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Assessment year 1962-63:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-company was not a company in which the public are substantially interested within the meaning of Sub-clause (iii) of Clause (b) of Section 2(18) read with Section 2(41) of the Income-tax Act, 1961, inasmuch as the shares carrying more than 50% of the voting power were during the previous year held by less than six persons ?"

6. Before us two contentions were raised. It was contended that M/s. R. P. Goenka & Ors. were not capable of holding shares and as such of exercising voting rights and, therefore, the shareholdings of M/s. R. P. Goenka & Ors. should be excluded and if the same were excluded, the number of shares held by these persons who had been clubbed together would come to less than 50% of the shareholdings, In support of this contention, counsel for the assessee contended that under the provisions of the Companies Act, read with Table 'A', regulations 25-28, the company was not competent to recognise a joint entity which was not a legal entity like M/s. R. P. Goenka & Ors. In the premises, according to counsel for the assessee, these shares were neutralised as such and they had no voting rights. In support of the contention counsel for the assessee drew our attention to the decision in the case of Vagliano Anthracite Collieries Ltd., In re [1910] WN 187. That was a motion by one Thomas Blair and one William Blair Girling who had carried on business as solicitors in partnership. They asked that the registrar of members of the company should be rectified by entering their names thereon in respect of 250 fully paid-up shares in the capital of the company, then registered in the name of one Mrs. Cookson. The applicants were the holders as transferee of the shares in question from Mrs. Cookson. The transferees were expressed upon the face of the transfer to be Messrs. Blair & W. B. Girling and it was purported to be executed by Blair & W. B. Girling, the firm name, as transferees. The company had refused to register the transfer on the ground that they were not bound to enter the name of the firm on the register except by naming the members. When the motion came up for hearing the learned judge held that the application failed because the applicant's firm was not a person. A firm was not a person nor a legal entity at all. In the premises, the application was refused. It follows, therefore, that the joint transferees or holders have no legal right to have themselves registered in the company's register as joint transferees or to have their names entered into in the firm's name or in the name of the association of persons or of a Hindu undivided family. In support of this proposition we may refer to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Shakuntala , where it was held that a Hindu undivided family which was the beneficiary of certain shares in a company in which the public were not substantially interested held the shares in the names of different members of the family. The Income-tax Officer applied the provisions of Section 23A of the Indian Income-tax Act, 1922, and passed an order that the undistributed portion of the distributable income of the company should be deemed to have been distributed and the amount appropriate to the shares of the family were sought to be included in the income of the family. It was held that the expression "shareholder" in Section 23A of the Indian Income-tax Act, 1922, meant the shareholder registered in the books of the company. The amount appropriate to the shares had been included in the incomes of the members of the family in whose names the shares stood in the register of the company and as the Hindu undivided family was not a registered shareholder of the company, the amount could not be assessed as the income of the family under Section 23A of the Act. In the case of Commissioner of Income-tax v. C.P. Sarathy Mudaliar it was held by the Supreme Court that Section 2(6A)(e) of the Indian Income-tax Act, 1922, should receive a strict construction and when the section spoke of "shareholder", it referred to the registered shareholder and not to the beneficial owner. In that case members of a Hindu undivided family had acquired shares in a company with the funds of the family. Loans were granted to the Hindu undivided family and the question was whether the loans could be treated as dividend income of the family falling within Section 2(6A)(e) of the Indian Income-tax Act, 1922. It was held by the Supreme Court that only the loans advanced to the shareholders could be deemed to be dividends under Section 2(6A)(e). The Hindu undivided family could not be considered to be a "shareholder" under Section 2(6A)(e) and, hence, the loans given to the Hindu undivided family could not be considered as loans advanced to a shareholder of the company and could not, therefore, be deemed to be its income. The position, therefore, is that, in the eye of law, M/s. R. P. Goenka & Ors. could not have been registered as shareholders but the fact is that they had been so registered. The law provides that if they were so registered, the company would suffer certain consequences as provided in Section 150 of the Companies Act, 1956. Counsel for the assessee contended that inasmuch as the shares could not have been registered in such name there would be no voting right attached to the shares. It was contended that when a registered shareholder died but mutation of the names of the heirs and legal representatives of his heirs did not take place, the shareholding did not carry any voting right. We are, however, unable to accept the position that where a registered shareholder died and the name or names of the heir or heirs were not mutated, nobody could be considered to be a shareholder having voting right. It cannot be said, in our opinion, that there was no voting right upon the registration of the shares. How the voting right on behalf of the shareholders would be exercised is a matter of internal arrangement between the shareholders. In the premises, it cannot be said that Messrs. R. P. Goenka & Ors. could not be considered to be a shareholder and should be left out of consideration.