9911796707
TMI Blog1978 (7) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... booking of tea, jute, gunny and any other commodity which may seem desirable in relation to the investment of money, the sale of property and the collection of receipt of money. To purchase, take on lease or tenancy or in exchange, hire, take option over or otherwise acquire for any estate or interest whatsoever and to hold, develop, work, cultivate, deal with or turn to account concession, grant, decree, licence, privilege, claim option, leases property real or personal or rights or power of any kind which may appear to be necessary or convenient for any business of the company, etc. The company since its incorporation is carrying on mainly two businesses, one, that of tea broking and auctioneering and the other, property business. The petitioner No. 2 Queens Park Property Co. Pvt. Ltd., hereinafter referred to as the "transferee-company", was incorporated on the 31st of January, 1978, having its registered office at No. D-3/5 Gillander House, 8 Netaji Subhas Road, Calcutta. The authorised share capital of the transferee-company is Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferee-company is Rs. 20 divided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f arrangement. The said meeting was duly held on the 21st of April, 1978, in accordance with the said order at the respective registered office of the said two companies and the same was unanimously passed by the members present and voting as would appear from the reports of the respective chairman of the meetings. Thereafter the application was presented on the 26th of April, 1976, and after due compliance with the requirements, the Company Law Board appeared and filed an affidavit-in-opposition through one Jyoti Prakash Mukherjee, the Regional Director, Company Law Board, Eastern Region. It was, inter alia , contended that the proposed scheme of arrangement is not a bona fide scheme and/or compromise and the same is not a scheme of amalgamation within the meaning of the Companies Act, 1956. It is further contended that the very object of the arrangement is merely to transfer the valuable property, i.e. , from the transferor-company to the transferee-company a newly formed property-company. It is further alleged that the grounds which have necessitated the said scheme of arrangement are baseless and without any reasons. It is further alleged that the scheme is wholly unnecessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f anybody can arrange its matter lawfully, that is without violating any provisions of law, there cannot be any question of evasion. He submitted that the scheme is not only beneficial but will promote both the said two businesses of tea broking and auctioneering and the property business for the benefit of the two companies and its shareholders and all concerned. Mr. Mukherjee submitted after drawing my attention to the provisions of sections 391(1) and 394 of the Companies Act, 1956, that this is a reconstruction or arrangement which squarely comes within the provisions of the said sections. Mr. Mukherjee referred to a decision of the court in Albian Jute Mills Company Ltd. v. River Steam Navigation Co. [1957] 100 CLJ 70 (Cal.), where the word "property" under section 153A of the Indian Companies Act, 1913, was interpreted and, thereafter, he also cited a Division Bench decision of the court in New Central Jute Mills Co. Ltd. v. River Steam Navigation Co. Ltd. [1959] 29 Comp. Cas. 357 ; AIR 1959 Cal 352, where the decision in Albian Jute Mills Co. Ltd. v. River Steam Navigation Co. [1957] 100 CLJ 70 (Cal.) was impliedly overruled. It has been held by the said Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hreatened with nationalisation to part with valuable assets. Lord Radcliffe observed on page 886 of [1951] 1 All ER as follows : "There is no doubt that the applicant company is competent to proceed in this way. Its articles authorise the reduction of capital, subject to the approval of the court. The Companies Act, 1948, section 66(1) gives to the court the statutory power of confirmation". Then again it was observed at pages 887-888 of [1951] 1 All ER as follows : "Therefore, the shareholders need no protection. That leaves outstanding the interests of the public, and it is the fear that their interests may be prejudiced by this proceeding that has led the majority of the court of Session, as I read their opinions, to refuse their approval of the company's petition. Two reasons are advanced by Lord Carmont for his view. One is that on general grounds of public policy the court ought not to aid a company threatened with nationalisation to 'eviscerate' itself by parting with valuable assets. My Lords, I do not think that the contingency of nationalisation has any relevance to the public policy which courts of justice should support. If the reduction is objectionable on othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit-in-opposition filed on behalf of the Company Law Board. Mr. Mukherjee submitted that the court cannot proceed on mere suspicion or surmise without any facts or basis. Mr. Mukherjee, therefore, submitted that the order should be made by sanctioning the scheme as prayed for. Mr. A.C. Law appearing for the Company Law Board submitted that the scheme is not bona fide and has been propounded solely for the purpose of evading the capital gains tax and also stamp duty and court-fees by not executing a regular deed of conveyance for such a transfer. Mr. Law, being asked by me whether there is any provision in any law barring any scheme of arrangement of transfer of a portion of the company's properties to another company formed for that purpose as a wholly owned subsidiary, in his usual fairness, admitted that there is no such specific provision in any law. He submitted that having regard to the conduct of the transferor-company, which mainly carried on tea broking and auctioneering business, the incorporation of a property-company for the purpose of transferring its valuable property is solely for the purpose of evading the provisions of fiscal law and the sanction of the urba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented". Then again in another decision of the Supreme Court in CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 ; [1974] 3 SCC 260, where under very similar circumstances as the present one, the ITO charged the transferor-company with the profit alleged to have been made by the transfer of its shares to the subsidiary company which was floated for the purpose of taking over a part of the property of the transferee-assessee-company. In this connection, Hegde J. observed in para. 13 at page 264 of [1974] 3 SCC as follows (See [1973] 91 ITR 8, 13) : "It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus forgoing part of its own profits and at the same time enabling its subsidiary to earn some profits such a course is not impermissible under law". Therefore, it is quite clear f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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