CHAPTER XI — ADDITIONAL INCOME-TAX ON UNDISTRIBUTED PROFITS
CHAPTER XI — ADDITIONAL INCOME-TAX ON UNDISTRIBUTED PROFITS
SECTION 108 — SAVINGS FOR COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · Historic / Omitted Provision
Status: OMITTED. Section 108 was omitted by the Finance Act, 1987, with effect from 1 April 1988.
Life of the provision: Part of the original Chapter XI of the 1961 Act; it excluded companies in which the public were substantially interested (and, in defined circumstances, their subsidiaries) from the section 104 charge. Omitted w.e.f. 1-4-1988.
Predecessor: section 23A of the Indian Income-tax Act, 1922 (in its post-Finance Act, 1955 form, under which the additional tax fell on the company itself rather than being deemed a dividend in the shareholders' hands). The bulk of the case law on the Chapter is therefore reported under section 23A and applies directly to sections 104–109, which re-enacted the scheme.
Finance Act, 2026 impact: None. The section was omitted in 1988; the Finance Act, 2026 makes no change to an already-omitted provision. Retained here for completeness of the treatise and for residual litigation, limitation and historical-assessment situations.
A. SECTION COMMENTARY
A.1 Function — the key exclusion of the Chapter
Section 108 confined the additional-income-tax charge to closely-held companies. It provided that the provisions of section 104 should not apply to a company in which the public were substantially interested, nor — in the circumstances specified — to a subsidiary of such a company. Genuinely widely-held companies were thus left outside the Chapter altogether.
A.2 The operative scheme (editorial summary)
Editorial summary, not verbatim text (verbatim text belongs in the companion Block-1 file): the section saved from the charge those companies in which the public were substantially interested, giving statutory effect to the policy boundary of the Chapter. The mischief targeted — accumulation by a controlling group to avoid personal taxation — did not arise where the company was genuinely widely-held and not controlled by an identifiable group.
A.3 Doctrinal themes
The expression 'company in which the public are substantially interested' was the gateway concept of the exclusion, and it generated the most enduring jurisprudence of the whole Chapter. Its meaning had been worked out under section 23A of the 1922 Act and carried directly into the 1961 Act. The essence of the test is the contrast between the 'public' and a controlling group: shares held by the directors and by persons who act together so as to control the company are not 'held by the public'. Whether the public are substantially interested is therefore a question of fact, turning on whether an identifiable group, acting in concert (or able to act in concert), holds a controlling block.
A.4 Repeal and survival
Omitted by the Finance Act, 1987 w.e.f. 1-4-1988; no change by the Finance Act, 2026. The expression is now defined for the whole Act in section 2(18), and the controlling-block jurisprudence below continues to govern its application.
B. STATUTORY POSITION (verbatim heading & omission note; scheme summarised editorially)
Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025):
Savings for company in which public are substantially interested.
108. [Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]
Chapter note (verbatim): [Chapter XI omitted by the Finance Act, 1987, w.e.f. 1-4-1988. While sections 95 to 103 were omitted by the Finance Act, 1965, w.e.f. 1-4-1965, sections 104 to 109 were omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]
C. CASE LAW — CLUSTERED BY ISSUE
Cluster C-1 : 'Public' versus a controlling block — meaning and test (the core quartet)
Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Bombay (1961) 41 ITR 613 (SC).
Facts: The question was whether the company was one 'in which the public are substantially interested' within the Explanation to section 23A, a number of the shares being held by the directors. The Revenue contended that director-held shares could never be counted as held by the public.
Issue: The meaning of 'public' in the Explanation, and whether shares held by directors are necessarily excluded from the shareholding of the public.
Held: The Supreme Court held that the word 'public' is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a controlling block. A shareholder belongs to the 'public' only where he holds his shares unconditionally and beneficially — that is, where the voting power attached to the shares is free, is not within the control of some other shareholder, and the registered holder is not a nominee of another. The High Court had erred in proceeding on the footing that shares held by directors could never qualify as shares held by the public: directors' shares are not automatically excluded, and may be 'public' shares if held unconditionally and beneficially and outside the controlling block.
Ratio / why it matters: 'Public' means those outside the controlling block who hold shares unconditionally and beneficially; the substance of control, not the designation 'director', is decisive.
Relevance to this section: Foundational to section 108 (savings for companies in which the public are substantially interested) and to the section 104 threshold, which both turn on this very classification.
Source: Supreme Court of India · (1961) 41 ITR 613 · verified via Indian Kanoon / CaseMine.
Commissioner of Income-tax, Bombay v. Jubilee Mills Ltd. (1963) 48 ITR 9 (SC).
Facts: The managing agents of the company were partners of a firm who, between themselves, held more than 75 per cent of the voting power. The question was whether the company was one in which the public were substantially interested.
Issue: Whether a group capable of controlling more than 75 per cent of the voting power takes the company outside the 'public substantially interested' category, and whether proof of actual concerted action is required.
Held: The Supreme Court held that where a group holds more than 75 per cent of the voting power and is in a position to control the affairs of the company, the company is not one in which the public are substantially interested. The test of 'control' is whether the group could, if it so chose, act together; it is not necessary to prove that the members actually acted in concert — the existence of the controlling block and the capacity to act together is sufficient.
Ratio / why it matters: A controlling block is established by the capacity (de facto control) to act in concert, not by proof of actual concerted exercise of voting power.
Relevance to this section: Directly governs the section 108 savings and the section 104 threshold; defines when a closely-held company falls within the additional-tax net.
Source: Supreme Court of India · (1963) 48 ITR 9 (decided 17 September 1962) · verified via Indian Kanoon.
Commissioner of Income-tax v. East Coast Commercial Co. Ltd. (1967) 63 ITR 449 (SC).
Facts: A closely-held company whose shareholders stood in an intimate relationship, with no evidence of internal disagreement and a continuous, smoothly-run management. The Revenue treated it as a company controlled by a block and applied section 23A.
Issue: How a 'controlling group acting in concert' is to be ascertained — by direct proof of concerted action, or by inference from the circumstances.
Held: The Supreme Court held that the test is not whether the members of the group have in fact acted in concert, but whether the circumstances are such that, judged by ordinary human experience, it can safely be taken that they must be acting together. Intimate relationship, absence of any disagreement, the ordinary expectation of individual profit and the well-organised unity of management may, together, establish a controlling block of 'one paramount mind'. The section being penal in character, the burden lies on the Revenue, and the proper authority must apply this correct test; deciding on an erroneous test is an error of law.
Ratio / why it matters: 'Acting in concert' may be inferred from the surrounding circumstances by the standard of ordinary human experience; actual proof of concerted voting is not indispensable.
Relevance to this section: Completes, with Jubilee Mills and Sahu Jain, the section 108 'public substantially interested' group of authorities that fixes the boundary of the section 104 charge.
Source: Supreme Court of India · (1967) 63 ITR 449 · verified via Indian Kanoon / CourtKutchehry.
Commissioner of Income-tax, Bihar & Orissa v. Sahu Jain Ltd. (Supreme Court · AIR 1976 SC 1141).
Facts: In the assessment years 1952-53 and 1953-54 substantially all the shares of the private company were held by members of one family (the S.P. Jain group), together with a few employee-held shares and certain sister concerns. The Revenue applied section 23A on the footing that the company was not one in which the public were substantially interested.
Issue: Whether direct evidence of an overt act of concert among the controlling group is necessary before a company can be held not to be one in which the public are substantially interested.
Held: The Supreme Court held that no direct evidence of an overt act of concert between the members of the group having control over the voting power was necessary; the non-public character of the company, and the existence of a controlling block, may be inferred from the relationship and surrounding circumstances. The decision affirms and applies the East Coast Commercial line.
Ratio / why it matters: Control and concert may be inferred without proof of overt concerted acts — the inference being drawn from family relationship and the pattern of shareholding and management.
Relevance to this section: Reinforces section 108's classification test; useful where the Revenue must establish controlling unity without documentary proof of a voting agreement.
Source: Supreme Court of India · AIR 1976 SC 1141 · verified via Indian Kanoon / CaseMine.
Cluster C-2 : Validity and object of the charge the exclusion qualifies (cross-referenced from section 104)
Sardar Baldev Singh v. Commissioner of Income-tax, Delhi & Ajmer (1960) 40 ITR 605 (SC).
Facts: The reach and validity of section 23A were in question where the undistributed profits of a company controlled by a group were sought to be brought to charge, the assessee challenging the provision and its application.
Issue: Whether section 23A — the direct predecessor of Chapter XI — is constitutionally valid, and on what basis the assessing authority's satisfaction must rest.
Held: The Supreme Court upheld section 23A as a valid measure directed against the avoidance of personal taxation through the device of withholding distribution in companies controlled by a group. The provision was held to be a legitimate exercise of the taxing power; the officer's satisfaction was to be founded on objective material, and the statutory conditions and safeguards observed before the charge could be imposed.
Ratio / why it matters: The undistributed-profits charge is intra vires and anti-avoidance in object; it must be applied on objective satisfaction and within the statutory safeguards.
Relevance to this section: The foundational authority on the object, validity and character of the charge that section 104 re-enacted; it underpins the entire Chapter and the computation provisions of section 109.
Source: Supreme Court of India · (1960) 40 ITR 605 · leading authority on the validity of section 23A (added in the June 2026 revision; practitioners should confirm the precise report before citation).
D. PRACTITIONER'S NOTE
(1) The classification is a question of fact on control. Apply Raghuvanshi Mills (meaning of 'public'), Jubilee Mills (capacity to control / 75 per cent block), East Coast Commercial (inference of acting in concert) and Sahu Jain (no overt act of concert needed).
(2) Live law under section 2(18). The same quartet governs the current definition and is cited wherever the closely-held / widely-held distinction matters — for section 2(22)(e) (deemed dividend) and section 79 (carry-forward of losses in closely-held companies).
E. SOURCES & CITATIONS
Statutory composition verified against the Income-tax Act, 1961 (Bare Act as amended by the Finance Act, 2025), Chapter XI, which records: “[Chapter XI omitted by the Finance Act, 1987, w.e.f. 1-4-1988. While sections 95 to 103 were omitted by the Finance Act, 1965, w.e.f. 1-4-1965, sections 104 to 109 were omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]” The marginal headings and omission notes quoted in Part B are reproduced verbatim from that source.
Finance Act, 2026: the in-house Finance Act 2026 Amendment Tracker records no item touching sections 104 to 109 or Chapter XI; the chapter having been omitted in 1988, the Finance Act, 2026 effects no change.
Case citations: the eight load-bearing authorities (Gangadhar Banerjee, Bipinchandra Maganlal, Asiatic Textiles, Williamson Diamonds; Raghuvanshi Mills, Jubilee Mills, East Coast Commercial, Sahu Jain) were web-verified (June 2026) against publicly reported sources (Indian Kanoon, CaseMine, CourtKutchehry and the Income Tax Reports as cited) and recur across the section files by design. The authorities added in the June 2026 revision (Sardar Baldev Singh; and, as analogous principle for the machinery sections, S.S. Gadgil, K.M. Sharma, Chhugamal Rajpal and Sirpur Paper Mills) are well-established Supreme Court decisions cited from their ITR/AIR reports; the precise report should be confirmed before filing.
Caveat: this material is treatise-style commentary for practitioners and academic use on a historic, omitted Chapter; it is not legal advice. Section 104 and its predecessor section 23A produced a large body of authority — the decisions selected are the leading and representative ones. Nothing here is invented; where a particular section number generated no distinct reported corpus, that is stated plainly.
CHAPTER XI — ADDITIONAL INCOME-TAX ON UNDISTRIBUTED PROFITS
SECTION 108 — SAVINGS FOR COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · Historic / Omitted Provision
Status: OMITTED. Section 108 was omitted by the Finance Act, 1987, with effect from 1 April 1988.
Life of the provision: Part of the original Chapter XI of the 1961 Act; it excluded companies in which the public were substantially interested (and, in defined circumstances, their subsidiaries) from the section 104 charge. Omitted w.e.f. 1-4-1988.
Predecessor: section 23A of the Indian Income-tax Act, 1922 (in its post-Finance Act, 1955 form, under which the additional tax fell on the company itself rather than being deemed a dividend in the shareholders' hands). The bulk of the case law on the Chapter is therefore reported under section 23A and applies directly to sections 104–109, which re-enacted the scheme.
Finance Act, 2026 impact: None. The section was omitted in 1988; the Finance Act, 2026 makes no change to an already-omitted provision. Retained here for completeness of the treatise and for residual litigation, limitation and historical-assessment situations.
A. SECTION COMMENTARY
A.1 Function — the key exclusion of the Chapter
Section 108 confined the additional-income-tax charge to closely-held companies. It provided that the provisions of section 104 should not apply to a company in which the public were substantially interested, nor — in the circumstances specified — to a subsidiary of such a company. Genuinely widely-held companies were thus left outside the Chapter altogether.
A.2 The operative scheme (editorial summary)
Editorial summary, not verbatim text (verbatim text belongs in the companion Block-1 file): the section saved from the charge those companies in which the public were substantially interested, giving statutory effect to the policy boundary of the Chapter. The mischief targeted — accumulation by a controlling group to avoid personal taxation — did not arise where the company was genuinely widely-held and not controlled by an identifiable group.
A.3 Doctrinal themes
The expression 'company in which the public are substantially interested' was the gateway concept of the exclusion, and it generated the most enduring jurisprudence of the whole Chapter. Its meaning had been worked out under section 23A of the 1922 Act and carried directly into the 1961 Act. The essence of the test is the contrast between the 'public' and a controlling group: shares held by the directors and by persons who act together so as to control the company are not 'held by the public'. Whether the public are substantially interested is therefore a question of fact, turning on whether an identifiable group, acting in concert (or able to act in concert), holds a controlling block.
A.4 Repeal and survival
Omitted by the Finance Act, 1987 w.e.f. 1-4-1988; no change by the Finance Act, 2026. The expression is now defined for the whole Act in section 2(18), and the controlling-block jurisprudence below continues to govern its application.
B. STATUTORY POSITION (verbatim heading & omission note; scheme summarised editorially)
Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025):
Savings for company in which public are substantially interested.
108. [Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]
Chapter note (verbatim): [Chapter XI omitted by the Finance Act, 1987, w.e.f. 1-4-1988. While sections 95 to 103 were omitted by the Finance Act, 1965, w.e.f. 1-4-1965, sections 104 to 109 were omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]
C. CASE LAW — CLUSTERED BY ISSUE
Cluster C-1 : 'Public' versus a controlling block — meaning and test (the core quartet)
Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, Bombay (1961) 41 ITR 613 (SC).
Facts: The question was whether the company was one 'in which the public are substantially interested' within the Explanation to section 23A, a number of the shares being held by the directors. The Revenue contended that director-held shares could never be counted as held by the public.
Issue: The meaning of 'public' in the Explanation, and whether shares held by directors are necessarily excluded from the shareholding of the public.
Held: The Supreme Court held that the word 'public' is used in contradistinction to one or more persons who act in unison and among whom the voting power constitutes a controlling block. A shareholder belongs to the 'public' only where he holds his shares unconditionally and beneficially — that is, where the voting power attached to the shares is free, is not within the control of some other shareholder, and the registered holder is not a nominee of another. The High Court had erred in proceeding on the footing that shares held by directors could never qualify as shares held by the public: directors' shares are not automatically excluded, and may be 'public' shares if held unconditionally and beneficially and outside the controlling block.
Ratio / why it matters: 'Public' means those outside the controlling block who hold shares unconditionally and beneficially; the substance of control, not the designation 'director', is decisive.
Relevance to this section: Foundational to section 108 (savings for companies in which the public are substantially interested) and to the section 104 threshold, which both turn on this very classification.
Source: Supreme Court of India · (1961) 41 ITR 613 · verified via Indian Kanoon / CaseMine.
Commissioner of Income-tax, Bombay v. Jubilee Mills Ltd. (1963) 48 ITR 9 (SC).
Facts: The managing agents of the company were partners of a firm who, between themselves, held more than 75 per cent of the voting power. The question was whether the company was one in which the public were substantially interested.
Issue: Whether a group capable of controlling more than 75 per cent of the voting power takes the company outside the 'public substantially interested' category, and whether proof of actual concerted action is required.
Held: The Supreme Court held that where a group holds more than 75 per cent of the voting power and is in a position to control the affairs of the company, the company is not one in which the public are substantially interested. The test of 'control' is whether the group could, if it so chose, act together; it is not necessary to prove that the members actually acted in concert — the existence of the controlling block and the capacity to act together is sufficient.
Ratio / why it matters: A controlling block is established by the capacity (de facto control) to act in concert, not by proof of actual concerted exercise of voting power.
Relevance to this section: Directly governs the section 108 savings and the section 104 threshold; defines when a closely-held company falls within the additional-tax net.
Source: Supreme Court of India · (1963) 48 ITR 9 (decided 17 September 1962) · verified via Indian Kanoon.
Commissioner of Income-tax v. East Coast Commercial Co. Ltd. (1967) 63 ITR 449 (SC).
Facts: A closely-held company whose shareholders stood in an intimate relationship, with no evidence of internal disagreement and a continuous, smoothly-run management. The Revenue treated it as a company controlled by a block and applied section 23A.
Issue: How a 'controlling group acting in concert' is to be ascertained — by direct proof of concerted action, or by inference from the circumstances.
Held: The Supreme Court held that the test is not whether the members of the group have in fact acted in concert, but whether the circumstances are such that, judged by ordinary human experience, it can safely be taken that they must be acting together. Intimate relationship, absence of any disagreement, the ordinary expectation of individual profit and the well-organised unity of management may, together, establish a controlling block of 'one paramount mind'. The section being penal in character, the burden lies on the Revenue, and the proper authority must apply this correct test; deciding on an erroneous test is an error of law.
Ratio / why it matters: 'Acting in concert' may be inferred from the surrounding circumstances by the standard of ordinary human experience; actual proof of concerted voting is not indispensable.
Relevance to this section: Completes, with Jubilee Mills and Sahu Jain, the section 108 'public substantially interested' group of authorities that fixes the boundary of the section 104 charge.
Source: Supreme Court of India · (1967) 63 ITR 449 · verified via Indian Kanoon / CourtKutchehry.
Commissioner of Income-tax, Bihar & Orissa v. Sahu Jain Ltd. (Supreme Court · AIR 1976 SC 1141).
Facts: In the assessment years 1952-53 and 1953-54 substantially all the shares of the private company were held by members of one family (the S.P. Jain group), together with a few employee-held shares and certain sister concerns. The Revenue applied section 23A on the footing that the company was not one in which the public were substantially interested.
Issue: Whether direct evidence of an overt act of concert among the controlling group is necessary before a company can be held not to be one in which the public are substantially interested.
Held: The Supreme Court held that no direct evidence of an overt act of concert between the members of the group having control over the voting power was necessary; the non-public character of the company, and the existence of a controlling block, may be inferred from the relationship and surrounding circumstances. The decision affirms and applies the East Coast Commercial line.
Ratio / why it matters: Control and concert may be inferred without proof of overt concerted acts — the inference being drawn from family relationship and the pattern of shareholding and management.
Relevance to this section: Reinforces section 108's classification test; useful where the Revenue must establish controlling unity without documentary proof of a voting agreement.
Source: Supreme Court of India · AIR 1976 SC 1141 · verified via Indian Kanoon / CaseMine.
Cluster C-2 : Validity and object of the charge the exclusion qualifies (cross-referenced from section 104)
Sardar Baldev Singh v. Commissioner of Income-tax, Delhi & Ajmer (1960) 40 ITR 605 (SC).
Facts: The reach and validity of section 23A were in question where the undistributed profits of a company controlled by a group were sought to be brought to charge, the assessee challenging the provision and its application.
Issue: Whether section 23A — the direct predecessor of Chapter XI — is constitutionally valid, and on what basis the assessing authority's satisfaction must rest.
Held: The Supreme Court upheld section 23A as a valid measure directed against the avoidance of personal taxation through the device of withholding distribution in companies controlled by a group. The provision was held to be a legitimate exercise of the taxing power; the officer's satisfaction was to be founded on objective material, and the statutory conditions and safeguards observed before the charge could be imposed.
Ratio / why it matters: The undistributed-profits charge is intra vires and anti-avoidance in object; it must be applied on objective satisfaction and within the statutory safeguards.
Relevance to this section: The foundational authority on the object, validity and character of the charge that section 104 re-enacted; it underpins the entire Chapter and the computation provisions of section 109.
Source: Supreme Court of India · (1960) 40 ITR 605 · leading authority on the validity of section 23A (added in the June 2026 revision; practitioners should confirm the precise report before citation).
D. PRACTITIONER'S NOTE
(1) The classification is a question of fact on control. Apply Raghuvanshi Mills (meaning of 'public'), Jubilee Mills (capacity to control / 75 per cent block), East Coast Commercial (inference of acting in concert) and Sahu Jain (no overt act of concert needed).
(2) Live law under section 2(18). The same quartet governs the current definition and is cited wherever the closely-held / widely-held distinction matters — for section 2(22)(e) (deemed dividend) and section 79 (carry-forward of losses in closely-held companies).
E. SOURCES & CITATIONS
Statutory composition verified against the Income-tax Act, 1961 (Bare Act as amended by the Finance Act, 2025), Chapter XI, which records: “[Chapter XI omitted by the Finance Act, 1987, w.e.f. 1-4-1988. While sections 95 to 103 were omitted by the Finance Act, 1965, w.e.f. 1-4-1965, sections 104 to 109 were omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]” The marginal headings and omission notes quoted in Part B are reproduced verbatim from that source.
Finance Act, 2026: the in-house Finance Act 2026 Amendment Tracker records no item touching sections 104 to 109 or Chapter XI; the chapter having been omitted in 1988, the Finance Act, 2026 effects no change.
Case citations: the eight load-bearing authorities (Gangadhar Banerjee, Bipinchandra Maganlal, Asiatic Textiles, Williamson Diamonds; Raghuvanshi Mills, Jubilee Mills, East Coast Commercial, Sahu Jain) were web-verified (June 2026) against publicly reported sources (Indian Kanoon, CaseMine, CourtKutchehry and the Income Tax Reports as cited) and recur across the section files by design. The authorities added in the June 2026 revision (Sardar Baldev Singh; and, as analogous principle for the machinery sections, S.S. Gadgil, K.M. Sharma, Chhugamal Rajpal and Sirpur Paper Mills) are well-established Supreme Court decisions cited from their ITR/AIR reports; the precise report should be confirmed before filing.
Caveat: this material is treatise-style commentary for practitioners and academic use on a historic, omitted Chapter; it is not legal advice. Section 104 and its predecessor section 23A produced a large body of authority — the decisions selected are the leading and representative ones. Nothing here is invented; where a particular section number generated no distinct reported corpus, that is stated plainly.