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PETITIONER: COMMISSIONER OF INCOME-TAX, NEW DELHI(NOW RAJASTHAN)

       Vs.

RESPONDENT: EAST WEST IMPORT & EXPORT (P) LTD.,(NOW KNOWN AS ASIAN DISTR

DATE OF JUDGMENT08/02/1989

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH PATHAK, R.S. (CJ)

CITATION:  1989 AIR  836            1989 SCR  (1) 570  1989 SCC  (1) 760        JT 1989 (1)   226  1989 SCALE  (1)367

ACT:     Income  Tax Act,  1922: Section 23A(1)  &   Explanation- Requirement  "If any such shares have been in the course  of such  previous years"---"Are in fact freely transferable  by the holders to the other members of public"--"In the  course of  such  previous  year"-Interpretation  of--Whether  means ’throughout the year’ or ’any part of it’.     Statutory  Interpretation:  Situation  differently   ex- pressed  by  the  Legislature--Indication  that  Legislature intended to express different intention.     Words  and  Phrases.  ’In the course  of  such  previous year’--Meaning of

HEADNOTE:     Under articles 4, 81 and 82 of the Articles of  Associa- tion  of the respondent assessee company there was  restric- tion  on  the transfer of the shares of the company  by  the shareholders  to  the  other members of  the  public.  These articles were deleted at an extraordinary general meeting of the  Company held on 26th March, 1951 and  consequently  the shares of the Company acquired free transferability. For the accounting year ending 31st March, 1951 the assessee company claimed tax benefit u/s 23A(1) on the ground that by  reason of the fact that its shares had acquired free transferabili- ty  ’in  the course of the previous year’  the  company  had become  ’a company in which public are substantially  inter- ested’.     The Income Tax Officer rejected the claim of the  asses- see  company  by holding that while Explanation  to  Section 23A(1)  requires  that the shares should  have  been  freely transferable by the shareholders to the other members of the public  at every point of time during the previous year  and transferability  should be established by  actual  transfer; the Company satisfied the requirement only for four or  five days of the previous year. 571     On appeal-the Appellate Assistant Commissioner  affirmed the  view  taken  by the Income Tax  Officer.  The  assessee company  appealed to the ,Tribunal against the  decision  of the Appellate Assistant Commissioner. The Tribunal  accepted the contention of the assessee and allowed the appeal.

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   A  reference under Section 66(1) of the Income Tax  Act, 1922  was  made  to the High Court at the  instance  of  the Revenue  which  approved  the view taken  by  the  Appellate Tribunal,  and  held  that the conditions  required  by  the Explanation to Section 23A(1) were satisfied and the benefit thereunder was available to the assessee company.     In  the appeal by Special leave by the Revenue  to  this Court  on the question: whether the assessee  had  satisfied the requirements of the Explanation to Section 23A(1) of the Act, and was entitled to the tax benefit claimed. Allowing the appeal and setting aside the order of the  High Court,     HELD:  1. The Tribunal and the High Court went wrong  in holding  that the conditions required by the Explanation  to Section 23A(1) were satisfied and the benefit under the said section was available to the assessee. [575F]     2. The assessee company could not be held to be a compa- ny in which the public were substantially interested  within the  meaning of the Explanation to Section 23A(1) by  reason of  the fact that for a large part of the previous year  the shares  were  not freely transferable, though they  were  so transferable at the end of the previous year. [574G1     3. The word ’Course’ ordinarily conveys the meaning of a continuous  progress from one point to the next in  time  or space and conveys the idea of a period of time; duration and not a fixed point of time. The expression  ’in the course of such  previous  year’ would refer to the  period  commencing with  the  beginning of the previous year,  and  terminating with  the  end  of the previous year.  Therefore,  it  would necessarily mean that free transferability of the shares  by the holders to other members of the public should be present throughout  the previous year. This was not the position  in the  instant case, as the transferability was acquired  only on the 26th of March, 1951. [575D-F]      4.  The Explanation to Section 23A(1) has reference  to the  point  of time at two places: the first  one  has  been stated as ’at the end of the 572 previous  year’  and the second is ’in the  course  of  such previous  year’.  When the situation  has  been  differently expressed the legislature must be taken to have intended  to express a different intention. [575B-D] C.I.T.v. Arco (P) Ltd. [1963] 48 I.T.R. 76, referred to.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1294 (NT) of 1975.     From the Judgment and order dated 16.7.74 of the  Bombay High Court in I.T. Reference No. 22 of 1965.     S.C.  Manchanda, M.K. Sashidharan and Ms. A.  Subhashini for the Appellant.     Harish.  N. Salve, Parveen Kumar and V. Gambhir for  the Respondent. The Judgment of the Court was delivered by     RANGANATH MISRA, J. This appeal is by special leave  and is  directed against the judgment of the Bombay  High  Court dated  16.7.1974 on a reference made under Section 66(1)  of the Income Tax Act, 1922. The year of assessment is  1951-52 corresponding  to the accounting year ending 31.3.1951.  The question  referred by the Tribunal to the High Court at  the instance of the Revenue was:               "Whether on the facts and in the circumstances               of the case, the assessee company could not be

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             held to be a company in which the public  were               substantially interested within the meaning of               Explanation of section 23A(1) by reason of the               fact  that the shares of the company  carrying               not  less  than twenty-five per  cent  of  its               voting power were not, in fact, freely  trans-               ferable  by  holders to other members  of  the               public  for a large part of the previous  year               even  though they were freely transferable  as               at the end of the previous year? "     Initially  the  company was incorporated  as  a  private limited  company  at Jaipur on 24.12.1942 and was  known  as Messrs  Rajputana Investment Company Private Limited.  Under articles 4, 81 and 82 of the Articles of Association of  the company there was restriction on the transfer of the  shares of the Company by the shareholders to other 573 members  of  the public. These articles were deleted  at  an extraordinary  general meeting of the Company held  on  26th March, 1951, and following the deletion, the restriction  on transfer  of shares was removed. So was the limit of  number of shareholders. On the basis of the amendment the  assessee claimed  relief under s. 23A(1) of the 1922 Act by  pleading that  all  the statutory requirements  were  satisfied.  The income Tax Officer refused to accept the stand of the asses- see on the ground that while the Explanation contained in s. 23A(1)  of the Act required that in course of  the  previous year  the shares were freely transferable by the holders  to other members of the public, the company came to satisfy the requirement  only  for four or five days of  the  year.  The Appellate  Assistant  Commissioner  adopted  the  same  view whereupon the assessee appealed to the Tribunal. The  Tribu- nal  accepted  the  stand of the assessee  and  allowed  the appeal, whereupon at the instance of the Revenue the  afore- said  question was referred and the case was stated  to  the High  Court under s. 66(1) of the 1922 Act. The  High  Court found for the assessee and against the Revenue. That has led to the present appeal by special leave.     As pointed out above, the short point for  consideration in  this appeal is as to whether the assessee satisfied  the requirements  of the Explanation to s. 23A(1) of the Act  so as to be entitled to the tax benefit. This Court pointed out in the case of C.I.T.v. Arco (P) Ltd., [19631 48 ITR 76:               "Section 23A was enacted to prevent evasion of               liability to pay super-tax by shareholders  of               certain classes of companies taking  advantage               of  the disparity between the rates of  super-               tax  payable by individuals and by the  compa-               nies.  The  rates of super-tax  applicable  to               companies  being lower than the highest  rates               applicable to individual assessees, to prevent               individual assessees from avoiding the  higher               incidence  of  super-tax by the  expedient  of               transferring to companies the sources of their               income, and thereby securing instead of  divi-               dends the benefit of the profits of the compa-               ny,  the  Legislature by Act XXI of  1930,  as               modified by Act VII of 1939, enacted a special               provision  in s. 23A investing the  Income-tax               Officer  with power, in certain  contingencies               prescribed  in the section to order  that  the               undistributed balance of the assessable income               reduced  by the amount of taxes and the  divi-               dends shall be deemed to have been distributed               at the date of the general meeting."

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574 The Explanation provided: "For the purpose of this sub-section ,--                        a  company  shall be deemed to  be  a               company in which the public are  substantially               interested if shares of the company (not being               shares  entitled to a fixed rate of  dividend,               whether  with  or without a further  right  to               participate in profits) carrying not less than               twenty-five per cent of the voting power  have               been allotted unconditionally to, or  acquired               unconditionally by, and are at the end of  the               previous year beneficially held by, the public               (not  including a company to which the  provi-               sions  of this sub-section apply) and  if  any               such shares have in the course of such  previ-               ous  year been the subject of dealings in  any               stock  exchange in the taxable territories  or               are in fact freely transferable by the holders               to other members of the public."     The only question that has engaged the attention of  the Tribunal  and the High Court at the instance of the  respec- tive parties is as to whether the shares were freely  trans- ferable by the holders to other members of the public in the course of the previous year. As we have already pointed out, the  Income  Tax Officer and the first  appellate  authority held  that  the terms in the Explanation required  that  the shares  should have been freely transferable by  the  share- holders  to  other members of the public at every  point  of time during the previous year and transferability should  be established  by actual transfer. The Tribunal and  the  High Court took the view that it was not necessary that as a fact there  should  have been some transfer of  such  shares  but transferability  as an incidence should have been  at  every point  of time during the whole of the previous  year.  That being the short question on which this appeal can be  effec- tively disposed of, there is no necessity to refer to  other aspects which had been canvassed at earlier stages.     Indisputably, until 26th of March, 1951, the shares were not  freely transferable in view of the three provisions  in the Articles and with the deletion of those, free transfera- bility of the shares was acquired. There has been no dispute before us that the requirement "if any such shares have been in the course of such previous year" would also apply to the last  requirement  "are in fact freely transferable  by  the holders  to other members of the public". The  only  conten- tious aspect is as to whether "in the course of such  previ- ous year" would mean throughout the year or any part of it. 575     There is no direct authority indicating the true meaning of this requirement in the Explanation one way or the other. The  purpose  of enacting s. 23A, as pointed out  in  Afro’s case, was to control evasion of tax.     The  Explanation has reference to the point of  time  at two places: the first one has been stated as "at the end  of the previous year" and the second, which is in issue, is "in the  course of such previous year". Counsel for the  Revenue has emphasised upon the feature that in the same Explanation reference to time has been expressed differently and if  the legislative  intention  was  not to  distinguish  and  while stating "in the course of such previous year" it was intend- ed to convey the idea of the last day of the previous  year, there  would have been no necessity of expressing the  posi- tion differently. There is abundant authority to support the stand of the counsel for the Revenue that when the situation

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has been differently expressed the legislature must be taken to have intended to express a different intention.     ’Course’ ordinarily conveys the meaning of a  continuous progress  from  one point to the next in time or  space  and conveys  the  idea of a period of time; duration and  not  a fixed  point of time. "In the course of such previous  year" would,  therefore, refer to the period commencing  with  the beginning of the previous year and terminating with the  end of  the previous year. If that be the meaning of the  phrase "in the course of such previous year", it would  necessarily mean that free transferability of the shares by the  holders to other members of the public should be present  throughout the  previous year. Admittedly that was not the position  in this  case as transferability was acquired only on  26th  of March,  195 1. We are of the view that the Tribunal and  the High  Court  went wrong in holding that the  conditions  re- quired  by  the Explanation were satisfied and  the  benefit under the section was available to the assessee.     The  appeal  is  allowed. The order of  the  High  Court approving  the view taken by the Appellate Tribunal  is  set aside  and  the question referred to the High Court  is  an- swered thus:               "On the facts and in the circumstances of  the               case,  the assessee company could not be  held               to  be  a  company in which  the  public  were               substantially interested within the meaning of               the Explanation to s. 23A(1) by reason of  the               fact  that  for a large part of  the  previous               year the shares]               576                       were  not freely  transferable  though               they  were so transfer able at the end of  the               previous year." and against the assessee. Parties are directed to bear their own costs throughout. T.N.A.                                                Appeal allowed. 577