Trustees' shareholding can create director control where trust powers and voting rights give overriding authority over company management.

Trustees' shares can confer controlling interest on a director where the trust arrangement gives him overriding management power and the trustees are bound to act on his directions. The Bombay HC rejected the argument that only a beneficial interest could satisfy section 2(21)(a) of the Excess Profits Tax Act, holding that the trustee's interest was sufficient on the facts. The trust deed and articles of association showed that the director could direct the trustees and vote as he pleased when present, so the majority vote of trustees could not displace his authority; the company was therefore treated as director-controlled.

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Issues: Whether shares held jointly by a director with other persons as trustees could be treated as giving the director a controlling interest so as to make the company a director-controlled company under section 2(21)(a) of the Excess Profits Tax Act.

Analysis: The contention that only a beneficial interest could satisfy the statutory requirement was rejected. The trustee's interest was held sufficient, and the surrounding trust deed showed that Nanji Kalidas had overriding power in the management of the trust and that the trustees were bound to act as directed by him. The articles of association also gave him a right to vote as he pleased when present at a meeting. On these facts, the vote of the majority of trustees could not displace his authority.

Conclusion: The company was rightly held to be a director-controlled company within section 2(21)(a) of the Excess Profits Tax Act.

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