Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,73,440 was allowable as a deduction from the income of the assessee ?"
(2.) The assessment year involved is the year 1974-75 for which the relevant year of account is the year ending December 31, 1973. The facts as stated in the statement of the case by the Tribunal are as under : The assessee is a limited company carrying on business in machine tools and other allied products. On October 31, 1973, the board of directors of the assessee-company in their meeting decided to increase the subscribed capital of the company by a sum of Rs. 8,62,250 by issue of 51,735 ordinary shares of Rs. 10 each, in order to ensure that 60% of the increased subscribed capital would be in the hands of the Indian nationals. Evidently, this decision was taken to fulfil the aims and objects of the Foreign Exchange Regulation Bill which was on the anvil and later became an Act of Parliament. On October 31, 1973, i.e., on the same day, the board of directors passed a resolution to create two trusts--one for the benefit of senior employees, i.e., employees drawing monthly emoluments of Rs. 1,300 and over which is known as "MTIPL Senior Officers Benefit Trust", and the other for the benefit of employees drawing gross monthly emoluments less than Rs. 1,300 and this is known as "MTIPL Employees Benefit Trust". The resolution passed by the board of directors in this behalf is reproduced as under : "Resolved that a sum of Rs. 500 be and is hereby paid to Mr. K.N. Kapur, Mr. J.R. Bammi and Mr. J. Sanyal to hold, receive and take the same for ever upon the trusts and with and subject to the powers, provisions, agreements and declarations contained in the deed of trust relating to MTIPL Employees Benefit Trust to be entered into between the company of the one part and Mr. K.N. Kapur, Mr. J.B. Bammi and Mr. J. Sanyal, as trustees of the other part, a draft whereof is placed before the meeting and, for the purpose of identification, subscribed by the Chairman hereof."
(3.) The two trusts came into existence by two respective indentures dated December 17, 1973. Each of the trusts received Rs. 500 as the initial contribution made by the company in accordance with the resolutions already passed by the board of directors. On December 24, 1973, the directors decided to issue further shares in accordance with their earlier resolutions dated October 31, 1973. On the same day, the board of directors resolved that a sum of Rs. 86,220 should be paid as further contribution to each of the two trusts. The following resolution was passed : "Resolved that a sum of Rs. 86,220 be and is hereby paid to Mr. S.T.B. Daruwala, Mr. E.M. Poonevala and Mr. F.R. Kanga to hold, receive and take the same for ever as trustees upon trust and with and subject to the powers, provisions, agreements and declarations contained in the deed of trust dated the 20th day of December, 1973, relating to the MTIPL Senior Officers Benefit Trust.";