Alfred Henry Lionel Leach, C.J.
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:
Whether on a proper construction of the Instrument of Trust, dated 24th January, 1938, the properties in question were held under trust for charitable purposes within the meaning of Section 4(3)(i) of the Indian Income-tax Act.
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:
(1) To provide permanent facilities for the improvement of motor, electrical and other industries and transport in the country.
(2) To found an institution providing for research, education and training in this connection.
(3) To ensure the permanence and efficiency of the institution by placing at its disposal the workshops and the motor transport concerns in which the founder is interested.
4. If the assets which Mr. Naidu purported to set apart were to be devoted directly to such objects, no doubt the trust would be entitled to the refund claimed; but the deed clearly shows that the contemplated institution was not to be brought into being immediately and that the companies in which Mr. Naidu was interested were to have the benefit of these assets set apart by him. Clause 54 of the deed provides that so long as Mr. Naidu holds the office of managing trustee he shall have the power to borrow to any extent on the properties conveyed to the trust and that the board of trustees shall be able to borrow moneys which are necessary to discharge debts contracted by Mr. Naidu. The power given to him is not limited to borrowing for the purpose of the trust. Apparently he can borrow moneys for his own purposes on the security of the assets set apart by him. By Clause 55 the trustees are empowered, so long as Mr. Naidu holds the office of managing trustee, to sell immovable properties belonging to the trust 'in expanding or floating industrial institutions,' in other words for the purpose of floating other companies. Clause 59 provides that the trustees may advance to the companies in which Mr. Naidu is interested moneys for (a) discharging their liabilities, (b) purchasing and substituting diesel or other more economical engines for the petrol engines on buses run by them, and (c) constructing passenger sheds and garages and other 'amenities and facilities' for the use of the transport services 'wherever the trust is interested'.
5. Clause 60 deals with the foundation of the proposed institution. It reads as follows:
That the Trustees shall as early as they consider it expedient utilise the Trust for the purpose of starting an institute for industrial and scientific research and training, with a factory attached thereto, for the manufacture of all or any types of automobiles, electrical plants, mills and other machinery and all accessories and equipment therefor, or other goods approved by the Board of Trustees from time to time for providing training to deserving persons irrespective of sex, caste, creed or colour in such scientific research experimental work, and manufacture or industries.
6. The foundation of the institution was apparently to be left over until the companies had made sufficient money for the purpose. By Clause 71 Mr. Naidu reserves to himself the power to revoke the trust at any time.
7. In view of the provisions of the deed by which the assets can be utilised for Mr. Naidu's own purposes or the purposes of his companies, it is impossible for him to contend with reason that the deed creates a trust wholly for charitable purposes. The idea that some day the institution contemplated by the deed may be founded is not sufficient compliance with the section.
8. It is said that in 1939 Mr. Naidu made considerable alterations in the trust deed and that these alterations remove the objections now referred to. Whether the deed as it now stands creates a trust which is entitled to the benefits of Section 4(3)(i) is a question with which the Court is not concerned. It is concerned only with the question whether a trust was created wholly for charitable purposes in the year of account, 1937-38 and it is obvious that this was not the case. The Commissioner of Income-tax has correctly appreciated the situation and the question referred will be answered in accordance with the opinion expressed by him.
9. The Commissioner is entitled to his costs which we fix at Rs. 250.