# TURNER MORRISON AND CO., LTD v. HUNGERFORQ INVESTMENT TRUST LTD. March 9. 1972 - **Citation:** [1972] 3 S.C.R. 711 - **Court:** Supreme Court of India - **Decided:** 1972 - **Case number:** C,A. No. 1223 of 1970 - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/turner-morrison-and-co-ltd-v-hungerforq-investment-trust-ltd-march-9-1972-5607 - **Pages:** 20 ## Headnote 711 TURNER MORRISON AND CO., LTD. v. HUNGERFORQ INVESTMENT TRUST LTD. March 9. 1972 B . [K. S. HEODE AND K. K. :!VIATH.Ew, 11.] Estoppti-P!omissory estoppel~cope of-App/lcab/ll:y of doctrlru. I Company Law--lncorp,orated CompanieJ-R'esidmu of-Ultra ~ CompfJIJ authorised by resolution ID dixhmge rax /iob/1/(y of JwldJiw company to which dividends due not distribuud-lf ultra vires tht comC pse are.found in cls. (ii) and (lii) of sub-s. (2) of s. 23-A. C Clause (ii) says: "Where the proportionate share of any member of a company in the undistributed profits and .gains of the company has been included in his total income under the provisions of sub-section ( 1 ) the tax payable in respect thereof shall be recoverable from the company, if it cannot be recovered from such member.'' Clause (iii) reads : "Where tax is recoverable from a company under this sub-section, a notice of demand shall be served D upon it in the prescribed form showing the sum so payE able, and such compa~ shall be deemed to be the assessee in respect of such sum, for the purposes of Chapter VI." It was urged on behalf of Hungerford that the income that can be brought to tax as a result of an order under s. 23-A is not a real income; it is only a deemed income; that income came to·· F be taxed because of the failure of the company to declare dividends. It is only for the purpose of convenience that income is taxed1 in the hands of the shareholders; hence the liability to pay that tax in equity must be that of the company and it is for that reason s. 23-A has provided for the realisation of the tax due from the shareholders from the company. The fact that before G passing an order under s. 23-A the shareholders are. not even required to be heard was emphasised. In this connection our attention was invited to the amendment of s. 23-A in 1955 as a result of whicp. now the tax liable to be paid as a result of an order under s. 23-A is payable exclusively by the company. In this connection reliance was also placed on the language of s. 42 1-t which empowers the Revenue to assess the income of a nonresident assessee in the hands of his agent, but at the same time· that section empowers that agent to retain in his hands a sum TURNER MORRISON V, HUNGERFORD (Hegde, J.) 719 A equal to his estimated liability under that section from out of the.: non-resident's monies in his hands. It was lastly urged that if dividends were deemed to have -been declared, those deemed dividends remained in .. the handS of the company and when the company paid tax in respect of the same, it must be held to have paid the same out of the dividends of the shareholders that remained in B its hands. On the other hand, it was contended on behalf of Turner· Morrison that any assessment made in pursuance of an order· under s. 23-A is an assessment on the shareholders and not on the company. ~The- dividends deemed to have been distributed under· ~- 23-A is considered to be the income of the shareholders and c D E nof that of the company. It is added on to the other income of · the shareholder for the purpose of assessment. It is recoverable· from the shareholder.· It is recove~able from the company only if it cannot be recovered from the shareholders and the company is deemed to be an assessee in ~espect of such' sum for the purposes of Chapter VI only and not for all purposes. . Further the· deemed distribution of dividends as a result of an order under s. 23-A is in no sense a real distribution of dividends which can. be Jone only by the shareholders at the· general meeting of the· company. We, do not propose to pronounce on this controversy firstly because this appeal can be decided on other grounds and secondly for the reason that that controversy has now become more or less academic in view of the amendment of's. 23-A in 1955. . . - For the assessment years 1940-41 to 1952-53, Trime~Moni-· son was assessed as the agent of Hungerford as could be seen from the assessment orders. For that reason it was contended on beha1f of Turner Morrison that it is entitled to be reimbursed in respect of the tax paid by it. Hungerford denies that Turner Morrison was its agent. According to Hungerford, the. payments in F question were made by Turner Morrison voluntarily and therefore· it is not entitled to claim any reimbursement. Section 43 of theIndian Income-tax Act, 1922 prescribes as to who could be assessed as an <1gent under s. 42. That section says :- G H "Any person employed by or on behalf of a person residing out of the taxable territories or having any business connection with such person, .or through whom such person is in the receipt of any income, profits or !!ains uoon whom the Income-tax Officer has caused a notice: to b~ ::-~erved of hi'\ intention of tteating hinl as the agent of the non-resident person shall for all the purposes of this Act, be deemed to be such agent." It was contended on behalf of Hungerford that it was not residing out of the taxable territories; it is a private limited company: hence it must be held to be residing in all places where it. 720 SUPREME COURT REPORTS (1972] 3 S.C.R. earns or deemed to earn any income. It was further urged thal A Turner Morrison was not a person employed by or on behalf of Hunge~ord nor did Hungerford have any business ·connections with Turner Morrison. It was also the contention of Hungerford that it did not r~ive any income, profits or gains through Turner Morrison. Lastly it was urged that the lnoome-tax Officer had not caused any notice to be served upon Turner B Morrison intending to treat that company as the agent of Hungerford. On the other hand it was Turner Morrison which had volunteered to be assessed on behalf of Hungerford. For all tqese reasons it was said that Turner Morrison cannot be held to have been taxed as the agent of Hungerford. All these contentions were taken for the first time in this Court. They do not c appear to have been taken either bef<;>re the trial court or before the appellate court. The ~ontentio,PS raised involve determination of questions of fact. In the'plaint, it was specifically averred that the payments in question were made by .Turner Morrison as the agent of H.JJ.ngerford. That averment has not been specifically denied. In that view, we are not·caUed upon to go into the various submissions noted above. D , Befor~ going into the other contentions, we may briefi.y deal with the co~tention that the suit was not properly instituted. There appears to be basis for Hungerford's contention that this suit was inspired by Mundhra and Ardeshir Jivanji Honnasji, the Secretary of Turner Morrison, who· signed the plaint on behalf of E Turner Morrison was a mere tool in his hands. There is also reason to believe that when the Directors of Turner-Morrison ratified the action taken by Hormasji, they behaved in an irresponsible manner as seen earlier. But all the same it cannot be said, the suit is not maintainable. It is true that under the. Article~ of Association of Turner Morrison, a suit o~ behalf of that company has to be filed with the c.onsent of the Directors. But F the Secretary of the company held a general power of attorney from the Directors and the action taken by him was approved by the Directors. Hence there can be. no valid objection· to the maintainability of the suit. Three important questions remain to be coru;idered. They G are: 1. Whether the claim made bv Turner Morrison is barred by the rule of estoppel. or waiver or abandonment? 2. Whether the decision of Turner Morrison to take over the liability of Hungerford either \\'ith or witho~t any guarantee from Turner brotbyrs was ultra vires its powers and H TURNER MORRISON v. HUNGERPOllD· (Hegde, /~) 721 3. Whether the claim made in the ,suit or any portion thereof is barred by limitation ? 1)e judgments of the trial cciurt and the appellate court havenot made any distinction between estoppel, waiver and abandonment. The distinction between those three concepts is fine but B real. In this case, there was no plea of any release under s. 63 of $e Contract Act. Hence the argument of Mr. A. K. Sen, learned Counsel for Turner Morrison on the scope of that section is irrelevant and we shall not go into the same. The essential qties~. tion to be considered· is whether the facts established in this case· support the plea of estoppel put forward by Hungerford. If the· C oosw~ to ~lutt question is in the affirmative then. there is no need to examiae whether there was. any waiver or abandonment as pleaded by Hungerford. 'Estoppel' is a rule of equity.. That rule has gained new dimensions in recent years. A new class of estoppel i.e. prO-· missory estoppel has come to be recognised by the courts in thiS'· o country as well as in England. The full implication of 'promissory estoppel', is yet to be speHed· out. . We shall presently refer to decisions bearing on that topic but before dOing so, let us ~ whether Turner Morrison made any representation to Hungerford, if so, what is that representation. Further, whether: Hun3Prfonl' acted on the basis of that representation to its disadvantage. It E is not denied tba:t year after year from 1941 to 1954 · Turner Morrison paSsed resolutions undertaking to discharge the tax lia-. bility of Hungerford. In pursuance of those resolutions taxa due from Hungerford were p&Jd. There can be no doubt that tht step$ taken by Turner· Morrison were within the knowledge ' or Hungerford as it held 100 per cent ~ of Turner Morrison. Tile Directors ~ 'l'Ui'ner: Morrison must have been its' nominees. F The profit and· loss accoun.b of Turner Morrison must have b!=en approved by Hungerf~ )'eat after. year. at the ge,neral meetihg of that company.. In reality the Turner· brothers were the own~ of Hungerford as well 'as 'J;utner MorriSon thoqgli each of those companies was a separate legal entity. It may be that Turner· Monison did not declare· dividends so t:Jiat Hungerford may avoid G paying tax at a high rate. But at the same tiine Hungerford W®ld not have agrud for not distn"butfug dividendS unless 'Turner. Moirison took over the responsibi,lity 'of paying th6 tax . on the dividends deemed to have been distributed. It is ~blished that ·1f dividends had been declared .. HWlgerford would .h~ve got more· than two and ba1f times the tax paid on its behalf~ The un~- B tributed diyidends Mre available to Turner MorriSon. to lle utilis· G4·11 workin& capi~l and-th~ earn more proiits. . The arrangement regarding the 00114istrl.bUtion. ¢ dividendi as well. as, the payment for the· t&X due from HuniJil{~ bf ~mer Momson 722 , .SUPREME COURT REPORTS [1972] 3 S,C.R must have been with the consent of Hungerford as well as Turner A ,brothers. Those arrangements had clearly benefited all the parties. Till Mundhra entered the scene, there could not have been any conflict of interest between Hungerford and Turner Morrison. When Turner Morrison paid the tax due from Hungerford, legal fiction apart, it was really paying from the monies belonging to Hungerford. If for any reason, Turner Morrison had not undern taken the responsibility to discharge the tax liability of Hungerford, the latter could have taken steps to compel the former to declare dividends or even compel it to go into voluntary liquidation. Hence there can be no doubt that by acting on'.the basis of the representation made by Turner Morrison, Hungerford had placed itself in a disadvantageous position. But it was urged c on behalf of Turner Morrison that the resolutions in question were mere promises to do something in the future : They were not representations of any fact and as those promises were not supported by any consideration, they afford no legal basis to resist the claim made in the plaint. Hungerford's answers to these contentio.ns are, that firstly those resolutions -~!lord a good basis for raising a plea of promissory estoppel; secondly those D representations became representation of fact as soon as the . tax liability of Hungerford was discharged by Turner Morrison in pursuance of its resolutions and lastly the promises made under those resolutions were supported by consideration inasmuch as Hungerford in response to those promises refrained from enforcingits right to have the profits distributed as dividends. Now comE ing to the payme:!U:s made after 1955, it is seen that a9cording to the agreement between Turner Morrison, Hungenord and Mundhra, Turner Morrison was required to set apart a sum of Rupees 46 lakhs to discharge the tax. liability of HuQgerford. Accordingly Turner Morrison transferred Rupees 46 lakhs from its general reserve to a special reserve. Further by the agreeF ments dated October 31, 1957 set out earlier Turner Morrison took over the entire tax liability of Hungerford and the Turner brothers agreed to reimburse Turner Morrison any payment . made on behalf of Hungerford in· excess of Rupees 46-lakhs. All these arrangements clearly enured to the benefit of Turner Morrison inasmuch as it allowed that company to refrain from declaring dividends and utilise that money for business purposes. - There G can be no doubt that it was done in UJ.e best ipter~st of that company and with a view to further its business interests. It is necessary to note that despite Turner Morrison paying the tax due from Hungerford from 1941 uptill 1953, those pay~ ments were not debited to the account of Hungerford; nor were H they shown as debts due from Hungerford in the balance sheets placed before the general meeting. Those balance sheets were approved by the general meeting. It was plainly· admitted by t~e A B c D E , c· TURNER MORRISON \1, HUNGERFORD (Hegde, }.) 723 witn~s examined on behalf of Turner Morrison that the amounts paid on bt:half of Hungerford were not ·considered as debts due from that l:Ompany till about the time of filing the suit. Jn the general meeting of Turner Morrison held on March 29, 1956, tne recornmenoation of the Board of Directors to transfer Rupees 46 lakhs from t)le genera! reserve to a special reserve for the purpose mentioned earlier was approved. Thereafter Turner Morrison paid .the tax due from Hungerford for the assessment year 1952-53_ and. debited the sarue to that special reserve. While Turner Morrison was keeping HungerfQrd infonned of the ~ ments made Qn it and the refunds ordered, at no time it made any demand' on Hungerford to reimburse the moneys paid. On several occasions Turner Morrison entered into agreements with the • President of India undertaking to discharge the tax liabilities of Hungerford upto an agreed maximuru. Turner Morrison was representing Hungerford in all the assessment proceedings. It aised to file appeals on behalf of Hungerford against the orders of the Income-t~ Officers. :It had received all the amounts ordered to be .refunded. lt was keeping Hungerford infonned of the various orders passed by the· Income-tax authoritieS: but yet_ without making any demand for the payment of tax paid by it The docii.ments produced in the case and the admissions made by the witnesses examined on·'behalf of Turner Morrison make it abundantly clear that the idea of claiming back the tax paid on -behal~ ()f Hungerford caine to be entertained by Turner Morrison only after Mundhra came to control that ~ompany. With this background let us now. consider whether Turner Morrison is estopped ·from making the claim in question. · · In suppart of its case Hungerford relies primarily on the doctrine of Promissory Estoppel. · This doctrine ha:s assumed importance in recent years· though it was dimly noticed in some of the earlier cases. The leading case on'the subject is Central London Property Trust Ltd. v. High Trees House Ltd. (1). The facts of that c~se are as follows· : · · ,Central London Prqperty Trust Ltd. let .to the High Trees House Ltd.~ a subsidiary of the former a block of flats for a term of 99 years from September 29, 1937 at a ground rent of £ 2500 a year. In the early part of 1940, owing to war conditions then prevailing only a few of the flats in the block were let to tenants and it became apparent that the High T~s House Ltd. would be unable to pay the rent reserved by the lease out of the rent of the. flats. Discussions took 'place between the Directors of the two companies and as a result on January 3, 1940r a letter was sent by the lessor to the lessee confinning that the ground rent. of the . \ (1) [1947] 1 K.B. 130. 724 SUPREME COURT REPORTS [ 1972] 3 S.C.R. pr~mises would be reduced from £ 2500 to £ 1250 ~from the A beginning of the tenn. The lessee thereafter paid the reduced rent By the beginning of 1945, all fiats were let but the lessee continued to pay only the reduced rent. In September 1945, the lessor wrote to the lessee demanding rent at the rate of ·£ 2500 per year. It also claimed at that rate for the quarters ending September 29 and December 25, 1945. The lessee repudiated B that claim. The question for decision was whether tho lessor was bound by the concession that it had agreed ·to show as the same ~as not Sl;lPPorted by any consideration. Answering that ques. tlon Denmng J. (as he then was) held that where parties enter into an agreement which is intended to create legal relations between tll.em apd .in pursuance of such arrangement one party c makes a promise to the other which he kt.1ows will be acted on and which is in fact acted on by the promise, the court will treat the promise as binding on the promisor to the extent that it will not atlow him to act inconsistently ·with it even allhough the promise may :aot be supported ~y consideratiol'l in the strict sense. Therein the court divided the claim made in the suit into two categories one for the period prior to the end of 1945 and the other for the D period thereafter. It disallowed the claim of the lessor in respect of the former and allowed the claim relating to the later period. -- The rule laid down in_High Trees case(!) again came up for consideration before the King's Ben.ch in Combe v. Combe(2). · ETherein the court ruled that the principle stated in High Trees' case( 1) is that, where one party has,, by his words or con· · duct, made to the other a promise or assurance which was intended to affect tho legal relations between them and to be acted on accordingly, then, once-the other party has taken him at his word and acted on it, the party who gave the prom.ise or assurance cannot afterwards be allowed to revert to the previous legal relation· F! ship as if no seuch:promise or assurance had been made by.him. but he must accept their legal relations sub;ec( to the qualification which he himself has so introduced, even though it is not sup· ported in point of law by any consideration, but only by his word . . But that principle does not creat~ any ~~ of action. ~ch did not exis~ before; so that, where a pronnse IS made which IS not -G supported by any consideration, the promises ·cannot bring an action on the basis of that promise. The principle enunciated in the High Trees' case( 1) was also recognised by the House. of Lords in Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric co. Ltd.(1). That principle was adopted br this Court in UniQn of India v. Indo Afghtm Agencies Ltd( ) . 'The facts of B that case, in brief, are as follows : . . (1) [1947)1 K.B: 130. (2) [19~1] 2!K.B. 215. (3) [195512 All B.R.. 657; (4) [1968]2.