K.T Desai, C.J:— This is a reference at: the instance of the assessee under section 66(1) of the Indian Income-tax Act, 1922. The assessee is a private limited company. The relevant assessment year is 1952-53, the accounting year being the calendar year 1951. The question that has been raised in this reference is the following:

“Whether, on the facts and in the circumstances of the case, the assessee company was a company in which the public are not substantially interested within the meaning of the Explanation to section 23A(1) of the Indian Income-tax Act, 1922, as it then stood?”

2. The assessee company was incorporated on December 6, 1929. The promoters of this company were three brothers by name Jayantilal Amratlal, Ramanlal Amratlal and Hariprasad Amratlal. The issued capital of the company consisted of 750 promoters shares of Re. 1 each and 250 ordinary shares of Re. 1 each. On February 4, 1930, the first allotment of the shares was made. The promoters shares were allotted in the manner following:

Jayantilal Amratlal 500 shares. Ramanlal Amratlal 125 shares. Hariprasad Amratal 125 shares.

3. As regards the ordinary shares, at the time when the company was floated, it was necessary that the holder of every ordinary share should deposit or cause to be deposited with the Anant Mills Ltd. a sum of Rs. 2,000. The said amount of deposit was to continue for a term of seven years from the date or dates on which the deposit was made, the depositor being entitled to interest at the rate of six per cent. per annum. There was a further condition attached to the holding of these ordinary shares. It was incumbent on every holder of ordinary shares to hold at least as many shares of the Anant Mills Ltd. as he held the shares of the assessee company. The ordinary shares of the company were allotted on February 4, 1930, in the manner following:

Jayantilal Amratlal 10 shares. Ramanlal Amratlal 7 shares. Hariprasad Amratlal 7 shares. Chandulal Madhavlal 52 shares. Allotted to the public 174 shares.

4. The assessee company was at all times the managing agents of the Anant Mills Ltd., a public limited company. Between the years 1942 and 1946, Jayantilal Amratlal, one of the promoters, transferred 20 promoters shares, some to his brothers, some to his wife and some to his minor daughters. In 1947 Jayantilal Amratlal transferred 80 promoters shares to Jayantilal Amratlal Charitable Trust which was created by him. Jayantilal Amratlal was one of the trustees of that trust. At the relevant time these 80 shares stood in the names of two trustees of the aforesaid trust, the trustees being the sons of Chandulal Madhavlal, one of the directors of the assessee company. At the end of the calendar year 1951, the shares of the assessee company were held as under:

Jayantilal Amratlal … 410 shares. Ramanlal Amratlal … 137 shares. Chandulal Madhavlal … 2 shares. P.C Mukherjee … 3 shares. Hariprasad Amratlal … 131 shares. Wife and children of Hariprasad Amratlal 15 shares. Jayantilal Amratlal Charitable Trust … 80 shares. Wife and minor children of Jayantilal Amratlal and Ramanlal Amratlal … 18 shares. Sons and grandsons of Chandulal Madhavlal 51 shares. Other relatives and collaterals of the Directors … 56 shares.

5. The remaining 97 shares were held by different members of the public. We may here mention that during the relevant year the directors of the company were Jayantilal Amratlal, Ramanlal Amratlal, Chandulal Madhavlal and P.C Mukherjee.

6. In order to determine the question that is raised before us, it is necessary to consider the language of the Explanation to section 23A as it then stood. The Explanation ran as under:

“Explanation.—For the purpose of this sub-section, a company shall be deemed to be a company in which the public are substantially interested if the 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 provisions of this sub-section apply), and if any such shares have in the course of such previous 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.”

7. In order that the assessee company may be deemed to be a company in which the public are substantially interested, two conditions have to be satisfied, viz.,

(1) the shares of the company carrying not less than twenty-five per cent. of the voting power should have been allotted unconditionally to, or acquired unconditionally by the public, and

(2) at the end of the previous year, i.e, the calendar year 1951, shares of the company carrying not less then twenty-five per cent. of the voting power should have been beneficially held by the public.

8. In this connection, we will consider whether the shares held by (1) Jayantilal Amratlal, (2) Ramanlal Amratlal, (3) Hariprasad Amratlal and (4) the trustees of the Jayantilal Amratlal Charitable Trust could be regarded as shares held by the public. The total number of shares held by these persons amount to 758 shares. Jayantilal Amratlal has been one of the promoters of the company and a director of the company. Ramanlal Amratlal has also been a promoter and a director of the company. Hariprasad Amratlal has been a promoter of the company. The Income-tax Appellate Tribunal took the view that the shares held by the directors of the company must be regarded as shares held by persons who were not members of the public having regard to the decision of the Bombay High Court in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax [1953] 24 I.T.R 338 Bom.. The Income-tax Appellate Tribunal further took the view that Hariprasad Amratlal being one of the promoters of the company along with two other directors of the company, who held a controlling interest in the company, the voting power in respect of his shares would be controlled by the directors of the company, and that the shares held by him could not be said to be shares held by a member of the public. The Income-tax Appellate Tribunal also came to the conclusion that the shares held by the wives and minor children of the directors and of Hariprasad Amratlal could not be said to be shares held by the members of the public. It also held that the 80 shares held by the Jayantilal Amratlal Charitable Trust could not be regarded as shares held by members of the public. The Tribunal came to the conclusion that twenty-five per cent. of the shares of the company were not beneficially held by the members of the public at the relevant time.

9. After the decision of the Tribunal was given, the decision of the Bombay High Court in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, was challenged before the Supreme Court. The Supreme Court reversed the decision of the Bombay High Court. The decision of the Supreme Court is reported as Raghuvanshi Mills Ltd. v. Commissioner of Income-tax [1961] 41 I.T.R 613 S.C.. The Supreme Court held that directors cannot, by reason only of being directors, be said not to be members of the public. It held that if the directors or some of them did not act as a body or in concert with others, the fact that they are directors was of no significance. In dealing with this matter the Supreme Court at page 620 observes as under:

“It is clear from the third proviso that the sub-section does not apply to a company in which the public are substantially interested. The Explanation lays down, among the tests, the minimum interest which can be called ‘substantial’ by saying that shares of the company carrying not less than 25 per cent. of the voting power must be allotted unconditionally to, or acquired unconditionally by, the public and they must be beneficially held by the public. The essence of the Explanation lies not in the percentage which only shows the limit of the minimum holding by the public, but lies in the words ‘unconditionally’ and ‘beneficially’. These words underline the fact that no person who holds a share or shares not for his own benefit but for the benefit of another and who does not exercise freely his voting power, can be said to belong to that body, which is designated ‘public’. The word ‘public’ is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a block. If such a block exists and possesses more than seventy-five per cent. of the voting power, then the company cannot be said to be one in which the public are substantially interested.”

10. At page 621, the Supreme Court further observes that in its judgment, the test was first to find out whether there was an individual or a group which controlled the voting power as a block. If there was such a block, the shares held by it could not be said to be ‘unconditionally’ and ‘beneficially’ held by members of the public. In the course of this very judgment, the Supreme Court has observed as under:

“When a company starts, the promoters may subscribe a portion of its capital, and release the other unconditionally to the public. This is a case of unconditional allotment of shares to the public. The public may also unconditionally acquire a ‘portion of the shares which were previously held by the group which promoted the company. If at the end of the previous year 25 per cent. or more of the voting power is so held by the public, the company can take the benefit of the third proviso. But if more than 75 per cent. of the shares have again passed into the hands of a group which acts as a block, the third proviso ceases to apply.’”

11. These observations of the Supreme Court have been made on the footing that the promoters of a company who subscribe a portion of its capital cannot be regarded as constituting members of the public. The promoters of the company could be considered to be persons acting in unison and when the promoters subscribe to a portion of the capital, they could be said to hold the voting power in connection therewith as a block. In our view, they could not be regarded as holding the shares as members of the public.

12. In the present case the promoters of the company have been the three brothers, Jayantilal, Ramanlal and Hariprasad. All the promoters shares of the company were allotted to them. Most of the promoters' shares have been held by them at all material times. The company was floated in order to do the business of being the managing agents of the Anant Mills Ltd. There was in this case, so far as the promoters are concerned, a community of interest. They were acting in unison with a view to float the company so that the company may act as the managing agents of the Anant Mills Ltd. They could be regarded as constituting a block. The shares held by these three persons cannot be regarded as shares held by members of the public. Then come the shares which were settled upon trust by Jayantilal Amratlal, one of the promoters of the company and a director of the company.

13. The deed of trust provides by clause (21) as follows:

“All questions arising in the management and administration of the trusts or powers hereof and all differences of opinion amongst the trustees shall be disposed of in accordance with the opinion of the settlor during his lifetime and on and after the death of the settlor in accordance with the opinion of the majority of the trustees and in case of their being equally divided the trustees senior-most in age shall have a casting vote.”

14. This provision clearly reserves to the settlor the power to give directions in connection with every question arising in the management and administration of the trusts and the exercise of the powers under the trust. Under this provision the settlor, i.e, Jayantilal Amratlal, would have a right to give all lawful directions to the trustees in whose name the 80 shares belonging to the trust stood in connection with the exercise of the voting rights which attached to the holding of these 80 shares. It has been strongly urged by Mr. Dwarkadas that the right to vote in connection with the shares held by the trust is not a matter relating to the management or administration of the trust and that clause 21 of the deed of trust would not entitle the settlor to give any directions in connection therewith. In our opinion there is no merit in this argument. The shares constitute the property of the trust. It is the duty of the trustees to take part in the meetings of the company in order to see that the company is properly managed and a proper dividend is received. The right to attend meetings of the company is a right which accrues to them in their capacity as the trustees of the trust holding the shares which constitute the property of the trust. They would be under an obligation to carry out the lawful directions of the settlor in this connection having regard to the provisions of clause 21 of the deed of trust. It was urged by Mr. Dwarkadas that the settlor was concerned only with the day to day affairs of the trust and that the exercise of the right to vote at a meeting of the company did not relate to the day to day management of the affairs of the trust and that the settlor had no power to give any direction under clause (21) of the deed of trust to the trustees in respect of their voting rights. We are unable to accept this argument. Apart from anything else, clause (21) of the deed of trust is not restricted to merely what are called the day to day affairs of the trust. The language clearly shows that every question arising in the management and administration of the trusts or powers is one which has to be disposed of in accordance with the opinion of the settlor during his lifetime. The words “all questions” appearing in this clause cannot be given any restricted meaning. In our view it was within the power of the settlor to give helpful directions in connection with the voting rights to be exercised by the trustees as holders of the shares belonging to the trust.

15. Mr. Dwarkadas further argued that even though Jayantilal Amratlal might have a right to give directions in connection with voting to the trustees in whose names the shares stood, unless and until it was established that Jayantilal Amratlal had in fact exercised his power and given such directions, it cannot be said that those 80 shares held by the trustees were not held by the public. The question whether shares are held by members of the public or not, does not depend upon the actual exercise of the powers vested in some person who controls the voting rights in respect of these shares. The fact that the voting rights in respect of these shares are not free but are fettered by the control which a person who is not a member of the public is entitled to exercise in connection therewith is sufficient to take the shares out of the category of shares held by the members of the public.

16. The shares held by the promoters and the trustees of the aforesaid trust at the end of the year 1951 total 758. The voting power in respect of these shares exceeds 75% of the total voting power. In addition to these shares there are also the shares held by the wives and minor children of the promoters which are not liable to be regarded as shares held by members of the public.

17. What we have stated above is sufficient for the purpose of disposing of the reference. There are, however, certain points which have been urged before us by Mr. Dwarkadas with which we shall now deal. It was urged by Mr. Dwarkadas that the Tribunal approached the matter on the footing that the shares held by the directors could not be regarded as shares held by the members of the public and that the Tribunal had not applied its mind to the question whether the shares held by promoters of the company could be regarded as shares held by members of the public. Mr. Dwarkadas is not completely right in the submission which he makes. As regards the shares held by Hariprasad Amratlal, he was not a director of the assessee company. He was only a promoter of the assessee company. The Tribunal had to consider whether the shares held by him could be regarded as shares held by a member of the public. In dealing with this matter the Tribunal came to the conclusion that as the shares standing in the name of Hariprasad Amratlal were shares in respect whereof the directors of the company had a control, the shares could not be said to be held by a member of the public. The aforesaid reason given by the Tribunal may not be correct having regard to the decision of the Supreme Court. The question none the less was before the Tribunal and the Tribunal had in fact to consider whether the shares held by a promoter should be regarded as shares held by a member of the public. In the course of its judgment the Tribunal had observed as follows:

“Now when it is remembered that Hariprasad was one of the original allottees of the promoters' shares and thus was a promoter of the company, it is not easy to accept him as a member of the public in contradistinction to one who is not a member of the public within the requirements of the explanation.”

18. This question has also been dealt with by the Income-tax Officer. The Income-tax Officer observes in this connection as under:

“131 shares held by Hariprasad Amratlal are also not held by members of the public because Shri Hariprasad Amratlal who is a brother of director Jayantilal Amratlal is a shareholder right from the beginning of the company and is one of the original promoters. A promoter like director of the company is not a member of the public in terms of section 23A of the Income-tax Act…”

19. In our view it is open to us in deciding the question that has been raised before us to come to a conclusion in connection with that question by a process of reason different from the one adopted by the Tribunal provided the same is founded on facts which are admitted or found by the Tribunal. In the present case the facts necessary for us to come to the conclusion that the shares held by Hariprasad are shares not held by a member of the public have been found by the Tribunal. Mr. Dwarkadas then urged that a person may be a promoter at the time when he acquired the shares of the company and may be then holding shares not as a member of the public, but subsequently the conditions might alter. At a subsequent stage the unity of purpose amongst the promoters might be destroyed and persons who were at one time acting as a block might sever. Persons who at one time were acting in unison may cease to act in unison. In such circumstances it may not be possible to treat the shares held by persons who were at one time promoters as shares held by persons constituting a block. He says that he had no opportunity of showing this in the present case. We do not agree with Mr. Dwarkadas when he says that he had no opportunity of doing so. He had every opportunity of showing that the shares which were held by Hariprasad Amratlal should be regarded as shares held by a member of the public. If he intended to establish that even though in the first instance the shares were held by Hariprasad as a person who was not a member of the public, subsequently by reason of change of circumstances, he was holding the shares at the relevant time as a member of the public, he had every opportunity of doing so. There is nothing on the record from which we could hold that Hariprasad Amratlal who, at the initial stage, was not a member of the public had become a member of the public in connection with his holding of these shares. Mr. Dwarkadas wanted us to refer the matter back to the Tribunal for the purpose of enabling him to have an opportunity of leading evidence to show that Hariprasad Amratlal had ceased to hold the shares as a person other than a member of the public and was at the end of the accounting year holding the same as a member of the public. In exercising the powers given to us under the provisions of section 66 of the Income-tax Act, we are not sitting as a court of appeal so that we could remand a matter for further evidence. We cannot accede to the request made by Mr. Dwarkadas in this connection.

20. In the result the answer to the question is in the affirmative. The assessee company was a company in which the public were not substantially interested within the meaning of the Explanation to section 23A(1) of the Indian Income-tax Act, 1922, as it then stood. The assessee will pay to the respondent the costs of the reference.

21. Question answered in the affirmative.