CALCUTTA TRAMWAYS CO. LTD. versus COMMISSIONER OF WEALTH TAX

Citation: [1973] 1 S.C.R. 1033 · Decided: 28-08-1972 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

I 
A 
B 
c 
D 
E 
F 
G 
CALCUTIA TRAMWAYS CO. LTD. 
v. 
COMMISSIONER OF WEALTH TAX 
August 28, 1972 
1033 
[K. S. HEGpE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.) 
Wealth Tax Act (27 of. 1957), s. 6-Specia/ reserve fund, and Share-
holders' account 1naintained ar a result of agree111ent lvith 
Governn1ent 
proposing to acquire Con1pany-De/Jenture loans payable outside India-
s,,ecial rtserve fund, amount (n shareholders' account and debenture loans 
if deductible in ascertaining net wealth of Con1pany. 
The assessee was a non~resident company for the purpose of Exp\ana~ 
tion 2 to s. 6 of the Wealth-tax Act, 1957 and was operating a tramway 
undertaking in Calcutta. 
The 
Government of W. Bengal proposed to 
acquire the \\ndertak.ing and entered into an agreement in 1957 with the 
assessee. 
Under the agreement, the Government had an option to :lcquire 
the undertaking after the 'purchase date' namely, January 1, 1972. 
Jn 
compliance with the provisions of the ::i.grccmcnt the nssessce maintained 
a special reserve and a shareholders' account in its books. The asscssee had 
also issued deberttures which \\'Cre secured by a floating charge on 
the 
general assets of the company. 
All the debenture-holders \Vere hov.·cver 
residents in the United Kingdom, the specialities were in the United King-
dom, and the debts were payable in that Country. 
For the assessment years 1957-58, 1958-59 am! 1959-60 the assessee 
claimed tha.t., (l) the amounts in special reserve account~ (2) the amounts 
in sharehu1ders reserve account; and (3) t'he debenture loans as debts, 
deductible in ascertaining its net \vealth for the purpose of the Act. The 
High Court, in reference, held in favour of the re1vellue \Vith respect to 
all the three items. 
Dismissing the appeal to this Court, 
HELD: (I) Till the assessee-company was acquired by the Govern-
ment the amounts shown in the special reserve, though shown in accord-
ance with tb,e agreement, were the assei.. of the oompany. 
Between the 
Gov~rnment and the compµny there was only an 
agreement 
and 
the 
Government could not have a.cquired the assessee-company 
before 
the 
purchase date, January 1, )972. [IC40D-FJ 
(2) The amount in the shareholders' account did not belong to the 
shareholders but was an item of the assets of the a5sessee-cornpany. 
[104\D] 
A oompany is a different legal entity from its •hareholder<, and the 
~hareholders have no rights in the assets of the company except \Vhen 
dividends are declared or when the assets of the con1pany are distributed 
on liquidation. The fact that a separate shareholders reserve had to be 
maintained by the asscssce-company because of the agreement with the 
Government di..? not =hange the character of the assef. 
[1040H; 1041A-DJ 
Kesora111 !ndustrit·s .:nd Culton Mills Ltd. v. Cornn1fa·sioner of JVcalt/i .. 
tax (Central), c,/uwa, 59 l.T.R. 767, followed. 
( 3) In view of the nature of a floating charge, and the circumstances 
in the present case rhat the debc11ture-holders were all residents of the 
United Kingliom, the specialities \Vere in the United Kingdom and the 
1034 
SUPREME COURT REPORTS 
[1973] 1 S.C.Jl. 
debts were payable in the Unifed Kingdom, the ·debenture loans could 
not also be taken into consideration in ascertaining the net wealth of the 
a'sessee under s. 6 of the Wealth-tax Act, [104!E; 1042F-G] 
... ! 
Halsbury's Laws of England; 3rd Ed. Vol. 6, p. 472, para 914 and 
Vol. 15, p. 58, para 115, rcierred to. 
· 
Civ1L APPELLATE JURISDICTION : Civil Appeals Nos. 28-30 
of 1969. 
Appeals by certificate under article 133 of the Constituthn 
of India from the judgment and order dated November 15, 1967 
of the Calcutta High Court in W. T. Reference No. 405 of 1962. 
C. K. Daphtary, T. A. Ramachandran and D. N. Gupta, for 
B 
the appellant. 
c 
N. D. Karkhanis, R. N. Sachthey, B. D. Sharma and S. P. 
Nayar, for the respondent. 
The Judgment of the Court was delivered by 
• 
Hegde, J. 
These are asesscc's appeals by certificate, from 
the judgment of the High Court of Calcutta in a Reference under 
D 
s. 27 ( J ) of the Wealth-tax Act (to be hereinafter referred to as 
the Act). 
At the imtance of the asscssee (which will J1ereinafter 
6e referred to as the "company") as well as the Commiss;oner of 
Wealth Tax, West Bengal, the Income-tax Appellate T,ibunal 
'B' Bench, Caicntta re(crred' the following questions to the High 
Court for its opinion : 
E 
"(l) Whethe~ on the facts and in the circumstanre,s 
of the case,

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