TMI Blog1989 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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." In consequence of the resolutions the amounts were paid to the two trusts. On the same day, i.e., on December 28, 1973, the trustees of both the trusts passed resolutions that they should purchase ordinary shares from the assessee of the value of Rs. 86,220 by each of them. The shares were accordingly allotted to the two trusts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1974, to March 31, 1977, show that no income was derived by the trust for the first three years, viz., financial years 1973-74, 1974-75 and 1975-76, while for the year ending March, 1977, there was no expenditure in any of the four financial years 1973-74 to 1976-77. The position is more or less similar in respect of the other trust known as MTIPL Senior Officers Benefit Trust." On further appeal, the Tribunal examined the nature and the contribution made by the assessee to the trusts. Ultimately, it recorded a finding of fact that the amount paid by the assessee to the two trusts did not form part of the nucleus of the trusts. The Tribunal next examined the question whether in the light of the above findings, Atherton's case [1925] 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries include not only the employees but also their wives, dependent children and also dependent parents and sons' widows. The trust fund that was handed over to the trustees was Rs. 500 only. It is not clear whether the trustees were employees of the company or in any way connected with the company which was the settlor. But no remuneration has been provided for payment to the trustees. The objects of the trust as set out in clause (7) are, inter alia: (a) payment of tuition and other fees of the beneficiaries; (b) payment of the tuition and other fees charged by the nurseries, schools, colleges or any other institutions imparting any academic, cultural or vocational education or training; (c) payment of tuition fees charged by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is permissible. On behalf of the assessee, it has been contended that the two trusts were set up for the welfare of the employees of the company. The company has given money to these two trusts. The money will be utilised for the benefit of the employees of the company. There is no reason to disallow these expenditures as deduction from the income of the assessee in the relevant year of account. The facts of the case go to show that the assessee-company was what is known as a FERA company. It had to dilute its shareholding as a result of the amendment made in section 29 of the Foreign Exchange Regulation Act. The Tribunal has taken note of the fact that the decision to increase share capital in the hands of the Indian nationals was ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the company. There is also substance in the contention made before the Commissioner of Income-tax and also the Tribunal that nothing was really spent for charity. The charitable objects could not be fulfilled by allotment of the shares. The company provided money to the trustees only for the purpose of purchasing shares of the company. The facts of the case go to show that on December 24, 1973, the company decided to increase its share capital, allot the shares to certain specified parties including the two trusts and also decided to give monies to the trustees for purchasing the shares. On that very date, the trustees decided to invest these monies in the shares of the settlor company itself. The Tribunal overlooked this aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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