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TMI Blog1930 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... a private company by two English companies, the Share Guarantee Trust, Limited, and the Intercontinental Trust (1913), Limited, r all the issued shares of the Indian Company, with the exception of one share taken by each of the two nominee subscribers to its memorandum of association, have throughout been held by one ) or other of the English Companies. Their joint control of the Indian Company has thus been in every respect and at all relevant times complete. 3. That company was really established that it might acquire from the English Companies, as a single block of 312,817, shares, two separate holdings in the Burma Corporation, Limited, of 134,705 shares belonging to the Share Guarantee Trust, and of 178,112 shares belonging to the Intercontinental Trust. The nominal value of each of these Burma Corporation shares was 1. They were all fully paid, and they stood in the London market at the high price of 14 each. 4. The terms of their acquisition by the Indian Company were contained in two sets of agreements. To one set, one of the English Companies was party disposing :to the other set, the other. But the agreements of each set were of even date, and their terms were, mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at inconsistently 25,000 shares in the Burma Corporation were to be delivered to the Indian Company forthwith, while delivery of the undelivered shares, as prescribed, was to be made on such dates as might be mutually agreed. The whole were, however, to be delivered within three years-that is before February 10, 1923. In the meantime possession of the undelivered shares was to be retained by the English Companies, and during the period prior to completion these companies were given power from time to time to deposit and charge the shares for their own liabilities joint or several or for their liabilities jointly with any other parties-up to a limit of two and one-half million pounds sterling. The English Companies were also, by a clause numbered 4, given power with the consent of the Indian Company to sell any of the undelivered shares and either to utilize the proceeds of sale in discharge of such liabilities, in which event-and this, as will later appear, was a significant provision--the purchase consideration was to be . proportionately reduced -or to remit the proceeds to the Indian Company, in which event the equivalent purchase consideration for the shares -another sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, actually effected in 1924, that these receipts were even brought into the accounts of the Indian Company; and even this seems to have been little more than a book entry, for, as appears from the evidence of Mr. Sandeman, a director of that company, no part either of the purchase price or of the dividends had even then been received in India. They remained in England, presumably under the control of the English Companies, and as late as December, 1926, they were, according to his statement, still there. 12. But this course of dealing, independent as it was of the Indian Company, really involved little more than a generous interpretation in the English Companies' own interests of the actual provisions of the agreements themselves which, properly understood, c embodied an arrangement of a most unusual description in no way characteristic of the simple transaction of purchase and sale set forth in the filed agreements. 13. The agreements left the English Companies with, in effect, the same dominion over the shares as they enjoyed before their so-called sale. With the consent of the Indian Company, which was the merest formality, the English Companies might sell the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual result, therefore, the shares have been issued by the Indian Company at a discount of that amount, and as this is the sum which in this litigation and upon this appeal the appellants, the Indian Company, contend represents the loss sustained by them in respect of this transaction, it is convenient to ask at once whether, even as so far stated by their Lordships, the facts do not furnish an immediate refutation of that contention. 16. It is, of course, necessarily grounded on the assumption that these issued shares of the Indian Company are in the hands of the English Companies fully paid and free from any liability for calls or otherwise. If the English Companies remain between them liable for the discount which has in fact now materialized then it necessarily follows-for no doubt as to the solvency of either English Company is suggested-that the Indian Company has sustained no loss at all. And upon the facts, as just detailed, that liability is, in their Lordships' judgment, fixed upon the English Companies by the application to this case of the principle enunciated by the Court of Appeal in the case of Moseley v. Koffyfontein Mines, Limited [1904] 2 Ch. 108, where it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the company was then entitled to a free Burma Corporation 1 share for each of its 312,8)7 shares issued or to be issued was, at the then high rate of exchange, ₹ 98 only. How far that value would stand to be reduced if each Burma share instead of being Good delivery was one subject to the reservations and so forth of the principal agreement has not been gone into, and it need not for present purposes be here explored. ₹ 98 may without deduction be taken to be the value of each of the 156,408 shares issued in February, 1920, on the footing on which they were then issued. And in the first stages of their present dispute with the Revenue, the Indian Company, through its accountants, was prepared to adopt the then actual value of its shares issued as the criterion by which should be determined the question whether it had or had not sustained a loss on ultimate realisation. Its claim on this footing, however, was that the release on November 14, 1923, of the Indian Company's obligation to issue 312,817 shares or any shares beyond the first issue of 156,408, operated retrospectively to double the value in 1920 of these issued shares, so that each share must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital loss or revenue loss; and (b) Whether the alleged loss in question (if any) can be taken into account in view of the fact that it has accrued and arisen outside British India in view of the provisions of Section 4 (1) and (2) of the Income Tax Act, 1922. 23. Their Lordships propose now to deal only with the original question, although they must refer again to the circumstances in which the other two were stated. With reference to that question, the Commissioner, in his original letter of reference, after stating that each share of the Burma Corporation had been admitted by the Indian Company's accountants to be worth only ₹ 98 on April 10,1920, submitted that the only reasonable inference was that each share of the Indian Company was only worth that amount. This finding was not in question before the Board, In his second letter of reference dealing with the contention which had then been set up that the case of In re Wragg, Limited [1897] 1 Ch. 796 required the nominal value of the shares issued and that alone to be taken, the Commissioner, after a full review of the agreements which their Lordships have already discussed, stated, his conclusion of fact to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distinguished, and that is to be found in the conclusion of the learned Commissioner already stated, that the transaction here regarded as a purchase and sale of shares was illusory altogether. To a case of which so much' can be said In re Wragg has no application, and that conclusion of the learned Commissioner, as one of fact, was binding upon the High Court as it is also binding upon the Board, supported as it is by ample material, to some of which attention has already been called earlier in this judgment. 27. Their Lordships, however, do not wish it to be supposed that in their view the decision in re Wragg is in point here at all, Even if, on any application by the Indian Company to make the English Companies liable to contribute in respect of the shares issued to them, these companies could successfully rely upon In re Wragg as a defence, that result in their Lordships' opinion would have no influence upon the fortunes of the appellants' present appeal; 28. In re Wragg was one of many cases-In re Almada and Tirito Company (1888) 38 Ch. D. 415; Ooregum Gold Mining Company of India v. Roper [1892] A.C. 125; In re Eddy stone Marine Insurance Company [1893] 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder in respect of that full amount. But of course that is not so. A company is in no sense debtor to capital. Lee v. Neuchatel Asphalte Company (1889) 41 Ch. D. 1 and Verner v. General and Commercial Investment Trust [1894] 2 Ch. 239. The amount credited upon a share may, as between one shareholder and another, while the company is a going concern, determine the proportion of profits receivable by him as dividend, and, in a winding-up, his proportion of surplus assets. But it has no influence to extend or increase the aggregate amount available for division in due course of administration amongst the whole body of shareholders; nor does it make the company a debtor for any sum at all. 30. In their Lordships' judgment accordingly the decision in re Wragg ought to have no influence upon the question now raised, so that, however its claim be regarded, this appeal of the Indian Company fails. 31. Before parting with the case their Lordships think it right to allude again to the presentation to the High Court of the two additional questions to which they have already made reference, but which it is unnecessary for them further to consider. In the present case the only r ..... 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