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Commissioner of Income-tax Vs. Trustees of H.E.H. the Nizam's Miscellaneous Trust (09.04.1980 - APHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCases Referred No. 126 of 1976
Judge
Reported in[1986]160ITR270(AP)
ActsIncome Tax Act, 1961 - Sections 160(1), 161 and 164(1)
AppellantCommissioner of Income-tax
RespondentTrustees of H.E.H. the Nizam's Miscellaneous Trust
Excerpt:
.....made to certain beneficiaries in lieu of supply of food as contemplated in clause 2 (1) (iv) of trust deed are liable to be assessed as income of trustees of respondent's trust - agreement entered into between beneficiaries and trustees providing for payment of monthly sum to each of beneficiaries in lieu of supplying food is well within contemplation of section 11 of indian trusts act - trustees in paying aforesaid amount to beneficiaries are only acting in accordance with mandatory duty cast upon them under clause (2) (1) (iv) of trust deed - neither beneficiaries who are named in trust deed are intermediate nor amounts payable to them uncertain - in such circumstances matter cannot be brought under section 164 (1) and must be dealt with under section 161 only. - motor vehicles.....p.a. choudary, j. 1. the late nizam created a miscellaneous trust by means of a registered trust deed dated august 6, 1950, for the benefit of his family and his dependants. large amounts of cash and securities specified in the ist schedule to the trust deed were settled upon the trust. the beneficiaries under the trust were mentioned in the several schedules to the trust deed. the portion of the trust deed which gives rise to this referential litigation is contained in clause 2(l)(iv) of the trust deed and it is, therefore, set out in full : 'so long as any one or more of the members of the family of the settlor and the dependants of the settlor whose names are mentioned in the fourth schedule hereunder written who are at present residing in nazri bagh, and eden garden and gough's.....
Judgment:

P.A. Choudary, J.

1. The late Nizam created a miscellaneous trust by means of a registered trust deed dated August 6, 1950, for the benefit of his family and his dependants. Large amounts of cash and securities specified in the Ist Schedule to the trust deed were settled upon the trust. The beneficiaries under the trust were mentioned in the several schedules to the trust deed. The portion of the trust deed which gives rise to this referential litigation is contained in clause 2(L)(iv) of the trust deed and it is, therefore, set out in full :

'So long as any one or more of the members of the family of the settlor and the dependants of the settlor whose names are mentioned in the Fourth Schedule hereunder written who are at present residing in Nazri Bagh, and Eden Garden and Gough's Bungalow continue to reside there during the continuance of this trust, the trustees shall set apart every year out of the income of the trust fund such sum as they deem fit not exceeding Rs. 1,50,000 (Rupees one lakh and fifty thousand) in any one year to maintain the palace kitchen with the necessary staff for the purpose of supplying the daily food as is being done at present to the members of the family of the settlor whose names have been particularly mentioned in the Fourth Schedule hereunder written PROVIDED that if any of the persons whose names are mentioned in the Fourth Schedule hereunder written shall for any reason other than their marriage cease to reside in the said Nazri Bagh and Eden Garden and Gough's Bungalow, it shall in the absolute discretion of the trustees, whose decision shall be final, to make to such person cash payment every month not exceeding a sum of Rs. 200 p.m. in any individual case or cases for the specific purpose of meeting the expenses of such person's daily food and for such period or periods as the trustees in their absolute discretion may deem fit.'

2. According to the directions of the settlor contained in the above clause, it is the duty of the trustees to set apart every year out of the income of the trust fund such sum as they deem fit but not exceeding Rs. 1.50 lakhs for the purpose of running a palace kitchen in order to supply daily food to the members of the settlor's family and his dependants, whose names have been mentioned in the Fourth Schedule to the trust deed, so long as those beneficiaries continue to live in Nazri Bagh or Eden Garden or Gough's Bungalow. In the cases of those beneficiaries mentioned in the Fourth Schedule who cease to live for any reason other than their marriage in the aforesaid bungalows, the trustees are empowered to make cash payments to such beneficiaries at a sum not exceeding Rs. 200 per month for the specific purpose of meeting expenses of such person's daily food. During the lifetime of the settlor, the palace kitchen was run and maintained by the trustees in the premises of the King Kothi palace and food was supplied to the beneficiaries in accordance with the aforesaid directions by the trustees. But, subsequent to the death of the settlor on February 24, 1967, the trustees had found it impracticable to run the palace kitchen. Out of the 71 beneficiaries mentioned in Schedule IV, five had pre-deceased the settlor. One of the beneficiaries died subsequent to the date of the settlor's death and 26 of the beneficiaries had ceased to reside in any one of the aforesaid three palaces for reasons other than marriage. In those circumstances, the trustees closed the palace kitchen and in order to meet the food needs of the beneficiaries, have been paying each one of them at the rate of Rs. 190 per month in accordance with an arrangement agreed to by the beneficiaries. Accordingly, the trustees had paid a total sum of Rs. 2,96,400 to the aforesaid beneficiaries for the two years, viz., April 1, 1967, to March 31, 1969. Similarly, for the accounting period ending March 31, 1970, the trustees have paid to the beneficiaries a total sum of Rs. 1,47,820.

3. The trustees have claimed before the Income-tax Officer that in computing the total income of the trust for the assessment years 1969-70 and 1970-71, the aforesaid sums of Rs. 2,96,400 and Rs. 1,47,820 should be deducted. The contention of the trustees is that the above amounts have been paid in accordance with the directions of the settlor as modified under section 11 of the Indian Trusts Act with the consent of the beneficiaries and that, therefore, those amounts cannot be treated as income of the trust liable to be assessed as such. But, these contentions of the trustees were rejected by the Income-tax Officer as well as by the Appellate Assistant Commissioner. The reasoning of the Appellate Assistant Commissioner was that there was no enforceable legal right inhering in the beneficiaries to the payment of Rs. 190 per month and that the provisions of section 11 of the Indian Trusts Act would operate only when there was an enforceable legal obligation on the trustees to make a payment to the beneficiaries. The Appellate Assistant Commissioner also reasoned that the interest of the beneficiaries is an undefined interest and that the share of each beneficiary is indeterminable and unknown and that, therefore, the beneficiaries could have no vested right to get income in any definite share from the income of the trust fund. In that view, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.

4. The trustees preferred an appeal to the Income-tax Appellate Tribunal, which had reversed the orders of the Income-tax Officer as well as of the Appellate Assistant Commissioner, holding that the meaning of the direction contained in clause 2(1)(iv) of the trust deed was to direct the trustees to provide for the food needs of the beneficiaries by running a kitchen and that direction had become impracticable to be carried out after the death of the settlor and it is, therefore, legal to modify the directions of the settlor with the consent of the beneficiaries as it has been done in this case. The finding of the Appellate Assistant Commissioner that the beneficiaries are unidentifiable and their shares are indeterminate was also set aside. The Income-tax Appellate Tribunal had, therefore, held that the aforesaid sums of Rs. 2,96,400 and Rs. 1,47,820 should be deleted from the assessments of the trustees for the years 1969-70 and 1970-71.

5. On the above facts, the Revenue applied for and obtained a reference on the following question of law for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the sums of Rs. 2,96,400 and Rs. 1,47,820 representing cash payments made to certain beneficiaries in lieu of supply of food as contemplated in clause 2(1)(iv) of the trust deed, are liable to be assessed as the income of the trustees of H.E.H. the Nizam's Miscellaneous Trust, Hyderabad, for the assessment years 1969-70 and 1970-71, respectively ?'

6. Although it is vehemently argued before us for the Revenue that the income that accrues to the trust is part of the total income of the trust and is, therefore, liable to be assessed as such, we find it difficult to agree with this submission. It is clear from Chapter XV of the Income-tax Act and more particularly section 160(1)(iv) of the Act that the trustees in this case shall be treated as representative assessees as they receive or are entitled to receive income from the trust executed by the late Nizam on behalf of or for the benefit of the beneficiaries mentioned in Schedule IV to the trust deed. Under section 161, sub-section (1), a representative assessee shall be liable for assessment in his own name in respect of that income in his representative capacity only and tax should be levied upon and recovered from the representative assessee to the same extent as it would be leviable upon and recoverable from the person represented by him.

7. The only question, therefore, which can be seriously argued is whether the beneficiaries have a legal right to compel the trustees to make the payments which the trustees are now making under the arrangement entered into with the beneficiaries. It is clear that the purpose of this part of the trust is to charge the trustees with a duty to provide food to the beneficiaries by running a palace kitchen. It may, therefore, be said that the paramount intention of the settlor is to see that his family members and his dependants are fed out of the income of the trust. Now, it is found as a fact that after the death of the settlor, it has become impracticable to run the palace kitchen. In those circumstances, it appears to us to be within the scope of section 11 of the Indian Trusts Act for the trustees to modify the directions of the settlor with the consent of the beneficiaries so that the paramount intention of the settlor which is to provide food to the beneficiaries may be carried out. Accordingly, the agreement entered into between the beneficiaries and the trustees providing for payment of monthly sum of Rs. 190 to each of the beneficiaries in lieu of supplying food is well within the contemplation of section 11 of the Indian Trusts Act. It follows therefrom that the trustees in paying the aforesaid amounts to the beneficiaries are only acting in accordance with a mandatory duty cast upon them under clause (2)(1)(iv) of the trust deed. Neither the beneficiaries who are named in the trust deed are indeterminate nor are the amounts payable to them uncertain. As the beneficiaries are known and the amount payable is also specified, this matter cannot be brought under section 164(1) of the Income-tax Act and must be dealt with under section 161 only.

8. We accordingly answer this question in favour of the assessee and against the Revenue. The Revenue shall pay the costs of the assessee. Advocate's fee Rs. 250.


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