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TMI Blog1991 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... y and from various other sources. Air-conditioning Corporation Limited was a company managed by the assessee-company. Another company, Burlow and Co. Ltd., was a 100% subsidiary company of the assessee-company. The assessee-company became the managing agent of Air-conditioning Corporation Ltd., on the basis of an agreement dated February 22, 1949, for 20 years. The assessee advanced loan to the said company from time to time and the loan as on March 31, 1949, stood at Rs. 15,67,147. Thereafter, the said debt was taken over by the 100% subsidiary company of the assessee, viz., Burlow and Co. Ltd. and Burlow and Company Limited, from April 1, 1949, started financing Air-conditioning Corporation Limited on the basis of the agreement dated June 28, 1949. Burlow and Company Limited agreed to finance Rs. 45.1 lakhs to Air-conditioning Corporation Limited.The advance given by Burlow and Company Limited stood at Rs. 48,52,951 as on March 31, 1956. On April 1, 1956, the assessee-company took over the loan granted by its 100% subsidiary Burlow and Company Ltd., and sold the loan to Orient Paper Mills Ltd., a concern belonging to the Birlas in terms of the letter dated April 10, 1956, contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cash credit account up to a limit of Rs. 45 lakhs. It was further agreed that all book debts and outstandings due or to become due to Burlow and Company in respect of the business including the right, title and interest of Burlow and Company under hypothecation created by, inter alia, Air-conditioning Corporation Limited in favour of the company and all benefits arising thereunder would be hypothecated to Gillanders Arbuthnot. The said agreement dated June 28, 1949, by or between Burlow and Company Limited (referred to as company) and the assessee (referred to as the lender) provides that, at the request of the company, the lender has agreed to grant financial accommodation to the company by way of loan or overdraft or cash credit account up to and not exceeding in the aggregate, at any one time, the maximum limit of rupees forty-five lakhs payable with interest thereon at the rate hereinafter mentioned on the security hereof. Clause 1 of the said agreement provided as follows 1. In pursuance of the said agreement and in consideration of the premises, the company doth hereby hypothecate to the lender first the goodwill of the business and trade carried on by the company, seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs. Financing is one of the objects in the memorandum of both Gillanders Arbuthnot and Burlow and Company. The memorandum of association empowered the assessee to raise finance. Clauses 8 and 9 of the memorandum of association are as follows : "8. To carry on the business of banking in all its branches and departments, including the borrowing, raising or taking up of money, the lending or advancing of money on securities and property, the discounting, buying, selling and dealing in of bills of exchange, promissory notes, coupons, drafts, bills of lading, warrants, debentures, certificates, scrips and other instruments and securities, whether transferable or negotiable or not, the granting and issuing of letters of credit and circular notes, the buying, selling and dealing in bullion and specie, the acquiring, holding, issuing on commission underwriting and dealing with stocks, funds shares, debentures, debenture-stocks, bonds, obligations and other investments and securities and investments of all kinds, the negotiating of loans and advances, the receiving of money and valuables on deposit or for safe custody or otherwise, the collecting and transmitting of money and securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l show that Gillanders Arbuthnot has advanced sums to the extent of Rs. 11,97,774 on current account for the year ending March 31, 1950, and correspondingly also, advances were made to the different companies to the extent of Rs. 18,26,021. The position up to 1956 will appear in the balance-sheet for the year ending March 31, 1956. The secured loan from Gillanders Arbuthnot is Rs. 45 lakhs and the unsecured loan from Gillanders Arbuthnot is Rs. 10,16,512. Against that, the advance made by Burlow and Co. to the different companies referred to in the agreement is Rs. 58,43,089. In the balance-sheet for the year ending March 31, 1957, when the entire loan was taken over by Gillanders Arbuthnot, the advance also shown to have been made to the different subsidiary companies did not appear in the balance-sheet of Burlow and Co. for the year ending March 31, 1956. From the aforesaid position, it will be clear that because of certain difficulties, Gillanders Arbuthnot could not directly advance the loan to its managed companies like Air-conditioning Corporation. It was really to the 100% subsidiary, Burlow and Co., that advances were made and all the book debts which were hypothecated by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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