12. Whether public company will be deemed to be company in which public are not substantially interested by reason only of the fact that number of its directors at any time during previous year is less than six
Circular No. 101 was issued by the Central Board of Direct Taxes on 24 January 1973. Its subject is 12. Whether public company will be deemed to be company in which public are not substantially interested by reason only of the fact that number of its directors at any time during previous year is less than six.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Directs Income-tax Officers to follow the 1955 instruction of the Central Board of Revenue when applying section 2(18)(b)(B)(iii) as it then stood, and encloses it. That instruction answers whether a public company is to be deemed one in which the public are not substantially interested merely because it had fewer than six directors at some time during the previous year. It says such a case is considered under the paragraph dealing with control of the affairs of the company, that no cut and dried definition of control of the affairs of a company is possible, and that control is not the same as a director running the business from day to day. It follows that there need not be at least six directors for the company to stay outside the provision.
The question had been raised under the corresponding Explanation to section 23A of the 1922 Act, inserted by the Finance Act, 1955, and the Board carried the answer forward to the equivalent provision of the 1961 Act.
12. Whether public company will be deemed to be company in which public are not substantially interested by reason only of the fact that number of its directors at any time during previous year is less than six
1. Reference is invited to Circular No. 44 (LXXV-8) of 1955 [F. No. 4(47)55/Tec.], dated 1-11-1955 of the then Central Board of Revenue on the above subject copy of which is enclosed for ready reference [Annex].
2. Necessary instructions may please be issued to the Income-tax Officers to follow the instructions for purposes of section 2(18)(b)(B)(iii) [as it stood prior to its substitution by the Finance Act, 1983, w.e.f. 2-4-1983].
Circular: No. 101 [F. No. 195/1/72-IT(A-I)], dated 24-1-1973.
ANNEX - CIRCULAR, DATED 1-11-1955 REFERRED TO IN CLARIFICATION
A question has been raised whether the public company will be deemed to be a company in which the public are not substantially interested within the meaning of the Explanation to section 23A of the 1922 Act (inserted by the Finance Act, 1955) by reason only of the fact that the number of its directors at any time during the previous year is less than six. The case of such a company has to be considered under paragraph (iii) of the Explanation. It is not possible to give a cut and dried definition of the expression "control of the affairs of a company". It is, however, not the same as the running of the business from day-to-day by a director. It is, therefore, not necessary that there should be not less than six directors in order that section 23A should not apply.
An old dispute over whether a company was one in which the public are substantially interested, with consequences for the rate of tax and for provisions applying only to closely held companies.
Source: the Income Tax Department’s own published text — its page for this instrument.