JUDGMENT - KANIA M.H., J.: - Only one question has been referred to us for determination in this Reference under section 256(1) of the Income Tax Act, 1961. That question runs as follows: “Whether, on the facts and in the circumstances of the case, Indo-Nippon Chemical Co. Ltd., was a Company in which the public were substantially interested within the meaning of section 2(18) of the I.T. Act, 1961 in the years under reference?” Although the statement of the case is somewhat long, the relevant facts are very few. The assessee Company was incorporated in 1960 for manufacturing plasticizers in collaboration with Nichimen Co. of Osaka, Japan, which we propose to refer to hereafter as the Japanese Company. By 1-4-1964 the assessee Company had issued 27,000 shares at cost price. 8,344 of these shares were held by a Private Limited Company and 9,900 of these shares were held by the Japanese Company. The remaining shareholdings were relatively small. There were 18 shareholders in all. Article 53 of the Articles of Association of the assessee conferred absolute and uncontrolled discretion on the Board of Directors to decline to register a transfer of shares but provided that, in case of such refusal, the Board of Directors must give intimation of refusal within two months to the transferee and the transferror. In respect of the relevant previous year to the assessment year 1964-65 a question arose whether the assessee was a Company in which public was substantially interested. The assessee urged that it was such a company and the Revenue asserted that it was not. It was found, inter alia by the Tribunal that the Japanese Company was a company in which public was substantially interested as per the certificate of the Auditors of that Company. That certificate had not been called in question until the hearing of the appeal by the Tribunal and the Tribunal did not permit the Revenue to question the correctness of that certificate before it. On these facts the Tribunal came to the conclusion that the Japanese Company was a Company in which the public was substantially interested within the meaning of section 2(18) of the Income Tax Act, 1961. It is from this decision of the Tribunal that the aforesaid question as been referred to us. 2. On these facts the Tribunal came to the conclusion that the Japanese Company was a Company in which the public was substantially interested within the meaning of section 2(18) of the Income Tax Act, 1961. It is from this decision of the Tribunal that the aforesaid question as been referred to us. 2. The relevant portion of section 2(18) of the Income Tax, 1961, as it stood at the relevant time, read thus: “(18) “Company in which the public are substantially interested - a company is said to be a company in which the public are substantially interested - xxx xxx xxx xxx (b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956) and (i) its shares (not being shares entitled to a fixed rate of dividend whether with or without a future right to participate in profits) carrying not less than fifty per cent of the voting power having been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by - (a) the Government, or (b) a Corporation established by a Central, State or provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the conditions laid down in Clause (b) of section 108 hereinafter the clause referred to as (d) the public (not being a director, or a company to which this clause does not apply).” 3. Two submissions were made by Mr. Jetley. The first submission was that in view of the Article 53 of the Articles of Association of the assessee, to which we have referred earlier, it cannot be said that the shares of the assessee were freely transferable. This argument is negatived by a decision of the Supreme Court in (Shree Krishna Agency Ltd. v. Commissioner of Income-tax (Central), Calcutta)1, 1971(82) I.T.R. 372. In that case the relevant Article, being Article 37 regarding the right of the Directors to refuse to register the transfer of shares was worded similarly to Article 53 of the Articles of Association of the assessee Company. In that case the relevant Article, being Article 37 regarding the right of the Directors to refuse to register the transfer of shares was worded similarly to Article 53 of the Articles of Association of the assessee Company. It was held by the Supreme Court that in the absence of evidence to show that the directors had been exercising their power under Article 37 freely and virtually eliminated the element of free transferability of the shares in the company, and in the absence of any restriction in the other articles of the company interfering with the free transfer of shares by one share-holder to another, the mere existence of an Article like Article 37 could not be said to affect the free transferability of the shares as contemplated by the Explanation to section 23 of the Indian Income Tax Act 1922, principle has been laid down with reference to section 23-A(1) of the Income Tax Act, 1922, it is clearly applicable to the case before us. 4. The next submission of Mr. Jetley was that the Japanese Company could not be regarded as a company in which public was substantially interested, and in view of that the assessee Company could not be regarded either as a Company in which public was substantially interested. In this regard the auditors' certificate, which has been accepted, shows that the Japanese Company was a public company, in the sense that it was a company in which the public was substantially interested. The only argument of Mr. Jetley was that it was the Japanese public who are shareholders of that Company and not the Indian public. We see no reason why the meaning of the term “public” should be curtailed in the manner suggested by Mr. Jetley. We are not called upon to consider whether the Japanese shareholders of the Japanese Company were Indian citizens or not but whether they were members of the public and we see no reason why they should not be regarded as members of the public. There is no warrant or reason whatever suggested to us why the qualification “Indian” should be read before the term “public” in section 2(18). In (Commissioner of Income Tax, Bombay City-1 v. Baroda Investment Co. There is no warrant or reason whatever suggested to us why the qualification “Indian” should be read before the term “public” in section 2(18). In (Commissioner of Income Tax, Bombay City-1 v. Baroda Investment Co. Ltd.)2, 1979(119) I.T.R. 14, it has been held by a Division Bench of this Court that Companies which were public within the meaning of section 2(18) were thus covered by the term “public” used in that section. The second submission of Mr. Jetley must also be rejected. 5. In the result, the question referred to us is answered in the negative and in favour of the assessee. The Commissioner to pay the costs. Reference answered in negative. -----