Back
2005 Supreme(SC) 1211
2005(6) Supreme 378
Supreme Court of India
(From Gauhati High Court)
Dr. AR. Lakshmanan & P.P. Naolekar, JJ.
M/s. George Williamson (Assam) Ltd. —Appellant
versus
Commissioner of Income Tax, Gauhati —Respondent
Civil Appeal Nos. 6694-6698 of 2004
Decided on 19-9-2005
Counsel for the Parties :
For the Appellant : S. Ganesh, Sr. Advocate, S. Sukumaran, A. Deb Kumar and K. Rajeev, Advocates.
For the Respondent : Harish Chandra, Sr. Advocate, Anuvrat Sharma, Preetesh Kapur and B.V. Balaram Das, Advocates.
Headnote:Companies (Profits) Surtax Act, 1964—Rule 2 of Second Schedule Explanation 1—Acquisition of Indian undertakings of sterling tea companies by appellant with Scheme of Arrangement u/s 391 and 394 of Companies Act approved by High Court—Reserve Bank of India permitted appellant to pay aggregate lumpsum consideration at Rs. 490 lakhs—Value of net assets which was to be maintained by appellant as per requirement of RBI was Rs. 6,33,89,055/- i.e. higher by Rs. 1,43,89,055/- which was disclosed in appellant Company’s balance sheet as Capital Reserve as part of “other reserve”—In the assessment of appellant Company under the Surtax Act, question arose whether said capital reserve was to be included while computing capital of appellant Co.—Tribunal held in favour of assessee appellant Co.—Stand of Revenue that impugned reserve was covered under Explanation 1 of Rule 2 of Second Schedule of the Act was upheld by High Court—Appeal—High Court failed to appreciate true meaning and real effect of law of Explanation—Impugned judgment was liable to be set aside and that of Tribunal to be restored.
Held : As rightly pointed out by learned senior counsel for the appellant the judgment of Standard Vacuum Oil Co. (supra), was cited before the High Court, the Division Bench failed to appreciate the applicability of the said judgment to the case on hand. Likewise, the High Court has completely failed to appreciate the true meaning and real effect in law of Explanation 1 to Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. The Division Bench, in our view, has grossly erred in stating that the appellant had obviously received benefits in computation of income tax on account of assets taken over by the appellant from other tea companies and that, therefore, the reserve in question could not be treated as a component of the capital for the purposes of surtax assessment. Such a new case was neither at all advanced by the Revenue before the High Court, nor could such a case at all be considered by the High Court inasmuch as it did not at all arise out of the order by the Appellate Tribunal. The provisions of the Business (Profits) Tax Act, 1947 which were interpreted by this Court in Standard Vacuum Oil Co. (supra), are virtually identical to the provisions of the Companies (Profits) Surtax Act, 1964 and since the said judgment directly and squarely covered the instant case. In our opinion, the High Court has committed a patent error in completely dis-regarding the judgment of this Court in Standard Vacuum Oil Co. (supra), and in reversing the well-considered order of the Appellate Tribunal which has decided the matter in favour of the appellant and as a consequence of the impugned order of the High Court, the huge tax liability was created on the appellant without any warrant or justification whatsoever. (Para 17)
Judgment
Dr. AR. Lakshmanan, J.—The above appeals were filed against the judgment and order dated 17.07.2003 passed by the Division Bench of the Gauhati High Court whereby the Division Bench allowed the appeal filed by the Commissioner of Income Tax being I.T. Appeal No. 6 of 2000 and reversed the order of the appellate tribunal dated 04.04.2000.
2. The present case involves an important question of law with regard to the interpretation of Explanation 1 to Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.
3. The appellant company was formed mainly for the purpose of taking over the Indian undertakings of several sterling tea companies operating in India. These sterling tea companies were registered in UK and were operating in India. The acquisition of the Indian undertakings of the sterling tea companies was done in accordance with a Scheme of Arrangement under Sections 391 and 394 of the Companies Act. The said Scheme of Arrangement was granted approval by the High Courts of Calcutta and Gauhati. As per the Scheme of Arrangement, all the properties, rights and powers and all liabilities of the sterling companies were transferred to and vested in the appellant Company. The Reserve Bank of India was the designated authority for granting approval for the price at which the undertakings including the assets were to be taken over by the appellant.
4. The Reserve Bank of India, by its letter No. EC.CO.FCS.3517/T-117(Activity)/79 dated June 26, 1979 accorded the aforesaid approval whereunder it permitted the appellant to pay the aggregate lumpsum consideration at Rs. 490 lakhs. Para 2 of the said letter reads thus:
“2. We are agreeable to your acquiring the entire business and undertakings in India of (i) Attaree-khat Tea Company Attaree-khat Company Ltd., (ii) Bargang Tea Co. Ltd., (iii) Boroi Tea Co. Ltd., (iv) Corramore Tea Co. Ltd., (v) Koomsong Tea Co. Ltd., (vi) Moabund Tea Co. Ltd., (vii) Rajmai Tea Co. Ltd., (viii) Itakhooli Tea Co. Ltd., (ix) Tingri Tea Co. Ltd., (x) Bargang Tea Co. Ltd., (xi) Borelli Tea Co. Ltd. and (xii) Rupajuli Tea Co. Ltd. (hereinafter referred to as twelve sterling tea companies) with effect from the close of business as at 31st December 1977 for a total consideration of Rs. 490 lakhs (Rupees Four Hundred Ninety lakhs only). You also have our permission under section 19(1)(d) of the Foreign Exchange Regulation Act, 1973 to issue at par 21,61,000 and 2,89,000 equity shares of Rs. 10/- each of your company to Williamson Tea Holdings Ltd., U.K. and Borelli Tea Holdings Ltd., U.K. respectively, in part settlement of the consideration for the business and not assets in India of the said twelve sterling tea companies to be taken over by you under the scheme of Indianisation.”
5. As per paragraph 3(i) of the said letter, the Reserve Bank of India specifically directed the appellant that there shall not be any depletion in the net assets as on the actual date of transfer of business from what was given in the balance sheets of the twelve sterling tea companies as on 31.12.1976. Para 3(i) reads as follows:-
“There shall not be any depletion in the net assets as on the actual date of transfer of business from what was given in the balance sheets of the twelve sterling tea companies as on 31st December, 1976 and an auditor’s certificate to this effect shall be submitted to us after the formalities for transfer of business are completed.”
6. As against the consideration of Rs. 4,90,00,000/- permitted by RBI to be paid by the appellant, the value of the net assets which was to be maintained by the appellant as per the aforesaid requirement of RBI was Rs. 6,33,89,055/- i.e. higher by Rs. 1,43,89,055/- which was disclosed in the appellant company’s balance sheet as a Capital Reserve as part of “other reserve”.
7. In the assessment of the appellant company under the provisions of the Companies (Profits) Surtax Act, 1964, the question arose as to whether the said capital reserve was to be included whi
