MANICKAVASAGAM CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66(1) of the Indian Income-tax Act, and the point in issue between the department and the assessee is an regards the scope and applicability of section 16(1)(c) of the Act to the facts and circumstances of the case. The question that stands referred is :

(2.) THE assessee is an individual deriving income from salary, property, business and dividends as a shareholder in various limited companies. A public charitable trust called the Thiagarajar Educational Trust was constituted on April 29, 1956, by the assessee along with his brother, Sundaram Chettiar, and his father, Karumuthu Thiagaraja Chettiar. THEse founders of the trust were themselves to be trustees of the institution. At the inception they transferred the shares held by each of them in Saroja Mills Limited, Singanallur, Coimbatore District. Subsequently, the assessee transferred certain other block of shares held by him in Sundaram and Company Limited, Meenakshi Mills Limited, Manickavasagam (Private) Limited and Rajendra Mills Limited to the trust. We shall refer to the terms of the trust a little later. In the previous years relevant to the assessment years 1957-58 and 1958-59 the trustees aforesaid received dividends of Rs. 1,86,108 and Rs. 1,93,919 respectively from the transferred shares. THE net dividends when grossed up amounted to Rs. 2,52,350 and Rs. 2,78,222. A good portion of this dividend income of the trust was advanced as loan to three companies, Rukmani Mills Limited, Meenakshi Mills Limited and East India Corporation Limited, in which companies the trustees in their individual capacity and other members of their family held shares. THE details of their share position as regards these companies and the amount of loan advanced can conveniently be adverted to later.

(3.) PROVIDED that for the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor, disponer or transferor, or in any way gives the settlor, disponer or transferor a right to reassume power directly or indirectly over the income or assets :