BOMBEY HIGH COURT

                                        Commissioner of Income-Tax

                                                        Vs.

                                    Indian Smelting and Refining Co.Ltd

                                   Income-tax reference No. 319 of 1975

                                           (Bharucha and Sugla, JJ.)

                                                   02.04.1987

                                                  JUDGMENT

Sugla, J.

1. The questions of law referred to us in this reference at the instance of the Revenue are :

        "(1) Whether, on the facts and in the circumstances of the case, the assessee-company was
        a company in which the public were substantially interested during the previous years
        relevant to the assessment years 1966-67 to 1969-7 ?
        (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in
        holding that the value of 'building and machinery under erection' and 'advance for
        purchase of machinery and raw material' should be included in the capital base under rule
        19A for the purpose of working out the relief under section 80J of the Income Tax Act,
        1961, for the assessment years 1967-68 to 1969-7 ?"

2. It is common ground that the Income Tax Appellate Tribunal has followed its earlier orders for
the assessment years 1964-64 and 1965-66 for deciding the above two questions in favor of the
assessee and though the Revenue had come up in reference against the said earlier orders of the
Tribunal, the reference was not pressed and, therefore, the questions were not answered.

3. However, Sri Jetly, learned counsel for the Department, submits that his instructions in the
present case are to press the reference. In this context, he invites our attention to section
2(18)(b)(B)(iii) and Explanation 1 thereto of the Income Tax Act, 1961, for the proposition that
for the purpose of finding whether shares carrying more than 50% of the total voting power were
held by five or less persons, the persons who are nominees of any other person shall be treated as
a single person. It was stated that the United Commercial Bank and at the Central Bank are
shareholders of the assessee-company as nominees of Hindustan Charity Trust and, therefore, are
to be treated as one single person. If that is done, he argued, more than 50% shares of the said

company would be found to be held by less than five persons. Shri Mehta, learned counsel for

the assessee-company, on the other hand, relied upon the Supreme Court's decision in the cases

of Howrah Trading Co. Ltd. v. Commissioner of Income Tax1, and Commissioner of Income Tax

v. Shakuntala2, for the

1(1959) 36 ITR 215 (SC)  2(1961) 43 ITR 352 (SC)

proposition that while counting the number of shareholders, it is the number of registered
shareholders which matters.

4. The short point that requires consideration in this reference thus is whether the shares held by
the two banks are to be treated as shares held by one person or two persons. The registered
shareholders are the two banks in their own right. It is true that both the banks are nominees of
Hindustan Charity Trust. However, the Tribunal has given a clear-cut finding that they have
never acted in concert and unison and they are the registered shareholders. In the above view of
the matter, following the Supreme Court decisions, we hold that the two banks are to be treated
as two persons and not as one single person as contended by the Revenue. Accordingly, the first
question of law is answered in the affirmative and in favour of the assessee.

5. As regards the second question, both the parties agree that the issue is squarely covered by this
court's decision in the assessee's own case Commissioner of Income Tax v. Alcock Ashdown &
Co. Ltd3., and the question is to be answered in the affirmative and in favor of the assessee. The
second question is, therefore, answered accordingly.

6. In the result, both the question of law are answered in the affirmative and in favour of the
assessee with no order as to costs.

3(1979) 119 ITR 164 (Bom)