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TMI Blog1972 (8) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... m of asset must belong to someone. The question is to whom did it belong? The obvious answer is that it belonged to the company. It is not the case of the company that the asset in question came within any of the exemptions mentioned in the Act. Coming to the second question there was no debt owed by the company to the shareholders on that date. Hence the proposed dividend was not deductible in computing the net wealth of the appellant-company. The fact that a separate share-holders reserve had to be maintained by the company because of its agreement with the Government did not change the character of the asset. For 3 question the debenture loans in question cannot be taken into consideration in ascertaining the net wealth of the company in view of section 6 of the Act. Appeal dismissed. - 28-30 OF 1969 - - - Dated:- 28-8-1972 - K.S. HEGDE, P. JAGANMOHAN REDDY AND H.R. KHANNA, JJ. C.K. Daphtary, T.A. Ratnachandran and D.N. Gupta for the Appellant. N.D. Karkhanis, R.N. Sachthey, B.D. Sharma and S.P. Nayar for the Respondent. JUDGMENT Hegde, J. These are assessee's appeals by certificate, from the judgment of the High Court of Calcutta i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and working the undertaking, including debenture interest; ( b )Secondly, paying all Indian and United Kingdom taxes payable by the company; ( c )Thirdly, setting aside in each accounting year in a Renewals and Replacements Reserve Account the sum of eight thousand pounds sterling or such greater sum as the directors of the company for the time being may in consultation with the Government consider necessary in the light of experience and in view of the expansion of the undertaking or increase in prices; ( d )Fourthly, setting aside in each accounting year in a fund (hereinafter called 'the shareholders' Account') the following sums : ( i ) 87,457 together with, ( ii )four per cent, upon any additional outside share capital raised by the company with the consent of the Government after the date of this agreement. ( e )Fifthly, accumulating any surplus in a special reserve account the balance of which (after providing for losses, if any) will eventually accrue to the benefit of the Government. (Before such transfer, however, of a loss against the credit standing in the Special Reserve Account, the Government should be consulted, the final decision on such matter nevert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny shall be exercisable by and be binding on the Government in substitution for the company and shall cease to be exercisable by or binding on the company. Provided that no contract entered into by the company after the date of this agreement and extending for more than one year beyond the purchase date shall be binding on the Government unless it has been previously approved by the Government. 8. If the Government does not serve a purchase notice in accordance with the last preceding clause, then all the terms and conditions of this agreement shall continue in force subject to the following modifications: ( a )( i )The Government shall pay to the company in sterling in London such sums as may from time to time be necessary to redeem the second debenture stocks of the company on their due dates; ( ii )After the second debenture stocks have been redeemed as aforesaid the company shall from time to time until the undertaking is vested in the Government pay to the Government sums equal to the interest which would have been payable on such debenture stocks had the same not been redeemed. ( b )( i )The Government shall on giving two year's notice to the company be entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Wealth-tax Officer and the Appellate Assistant Commissioner that the shareholders' reserve was the asset of the company. It opined that the amounts in the special reserve account were not includible in the company's net wealth. But, as mentioned earlier, the High Court fully accepted the conclusions reached by the Wealth-tax Officer. Before considering the points arising for decision it is necessary to refer to the relevant provisions of the Act. "Net wealth" is defined in section 2( m ) of the Act thus : " 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than, ( i )debts which under section 6 are not to be taken into account. ******" Section 3 is the charging section. It says : "Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve were the assets of the company. Once we come to the conclusion that they were not the assets of the Government, which conclusion to our mind is obvious, then it follows that they are the assets of the company. It is not the case of the company that those assets belonged to some third party. Every item of asset must belong to someone. The question is to whom did it belong? The obvious answer is that it belonged to the company. It is not the case of the company that the asset in question came within any of the exemptions mentioned in the Act. Now, coming to the second question formulated for the opinion of the High Court which relates to the amounts in "shareholders' account", the contention of the company was that the amount belonged to the shareholders and, therefore, it was not an item of the assets of the company. This again is an unacceptable contention. A company is a different legal entity from its shareholders. The shareholders have no rights in the assets of the company except when dividends are declared or when the assets of the company are distributed on liquidation. Until a company in its general meeting accepts the recommendation of the directors and declares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of a floating charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may be suspended by agreement, but if there is no such agreement he may exercise his right whenever he pleases after default." Quite clearly the debts in question were located in the United Kingdom. Dealing with the business debts this is what is stated in Halsbury's Laws of England, 3rd edition, volume 15, page 58, paragraph 115 : "Simple contract debts, including those owing under bills of exchange and promissory notes, are situate where the debtor resides. A debtor company may for this purpose be resident in any country where it has a branch office. A specialty debt is in general an asset situate where the instrument is physically situate. In particular, a judgment debt is situate where the judgment is recorded. A debt secured by mortgage of land is in character primarily a debt, with an accessory right to resort to the land for payment, not an estate in the land measured by the amount of the debt; its locality as an asset of the mortgagee is therefore to be determined pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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