P.A. Choudary, J.
1. Late Nizam of Hyderabad created a 'Family Pocket Money Trust' on December 29, 1950, for the benefit of his family members whose names had been mentioned in Sch. II of the trust deed. The corpus of the trust was Rs. 55,00,000 and it was divided into 550 equal units. The income corresponding to 23 equal units was directed to be utilised for meeting the administration charges of the trust. The income out of the balance of 527 units was directed to be divided among the members of the family mentioned in the trust during their lifetime to enable them to meet their pocket expenses.
2. The WTO held that the corpus relating to 23 units as per clause 4 of the trust deed should be treated as wealth liable to wealth-tax in the hands of the assessee-trustee under s. 21(4) of the W.T. Act (hereinafter referred to as 'the Act') overruling the claim of trustees that they were entitled to the statutory allowance of Rs. 1,50,000 under s. 5(1A) of the Act. On appeal by the assessee, the AAC allowed the assessee's claim for the deduction of Rs. 1,50,000 on the ground that s. 21(4) of the Act was not applicable at all as the trustees were not holding the corpus for the benefit of any person or persons.
3. In an appeal filed against that order of the AAC, the Income-tax Appellate Tribunal held that the matter was governed by s. 21(4) of the Act read with the second proviso to that section together with the Explanation. On that basis, the Income-tax Appellate Tribunal declared that the assessee was entitled to the statutory exemption of Rs. 1,50,000 under s. 5(1A) of the Act and the assessee should be taxed at the normal rate and not at the rate of 1 1/2 % which was adopted by the WTO.
4. Aggrieved by the order of the Income-tax Appellate Tribunal, the revenue filed an application to refer the following three questions of law for the opinion of this court:
'1. Whether, on the facts and in the circumstances of the case, the the assessee is eligible for exemption under section 21(4) read with section 5(1A) of the Wealth-tax Act
2. Whether the 'ladies of position' and 'khawases' are relatives contemplated under section 21(4) of the Wealth-tax Act
3. Whether the finding of the Appellate Tribunal that the trust is created exclusively for the benefit of relatives and that the 'ladies of position' and 'khawases' are relatives is devoid of material or basis and is rationally possible in the facts and circumstances ?'
5. As the Appellate Tribunal refused to refer these questions of law holding that they involve merely findings of fact, the revenue now files this application under s. 27(3) of the Act requesting this court to direct the Income-tax Appellate Tribunal, Hyderabad, to state a case and refer the above three questions of law for the opinion of this court.
6. Section 5 of the Act deals with exemptions in respect of certain assets. Section 5(1A) specifically limits the exemption to a total of Rs. 1,50,000 in respect of the assets specifically mentioned in that sub-section. Under the Explanation to s. 21(4) of the Act certain of the assets referred to therein should not be excluded in the computation of the net wealth in case the matter does not fall under the proviso to s. 21(4). In other words, in respect of the assessment of a trustee under s. 21(4), the ordinary benefits are allowable if the matter is covered by the second proviso to s. 21(4). The important question that has, therefore, to be considered is whether the case of the assessee is covered by the second proviso to s. 21(4). In this case, there is no doubt that the trust was created prior to March 1, 1970 by a non-testamentary instrument. Then the only condition for the applicability of the second proviso is that having regard to all the circumstances existing at the relevant time, the WTO should be satisfied that the trust was created bona fide exclusively for the benefit of the relatives of the settlor in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance. The trust deed executed by the late Nizam mention the names of the beneficiaries in Pt. III of Sch. II and describes them as 'ladies of position' who are the wives of the Nizam and some others as 'khawases', who are the mistresses of the Nizam. The question is whether at the time when the trust was being created, can these persons described as 'ladies of position' and also as 'khawases' be regarded as relatives or members mainly dependent on the Nizam for their support and maintenance The Appellate Tribunal in answering this question had taken into account the fact that the Nizam created a number of trusts of which the present trust deed is one. The name of the present trust is called 'H.E.H. the Nizam's Family Pocket Money Trust'. It was considered by the Appellate Tribunal to be of great significance as showing that the Nizam was treating these 'ladies of position' and 'khawases' as his relatives. Examining from that point of view, the Income-tax Appellate Tribunal found that the above beneficiaries fall within the category of 'relatives' in a wider context. The Income-tax Appellate Tribunal also found that taking into account the facts and circumstances relevant at the time of creation of the trust, the persons mentioned in Sch. II to the trust deed are not only relatives but also the dependants of the settlor for their support and maintenance. The Appellate Tribunal, therefore, ruled that the second proviso to s. 21(4) of the Act would fully apply to the facts of this case entitling the assessee to the benefits of the normal rates of taxation.
7. We are in entire agreement with the reasoning and the conclusion of the Income-tax Appellate Tribunal. The main question in this case is whether the conditions of the second proviso to s. 21(4) of the Act are satisfied or not. The Appellate Tribunal has found that all the conditions mentioned in the second proviso, namely, (a) the execution of a trust deed before the March 1, 1970, by a non-testamentary instrument, (b) bona fide for the benefit of the relatives of the settlor, (c) who are dependent on the settlor for their support and maintenance at the date of the execution of the trust deed, were fully satisfied. There is sufficient material on record to support these contentions of the Appellate Tribunal.
8. We, accordingly, reject this W.T.C. No. 1/79.