TMI Blog1968 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The year of assessment is 1959-60 and the corresponding previous year is the year ended 31st March, 1959. The Mahindras were, during the relevant year of account, shareholders of the company known as Mahindar Mahindra Ltd. (hereinafter referred to an the company). In this company Harish Mahindra held 80,000 Shares, Suresh Mahindra 79,900 shares and Keshub Mahindra 78,700 shares. Between themselves they held 43.44% of the total capital of the company. Harish Mahindra and Keshub Mahindra were at all material times two of the directors of the company and Suresh Mahindra was an officer in the company. The company did business of assembling and partially manufacturing motor vehicles known as " jeeps ". These motor vehicles are produced by Willys Motors Inc., motor manufacturers of the United States of America (hereinafter referred to as Willys). The export of these cars was made through a sister concern Willys Overland Export Corporation described as " a Delaware corporation " with its principal offices in the State of Ohio, U.S.A. (hereinafter referred to as " Export "). In order to avoid confusion, we have here adopted the abbreviations used in the contract dated 9th Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new issue of shares were obtained by Export and to the complementary letter written on the same date by the Mahindras to Export. The agreement dated 9th October, 1957, made provision for the supply of 504 trucks and 294 Utility Vans (798 vehicles in all) for a sum of U. S. $ 1,207,903.20 as indicated in the schedule thereof. The first three clauses of the agreement provide for the sale and the manner in which and the conditions on which the vehicles would be exported and for the payment of the purchase price by the company in rupees. Then clause 4 made provision for a loan by Export to the company of U. S. $ 400,000. This loan was to be advanced " after payment has been made of such aggregate purchase price less the rupee equivalent of the last four hundred thousand United States Dollars (U.S. $ 400,000) worth of C.K.D. vehicles shipped from New York " and after certain documents as contemplated in clause 9 were delivered to Export. The loan of $ 400,000 was to be secured for Export by a promissory note of the company for the rupee equivalent of $ 400,000 and on certain other terms. There was also to be executed by the company in favour of Export a first mortgage of certain asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edited under the allotment." In clause 7 provision was made for the consequence of default in the fulfilment of the agreement and it, inter alia, provided (vide sub-clause (d)) that in the event that the company shall violate or fail to perform any provision of the agreement and shall fail to correct such violation or failure of performance within thirty days, then Export may, at its option, by notice to the-company, (1) immediately terminate Export's commitment to sell the CKD vehicles, and (2) with respect to CKD vehicles already delivered, declare the unpaid portion of the purchase price for such CKD vehicles to be forthwith due and payable, and (3) in certain contingencies Export may also declare that the obligations of the company under the loan agreement shall be forthwith due and payable, ' the terms thereof notwithstanding.' This agreement itself was signed by one of the assessees, Keshub Mahindra, and by K. C. Mahindra who, we were informed, is the father of the three assessees and by Willys and Export. Complementary to this agreement was a letter written to Export and signed by the three assessees which for the purposes of the question referred is of prime importance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affiliated companies already own 10% or more of the then voting shares of the company, this obligation shall cease if : (1) The company offers to export the unconditional right to subscribe to equity shares of said company to Rs. 2,000,000.00 as part of a general issue of shares to the public. Nothing contained herein shall modify or limit the rights and duties of the parties under our two letters to you dated 3rd December, 1956. . . . Yours faithfully, Sd./-Mahinder Singh Secretary. Accepetd For Willys-Overland Export Corporation, Constituted Attorney. For Willys Motors Inc. Vice President and Constituted Attorney. " After these arrangements were made between the company, Willys and, Export, the company issued right shares in 1958 in the proportion of 7 right shares to every 5 original shares held by the shareholders. Thereby the three assessees became entitled to the following right shares : Harish Mahindra ... 1,12,000 Suresh Mahindra ... 1,11,860 Keshub Mahindra ... 1,10,120 In fulfilment of their undertaking in their letter dated 9th October, 1957, the three Mahindras renounced in favour of Export 41,620 shares each. In addition it appears that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market value of 41,620 rights (he was saying this in the case of Harish Mahindra, the total shares transferred being 1,24, 860) shall be treated as the value of gifts to be taxed. In appeal the Appellate Assistant Commissioner of Income-tax does not seem to have dealt with the question in any great detail, but he confirmed the view of the Gift-tax Officer. He however, held that the price of each share should not be Rs. 4 per share as held by the Gift-tax Officer, but should be Rs. 2 per right share. To that extent he granted relief to the assessee. When the matter came before the Tribunal, they confirmed the view of the Gift-tax Officer and the Appellate Assistant Commissioner and they held " the short point we have to consider is whether any consideration moved from Willys to the three assessees whereby three assessees undertook to relinquish or renounce rights in favour of Willys. So far as the letters are concerned, it is clear that the three assessees undertook a liability to relinquish or renounce the rights in favour of Willys. It is clear from what has been stated above that there was no direct consideration moving from Willys to the three assessees. " The Tribunal refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He relied upon the decision in Ex parte Gilchrist: In re Armstrong . The word " property " is not as such defined in section 2(xxii), the definition being merely an inclusive definition. It includes any " interest " in property, movable or immovable, which would certainly cover the " right shares ". But taking into consideration the general connotation of the word " property ", we can see no reason why the right shares which the assessees had obtained and transferred would not be " property " itself in the present case. Property is not only the thing which is the subject-matter of ownership but includes also " dominion " or right of ownership or partial ownership and, as Lord Longdale put it in Jones v. Skintser : " It is the most comprehensive of all the terms which can be used inasmuch as it is indicative and descriptive of every possible interest which the party can have. " In his Transfer of Property Act, Sir Dinshaw Mulla indicates the connotation of " property " by saying: " It is used in this dual sense of the thing and the right to the thing in section 54 which contrasts, ' tangible immovable property ' with " a reversion or other intangible thing '. This is the distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and to increase the value of the property of Export. The right shares, it is well known, have a market value and can be bought and sold and in the present case in fact the assessee had sold them to the L.I.C. for Rs. 2 each and they have been valued in the present proceedings also at the same value. They would, therefore, come within the meaning of " property " as defined in section 2(xxii) and the transaction within the definition of transfer of property in section 2(xxiv). Two other decisions upon which reliance was placed by Mr. Parpia are also cases of powers of appointment. In Re Mathisson: Ex parte The Trustee the question was whether a power of appointment over property was itself property and it was held that in the ordinary use of language, " property " does not include a general power of appointment (See per Lord Atkin at page 310). In Commissioner of Stamp Duties v. Stephen " the question was whether in terms section 49, sub-section 2A(a) of the New South Wales Stamp Duties Act, 1896, a special power to appoint amongst a limited class granted by a document could come under that statute. The Privy Council held that, " mere general language in a probate duty statute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of the transfer exceeds the value of the consideration ". In such a case, the transfer would be a gift only to the extent to which the market value exceeds the consideration of the transfer. Section 4(b) deals with cases where a transfer is for consideration but the consideration " has not passed or is not intended to pass either in full or in part from the transferee to the transferor ". In such a case the transfer becomes a gift to the extent of " the amount of the consideration which has not passed or is not intended to pass..." Clauses (c) and (d) of section 4 of course can never be attracted in the present case. We have referred to this artificial definition of the meaning of the word " gift " by including therein "deemed gifts", because it serves to emphasise by contrast what is the real definition and to crystallise the point arising in this reference. The artificial definition is not invoked in the present case. Section 4 is not attracted because it is not the case of the department that the transfers in the present case were " otherwise than for adequate consideration ", nor is it the case of the department here that the consideration has not passed or was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. " Before we proceed to apply this definition as contained in the Contract Act, however, it must be borne in mind that it is subject to such qualifications or limitations as are expressly stated in the Gift-tax Act. Reading the definition of " consideration " in section 2(d) of the Contract Act in the light of the provisions of the Gift-tax Act, it is clear that the definition has been modified in two respects : (1) the modification to which we have already referred, namely, that in the Gift-tax Act an agreement to transfer property " otherwise than for adequate consideration " (see section 4(a)) gives rise to a gift to the extent of inadequacy while under the definition in the Contract Act that is not so. Under the Contract Act the adequacy or inadequacy of the consideration is immaterial. Similarly, under Explanation 2 to section 25 of the Contract Act, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate. It is still a valid agreement, but under section 4(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of a previous moral obligation was sufficient to support an express, but gratuitous, promise ". Later on, that doctrine was overthrown by the decision in Eastwood v. Kenvan (1840) 11A. E. 433, and " From this time onwards, we get a rule of universal application, a uniform test of the actionability of every promise made by parol. In each case, we must ask: Does the promisor get any benefit or the promisee sustain any detriment, present or future, in respect of the promise ? If not, the promise is gratuitous, and is not binding. " In Cheshire and Fifoot's Law of Contract, sixth edition, the learned authors, commenting on the definition of " consideration ", have pointed out at page 59 that " the antithesis of benefit and detriment, though reiterated in the courts, is not altogether happy ". They suggested a different approach following the suggested definition of Sir Frederick Pollock in his Book on Contracts, 13th edition, at page 133. At page 60 the learned authors state : " A different approach to the problem of consideration may be made through the language of purchase and sale. The plaintiff must show that he has bought the defendant's promise either by doing some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, they received no consideration for the transfer of their right shares. We have already quoted the passages from the findings. The Gift-tax Officer observed that the benefactor in the deal was the assessee when he gave away the rights free, whereas the beneficiaries were Willys Inc., but the benefit which Willys conferred in return did not go to the assessees but to Mahindra and Mahindra Ltd. He, therefore, treated the transfer of the shares as a voluntary act of helping the company " to get out of the situation ". The Tribunal took the same view but expressed it by saying " It is clear from what has been stated above that there was no direct consideration moving from Willys to the three assessees" (underlining is ours). Now in the first place, nothing can turn upon the use of the word direct ". Nither the consideration received in the shape of the benefits received by the company under the contract dated 9th October, 1957, were benefits which can be treated as good consideration for the assessees for the agreement to transfer the shares by the assessees or it cannot be treated as consideration to them at all. If it could be treated as consideration for the assessees, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was understood as early as the third quarter of the fifteenth century, with reference to the quid pro quo of debt, that apparent benefit to the promisor is immaterial ". (Underlining is ours throughout). " In 1459 we have this case. Debt in the Common Pleas on an agreement between the plaintiff and defendant that the Plaintiff should marry one Alice, the defendant's daughter, on which marriage defendant would give plaintiff 100 marks. Averment that the marriage had taken place and the defendant refused to pay. Danvares J. said., " The defendant has quid pro quo: for he was charged with the marriage of his daughter and by the espousals he is discharged, so the plaintiff has done what was to be paid for. So if I tell a man, if he will carry twenty quarters of wheat of my master Priscot's to G., he shall have 40., and thereupon he carry them, he shall have his action of debt against me for the 40s.; and yet the thing is not done for me, but only by my command : so here he shows that he has performed the espousals, and so a good cause of action has accrued to him : otherwise if he had not performed them. Moyle J.: If I tell a surgeon, if he will go to one J. who is ill, and give him m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the one hand and Willys and Export on the other, and, secondly, upon the renuciation or surrender of the rights of Willys and Export under the earlier agreements made on the 3rd December, 1956. We will for the present consider the former case first. The letter dated 9th October, 1957, of the assessees is signed by all the three Mahindras and in express terms it refers to their earlier letter dated 3rd December, 1956, written pursuant to the first contract and to the fact that certain options were granted to Export in regard to acquisition of shares of the company. Then the letter refers to the agreement entered into between Export and the company dated " of even date ", that is to say, the agreement entered into on the 9 th October, 1957, and states that Export desires to revoke and be released from the exercise of the said option under the said letters. Obviously, the reference here is to the earlier agreements and the letters exchanged. But then the letter goes on to say, " We hereby jointly and severally agree in consideration of the execution of the said agreement, that the said exercise of the said option by Export be revoked and cancelled as if the same had never been exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the benefits to be received by the company. The agreement dated 9th October, 1957, no doubt does not refer to the taking over of right shares by Willys or Export, but the letter written simultaneously with the agreement says that the transfer of those shares was in consideration of the agreement dated 9th October, 1957. There is nothing to show that the statement in the letter is incorrect, nor is the letter challenged on that ground. The three Mahindras, the assessees, therefore, regarded the consideration of sale of 798 vehicles and the other equally valuable rights of loan and otherwise obtained by the company under the agreement as sufficient enough consideration for the transfer to Export of their " right shares " which upon the valuation made even by the department itself would be worth Rs. 83,240 in the case of each assessee at Rs. 2 per share. From the start moreover it is clear that Export and Willys were willing to go in or the shares of the company and that is why they had stipulated even it the time of the first agreement for the transfer to them of 30,000 ordinary shares, either at the market price ruling on 8th November, 1956, or at the average of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsent. No doubt, the letter dated 9th October, 1957, does say that in consideration of the agreement entered into on the 9th October, 1957, the assessees were willing to allow Export to revoke and be released from the exercise of the option under the said letters (of the 3rd December, 1956, and others). The letter of the 9th October, 1957, also says " Nothing contained herein shall modify or limit the rights and duties of the parties under our two letters to you dated 3rd December, 1956 ". In other words, the rights contained in the letters dated 3rd December, 1956, were kept alive. To that the answer on behalf of the department was that Willys were not bound to exercise the option to purchase under the first letter and, therefore, gave up nothing and the first agreement could not form the basis of the sound agreement. As we have said, we need not consider these several contentions because, in our opinion, the consideration is writ large upon the second agreement brought about by the letter of the same date, i.e., 9th October, 1957. In the light of what we have said, we may now deal with the four points which the Tribunal made in paragraph 18 of its order. First of all they said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re signed by one and the same person and must have been approved by the two assessees who are the directors. In these circumstances, it seems to us a very strange conclusion to draw that whatever Willys or Export did for the company, which is the consideration for the assessees, was not done " at the desire of the three assessees ". If the assessees had not desired it, the agreement could not have been entered into nor could the letter of the 9th October, 1957, have been written. The words moreover are not " at the instance of but " at the desire of ", and surely it cannot be said, having regard to the circumstances we have set forth, that the assessees did not desire all this although it was very much to their own profit. We are unable for these reasons to accept the reasoning of the Tribunal. Apart from the above legal considerations, what is the true position ? These transactions were between parties engaged in business with a foreign country. It is not suggested anywhere that there was any other motive or relationship between them, secret or otherwise. Both Willys and Export on the one hand, and the assessees and their company on the other were bent only on doing business to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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