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TMI Blog1972 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the amounts of pound 1,54,434, pound 2,08,934 and pound 2,62,811 standing in the shareholders' accounts as on the respective valuation dates were deductible in determining the net wealth of the company for the assessment years 1957-58, 1958-59 and 1959-60 respectively? (3) Whether, on the facts and in the circumstances of the case, the amounts of pound 66,275, pound 131,180 and pound 274,587 out of the debentures of the company were allowable as debts owed by the company in the light of section 2(m) read with section 6 of the Wealth-tax Act?" The High Court answered all the three questions in favour of the revenue. Hence these appeals. The assessee is a sterling company. In the relevant assessment years, it was operating the Calcutta Tramways Co. It is a non-resident company for the purpose of Explanation 2 to section 6 of the Act. The assessment years with which we are concerned in these appeals are 1957-58, 1958-59 and 1959-60 and the relevant valuation dates are 31st December, 1956, 31st December, 1957, and 31st December, 1958, respectively. The Wealth-tax Officer valued the assets of the company under section 7(2)(a) of the Act. In 1951 the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws prevailing at the time in the United Kingdom and India pay to the company in sterling in London not less than thirty days before the purchase date:- (i) the sum of pound 3,750,000; (ii) a sum equal to the amount of any additional outside capital brought into the undertaking with the consent of Government under clause 6(1) of the agreement during the period between the date of this agreement and the first day of January one thousand nine hundred and seventy-one. (b) Subject to payment being made in terms of sub-clause (a) above, all the right, title and interest of the company of and in the undertaking shall on the purchase date become vested in the Government free from all mortgages, charges and liens created by the issue of debenture or debenture Stocks of the Company. Provided that the Company shall be entitled to retain all statutory books of account and other documents normally kept outside India but shall afford every facility to the Government to have inspection of the same or take copies of or extracts therefrom. (c) The Government shall also pay to the company in sterling in London, the amount of the balance (if any) of the Shareholders' Account at the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Amounts credited to the said account on the relevant valuation dates stood at pound 1,54,434, pound 2,08,934 and pound 2,62,81 1, respectively. The company had issued debentures which were secured by a floating charge on the general assets of the company. The assets of the company located outside India were valued at pound 4,27,786, pound 3,51,888 and pound 1,95,916 on the respective valuation dates. The company's assets in India on those dates were valued at pound 2,930,032, pound 3,010,560 and pound 3,119,149. All the debenture-holders were residents in the United Kingdom. The specialties were in the United Kingdom and the debts were payable in that country. The company claimed the amounts in special reserve account, those in the shareholders' reserve account as well as debenture loans as debts deductible in ascertaining the net wealth of the company. The Wealth-tax Officer rejected those contentions. In appeal the Appellate Assistant Commissioner agreed with the Wealth-tax Officer in his finding relating to the amounts in the special reserve account as well as in the shareholders' account. But, as regards the debenture loans, he distributed the same on the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family not resident in India or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date- (i) the value of the assets and debts located outside India; and ... shall not be taken into account. Explanation 1.-....... Explanation 2.-A company shall be deemed to be resident in India during the year ending on the valuation date, if- (a) it is a company formed and registered under the Companies Act, 1956, or is an existing company within the meaning of that Act; or (b) during that year the control and management of its affairs is situated wholly in India." Now that we have before us the material facts and the relevant provisions of the Act, we shall proceed to examine the questions of law referred to the High Court for its opinion. Coming to question No. 1, the contention of the company was that under law, it was compelled to build up a special reserve. It could not deal with the same except in accordance with the provisions of the agreement. Hence the same cannot be considered as the asset of the company. This is a wholly untenable contention. No part of the assets of the company had been acquired by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 shareholders' reserve had to be maintained by the company because of its agreement with the Government did not change the character of the asset. This takes us to the last question. As already mentioned the debenture loans were raised in the United Kingdom. All the debenture-holders were resident in the United Kingdom. The specialties were in the United Kingdom. The debts were payable in the United Kingdom. Those debenture loans had only a floating charge on the assets of the company. No particular portion of the assets were specially charged. The meaning of a floating charge is explained in Halsbury's Laws of England, 3rd edition, volume 6, page 472, paragraph 914, thus: " The terms 'floating security' and 'floating charge' mean a security or charge which is not to be put into immediate operation, but is to float so that the company is to be allowed to carry on its business. It contemplates, for instance, that book debts may be extinguished by payment, and other book debts may com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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