Judgement JUDGMENT :- A very short question arises on this reference as to whether at the relevant time the assessee could be deemed to be a company in which the public were substantially interested. The register of this company ad the relevant date shows that 11 directors held 41-500 shares, the managing agency firm which was constituted by some of the directors held 2,300 shares, the Mysore Merchants Ltd., held 11,880 shares, and three outsiders who were members of the public held 4,320 shares. If the holding of the Mysore Merchants Ltd., can be considered to be a holding of members of the public, then this assessee company would not be a company in which the public were not substantially interested, and therefore the attempt of Mr. Palkhivala was to satisfy us that the snares held by Mysore Merchants Ltd., were shares held by members of the public. This view was not accepted by the Tribunal and hence this reference. 2. Turning to S. 23A, Sub-S. (1) provides chat in the case of a company which has distributed less than 60 per cent of the assessable income, the income may be assessed in the hands of the shareholders, the dividend income, notwithstanding their not being distributed, being deemed to be the income of the shareholders. That is substantially the provision of Sub-Section (1). That is substantially the provision of Sub-Section (1). Then the relevant proviso is the third proviso which is to the following effect : Provided further that this sub-section shall not apply to any company in which the public are substantially interested or to a subsidiary company of such a company if the whole of the share capital of such subsidiary company is held by the parent company or by the nominees thereof." There is an explanation to this proviso and although that explanation says that it is for the purpose of this sub-section, strictly it is for the purpose of the third proviso, and the explanation is : "a company shall be deemed to be a company in which the public are substantially interested if shares of the company (I am quoting only the relevant portion) carrying not less than 25 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)......" Therefore, from the category of the public, a company to which the provisions of this Sub-Section apply, has been excluded, and the narrow question that we have to consider is whether Mysore Merchants Ltd., is a company which has been excluded by reason of this explanation. 3. It is admitted that Mysore Merchants Ltd., would satisfy the definition of a company in which the public are not substantially interested, but the ingenious argument advanced by Mr. Palkhivala is that, it is not sufficient to look at the register of the shareholders of the Mysore Merchants Ltd. We must go further and determine whether it made profits, whether it did not distribute 60 per cent of its dividends, and apply all the provisions contained in Sub-S. (1) of S. 23-A. In our opinion that is not the correct construction to be put upon the expression used by the Legislature in this explanation. Looking to the scheme of the Section, the marginal note which may be looked at in order to understand the drift of the section is "Power to assess individual members of certain companies." Therefore, the power conferred under S. 23A is not with regard to all companies but only certain companies, and although S. 23A speaks of "any company", S. 23A(1) must be read along with the third proviso and when so read it is clear that the provisions of S. 23A only apply to a certain type of companies, the nature of which is defined in the third proviso. When the Legislature refers to "a company to which the provisions of this Sub-Section apply" it is referring to the nature of the company and the nature of that company is the nature denned in the third proviso. Sub-Section (1) refers to the conditions which have got to be present before the power conferred by S. 23A can be exercised. But that is not the relevant question for the purpose of deciding whether it is a company to which this sub-section applies. Before you consider whether the provisions of S. 23A apply or not you have to decide whether the company is one which comes within the ambit of S. 23A, and therefore the material question is whether the company contemplated by the explanation is a company in which the public are or are not substantially interested. If it is a company in which the public are not substantially interested, then it is a company to which S. 23A applies. Once S. 23A applies, then the further consideration would arise whether the conditions of the exercise of the power under S. 23A have been satisfied or not. 4. It is then urged by Mr. Palkhivala that under Cl. 14, Part B States (Taxation Concessions) Order, 1950, the provisions of S. 23A shall not be applied in respect of profit and gains of any previous year ending before the appointed day, unless the State law contained a provision corresponding thereto, and what is urged is that under this clause the Mysore Merchants Ltd., was exempted from the application of the provisions of S. 23A and therefore it is suggest that this is not a company to which S. 23A applies and the holding of this company would be a holding by members of the public. In the first place, we are not applying S. 23A to the Mysore Merchants Ltd. In the second place, what clause 14 means is that when there is a company to which Section 23A, applies, it would not be liable to tax provided that company satisfies the provisions of Cl. 14. But the very assumption underlying the enactment of Cl. 14 is that the provisions of S. 23A do apply to that company. It is precisely because they do apply that an exemption is granted to that company under certain circumstances. Therefore, in our opinion, Cl. 14 of the Taxation Concessions Order does not help Mr. Palkhivala either. 5. The final contention urged by Mr. Palkhivala was that the directors are members of the public, and therefore the holding by them will be holding by members of the public. There is a decision of this Court directly in point of this question in Raghuvanshi Mills Ltd., v. C.I.T. Bombay City.. 1954 Bom 85 (AIR V 41) (A), and Mr. Palkhivala concedes that in view of that decision he cannot ask us to come to a contrary conclusion. 6. The result is that the answer to the question submitted to us will be in the negative. The Assessee to pay the costs. Reference answered in negative.