CHANDIPORE FISHERIES PVT. LTD. VS COMMISSIONER OF INCOME-TAX, 1992 PTD-CALCUTTA-HIGH-COURT-INDIA 1533 (1991)

Income-tax---

----Income---Accrual of income---Transfer of actionable claim---Assignment complete when document is signed---Winding up of company---Fixed deposits of company in Bank---Fixed deposit receipts handed over to shareholders and intimation furnished to Bank---Interest on fixed deposits not assessable in hands of company.

In the case of an actionable claim, section 130 of the Transfer of Property Act, 1882, clearly lays down that no particular form of writing is required for an assignment and that the assignment becomes effective as soon as the document is signed. The effect of the proviso is that till the debtor has notice of such an assignment, any dealing between him and the assignor will be valid as against the transferor.

The assessee-company had been carrying on fishery business. In order to obtain the benefits of section 54E of the Income-tax Act, 1961, it had made a fixed deposit with the United Bank of India for 61 months. Subsequently, these deposits were reinvested in 84 term deposits of Rs.5,000 each. In January, 1978, the company was wound up and a liquidator was appointed. The liquidator distributed 38 term deposits amounting to Rs.1,90,000 on March 11, 1978, and credited 27 term deposits amounting to Rs.1,35,000 to the accounts of the respective shareholders. The Income-tax Officer was of the opinion that the term deposits were not actually transferred. As such, he assessed to tax in the hands of the assessee-company, the amount of Rs.31,105 after deducting the expenses of Rs.10,895 from the interest income of Rs.42,000. This was confirmed by the Tribunal. On a reference:

Held, that the fixed deposit receipts had, in fact, been made over to the shareholders and the resolution for the distribution of the proceeds of the said fixed deposit receipts were duly passed and intimation was also furnished to the Bank concerned about the transfer. On a construction of the letters written by the liquidator to the manager, UBI, and the certificates given by him, it was evident that the fixed deposit receipts were transferred in favour of the shareholders who alone were entitled to receive the interest. In any event, the company in liquidation was merely a trustee for the shareholders to whom the fixed deposit receipts had been transferred and the interest income would be assessable only as income of the beneficiaries; and not as that of the trustee. Therefore, the interest income was not assessable in the hands of the assessee -company.

Brahmayya and Co. v. K. P. Thangavelu. Nadar AIR 1956 Mad. 570; Durga Prasad Sarawgi v. Smt. Chukia Bai 69 CWN 889; Mohanlal Malpani v. Loan Company of Assam Ltd: AIR 1960 Assam 191; Strathblaine Estates Ltd.: In re (1948) 1 All ER 162 (Ch. D) ref.

R.N. Bajoria for the Assesee.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference under section 256(1) of the income-tax Act, 1901, the following questions of law have been referred to this Court for the assessment year 1979-80:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the fixed deposits were not transferred to the shareholders and that the interest income of Rs.31,105 (after deduction of expenses) on the said fixed deposits was assessable in the hands of the assessee?

2. Whether in the event of absence of transfer of the said fixed deposits, the Tribunal should have held that the interest income from the said fixed deposits could be assessed in the hands of the assessee only as trustee for the shareholders to whom the fixed deposits were handed over?"

Shortly stated, the facts are that the assessee is a company which has been carrying on fishery business for a long time. For availing of the benefits of section 54E of the Act, the assessee made fixed deposit of Rs.4,20,000 on October 18, 197'7, with the United Bank of India, Beliaghat Branch, Calcutta, for 61 months with effect from October 18, 1977, on interest of 10% per annum. The assessee follows the Bengali calendar year as its accounting year. Subsequently, on January 18, 1978, the aforesaid term deposit was reinvested in 84 term deposits of Rs.5,000 each. In the return for the assessment year under consideration, the assessee disclosed the amount of Rs.16,904 as interest. The Income-tax Officer enquired why the amount of Rs.16,904 was shown as interest in the place of Rs.42,000. In reply, the assessee stated that the liquidator, appointed subsequently, distributed 38 term deposits amounting to Rs.1,90,000 on March 11, 1978, and credited 27 term deposits amounting to Rs.1,35,000 to the amounts of the respective shareholders. On a consideration of the inspection report of the Income-tax Inspector and other materials, the Income-tax Officer was of the opinion that the term deposits were not actually transferred. As such, he assessed to tax the amount of Rs.31,105 after deducting the expenses of Rs.10,895 from the interest income of Rs.42,000.

Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) was of the opinion that the assets were not transferred in specie and as such the income accruing or arising from the said assets was taxable in the hands of the assessee in terms of section 60 of the Act. He also negatived the contention of the assessee that the assessee was merely a trustee of the said assets on behalf of the shareholders and as such the said interest was not taxable.

In second appeal before the Tribunal, the authorised representative of the assessee contended that the term deposits were transferred to the shareholders on March 11, 1978 by actual delivery of the term deposit receipts, in terms of a resolution for the distribution dated March 25, 1978, and upon intimation to the bank regarding such transfer. This contention was strongly opposed by the departmental representative who argued that term deposits are not legally transferable and that the materials on record do not show that there was actual transfer 'of these term deposits. As such, he contended that the interest was rightly taxed in the hands of the assessee under section 60 of the Act.

On a consideration of the facts and circumstances of this case, the Tribunal held as follows:

"The bank was only requested to credit the monthly interest to certain savings bank accounts held by the different shareholders and the bank also similarly credited the interest to the said accounts. There is nothing in these letters or certificates to show that these term deposits were transferred to the shareholders who held these saving bank accounts. These letters and certificates do not show that transfer of the term deposits was either proposed by the liquidator or accepted by the bank. It could not also be shown to us that, under the terms and conditions of these term deposits under consideration, it was permissible to transfer these term deposits to strangers other than the original holder of the term deposits. Ordinarily, under the rules of the banks, term deposits are not transferable. The mere fact that the term deposit receipts were physically handed over to different shareholders cannot amount to the transfer thereof to them. So, on a careful consideration of the materials on record including the paper books and facts and circumstances of the case, we agree with the authorities below that there was no transfer of the term deposits by the assessee to the shareholders and that as such the interest was assessable in the hands of the assessee. In view of this finding, it is not necessary to enter into the alternative argument of the authorised representative for the assessee that at best the assessee was a trustee in respect of these term deposits."

At the hearing Mr. Bajoria, learned counsel for the assessee, contended that the conclusion of the Tribunal is erroneous inasmuch as the liquidator divested himself of the ownership of the fund which was transferred to the shareholders. It is his contention that the transfer of the fixed deposit can be made without any written document and the facts of this case would amply demonstrate that, in fact the transfer was made in favour of the shareholders and the income accrued on the fixed deposit could not, therefore, be assessed in the hands of the liquidator. He has relied on a few decisions to which we shall presently refer.

On the other hand, the contention of learned counsel for the Revenue is that all the necessary papers and documents were not placed before the authorities below and, accordingly, the matter may be remanded to the Tribunal for fresh consideration.

We have considered the rival contentions. It appears that the Tribunal referred to certain documents in the statement of the case, but they were not produced. We have, therefore, directed counsel for the assessee to produce those documents for our consideration. By consent of the parties, such documents have been produced and they were treated as part of the records.

The facts are not in dispute. On January 24, 1978, in the second extraordinary meeting of the members of the company, it was unanimously resolved that the company be wound up voluntarily as members' voluntary winding up. Shri M.K. Deb, chartered accountant, was appointed the voluntary liquidator of the company in liquidation for the purpose of winding up of the affairs and distributing the assets of the company.

On March 20, 1978, an indenture was made by and between the liquidator and Sachindra Nath Bose, a shareholder, which recorded that, on January 24, 1978, the liquidator obtained possession of the books and assets of the company, that the said assets, inter alia, consist of cash amount and 84 pieces of term deposit receipts granted by the United Bank of India for Rs.5,000 each for a term of 61 months carrying interest at the rate of 10% per annum; that, after making provisions for all creditors in full, the liquidator has decided for beneficial winding up to make an interim distribution of a sum of Rs.15,000 only and 39 of the said term deposit receipts together with all the rights, title and interest thereof out of the suplus assets under section 511 of the Companies Act, 1956, pro rata amongst the holders of the equity shares of the company and that, on March 11, 1978 pursuant to the said agreement of interim distribution, the liquidator paid Rs.4,000 and transferred by delivery of possession 3 term deposit receipts together with all the rights, title and interest thereon and to the said shareholder absolutely and for ever. It was also recorded that, by a letter of March 13, 1978, the shareholder requested the liquidator to have the said interim distribution recorded and, pursuant to the said request made by the said shareholder, the liquidator did pay the said sum of Rs.4,000 and transferred by delivery of possession 3 term deposit receipts. It was further provided in the said indenture as follows:

"To have and to hold the said term deposit receipts unto and to the use of the said shareholder during 61 (sixty-one) months from the date of investment and to appropriate the interest thereon in the meantime with the right to en-cash and appropriate on maturity the amounts deposited under the respective term deposit receipts absolutely and forever:"

A similar indenture was made on November 10, 1978, by and between the liquidator and the shareholder, Sachindra Nath Bose, for transfer, inter alia, of two term deposit receipts.

It may be mentioned that a resolution was passed on March 24, 1978, authorising interim distribution. By several letters, all dated March 14, 1978, the liquidator informed the bank to credit the savings bank account of the bank with future monthly interest as and when the same would fall due in respect of the term deposit receipts mentioned in the said letters. Certificates were issued 'by the bank to the following effect:

"This is to certify that the monthly interest on the following fixed deposit receipts held in the name of Chandipore Fisheries (Pvt.) Ltd., 21, Charakonga Road, Calcutta-700 010, was credited to the following Saving Accounts with us from 1978 till their maturity in February, 1983:

In the context and setting of these facts, the question that calls for determination is whether the fixed deposits have been assigned in favour of the shareholders.

Section 130(1) of the Transfer of Property Act provides as follows:--

"The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, and shall be complete and effectual upon the execution of such instrument and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not:

Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transferor:'

This section clearly lays down that no particular form of writing is required for an assignment and that the assignment becomes effective as soon as the document is signed. The effect of the proviso is only that, till the debtor has notice of such an assignment, any dealing between him and the assignor will be valid as against the transferor.

Our attention has been drawn to a decision of a learned Single Judge of the Madras High Court in Brahmayya and Co. v. K.P. Thangavelu Nadar, AIR 1956 Mad 570. In that case, the fixed deposit receipt was deposited as a collateral security with the banker. The fixed deposit was in the name of the son of the constituent of the bank. The son of the constituent gave a letter to the bank authorising the bank to collect on maturity the money covered by the fixed deposit receipt and to credit the proceeds to the overdraft account. The bank went into liquidation and the official liquidator made an application for a direction to pay the sum covered by the fixed deposit to the official liquidator. There, the question was whether the title to the fixed deposit receipt passed to the bank. In that case, the learned Single Judge held that, in order to pass title to a fixed deposit receipt and the money represented by it, it is not necessary that an instrument should be executed in any particular form or that the instrument should contain any particular words or formula. It is sufficient if the intention to transfer the receipt and the money covered by it appears from the language used by the parties, whether the relevant writing is made on the back of the receipt or on a separate piece of paper.

The said observation was based on Mulla's observation on the Transfer of Property Act where the learned author said that no particular form or word is necessary in order to effect an assignment, if the intention is clear from the language used.

It was also held in that case that, under section 130 of the Transfer of Property Act, the title passes to and vests in the assignee or transferee on the execution of the transfer deed, and on further action on his part such as sending a notice to the debtor as under the English law is necessary to complete his title.

Reliance has been placed on a decision of the Assam High Court made in the case of Mohanlal Malpani v. Loan Company of Assam Ltd. AIR 1960 Assam 191. There, the Asam High Court held that, as soon as the bank is informed in writing about the assignment, the assignment becomes effective, but if the bank has made a payment to the assignor before any intimation was given of the assignment, such payment could not have been defeated by the assignment. But, after the bank had been intimated that the right to collect the amount had been transferred to the defendant, the bank could not say that tire assignment was not effective.

Our attention has also been drawn to a Division Bench decision of this Court in the case of Durga Prasad Sarawgi v. Sm. Chukia Bai (69 C.W.N. 889). It has been held there that the assignment of any actionable claim does not require any registration either under the Registration Act or otherwise. It is enough that such an instrument is in writing fried by the transferor. It is not necessary to be accepted. It is enough that the transferor has transferred. Section 130 says that a transfer of an actionable, claim shall be effected merely by the execution of an instrument in writing signed by the transferor and shall be complete and effectual upon the execution o f such instrument.

Mr. Bajoria has also relied on the decision made in Strathblaine Estates Ltd.: In re (1948) 1 All ER 162 (Ch. D).

In that case, at an extraordinary general meeting held on April 14, 1938, of a company which owned freehold properties, a resolution was passed that the company be wound up voluntarily and it was agreed that the properties should be distributed in equal shares among the shareholders. All liabilities were discharged before the company was dissolved, but the legal estate in the unsold properties was not conveyed to the shareholders. An originating summons was taken out by the former shareholders of the company which had been dissolved asking for a vesting order in respect of the legal interest in the unsold freehold properties which had been vested in the company prior to its dissolution. There, the Court held that, by the agreement of April 14, 1938, the company became a trustee for the shareholders of the freehold properties in question, the minutes of the meeting being sufficient written evidence of the contract to satisfy the Law of Property Act, 1925, section 53(1)(a), and, therefore, the legal estate in fee simple in the freehold property was excepted from the provisions of the Companies Act, 1929, section 296, and was not determined by the dissolution of the company, but continued in existence subject to the trusts on which it was formerly held by the company; since there was no necessity for creating any new legal interest, the Law of Property Act, 1925, section 181, did not apply; and, accordingly, under the Trustee Act, 1925, section 44(ii)(c), the Court could make an order vesting the properties in the shareholders for all the estate therein formerly vested in the company as joint tenants on trust for sale.

On a careful consideration of the facts and circumstances of the case, we are of the view that the fixed deposit receipts had, in fact, been made over to the shareholders and the resolution for the distribution of the proceeds of the said fixed deposit receipts were duly passed and that intimation was also furnished to the bank concerned about the transfer. On a construction of the letters written by the liquidator to the Manager, United Bank of India, and the certificates given by him to which reference has already been made, it is evident that the fixed deposit receipts were transferred in favour of the shareholders who alone are entitled to receive the interest. As a matter of fact, the term deposit receipts were physically handed over to different shareholders who alone were entitled to the interest thereon. If that be the position, it cannot be said that the interest on the fixed deposits would still remain the income of the company in liquidation. In any event, the company in liquidation was merely a trustee for the shareholders to whom the fixed deposit receipts had been transferred and the interest income would be assessable only as income of the beneficiaries and not as that of the trustee.

For the reasons aforesaid, we answer the first question in the negative and in favour of the assessee. The second question is answered in the affirmative and in favour of the assessee.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J.---I agree.

M.B.A./1649/TQuestions answered.