaning while construing the provisions of Section 149 as aforesaid. Thus, under the scheme relating to the reassessment proceedings, which deal with the income has been 'escaped assessment', the said expression will have to be given the same meaning while construing the connected Section. It cannot be said that the expression 'escaped assessment' should have been given a different meaning while construing Section 149 vis-a-vis Section 147.
6.5 Section 147 deals with the nature of income which escaped assessments and Section 148 deals with the issue of notice for the purpose of assessment, reassessment or recomputation Under Section 147 and Section 149 lays down the time limit for the issue of notice. Section 151 deals with the Section for issue of notice. These Section, therefore, form part of the scheme of reassessment or recomputation of escaped income and, therefore, the expression 'escaped assessment' would also include income assessed at too low a rate, in our opinion, while construing the provisions of Section 149. To this extent, therefore, in our opinion, the Commissioner (Appeals) was clearly in error in holding otherwise.
6.6 The next limb relating to the validity of assessment is founded on the ground that there was no failure on the part of the assessee to disclose fully and truly material facts. In this connection, it has been pointed out that the assessee's duty was to furnish the list of shareholders as required by the ITO and the assessee complied with this requirement, even though there was no obligation on the part of the assessee to disclose the said information in the returns for the assessment years 1965-66 to 1967-68, as the return of income did not provide for the same. Now, certain particulars which are required to be furnished by domestic company which claims to be one in which public are substantially interested, were furnished by the assessee in course of assessment for the years 1965-66 as also 1966-67 by letter dated by 9-8-1967 and 21-10-1969. In other words, the list of shareholders as on 30-6-1963 was furnished on 9-8-1967 to the ITO in connection with the assessment for the year 1964-65 and this list contain the names and addresses of all the shareholders and according to the practice followed in subsequent year only the changes were indicated. Thus, the information relating to the list of shareholders was already with the ITO and formed part of his record. Again, the ITO asked for further details regarding certain shareholders by letter dated 25-8-1969 and this information was furnished on 21-10-1968. Therefore, on the basis of material on record, it should not be said that the assessee had withheld any primary facts from the ITO.
6.7 According to their Lordships of the Supreme Court in case of CIT v. Bhanji Lavji [1971] 79 ITR 582, Section 34(1)(a) of the Indian Income-tax Act, 1922 does not cast any duty upon the assessee to instruct the ITO on questions of law. When the primary facts necessary for assessment are fully and truly disclosed to the ITO at the stage of original assessment proceedings, he is not entitled, on a change of opion, to commence proceedings for reassessment Under Section 34(1)(a). Again, in Gemini Leather Stores v. ITO [1975] 100 ITR 1, their Lordships of the Supreme Court have held that it was for the ITO to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. This, the officer did not do, it was plainly a case of oversight and it could not be said that income chargeable to tax had escaped the assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts.
6.8 In short, the assessee had already furnished the list of its shareholdings in the earlier assessments and the said list was on the record of the ITO and according to the practice followed, only changes in the list of shareholders was required to be indicated and in absence of any obligation on the part of the assessee to furnish such information in the return particulary for the assessment years 1965-66 and 1966-67, it could not be said that there was failure on the part of the assessee to disclose fully and truly the material facts relating to the assessment.
6.9 The other aspect of the matter is that the fact regarding escapement of income due to assessment at too low a rate by holding the assessee as a widely-held company was pointed out by the revenue audit as is evident from the comment of the report sent by the ITO to the Board. The extract of the report is found at page 4 of the paper book filed by the department, which reads as follows :
The Member may kindly peruse the PUC, being the Commissioner's letter dated 11-10-1979 forwarding proposal for action Under Section 147(a) for reassessments for the assessment years 1965-66 to 1969-70. In all the years the income was reported to have been escaped assessment in the sense (within the meaning of Explanation 1 to Section 147) that the income has been assessed at too low a rate. The reason for the same is reported to be that the assessee was wrongly treated as a 'company in which the public are subsequently interested' [Section 2(18)]. This was pointed out by the revenue audit objection involving short levy of tax to the extent of Rs. 8,19,000 in the four assessment years in question.
It can, therefore, be reasonably inferred that the prime mover for commencement of the proceedings was the audit report. Now, the note of revenue audit in certain situation may constitute information from the external source for the purpose of taking action Under Section 147(b). But, by no stretch of imagination the audit objection could give lever to the department to take action Under Section 147(a). Thus, without going into the nature of the audit objection and assuming for the sake of argument that the revenue audit objection was in the nature of 'information', the jurisdiction to commence such proceedings would lie under the provisions of Section 147(b) and as the time limit for taking such action being 4 years has already elapsed, it could not permit the taxing authorities to take recourse to the provisions of Section 147(a).
Now, coming to the merit of the case, i.e., the second part of the controversy, as stated earlier, the assessee can be treated as a widely-held company, if it was registered as a public limited company as required Under Section 2(18). The relevant conditions in this regard are as follows :
(a) firstly it should not be a private company as defined in Companies Act, 1956;
(b) Secondly shares other than preference shares carrying not less than 50 per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by and were throughout the relevant previous year beneficially held by-
(c) ** ** **
(d) the public (not being a director, or a company to which this Clause does not apply) ;
(i) ** ** **
(ii) the said shares were at any time during the relevant previous year the subject of dealing in any recognised stock exchange in India or were freely transferable by the holder to other members of the public ; and
(iii) the affairs of the company, or the shares carrying more than fifty per cent of its total voting power at no time during the relevant previous year controlled or held by five or less persons.
Explanation 2 further provides that in case of an Indian company whose business consists wholly in the manufacture or processing of goods for the words 'not less than fifty per cent' the words 'not less than forty per cent' shall be substituted. Thus, in case of an assessee, who is a manufacturing company, the shares carrying not less than forty per cent of the voting power should be allotted unconditionally to, or acquired unconditionally by the public and the affairs of the company and shares carrying more than 60 per cent of its total voting power at any time during the relevant previous year controlled or held by five or less persons. The ITO probably, through oversight did not consider Explanation 2 in determining the extent of shares allotted or controlled by five or less persons. He proceeded on a footing of shareholdings of fifty per cent in coming to the conclusion that the assessee was not a widely-held company.
7. We may at this stage dispose of an objection raised by the learned departmental representative based on the ground that there was a restriction on transfer of shares asLald down in the articles of association. We do not wish to devolve further on this objection, in view of the decision of the Hon'ble Supreme Court in Shree Krishna Agency Ltd.'s case (supra). Now it is also an admitted fact that the shares of the assessee-company were subject of dealings in the recognised stock exchange and were freely transferable by the holder to other members of the public. The only condition, therefore, which is required to be taken into consideration is set out in Section 2(l8)(b)(B)(i)(d) and (b)(B)(iii). The learned departmental representative has submitted the following working of the shareholdings to support his contention that more than 60 per cent of voting power was in the hands of five or less persons. The working given by the learned departmental representative is reproduced hereunder :
(a) Uganda Tea Estate Ltd. 50,000 (b) Jagdish Inds. (P.) Ltd. 8,950 (c) Jaibharat 1,000 (d) Nanjibhai Kalidas Mehta 500 (e) Shri Khimji Nanjibhai Mehta 520 ------ 60,970 ------
It is claimed on the "basis of the above working that more than 60 per cent shares were held in the name of five persons. This submission made by the learned departmental representative is devoid of substance because the shareholdings is not an exercise in arithmetic. According to the principles enunciated by their Lordships of the Hon'ble Supreme Court, the five persons holding the voting power must act in concert, asLald down in CIT v. Jubilee Mills Ltd. [1963] 48 ITR 9, it is stated as follows :
... Normally managing agencies are not formed by parties except for the purpose of mutual gain and the commonness of the interest lends a cohesion to the body which enables it to act in its own interest. When such a body holds shares carrying more than 75 per cent of the voting power the company itself is run mainly as the managing agents desire it to be run. Such a managing agency could easily choose its own directors and the directors would not be independent persons but mere nominees of the managing agents. In such a case the inference is irresistible that there is a group, which as a group, can run the company at its will and which not only controls the voting at the meeting of the shareholders but, by selecting its own directors, gets the directors to act according to its own desires. No member of such a managing agency firm can be regarded as belonging to 'the public' and when this happens the company comes within the reach of Section 23A.
In order to decide whether a company was controlled by a group, 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 be acting together. It is not necessary to state the kind of evidence as will prove such concerted actings. Each case must necessarily be decided on its own facts. (p. 10) The above principles were applied in case of CIT v. East Coast Commercial Co. [1978] 115 ITR 633 (Cal.) :
It is only when the revenue has brought in some relevant materials on record from which a legitimate inference can be drawn to the effect that a group of shareholders holding more than 75 per cent of the shares of a company have acted in concert in relation to the affairs of the company, that the company must disprove it by producing relevant materials and cogent evidence in its possession to the satisfaction of the Tribunal. (p. 633) Now the above fact does not throw any light to establish that these parties had acted in concert or that it could be reasonably said that the said parties have acted in concert should not be treated as 'public' within the meaning of the above Section. On the other hand, it has been stated on behalf of the assessee that the shareholdings even on the basis adopted by the department is taken into consideration, the position emerges as follows :
(a) Uganda Tea Estate Ltd. 50,000
(b) Janjibhai Kalidas Mehta group 560
(c) Dhirendrakumar Nanjibhai Mehta 50
(d) Nirmalaben Ranvir Khatau 50
(e) Khimjibhai Nanjibhai Mehta 520
------
51,180
------
Even assuming for the sake of argument that the above parties holding 51,180 shares could acting concert, even then more than 40 per cent shares were held by the public which would substantiate the assessee's case for treating as a widely-held company. Thus, even on merit the conclusion reached by the taxing authorities cannot be sustained. As pointed out earlier, through inadvertence the basis of shareholdings was taken as fifty per cent and not forty per cent or sixty per cent though the assessee was a manufacturing company.
8. In light of our above discussion, we uphold the conclusion reached by the Commissioner (Appeals) that the assessee was rightly treated as a widely-held company by the ITO in course of original assessment. In our opinion, the reassessment proceedings were rightly held to be bad in law and on facts, for the reasons stated by us here in before.
9. The appeals are dismissed.