COMMISSIONER OF INCOME TAX Vs. G D NAIDU INDUSTRIAL EDUCATIONAL TRUST

JUDGEMENT

(1.) On the 24th January, 1938, one G.D. Naidu, a gentleman largely interested in motor engineering and transport companies in the Coimbatore District, created the G. D. Naidu, Industrial Educational Trust and purported to endow it with the shares held by him in six transport companies of which he had the control and immovable property worth Rs. 1,10,000. Mr. Naidu constituted himself the managing trustee of the trust and gave himself full power to deal with its assets. This reference arises out of a claim made under Section 4(3)(i) of the Indian Income-tax Act by Mr. Naidu, as the managing trustee, for a refund of the tax paid in respect of dividends declared on the shares held in these transport companies. The Income-tax authorities refused to allow a refund. Their reason was that the shares were not held under trust wholly for charitable purposes within the meaning of the section. The managing trustee having asked the Commissioner of Income-tax to state a case to this Court under Section 66 (2) of the Income-tax Act, the Commissioner has referred this question:

(2.) The transport companies in which Mr. Naidu was interested had accumulated their profits from the date of their incorporation in 1932, but after the execution of the deed of the 24th January, 1938, they declared dividends amounting in the aggregate to Rs. 3,49,155 of which Rs. 2,75,340 represented the dividends on Mr. Naidu s shares. The Rs. 2,75,340 was not, however, paid over to the trustees. The money remained with the companies. All that the trust received were promissory notes of the face value of Rs. 2,75,340.

(3.) The objects of the trust may be stated shortly as follows: