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TMI Blog1963 (1) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... surance Company was carrying on life business in India through its agents, Messrs. Volkart Brothers. The assessee entered into an agreement with the Swiss company on October 1, 1952, and this agreement was superseded and substituted by another agreement between them dated December 29, 1952. We shall refer to the terms of the agreement in detail a little later. The substance of the agreement was that the Swiss company should transfer all its assets and liabilities in regard to its life insurance business in India to the assessee company in consideration of the assessee paying the Swiss company the sum of ₹ 1,60,451.07, which was the excess value of assets over liabilities as per the balance-sheet of the Swiss company for the calendar year 1951. Under the provisions of the Indian Companies Act this arrangement had to be approved by the court. In O.P. No. 144 of 1954 on the file of the Original Side of this court Ramaswami Gounder J. accorded sanction to the agreement by order dated July 10, 1954. It appears that by order of court in Application No. 164 of 1954 dated January 18, 1954, a meeting of the creditors of the company (Swiss company) was directed to be held. A meeting wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open to the department to treat the businesses as those of two companies and apply the rules on that basis. The Income-tax Officer rejected this contention in respect of both the years 1953-54 and 1954-55. The assessee claimed further that a sum of ₹ 4,35,588 should be exempted under section 4(3)(xii) of the Act as that amount represented rents from properties which had been erected and completed during the period mentioned in that provision. The Income-tax Officer disallowed the claim for exemption on the ground that section 10(7) of the Act excludes the operation of other provisions of the Act in regard to computation of income of insurance business which had to be done under rule 2(a) or (b) of the Schedule to the Act. The assessee preferred an appeal to the Appellate Assistant Commissioner and a further appeal to the Income-tax Appellate Tribunal urging amongst others the contentions referred to above, but failed. It is not necessary to refer to other heads of claim made by the assessee before the department or the Tribunal. On an application by the assessee to the Tribunal under section 66(1) of the Act the questions cited above stand referred to us. Question No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad office of the transferor by the transferee. 4. A sum equivalent to ₹ 41,441-4-0, which is included in the amount of 'estimated liability in respect of outstanding claims, whether due or intimated' as at 31st December, 1951, but which the transferor has either repudiated or feels that it is not obliged to pay, in respect of the policies mentioned below, shall be retained with the transferor: Provided, however, that the transferee shall be entitled to receive from the transferor such sums in respect of each of the above policies as it may pay to the policyholders or other persons claiming the policies, if any claim in respect thereof should be established in a court of law or otherwise. 5. The balance arising out of the receipts and payments referred to under 5, 6, 7 (2, 3 and 4 above) shall be paid to the transferee by the transferor or by the transferee to transferor as the case may be in the shape of cash and (or) investments made subsequent to 31st December, 1951. All investments made by the transferor subsequent to 31st December, 1951, shall be considered for the purposes of this agreement at their actual purchase price. 6. When and so soon as the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe assurance business in India and coming under the following heads...... This clause has no doubt been relied on by learned counsel for the assessee to show that the intention of the parties was that the transfer should take effect from January 1, 1952, in the event of sanction by court. In our opinion, the terms of the agreement read as a whole are not capable of being interpreted as a transfer of ownership of the business by the Swiss company as and from January 1, 1952, despite the fact that the actual sanction by court followed subsequently long afterwards. The provisions of the Indian Companies Act have also to be borne in mind, and it is only in the light of those provisions that the validity and effectiveness of the agreement between the parties have to be adjudged. The relevant provisions of the Act in force on the date of sanction were sections 153 and 153A. They are as follows: 153. (1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them, or between the company and its members or any class of them, the court may, on the application in a summary way of the company or of any creditor or member of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l jurisdiction under this section to the authority authorised to hear appeals from the decisions of the court. 153A. (1) Where an application is made to the court under section 153 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the court that the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme (in this section referred to as a 'transferor company') is to be transferred to another company (in this section, referred to as 'the transferee company') the court may, either by the order sanctioning the compromise or arrangement or by any subsequent order, make provision for all or any of the following matters: (a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company; (b) the allotting or appropriation by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation has not been statutorily defined, but there cannot be any doubt that it means fusion of two companies into one. It is not necessary that a new company should be formed to take over the assets and liabilities of an existing company to constitute an amalgamation. As Lindley M.R. observed in Wall v. London and Northern Assets Corporation [1898] 2 Ch. 469, 479: Amalgamation does not involve the formation of a new company to carry on the business of an old company. It includes that, but is not confined to that. When one company is absorbed into and blended with another company the result is amalgamation. As section 153A deals with amalgamation, and as the present case is really one in which the taking over, by the assessee company, of the Swiss company's business in India and absorption of that business into its business brought about an amalgamation, we must have regard only to this special provision. The point of time when the Swiss company became merged into the assessee company losing all rights of ownership in its assets is the only question to be determined in this case. The language of the section, section 153A, indicates, quite plainly, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date from which the operation is claimed. A decree or order of a court adjudicating on the rights of parties cannot be deemed to have come into force earlier than the date of its pronouncement, but it may relate to rights obtaining on the date of the commencement of the proceedings. It is true that the arrangement would bind the creditors and shareholders including the dissentient group, if any, even during the interval between the date of resolution and the date of sanction, if ultimately sanction is granted. It may even be conceded that the binding character of the scheme must be attributed to it from the date of the meeting resolving the scheme. This is the view expressed by the Judicial Committee in dealing with a case under section 153 of the Companies Act. That case is reported in Raghubar Dayal v. Bank of Upper India Ltd. [1919] L.R. 46 I.A. 135; 50 I.C. 429. Learned counsel for the assessee has based his entire argument only on this decision of the Judicial Committee and contended that the agreement must be given effect to on and from January 1, 1952, and that it must be held that from that date the Swiss company lost its existence in regard to its Indian busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite clearly and precisely as being the date of the order of court. The real question that arises in this case is whether there was an effective divestment of ownership by the Swiss company as and from January 1, 1952. In the face of the statutory language which states that the property shall be transferred by virtue of the order it seems to us that the instrumentality of the transfer is not the agreement but the order of court. We would, therefore, prefer to rest our conclusion on the specific language of the statute rather than upon general principles of convenience and certainty. Learned counsel for the department referred to the decision in Sailendra Kumar Ray v. Bank of Calcutta Ltd. [1948] 18 Comp. Cas. 1. There the question was whether transfer of assets of one company to another under a scheme of amalgamation sanctioned by the court under section 153A of the Indian Companies Act of 1913 was not a transfer by assignment within the meaning of Order XXI, rule 16, of the Civil Procedure Code. The Jessore Loan Company obtained two final decrees in mortgage actions against the appellant in the case before the Calcutta High Court. On February 4, 1946, the High Court, on its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... former company are also cast upon the transferee company............There is not only a vesting of assets and property but also the imposition of a liability to discharge the debts of the transferor company as a result of the order of court passed under section 153A. The statute, the Companies Act, required that there should be an order of court before a transfer can be effected. This really means that it is only the court that can bring about the transfer by an appropriate order. Parties to a transfer cannot come to the court and say that there is already an instrument of transfer governing them as and from a particular point of time, and that the court should not merely sanction it but also effectuate it from the operational point of time agreed to by the parties. If the court were to accord any such sanction it would be in contravention of the provisions of section 153A, which clearly provides that the transfer can only be by an order of court and not by agreement of parties, and that the transfer and vesting should only follow the order. A statutory order under the section cannot be passed to clothe parties with rights which they cannot acquire merely by the terms of a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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