Madhava Rao, J.
Referred Case No. 59 of 1976 :
1. The Income-tax Appellate Tribunal at the request of the Commissioner referred the following two questions for decision :
'1. Whether, on the facts and in the circumstances of the case, a valid trust was created by the Nizam in June, 1961, in respect of shares of the face value of Rs. 23,50,000?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the trust fund formed in June, 1961, was part of the trust formed earlier on August 12, 1957 ?'
Referred Case No. 63 of 1978 :
2. The question referred in this is:
'Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the assessee was not the owner of the shares of the face value of Rs. 23,50,000 in four limited companies for inclusion in his net wealth for the assessment years 1962-63 and 1963-64
3. Referred Case No. 59 of 1976 relates to the assessment of the trustees of H.E.H. the Nizam's Dependants and Khanazads Trust, for the assessment years 1965-66 to 1971-72, Referred case No. 63 of 1978 is in respect of the assessment years 1962-63 and 1963-64 for the wealth of the Nizam Nawab Mir Barkat Ali Khan Bahadur, L/R of Mir Sir Osman Ali Khan Bahadur. The 1st question in Referred Case No. 59 of 1976 and the question referred in Referred Case No. 63 of 1978 relate to the amount of Rs. 23,50,000 and the point involved is whether a valid trust is created by the Nizam in the month of June, 1961, for this amount, and if no such valid trust is created whether this amount has to be included in the wealth of the Nizam. In the statement of the case sent in Referred Case No. 63 of 1978, the Income-tax Appellate Tribunal stated that the statement of case in Referred Case No. 59 of 1976 be treated as the statement in the present reference also.
4. Sri P. Rama Rao, the learned council for the Revenue mainly raised the following points :
1. The applications before the companies to transfer the shares of the value of Rs. 23.5 lakhs in the name of the trustees were not made in any known form of law and, therefore, there were no valid transfers in the name of the trustees.
2. No trustees were appointed by the settlor.
3. There was no acceptance by the trustees of the trust fund.
4. Even the beneficiaries to the trust fund were not specified by the settlor.
5. The ultimate vesting of the corpus has not been indicated by the settlor.
5. Thus, the contention of the learned counsel for the Revenue is that the provisions of Sections 5 and 6 of the Indian Trusts Act are not satisfied and, therefore, no valid trust is created. It was also contended that even if there is a trust formed in June, 1961, it was not a part of the trust formed on August 12, 1957; The learned counsel for the respondent, Sri Y.V. Anjaneyulu, on the other hand, submitted that all the ingredients contemplated by Sections 5 and 6 of the Indian Trusts Act, which go to constitute a valid trust, have been complied with in the present case, and the facts and circumstances clearly go to show that the trust created in 1961 is a part of the trust formed in 1957.
6. To appreciate the above contentions it is necessary to note the relevant facts. The late Nizam, Mir Sir Osman Ali Khan Bahadur executed a trust deed on August 12, 1957, by transferring the shares of the face value of Rs. 85,01,650 for the benefit of the dependants and khanazads. This is known as (H.E.H. The Nizam's) Dependants and Khanazads Trust. Subsequently, the solicitors opined that the trustdeed dated August 12, 1957, was null and void as it was formed with the corpus which was already the property of the khanazads and also with the amounts that were already gifted to the dependants by the Nizam. Therefore, the trustees by a resolution dated March 14, 1959, decided to close the trust account with the Central Bank of India and place it at the disposal of the Financial Adviser of the Nizam. Accordingly, the original account with the bank was closed and a new account, 'account of Nizam's Khanazads' was opened. As the Nizam created the trust, the ITO initiated gift-tax proceedings against the settlor. The settlor contended that there was no gift on the date when the trust deed was executed as the gifts of these amounts had already been made to the dependants and khanazads prior to the execution of the deed. The GTO rejected this claim which was upheld in appeal. The settlor approached the Central Board of Direct Taxes. Some time in October, 1966, the settlor accepted that there was no valid and proper gift prior to the execution of the trust deed dated August 12, 1957, and, therefore, accepted the correctness of the gift. The late Nizam then wrote a letter to the Central Bank of India stating that the accounts that were maintained by the Financial Adviser on behalf of the members of the family of khanazads and dependants be closed and the balance be transferred to a new account in the name of Khan Bahadur C.B. Taraporevala, who in addition to being the Financial Adviser was also the secretary of the Trust. The settlor had an intention of creating another trust for the benefit of some of the khanazads that were left out at the time of creation of the earlier trust dated August 12, 1957. This trust was to be formed by June 12, 1961. The resolution passed by the trustees on March 14, 1959, also mentions about the intention of late Nizam with regard to creating this trust. Shares of the face value of Rs. 23.5 lakhs were transferred by June, 1961, and that amount formed part and parcel of the trust created on August 12, 1957.
7. The ITO took the view that there was no transfer of ownership of funds in 1961. There was no trust deed as the late Nizam had nowhere listed out the beneficiaries. The Nizam when he handed over the shares to the Central Bank in 1966, had not intimated the trustees that he was settling a further amount or that it should be used for other beneficiaries and as such there was no certainty about the creation of the trust or of the trust property or of the beneficiaries. Even in the return filed on March 31, 1969, for the assessment year 1965-66, the assessee did not include the income and expenditure of the trust and the payments to the beneficiaries were irregular and only nominal amounts were paid until the death of the settlor. The shares were not transferred in 1961, in favour of the trustees. The ITO further pointed out that Rs. 23.5 lakhs comprised of the following items :
1.6,000 Preference shares of Andhra Oil and Cake ProductsRs. 6,00,0002.8,750 Ordinary shares of Kaveri EngineersRs. 8,75,0003.4,750 Ordinary shares of Sri Desai Bros. Ltd.Rs. 4,75,0004.4,000 Ordinary shares of International InstrumentsRs. 4,00,000
8. By March, 31, 1961, the settlor had only 2,250 shares in Kaveri Engineers and the paid up value of these shares as on that date was only Rs. 75 each. The settlor had acquired 4,000 shares during 1961-62, and even as on March 31, 1962, the face value of his shares in Kaveri Engineers was Rs. 6,25,000 as against shares worth Rs. 8,75,000 said to have been transferred in June, 1961 itself. The settlor might have had an intention of creating the trust, but it had not been made very clear. A few beneficiaries' names had been written, but he was paying them out of his own pocket and the settlor's intentions were not clear from the material on record. The accounts of this trust were made at a stretch only after the death of the settlor. The beneficiaries of this trust had to be paid annually Rs. 2,14,000 from the accounting year 1962-63 onwards. But they received only some meagre amounts. It was also pointed out that the beneficiaries had to be paid Rs. 2,14,000 per year under this trust, but the annual income of the trust was less than a lakh of rupees and in such circumstances if the parol trust (trust created in June, 1961), and the trust created on August 12, 1957, are to be treated as one and the payments on account of the parol trust had to be made to the detriment of the interest of the beneficiaries of the original trust dated August 12, 1957. The ITO, accordingly, held that the corpus of Rs. 23.5 lakhs and the income therefrom should be excluded from the wealth-tax and income-tax assessments of the trust for the assessment year 1965-66, and shall be considered in the personal assessment of the owner, i.e., the Nizam. The ITO followed the said order for the subsequent years 1966-67 to 1971-72. The AAC held that the parol trust is not a valid one and agreed with the findings of the ITO. On the assessee's appeals, the Appellate Tribunal passed one common order on March 31, 1975. It held that the order dated August 23, 1974, passed in Wealth-tax Appeals Nos. 64, 65 and 66 of 1972/73, etc., holding that a valid trust was created by the late Nizam to the extent of Rs. 23,50,000 and this trust formed part of the original trust dated August 12, 1957, would hold good in this appeal also. The Appellate Tribunal observed that the Nizam wanted to treat the amount pertaining to the two trusts as forming part of a single trust so that all the beneficiaries will be getting the amounts mentioned in the lists without any detrimentto the parties. Thus, the Appellate Tribunal held that there was a valid trust created by the Nizam in respect of Rs. 23,50,000 and that trust formed part of the original trust dated August 12, 1957, and that while assessing the trustees the entire income be taken into account and the assessments should be made accordingly.
9. The points raised by the learned counsel for the Revenue are with regard to the validity of the trust. Sections 5 and 6 of the Indian Trusts Act, 1882, which deal with the creation of a valid trust, read as under ..
'5. Trust of immovable property.--No trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee.
Trust of movable property.--No trust in relation to movable property is valid unless declared as aforesaid, or unless the ownership of the property is transferred to the trustee.
These rules do not apply where they would operate so as to effectuate a fraud.
6. Creation of trust.--Subject to the provisions of Section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts (a) an intention on his part to create thereby a trust, (b) the purpose of the trust (c) the beneficiary, and (d) the trust property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee.'
10. We have to examine now whether Rs. 23,50,000 was transferred by the late Nizam in favour of the trustees, validly. It is not in dispute that the said amount was earmarked by the late Nizam to create a trust. After this amount was earmarked which was the face Value of the shares, the shares were validly transferred. It can be noted that the Nizam already created a trust on August 12, 1957, for about Rs. 85 lakhs for the benefit of dependants and khanazads. When it was discovered that the trust was null and void, a resolution was passed on March 14, 1959. Para. 2 of the resolution reads as under :
'The Secretary stated that after the creation of this trust on August 12, 1957, H.E.H. wanted to make another trust for the remaining khanazads. In the course of the discussion with the Solicitors, Messrs. Mulla and Mulla, Craigie, Blunt & Caroe, Bombay, it was disclosed 'that the entire corpus of this trust comprised of the accumulated balance which had already been given as gifts by His Exalted Highness to the various dependents and khanazads and which has since formed the corpus of the trust. The solicitors were, therefore, of the opinion that the trust executed on August 12, 1957, was null and void, as it was formed with the corpus which was already the property of the khanazads and H.E.H. had nolegal right to take back what had previously been given away as gift to the khanazads.
Resolved that, in view of the opinion of the solicitors, the trust executed on August 12, 1957, be declared null and void and cancelled forthwith, that the Trust Account with the Central Bank of India Ltd., Hyderabad, be closed immediately and the entire balance in the account and the corpus of the trust be placed at the disposal of the Financial Adviser to H.E.H. the Nizam of Hyderabad, for being credited to the respective accounts of the khanazads in proportion to the amounts given to them as gifts by H.E.H. before the creation of the trust.
The meeting terminated with a vote of thanks to His EXALTED hiGHNESS the Nizam of HYDERABAD.'
11. From the facts stated in the resolution, it is clear that H.E.H., the Nizam, wanted to create another trust for the remaining khanazads whose names had not been entered in Parts I and II of the Schedule annexed to the deed of trust dated August 12, 1957. The Second Schedule contained these two parts. Part I contained the names of the dependents of His Exalted Highness. Part II contained the statement showing the names of khanazads and the allowances payable to them. As stated earlier, it is evident from the resolution dated March 14, 1959, that H.E.H. the Nizam, wanted to make another trust for the remaining khanazads after the creation of the trust on August 12, 1957. By the note dated April 8, 1959, H.E.H. the Nizam, informed Taraporevala that in the past when Dulhan Pasha was alive and residing in the house which was adjacent to Eden Bagh, then a few boys of the Golconda Infantry were doing service to her by turns. Those boys were minors. It is for this reason that after her death they were included, as a reward for their service among the khanazadan of the Nazri Bagh and are therefore being supported. These boys were 6 or 7 in number amongst whom one Habeeb Ali by name was also includetl! But what happened was that this boy, who was 18 or 19 years old, ran away on February 10, 1959, from there without the knowledge of H.E.H. the Nizam, and without informing anybody. It is not relevant for us to state the other facts. What is relevant is that H.E.H. the Nizam was of the view that this boy was not included in No. 2 trust created on August 12, 1957. (It may be made clear that the trust deed dated August 12, 1957, contained two parts. The 1st part contained the list of names of dependants and the 2nd part contained the names of khanazads and the allowances payable to them. These are called for the sake of convenience as 1st and 2nd trusts respectively). Therefore, H.E.H. the Nizam, thought it proper to write the note in order to keep it on record of the trust office for future reference, if need be, since the trust created in June, 1961 (Trust No. 3) was going to be completed in the near future for the remainingkhanazads and in that trust those boys would bo included among the beneficiaries so that they might not be left out without being provided for. The note was signed by the H.E.H. the Nizam himself. A list of the names of the persons, who served Dulhan Pasha and were provided with Rs. 100 per head, was given. Their names are (1) Rahmat Ali, (2) Khadir Ali, (3) Yousuf Ali, (4) Riasat Ali, (5) Shareef Ali, and (6) Saghi Ali (Nazil Ali) (vide paper Book No. 3, page 265). There is another list of the names of eleven khanazads whose maintenance allowance (along with their wives) of Rs. 100 each is to be provided in 'the Declaration of the Trust' which is to be completed in the near future. No date was mentioned. There is also another list containing 13 names along with the names of their wives who have to be provided in trust No. 3. On May 27, 1961, a note was sent to Taraporevala enquiring about the amount of corpus of trust of 1957 which reads as under :
'Thus, I wish to know from Taraporevala, how much is the amount of corpus of trust including interest which has so far been invested. And the amount of allowance for each couple, i.e., husband and wife Rs. 300, for some girls who are proposed chosen for the young son of Laila Begum (including Poujice Begum with the young child Sadat Jah Rs. 300), Likewise, the niece of Ali Pasha, whose name is Quames and who is proposed for Baquer Ali Khan (This three hundred rupees will be her own amount). Whether all these people could come within the annual income of the trust or not. After knowing this, I will increase or decrease the amount. Because, the date for completing the trust deed is fixed.
Therefore, the above arrangement is to be completed. Apart from this Tarapore is going to Bombay in the near future.
Report : Tomorrow I will discuss this issue with Taraporevala.'
12. There is another list of 20 names of khanazads, residents of Bada Dava Khan. It is stated that 'this batch of 20 names (including their wives, viz., couples) is to be included in trust No. 3 put up their list at 4 O'clock.' These are also provided with Rs. 100 per head. Thereafter, the securities of the face value of Rs. 23,50,000 were deposited in the Central Bank in the same account already opened under the name and style 'account Nizam's khazanads' in pursuance of the resolution dated March 14, 1959. It is evident from the statement of facts that after the resolution, the original account in the bank was closed and a new account was opened. Thus, it is also evident that the lists of names of the persons who are to be provided out of the trust fund were given. It becomes clear that a deposit of Rs. 23,50,000 was made as the Nizam wanted to increase the amount of the corpus. It is also clear that the deposit of Rs. 23,50,000 was made specifically for the purpose of implementing the intention declared by H.E.H. the Nizam to create what he called trust No. 3 for the benefit of the remaining khanazads.
13. The learned counsel for the Revenue submitted that the transfer was not validly made in favour of the trustees. We have already noted that the trust was declared as void on account of the information given by the solicitors and it was, therefore, decided that the amount should be credited to the account of khanazads in proportion to the amount given to them for all practical purposes.
14. It is stated by Sri Anjaneyulu, the learned counsel for the assessee, that instead of opening separate account for each of the khanazads as resolved, the entire corpus was kept in tact. The list of the dependants and khanazads was maintained and as per the monthly allowance provided in the lists they were being paid out of the income of the trust fund.
15. The Financial Adviser to the Nizam was entrusted with the corpus for its disposal according to the wishes of the settlor. Now this amount of Rs. 23,50,000 is also transferred to that account. The contention is that no known form of law was adopted to transfer to the account of Nizam's khanazads.
16. We will now examine that aspect. The correspondence that took place between the Central Bank of India and Khan Bahadur C. B. Taraporevala is filed before us which is in Book No. 4, with a memo, of clarification filed by the appellant before the Income-tax Appellate Tribunal, Hyderabad, A-Bench. This has been dealt with by the Income-tax Appellate Tribunal in para. 50 of its judgment. The view taken by it is as under :
'He has mentioned in the notes written in his own hand which we have referred to earlier, the particulars of the remaining khanazads who were to be provided for in the new trust and the amounts to be paid to each beneficiary. In June, 1961, shares of the face value of (Rs. 23,50,000) 23.5 lakhs, in respect of four limited companies some of which were public, were deposited in the Central Bank of India in the account already opened under the name and style 'account Nizam's khanazads '. We have not been furnished the actual letter addressed to the bank under which the shares were deposited, but the correspondence subsequent thereto clearly establishes the above fact. In respect of 4,000 equity shares of International Instrument P. Ltd., the position was that they originally stood in the name of Central Bank of India. Pursuant to instructions given to the bank to hold them after the creation of the trust in the name of the Financial Adviser to the Nizam--Account-Nizam's khanazads--the bank returned the previous safe custody receipt in respect of the shares and required the Financial Adviser to return the same to the bank so that it could issue a fresh safe custody receipt in the name of Financial Adviser to H.E.H. the Nizam of Hyderabad--Account-Nizam's khanazads. TheFinancial Adviser wrote to the bank on September 30, 1961, returning the receipt Nos. 61532 and 61552 in respect of the said shares and the bank replied in its letter dated October 4, 1961, forwarding the safe custody receipt in respect of the shares held in the name of the Financial Adviser. This correspondence has been produced before us. In the case of Andhra Oil & Cake Products Ltd., it appears that though the subscription money was paid to the company as far back as 1961, there was delay in the issue of share scrips. The bank, however, appears to have been informed of the transfer of the shares to the trust and was requested to deposit the shares in the name of the Financial Adviser to the Nizam in the account 'Nizam's khanazads' as in the case of other shares. The bank wrote on February 18, 1963, to Sri C.B. Taraporevala requesting him to furnish the address of the company so that the bank could write to it and have the shares delivered. The shares were taken delivery of by the bank and a safe custody receipt was sent to Sri Taraporevala by the bank through its letter dated April 15, 1963. The same was the position in respect of the equity shares of Kaveri Engineers Ltd.
After some delay on account of the issue of share scrips by the company, the shares were taken delivery of by the bank and a safe custody deposit receipt was sent to Sri Taraporevala on February 21, 1963: In the case of Sardesai Brothers Pvt. Ltd. also, the position was the same as in the case of the shares of the other two companies and the bank sent safe custody receipt in respect of the shares to Sri Taraporevala on July 13, 1962.'
17. After going through the entire correspondence the Appellate Tribunal held :
'There cannot be any doubt from this correspondence that the bank was aware in 1961 itself that the shares in question were to be held by itin safe custody and the dividends realised from those shares were thereafter being credited to the 'Account-Nizam's khanazads'.'
18. After going through the entire correspondence we are of the opinion that the transfer of the securities of the face value of Rs. 23,50,000 was in the year 1961 itself.
19. In Book No. 4, page No. 17, shows that the equity shares of the company of Kaveri Engineers Limited were issued and that they were received by the Financial Adviser to H.E.H., the Nizam.
20. When the Appellate Tribunal has gone through the entire correspondence and was satisfied that there was transfer of asset of Rs. 23.5 lakhs in the shape of securities of four companies, it is not necessary for us to go into the matter again.
21. The learned counsel for the assessee also, rightly in our view, submitted that when the Appellate Tribunal has accepted, after going through theentire correspondence that the asset is transferred, the method and manner of transfer becomes immaterial as the asset is completely transferred to the account of Nizam khanazads.
22. We have gone through the correspondence placed before us and the correspondence shows that the transfer of the shares was validly effected.
23. The second point urged by the learned counsel for the Revenue is that there were no trustees. We have already noted that the amount of Rs. 23.5 lakhs was deposited in the account of 'Nizam's khanazads'. 'Nizam's khanazads' account was created when it was opined that the trust created on August 12, 1957, was invalid. But, subsequently it was found that it was a valid trust and that the amount of about Rs. 85 lakhs was gifted by the late Nizam on August 12, 1957. It is already noted that Rs. 23.5 lakhs is already deposited in 1961, in the account of Nizam's khanazad's for which the trust deed was executed on August 12, 1957. It is not in dispute that the trust deed dated August 12, 1957, provides for the appointment of trustees and in that trust deed, the Nizam along with Nawab Zain Yar Jung Bahadur and Shavaz Ardeshir Lal of Bombay were the trustees. That apart, there are other clauses in respect of the trustees. As it has a bearing with regard to the trust created for Rs. 23.5 lakhs, we will note the relevant provisions in the trust deed on this aspect. Clauses 18 of the Trust deed provided that in the event of any one of the trustees becoming unfit or incapable to act or being adjudged an insolvent or for any other reasons mentioned therein, it shall be lawful for the settlor as long as he acts as the trustee and, thereafter, for the surviving or continuing trustees or trustee to appoint any other person or persons to be trustee or trustees in the place of such trustee or trustees. It is also made clear that there shall at no time be less than two or more than five trustees. It is further provided that so long as the settlor continues to be the trustee, he shall always be the President of the Board of Trustees and upon his ceasing to be trustee for any reason whatsoever Prince Mukarram Jah Bahadur shall, if he succeeds the settlor as the Nizam of Hyderabad and as the head of the family of the settlor, be and become the President of the Board of Trustees and shall for such purpose be appointed a trustee thereof in place of and stead of the settlor. The other relevant clause is Clause 24, which provides that it is lawful for the trustees to appoint any person to act as the Secretary of the Trust upon such terms as they may from time to time think fit and also to appoint and employ any person or persons to look after the trust fund and keep the same in good order and condition or otherwise in connection with the administration of the trust at such remuneration and on such terms as the trustees may from time to time think fit.
24. Now, the point for consideration is, whether there were any trustees for the trust created in June, 1961. To examine this point, it is necessary to keep the special facts arising in this case in view. Even though the trust was created and registered by the Nizam on August 12, 1957, it was treated as invalid, vide resolution dated March 14, 1959. The account with the Central Bank of India at Hyderabad, was resolved to be closed and the entire balance in the account and the corpus of that trust placed at the disposal of the Financial Adviser to the Nizam for being credited to the respective accounts of the khanazads in proportion to the amounts given to them as gifts by the Nizam before the creation of the trust. This resolution was passed by all the three trustees and was implemented by opening a new account and crediting the entire balance and the corpus of the trust in that account and Taraporevala was to operate the account. This position arose on account of the fact that the trust created on August 12, 1957, was treated as null and void. Even though the trust was treated as null and void for all practical purposes it was treated as a gift given to the khanazads. A new account was opened and Taraporevala was authorised to operate the same. In the very same account Rs. 23.5 lakhs was also credited. The various notes sent by the Nizam giving the list of names is already noted by us. The letter dated May 27, 1961, was also referred in which the Nizam wanted to know from Taraporevala the amount of the corpus of the trust including the interest which had so far been invested. Late Nizam wanted to find out whether all the beneficiaries who were to be provided with the monthly allowances could be provided out of the income of the trust. After knowing that position he wanted to increase or decrease the amount because he had already fixed the date by which time the trust is to be completed. This letter clearly indicates the intention of the settlor that he wanted to provide for the remaining khanazads and for that he wanted to add certain amounts to the corpus, if necessary. This reflects the intention of the settlor to enlarge the corpus of the original trust so as to provide for the remaining khanazads. As a consequence of this arrangement the persons who were the trustees for the trust dated August 12, 1957, would continue to be the trustees for the subsequent trust created in June, 1961.
25. As on May, 1961, the settlor being himself a trustee wanted to know the income of the trust so that, if necessary, he could add some more amount to the already existing corpus of the original trust for the benefit of the remaining khanazads. When the settlor was the trustee for the original trust and when further amounts are added to the original corpus it is reasonable to construe that the same settlor continues to be the trustee for the added corpus also.
26. The letter further indicates that the settlor was treating the original corpus as well as the corpus to be added later on for the benefit of the remaining khanazads as a single trust. Therefore, the trustees for the earlier trust would continue to be the trustees for the later trust created in June, 1961. After the Prince Mukaram Jah was recognised by the Government of India as the successor to Nizam, the late Nizam issued a letter dated August 25, 1966, to the Central Bank of India, which is as under:
'The Central Bank of India Ltd., Hyderabad, A.P. Dear Sirs,
Ref: Current Account with your bank,
I have to state that my grandson Prince Mukaram Jah has been recognised by the Govt. of India as my successor as the Nizam of Hyderabad. As such, after my lifetime, he will become the owner of the monies standing to the credit of only my personal accounts with your bank No. 670/56, for which separate instructions are being given by me.
In addition to the above account, my Financial Adviser has also opened from time to time, under my instructions, the following accounts, on account of the Members of my family, my khanazads and other dependants.
The monies standing to the credit of these respective accounts belong to the respective persons for whose benefits they have been opened and are being operated upon. I have no personal interest in any of these monies.
For the sake of convenience and for the continuity of my accounts after my lifetime and to avoid any complications in future, I have decided that the present accounts should be closed and the balance transferred to the new accounts now opened in the name of Khan Bahadur C.B. Tara-porevala, who in addition to being my Financial Adviser, is also the Secretary to all my Trusts.
Name of the present account Account now to be styled
1.* * * *2.Khan Bahadur C. B. Taraporevala, Financial Adviser to H.E.H. the Nizam of Hyderabad and Berar.
A/c. Nizam's khanazads.2. Khan Bahadur C. B. Taraporevala, A/c, Nizam's khanazads. Designation : Secretary, H.E.H. the Nizam's Trust.'
27. The above letter was signed by the late Nizam. This letter clearly states that the late Nizam had no personal interest in the monies transferred for creating various trusts including the present one and that the late Nizam was acting as the trustee for the said trusts and Taraporevalawas the Secretary of the trusts. This letter was followed by another letter dated October 24, 1966, written by Taraporevala seeking the closure of the present account and opening a new account, to which he would be the Secretary, H.E.H. the Nizam's Trusts.
28. The letter issued by the late Nizam makes it crystal clear that he had not treated the account as his personal account and that it was meant to be operated by Sri Taraporevala for the benefit of the khanazads. To put it in other words, the late Nizam himself constituted as a trustee for the said trust during that period and under the powers conferred by the trust deed dated August 12, 1957, appointed Taraporevala as Secretary of the Trust.
29. The learned counsel for the Revenue on the basis of this letter dated August 25, 1966, contended that for the first time in this letter the Nizam indicated that he has no personal interest in any of these monies and therefore, if any trust is created it takes effect only from August 25, 1966, and not earlier, since up till August 25, 1966, it must be deemed that it was the personal asset of the late Nizam. In this connection, the learned counsel for the Revenue submitted that the Nizam was the owner of the entire corpus and did not make the payments from out of the trust fund to the beneficiaries under the trust of June, 1961. He pointed out that no amounts were paid as on March 31, 1962, to any beneficiary, that as on March 31, 1963, Rs. 1,425; as on March 3i, 1964, Rs. 8,456; as on March 31, 1965, Rs. 34,100; as on March 31, 1966, Rs. 70,164; as on March 31, 1967, Rs. 1,67,193; and as on March 31, 1968, Rs. 1,97,956 were paid. The Nizam died in the month of February, 1967. The payments to the beneficiaries before his death were nominal and it is only after his death that substantial payments were made as shown above. It is also pointed out by the learned counsel for the Revenue that various amounts were paid towards the educational expenses, salaries to servants, nurses of khanazads, etc. Besides the above one finds that on March 31, 1967, 142 khanazads were for the first time paid after the death of the Nizam. Keeping these various items in view, it was contended that the Nizam never created the trust of this amount nor acted as a trustee. The learned counsel for the assessee, on the other hand, pointed out that as per Clause (c) of para. 3, the income out of the trust could be utilised not only for payment of allowances, but also for the maintenance of educational and other benefits of such beneficiaries and when it comes to the knowledge of the trustees that any beneficiary had incurred any debts and if the trustees in their absolute discretion consider it desirable in the interests of such beneficiary that the amount should be paid back, they can make diversion of the allowance towards that debt. Hence, the allowances paid to the beneficiaries do not in their entirety govern the situation and that this cannot be looked at in isolation. The entire circumstances are to be kept in viewto find out whether the asset is transferred and whether the late Nizam has acted as a trustee.
30. The other contention raised by the learned counsel for the Revenue that there was no acceptance by the trustees is also devoid of any force for the reason that all the securities were transferred to the account of 'Nizam's khanazads'. Assuming that the trustees appointed for the original trust cannot be deemed to be the trustees for the trust created in June, 1961, the settlor himself, in the instant case, happened to act as a trustee and the corpus was also transferred to the account of the 'Nizam's khanazads' and thus the settlor divested himself of the funds. The position of law also supports that the settlor could constitute himself as a trustee for the trust. The learned counsel for the assessee has referred to Underhill's Law of Trusts and Trustees, 12th edn., at p. 53, wherein the law on this aspect is stated thus :
'The would-be donor can be bound only in one of two ways. He is bound, at common law, if he has made a gift to the object of his bounty, or to a trustee for that object, or has covenanted under seal either with that object, or with a trustee for that object, to do something for breach of which a common law court will give damages ; and in either case equity will enforce the trust against the trustee, and if the trustee refuses to enforce his legal rights against the donor the court will authorise the beneficiary to use his name. A donor is also bound in equity if he has declared himself a trustee for the object; for equity regards a declaration of trust as the equitable equivalent of a common law of gift.'
31. It is further stated thus :
'On the other hand, if a trust has been once declared and the interest of the settlor in the trust property vested in the trustee (or, in technical language, if the trust is completely constituted) courts of equity will enforce it, whether the party applying for relief gave valuable consideration or not even although the trustee should disclaim the trust and thereby revest the property in the settlor.'
32. The learned counsel for the assessee referred to as quoted in the same volume at pages 54 and 55, which are as under : Jefferys v. Jefferys  Cr & Ph. 138 and Re Wale; Wale v. Harris  1 WLR 1346 ;  3 All ER 280 as quoted in the same volume at pages 54 and 55, which are as under:
'Thus, in Jefferys v. Jefferys a father voluntarily conveyed freeholds to trustees upon certain trusts in favour of his daughters, and also covenanted to surrender copyholds to the use of the trustees, to be held by them upon the trusts of the settlement. The settlor afterwards died without surrendering the copyholds, having devised certain portions of both freeholds and copyholds to his wife. In a suit by the daughters to have the settlement enforced, it was held that the court would carry out the settlement of the freeholds, for so far as they were concerned the trust was completely constituted, the title of the daughters complete, and the property actually transferred to the trustees. On the other hand, the court refused to enforce specific performance of the covenant to surrender the copyholds ; for in their case the trust was incompletely constituted, the settlor having neither declared himself a trustee, nor transferred them to the trustees. He had merely entered into a voluntary contract to transfer copyholds which a court of equity could not enforce.
A modern example is provided by Re Wale: Wale v. Harris  1 WLR 1346 ;  3 All ER 280.
A voluntary settlement contained a recital that the settlor had transferred certain investments into the names of the trustees (the settlor's two sons) to be held on the trusts thereof. In fact, none of the investments were so transferred, but at the date of the settlement some of them, referred to as the 'A' investments, were registered in the settlor's name, and the rest known as the 'B' investments, were registered in the names of the settlor and the sons, but the settlor was absolutely entitled to them beneficially.
It was held that the settlement was ineffective as regards the 'A' investments since so far as they were concerned it was an imperfect gift, but it was effective as regards the 'B' investments because it constituted a good assignment of the settlor's beneficial interest to the trustees and the court would direct them as surviving legal owners after the settlor's death to deal with the legal estate in conformity with his intention.'
33. The learned counsel for the assessee also referred to an extract from the Corpus Juris Secundum (Vol. 89, Chapter 45, pp. 788 to 791) which is given in O.P. Aggarwala's The Indian Trusts Act, 1882 (7th edition) (Vide pages 221 and 222) which runs thus :
'The rule of certainty in the material terms of a declaration of trust required that there be certainty as to the objects or beneficiaries of the trust. The beneficiaries must be expressly named or so designated or described as to be capable of identification, or of being ascertained. It is sufficient, however, if the language used clearly points out the beneficiaries if they are designated with reasonable certainty, or if they are made sufficiently certain that the proper court can determine them.
Designation of beneficiaries as a class is a sufficiently certain designation, provided the class is clearly defined. It is not necessary that the beneficiaries must all be named, or in existence, or known at the time of the creation of the trust. A trust is valid although the beneficiaries are left to be determined by the will of the settlor. Certainty as to all beneficiaries of a trust is not essential to its validity as long as it is certain as to some, since as to those it will be held valid although not as to the uncertain ones. A trust conferring on the trustee ample power to determine the beneficiaries thereof has been held not uncertain. A trust leaving to the discretion of the trustee the selection of beneficiaries from a certain class is valid, even though he has discretion to exclude some members of the class altogether.'
34. Therefore, the facts noted above make the position clear that the settlor himself was acting as a trustee for the trust created by him in June, 1961, for the benefit of the remaining khanazads.
35. The learned counsel for the Revenue referred to the decision in Smt. Pankumari Kochar v. CED : 73ITR373(AP) in support of his contention that by a mere declaration a valid trust cannot be said to have been created. The first question that arose for determination in that case was, whether a trust was in fact created or not. In paragraph 4 of that trust deed, the donor has stated thus :
'The donor shall convey the properties specified above herewith to the trustees and the said trust shall be permanent and irrevocable. The heirs and other legal representatives of the donor, if any, shall not be entitled to any claim of the said properties made over to the trust nor any vested interest or right to abrogate the trust deed.'
36. On enquiry by the Bench it ultimately found that there was no deed executed. Even then the contention advanced was that no document was necessary because the donor, who was the managing trustee was declaring himself to be the trustee under the trust deed. Therefore, no separate conveyance in favour of himself and others was necessary. This contention was not accepted by the Bench because the clause in the trust deed envisaged conveyance not only to himself but to other trustees. The learned judges observed :
'We can well understand where there is a sole trustee who is also the owner of the property not conveying the property to himself because there is no need for transfer as he is not only the legal owner but also the sole trustee. In such circumstances, a mere declaration would be sufficient to change the nature of his possession from that of an owner to that of a trustee. There is no need for any overt act except declaration of trust.'
37. The Bench also observed that if the trust relates to immovable property the transfer or declaration must be by a document registered according to law of registration and if it relates to movable property then no registration is needed. In that view, the Bench observed that the deceased has not divested himself of the property and, therefore, he must be said to have died possessed of those properties. In our view, the observations of the Bench do not support the contention of the Revenue, but on the other hand, supports the contention of the assessee. In the instant case, we have already noted that during that period the donor washimself the trustee and the account was opened in the name of the account of 'Nizam's khanazads' and the settlor had also clearly declared his intention to create the trust in June, 1961, to invest further amounts, and transfer those assets to that account. Even assuming that there are no other trustees during the period from 1961 to 1966, still the settlor was himself the sole trustee and the assets were transferred to the account of Nizam's khanazads. Looking this problem from the other angle also, when the trust created on August 12, 1957, was treated as a valid one and as the trust created in June, 1961, was a part and parcel of the earlier trust, the same trustees continued for the later trust of June, 1961. So it can safely be concluded that there was a trustee or trustees for the trust created in June, 1961. In view of this, we need not go into the aspect that the trust does not fail for want of trustees. However, it would suffice to refer to a passage pointed out by the learned counsel for the assessee in O.P. Aggarwala's The Indian Trusts Act, 1882, 7th edn., at p. 239, which runs thus :
'12. Trust does not fail for want of trustee: No trustee named. Provided that a trust is clearly intended, the mere omission to appoint a trustee will not invalidate the trust. A trust is not affected by the fact that no trustee is named, or by the fact that the trustee who is named either refuses or is unable, through death, disclaimer, or incapacity, or otherwise, to act, for equity never allows a trust to fail for want of a trustee. In such cases the trust does not fail but fastens upon the conscience of any person (other than a purchaser for value without notice) into whose hands the property comes.'
38. The learned counsel for the assessee also referred to another passage at page 240 of the same book which runs thus :
'When a person creates a trust, which trust can be enforced against him, he can be made to carry out the trust. If he fails to abide by his obligation it cannot be said that the trust has not been acted upon, or in other words, that it has been abandoned and in consequence it has lapsed or ceased to be enforceable. (Vide Official Trustee of Bengal v. Chippendale, : AIR1944Cal335 ).
It is a well-established principle of equity that no trust shall fail for want of trustees. The law of trusts in India also contemplates that no trust should be defeated for want of trustee.'
39. The next point strongly urged by the learned counsel for the Revenue is that the beneficiaries were not specified. The learned counsel for the assessee, on the other hand, submitted that the beneficiaries were specified and this fact is evident from the list of names sent by the Nizam from time to time. The settlor had indicated the class of beneficiaries in the trust deed and that clause is a recognised one. It is also not necessarythat the settlor should give all the names of the beneficiaries. It would suffice the requirement, if the settlor indicates the class of beneficiaries in the trust deed. We will now deal with this point. Late Nizam sent a note containing the names of the remaining khanazads. We have already adverted to the lists signed by the Nizam. One list contains 11 persons and their wives, each to be paid Rs. 100, i.e., in all 22 persons. Another list contains 13 names along with their wives each to be paid Rs. 100, i.e., in all 26 persons. One more list contains 6 names each to be paid Rs. 100. Another list dated May 3, 1961, contains 20 names along with their wives and each to be paid Rs. 100, i.e., in all 40 persons. The total number of persons in all these lists comes to '94'. In the face of these lists signed by the Nizam himself, it cannot be said that the beneficiaries were not specified. What is contended by the learned counsel for the Revenue is that in the resolution dated April 15, 1968, in Schedule B, the number of persons given is '182' and that was not the number given by the Nizam in various lists. It is already noted that the trust was created in June, 1961, and this was for the benefit of the remaining khanazads. The names which were known to the late Nizam were given in various lists, but subsequently, the trustees found that there were other khanazads who belonged to the same class for which the Nizam wanted to create the trust. This was the reason, the learned counsel for the assessee submits, for the variance in the number of beneficiaries. It was also pointed out by the learned counsel for the assessee that the number has also swelled for the reason that even the amount payable to one khanazad, was split up and paid to his wife. In other words, the amount payable to one beneficiary is split up into two amounts and paid to him as well as to his wife, and the name of the beneficiary as well as his wife's name were shown in the list. For illustration, he pointed out, serial Nos. 128 and 129 in Schedule B to the said resolution dated April 15, 1968. Jawad Ali was to be paid Rs. 100, but this amount was split up into Rs. 50 and Rs. 50 and himself at serial No. 128 and his wife at 129 each were paid Rs. 50. Thus, in this manner, the number increased. Similar are serial Nos. 114-115 and 130-131. That apart, the learned counsel for the assessee submitted that when the class of beneficiaries is indicated by the settlor, the trustees could find out the persons who could be the beneficiaries under the trust and that it is not necessary that the number and names of beneficiaries should be given in the trust deed. The learned counsel for the assessee for this proposition relied on a passage in Underhill's Law of Trusts and Trustees at page 28. Dealing with the matter 'Uncertainty as to beneficiaries' it is stated thus :
'A donor sometimes designates as the objects of his bounty a large class of persons, leaving the distribution of the fund, or its income, amongst such beneficiaries to his trustees or some other designated person.In such cases difficulty may arise either because the words used do not define with sufficient certainty all the persons included in the class, or because, although the definition is clear, it is hard to ascertain all the persons who fit it.
Taking first the latter case, it is plain that the trust or power in question is not invalidated by the fact that the task of tracing and ascertaining all the members of a large class would be very difficult or expensive, provided that it would not be actually impossible.'
40. In the present case, the class of persons, i.e., khanazads has been mentioned and the persons were ascertained by the trustees and they have also been enumerated in the Schedule.
41. The learned counsel for the Revenue in support of his contention that when there is uncertainty of the beneficiaries there could be no valid trust, placed strong reliance on a decision of the Supreme Court in Allahabad Bank Ltd, v. CIT : 24ITR519(SC) . The Supreme Court was considering the case of a banking company carrying on business at Calcutta, Allahabad, etc. On March 15, 1946, the appellant executed a deed by which it purported to create a trust for the payment of pensions to the members of its staff. The deed recited that a sum of Rs. 2 lakhs had already been made over to the trustees and that there would be added to it such further contributions as the bank might make from time to time, though it would not be bound to make such contributions. In the course of the accounting, year 1946-47, the bank made a further payment of Rs. 2 lakhs to this fund. In its assessment for the assessment year 1947-48, the appellant claimed deduction of that sum of Rs. 2 lakhs under Section 10(2)(xv) on the ground that it was an item of expenditure laid out or expended wholly and exclusively for the purposes of its business. The ITO, the AAC and the Income-tax Appellate Tribunal rejected this claim of the appellant and the Tribunal at the instance of the appellant stated a case and referred for the consideration of the High Court [Allahabad Bank Ltd. v. CIT : 21ITR169(Cal) ] the following question :
'Whether, in the facts and circumstances of this case, the Income-tax Appellate Tribunal was right in disallowing Rs. 2,00,000 as a deduction under Section 10(2)(xv) of the Indian Income-tax Act ?'
42. The High Court answered the question in the affirmative and, therefore, an appeal was filed in the Supreme Court. On the construction of the several provisions of the deed of trust the High Court held (at p. 183 of 21 ITR):
'I am of opinion that in view of these provisions of the trust deed coupled with the uncertainty as regards the beneficiaries and the absence of any obligation to grant any pension, no legal and effective trust was created, and the so-called trust must be held to be void.'
43. The question before the Supreme Court was thus one with regard to the validity of the trust. Their Lordships of the Supreme Court considered the various clauses contained in the deed of trust and held thus (at p. 523 of 24 ITR):
'On a consideration of the provisions of the deed of trust above set out it is clear that the bank or its officers duly authorised in that behalf were constituted the sole authorities to determine what pensions and in what manner the same should be paid out of the income of the fund. The fund was declared to have been established for the benefit of the retiring employees to whom pensions shall have been granted by the bank. Officers of the staff who were qualified under Clause 8 were declared entitled to apply to the bank for a pension. But there was nothing in the terms of the deed which imposed any obligation on the bank or its officers duly authorised in that behalf to grant any pension to any such applicant. The pension if granted could also be withdrawn, modified or determined under the directions of the bank or any officer of the bank duly authorised in that behalf and such directions were binding on the trustees. The regulations in relation to the fund could also be altered and new regulations could be made to the exclusion of or in addition to all or any of the regulations contained in the deed of trust. It was open under the above provisions for the bank or its officers duly authorised in that behalf to grant no pension at all to any officer of the staff who made an application to them for a pension and also to withdraw, modify or determine any pension payable to such officer if in their opinion the conduct of the recipient or the circumstances of the case should justify them in so doing. The whole scheme of the deed invested the bank or its officers duly authorised in that behalf with the sole discretion of granting or of withdrawing, modifying or determining the pension and it was not at all obligatory on them at any time to grant any pension or to continue the same for any period whatever. The beneficiaries, therefore, could not be said to have been indicated with reasonable certainty. What is more it could also be validly urged that there being no obligation imposed upon the trustees no trust in fact was created, even though the moneys had been transferred to the trustees.' (underlining* is ours).
44. It was also contended before the Supreme Court that the power conferred upon the bank or its officers duly authorised in that behalf was a power in the nature of a trust, that there was a general intention in favour of a class and a particular intention in favour of individuals of a class to be selected by them and even though the particular intention failed from the selection not being made, the court could carry into effect the general intention in favour of the class and that, therefore, the trust was valid. In support of this, reliance was placed on Brown v. Higgs (8 Ves.Junior 561 ; 32 ER 473) and Burrough v. Philcox (5 Mylne and Craig Reports, page 72 ; 41 ER 299). Their Lordships of the Supreme Court quoted the position of law as emerges from these authorities as summarised by Lewin on Trusts, fifteenth edn., at p. 324, which runs thus :
'Powers, in the sense in which the term is commonly used, may be distributed into mere powers, and powers in the nature of a trust. The former are powers in the proper sense of the word--that is not imperative, but purely discretionary ; powers which the trustee cannot be compelled to execute, and which, on failure of the trustee, cannot be executed vicariously by the court. The latter, on the other hand, are npt discretionary, but imperative, have all the nature and substance of a trust, and ought rather, as Lord Hardwicke observed, to be designated by the name of trusts. 'It is perfectly clear,' said Eldon, 'that where there is a mere power, and that power is not executed, the court cannot execute it. It is equally clear, that wherever a trust is created, and the execution of the trust fails by the death of the trustee or by accident, this court will execute the trust. But, there are not only a mere trust and mere power, but there is also known to this court, a power which the party to whom it is given is instructed with and required to execute; and with regard to that species of power, the court considers it as partaking so much of the nature and qualities of a trust, that if the person who has the duty imposed upon him does not discharge it, the court will, to a certain extent discharge the duty in his room and place'. Thus, if there is a power to appoint among certain objects but no gift to those objects and no gift over in default of appointment, the court implies a trust for or gift to those objects equally if the power be not exercised. But for the principle to operate there must be a clear indication that the settlor intended the power to be regarded in the nature of a trust.'
45. Thus relying upon the passage their Lordships of the Supreme Court were of the view that this position would not avail the appellant because there was no clear indication in the deed of trust that the bank intended the power to be regarded in the nature of a trust, inasmuch as there was no obligation imposed on the bank or its officers duly authorised in that behalf to grant any pension at all to any applicant. In fact, even the pension, if granted, could be withdrawn, modified or determined by the bank or its officers duly authorised in that behalf as therein mentioned. Under the circumstances, their Lordships held, it could not be said that there was a power in the nature of a trust which could be exercised by the court if the donee of the power for some reason or other did not exercise the same. It was also considered, whether any beneficiary claiming to be entitled to a pension under the terms of the deed could approach the court for the enforcement of any provision purporting to have been made for hisbenefit. Even though, it was held, the beneficiary may be qualified under Clause 8 to apply for the grant of a pension he could not certainly enforce that provision because there was no obligation imposed at all on the bank or its officers duly authorised in that behalf to grant any pension to him and in the absence of any such obligation imposed upon anybody, it would be futile to urge that a valid trust was created in the manner contended on behalf of the appellant. Accordingly, the Supreme Court held that there was no valid trust created.
46. The facts in this Supreme Court case are, as seen, altogether distinct and separate from the facts in the instant case. Here the intention of the donor is clear that he was adding further amounts to the corpus so as to meet the payments to be made to all the beneficiaries. The donor gave the lists of names of the beneficiaries with the amounts of payments to be made against their names. It was also made clear that the trust created in June, 1961, was for the benefit of the remaining khanazads and that on the date when the settlor made over the amount of Rs. 23.5 lakhs to the account of the Nizam's khanazads the names of the beneficiaries were ascertained and specific. If after the death of the Nizam the settlor, some more names are included in the khanazads by the trustees and the number of beneficiaries has increased thereby, that cannot be a ground to hold that the trust created in June, 1961 was an invalid one, because already by June, 1961, there were ascertained number of beneficiaries in the lists given by the Nizam. If anybody has any grievance about the adding of further names to the list of beneficiaries given by late Nizam that does not in any way invalidate the trust created in June, 1961. In the Supreme Court case, relied upon by Sri P. Rama Rao, there was no obligation on the part of the trustees to pay any amount to the employees at all. But that is not the case in the instant case. If the beneficiaries are not paid they are at liberty to enforce their rights in a court of law. In view of the above discussion on this point, it cannot be said that the beneficiaries arenot specified or that there is uncertainty of the beneficiaries.
47. The next contention raised by the learned counsel for the Revenue is that the ultimate vesting of the corpus has not been indicated by the settlor so far as the trust created in June, 1961, is concerned.
48. This point can be dealt with along with question No. 2 in R.C. No. 59 of 1976, namely, whether the trust formed in June, 1961, was a part of the trust formed on August 12, 1957.
49. We will now take up this question. While dealing with the points raised by the learned counsel for the Revenue, Sri P. Rama Rao, we had to deal with the trust created on August 12, 1957. At one stage, as it was treated to be null and void, a separate account was opened in the name of Khan Bahadur C.B. Taraporevala, Financial Adviser to H.E.H. the Nizam,Hyderabad. This account was opened in the year 1959, in pursuance of the resolution dated March 14, 1959. The securities of the face value of Rs. 23.5 lakhs was deposited in this account when the trust was formed in June, 1961. The manner in which the shares of the value of Rs. 23.5 lakhs was deposited in the account of Nizam's khanazads has already been discussed in the earlier part of this judgment. The entire amount became a part and parcel of the account of Nizam's khanazads. The intention of H.E.H. the Nizam that he wanted to treat the trust formed in 1961, as a part of the trust formed in 1957, is clear from the note dated May 27, 1961, asking Taraporevala as to how much was the amount of corpus, what was the interest or return earned by it, etc. This note clearly indicates that after knowing the details the Nizam wanted to increase the corpus, if necessary. It can also be inferred that if the corpus under the trust created in 1957, and the interest accrued thereon put together yielded sufficient income to make payments even for the remaining khanazads he need not have increased the corpus. Since, it was found that the original corpus was not sufficient to meet the payments, he increased the corpus in June, 1961, and created the trust. In fact, the corpus pertaining to the trust of June, 1961, forms part and parcel of the original corpus of the trust created in 1957. At this stage, it is relevant to have a look at Clause 5 of the trust deed which runs thus :
'5. If at any time hereinafter the Settlor shall be desirous of settling any other funds or assets upon the trusts and subject to the powers provisions and declarations herein contained concerning the trust fund and shall transfer and hand over the same to the Trustees, they shall receive and hold the same upon the same trusts and subject to the same powers, provisions and declaration as those herein contained concerning the trust fund as if they had originally formed part of the Trust Fund hereby settled.'
50. This paragraph leaves no doubt that the settlor himself has provided that if he were to settle any further funds or assets upon the trust all the provisions of the trust deed dated August 12, 1957, would apply to such funds, assets and that the trustees shall receive and hold the same subject to the same powers, provisions and declarations as those contained and concerning the trust fund settled by the trust deed dated August 12, 1957. Whatever fund is subsequently settled by the late Nizam that would be treated as a part of the original fund and the very same trustees would be the trustees for the increased amount also. Having found that the corpus in the original trust would not be sufficient to meet the payments and that there were some more khanazads who were not included as beneficiaries in the original trust, the late Nizam in June, 1961, added a corpus of Rs. 23.5 lakhs. As a consequence of this, the trustees underthe original trust would continue to be the trustees for this later trust formed in June, 1961, and all the terms and conditions incorporated in the original trust equally apply to the later trust of June, 1961. The above facts clearly indicate that the trust of June, 1961, was a part and parcel of the former trust created on August 12, 1957. The learned counsel for the assessee also contended that if the corpus of Rs. 23.5 lakhs is not treated as a part of the original corpus under the trust dated August 12, 1957, it will not be a benefit even for the revenue. The learned counsel referred to the income-tax assessment order which was relied on for wealth-tax assessments and quoted in the judgment of the Appellate Tribunal. It runs thus :
'As on to-day, the original alleged corpus of Rs 23.5 lakhs dwindled to a mere half, because heavy payments were made to the beneficiaries. The income of the corpus was not sufficient to meet the scheduled payments. HEH would never have intended to create a trust of this type wherein in a few more years there would be no corpus as such and nothing would devolve on his heir, the present Nizam, when, in contradistinction, in the first trust of 1957, the corpus of 85 lakhs had remained in tact and also improved by accretion to a crore and twenty lakhs, after meeting the stipulated payments to all the beneficiaries in the last twelve years.'
51. This also points out that the late Nizam never wanted to create a trust with insufficient corpus so that during the course of time the very corpus itself may get exhausted to meet the scheduled payments under the trust. The very trust created in 1957, shows that the original corpus remained in tact and in fact improved by accretion. The learned counsel for the assessee submitted that the corpus would be dwindled if the trust created in June, 1961, was confined to a corpus of Rs. 23.5 lakhs. But if the scheduled payments under both the trusts are made from out of the income from the corpus of both the trusts created in 1957 and 1961, the position would be different. This points out that the late Nizam wanted that the trust formed in June, 1961, should be part and parcel of the original trust created on August 12, 1957. There are no compelling reasons for the Revenue also to press this point since it will not be advantageous to the Revenue if the trust formed in June, 1961, is not treated as part and parcel of the original trust. We find sufficient force in this contention of the learned counsel for the assessee. It is to be noted that after change of the accounts in 1966, the trust created in 1957, was treated as a valid one. By the time, the validity of the original trust was accepted, the amount of Rs. 23.5 lakhs was deposited in the account of the Nizam's khanazads. The Nizam who was acting as a trustee for the original trust of 1957, also acted as a trustee for the trust fund added in 1961. After recognition of the original trust of 1957, as a valid one, a resolution was passed onJanuary 10, 1967, to indicate that the trustees constituted in 1957, would continue to be trustees even during the period when it was treated as invalid because they did not disclaim to be the trustees. In this context, the relevant portions of the resolution read as under :
'.........the following Trustees were present :
1. His Exalted Highness Nawab Mir Sir Osman Ali Khan Bahadur, G.E.S.I., C.B.E., the Nizam of Hyderabad. (In the Chair)
2. Nawab Kazim Nawab Jung Bahadur.
3. Nawab Mujeeb Yar Jung Bahadur.
.........In view of the facts brought to light subsequently and acceptedby the gift-tax authorities the Trustees have obtained the written legal opinion of Senior Counsel and are satisfied, that there was no valid and operative gift of moneys to the Dependants and khanazads prior to the creation of the trust and that the trust was and is valid and operative from its inception. By resolution dated the March 14, 1959, the trustees only expressed their view that the trust was null and void but did not disclaim their office as Trustees, nor did they resign or renounce their office as Trustees, nor did they resign or renounce their office as such. Their right, therefore, to function as Trustees and discharge their duties and exercise all their powers and functions under the trust deed, has remained in full force and effect.'
52. By this resolution again Taraporevala was appointed as secretary of the trust. This clinches the issue that the trustees constituted for the trust in 1957 continued for the later trust created in 1961 also, as the assets were put in the same account. We have already dealt with this point at length. The learned counsel for the Revenue urged that there is no specific mention of Rs. 23.5 lakhs in the resolution. When the amounts are deposited in the very same account of Nizam's khanazads and not treated as separate accounts, there could be no separate reference to that amount at all. On the other hand, it shows that no distinction was made between the two amounts. That apart if the contention of the learned counsel for the assessee that the trust formed in June, 1961, was a part of the trust created on August 12, 1957, is not accepted the corpus itself in the long run disappears and it will not be advantageous to the Revenue also. In view of this conclusion of ours that the trust formed in June, 1961, forms part of the original trust dated August 12, 1957, it follows that the clause in the original trust dealing with the ultimate vesting of the corpus equally applies to the trust formed in June, 1961. The relevant Clause (Clause 3) in the trust deed dated August 12, 1957, reads thus :
'3. The Trustees shall hold and stand possessed of the trust fund upon the following trusts, that is to say :--......
(f) Subject to the above trusts powers and provisions, the Trustees shall hold and stand possessed of the Trust fund or the balance thereof as the case may be UPON TRUST to pay transfer and hand over the same to Prince Mukarram Jah Bahadur the grandson of the Settlor and the son of His Highness Prince Azam Jah Bahadur his heirs, executors, administrators or assigns absolutely.
(g) In case by reason of the Transfer of Property Act or any provisions of the Mohamedan Law or any other provisions of the law any interest in the Trust fund or any part thereof does not take effect then and in such case such interest not taking effect as aforesaid shall belong absolutely to Prince Mukarram Jah Bahadur his heirs, executors, administrators or assigns absolutely.'
53. Thus, Sub-clause (f) and (g) of Clause 3 of the Trust deeds indicate the ultimate vesting of the corpus in Prince Mukarram Jah Bahadur, the grandson of the settlor. When once, as already stated, it is held that the trust formed in June, 1961, is part and parcel of the original trust dated August 12, 1957, this clause equally applies to the former trust (June, 1961) and, therefore, it cannot be said that there is no indication in the trust formed in June, 1961, as to the ultimate vesting of the corpus and, therefore, the trust is bad in law. In view of the various conclusions arrived at after examining the matter in detail, we are convinced that all the ingredients that constitute a valid trust are present and fulfilled in this case.
54. The learned counsel for the assessee alternatively contended that on the basis of the principle of user it could be said that the trust is a valid one. The learned counsel for the assessee submitted that the trust was created in June, 1961, that from 1963 onwards the beneficiaries were being paid the allowances out of the trust fund and that sufficient time has elapsed from the creation of the trust. During all these years no claims were set up by the heirs of the Nizam that no trust was created for the remaining khanazads. Even if for any reason the trust as created in June, 1961, is treated as invalid, still it becomes valid by the doctrine of user. In this connection, the learned counsel relied on Moorthanna v. Chinna Ankaiah  ALT 1. That was a decision rendered by us. One of us, Sambasiva Rao J., (as he then was) speaking for the Bench held thus :
'The conclusion is, therefore, irresistible that the trustees constituted as per the provisions of the will were in legal possession of the two houses from 1931, when Kotamma died, right up to 1968 and that possession was on behalf of the trust. They were in possession for nearly 37 or 38 years on behalf of the trust and in their capacity as trustees to the exclusion of the heirs of Kotamma and everybody else, that is to say, the heirs of Kotamma cannot now claim the properties and the trustees have acquired a possessory title, against any other possible claimant and, to the properties.
This possessory title is that of the trust though the endowment, to start with was invalid and void. In other words, the title of the trust now rests not so much on the provisions of the will, but on the possessory and adverse title acquired for its benefit by continuous and uninterrupted possession its trustees have acquired for over the statutory period. Thus as on the date of the suit the trust was legal and valid, whatever might have been its infirmity to start with. No person, much less the 1st defendant who had been a trustee, can now question the legality of the ownership of the trust of these two houses.'
55. In support of this view, we also referred to two decisions of the Privy Council (Srinivasa Moorthy v. Venkata Varada Aiyangar, ILR 34 Mad 257 and Hemchand v. Pearey Lal, AIR 1942 PC 64). Relying on these Privy Council decisions, a Division Bench of the Bombay High Court consisting of Beaumont C.J. and Kania J., (as he then was) held in Fazl Hussein v. Mohamadally, : AIR1943Bom366 that even though the wakf was void because of the reservation of a life estate in favour of the settlor, the trustees in possession under that void trust would acquire a good title by adverse possession as against the settlor and those claiming under him. Following the above Bombay decision a Division Bench of this High Court, consisting of Gopalarao Ekbote J., (as he then was) and A.V. Krishna Rao J., dealing with a case where a Hindu made a grant for the performance of Moharrum festival held thus (L.P.A. 5/1970 dated 10-9-71):
'Even though the wakf originally may be invalid, but because it was not questioned by the successors of the dedicators, may be they continued it and since the property was used for that purpose, the wakf became valid by user.'
56. These decisions fully support the contention raised by the learned counsel for the assessee that, even if for any reason the trust was invalid at the time it was created, still it becomes valid by user for a period of more than 12 years.
57. The learned counsel for the Revenue urged that the gift-tax return filed by the settlor for the assessment year 1962-63 (accounting period April 1, 1961 to March 31, 1962),does not mention the amount of Rs. 23.5 lakhs as having been gifted to the remaining khanazads. The return was filed by the assessee on November 5, 1962. The GTO passed an order on January 30, 1964, and that order does not contain anything about this amount. It is to be noted that it was only after the death of the Nizam that the returns were filed by his successor Barkat Ali Khan. This suggests that the trust was carved out only in 1967 and not earlier to that. The learned counsel for the assessee, on the other hand, submitted that Mir Barkat Ali Khan as the legal representative of the late Nizam filed the gift-taxreturn declaring the gift of Rs. 23.5 lakhs. The GTO on this passed an order thus :
'Without prejudice to the stand taken in the assessments of the khanazuds Trust and as a purely protective measure in the interest of the Revenue, whoso collection would be in a jeopardy in the event the present Nizam's stand of a valid third trust for the khanazads is vindicated in appeal, I proceed to complete the assessment by accepting the face value of the shares declared in the return as the market value. The assessment is completed under Section 15(1) of the G.T. Act.'
58. After giving the basic exemption the taxable gift was arrived at Rs. 23,40,000. The learned counsel for the assessee, on the other hand, also submitted that this point was not taken before the lower Tribunals and this assessment order was not put in the Tribunal's record, but was for the first time filed in the High Court and, therefore, that document could not be looked into in this court. The learned counsel pointed out the following observation of the Tribunal:
'As rightly pointed out by the learned counsel for the assessee, the late Nizam never admitted in his wealth-tax returns or income-tax returns that he was the owner of the shares in question. The circumstances under which Sri Taraporevala as Financial Adviser to the Nizam applied to the Income-tax Officer for credit of the tax deducted at source on dividends relating to the shares in respect of 1964-65 assessment were explained by the learned counsel and, in our opinion, that letter does not support the Department's stand.'
59. The learned counsel, in this connection referred to CIT v. Calcutta, Agencey Ltd. : 19ITR191(SC) in which it is laid down that the jurisdiction of the High Court in the matter of income-tax references made by the Tribunal under the Indian I.T. Act is an advisory jurisdiction and under the Act the decision of the Tribunal on facts is final unless it can be successfully assailed on the ground that there was no evidence for the conclusions of facts recorded by the Tribunal. Therefore, it is the duty of the High Court to start by looking at the facts found by the Tribunal and answer the questions of law on that footing. Any departure from this rule of law will convert the High Court into a fact finding authority, which it is not under the advisory jurisdiction. Therefore, it was further held that the High Court would be committing an error if it takes the arguments of counsel as if they were facts and bases its conclusion on those arguments. In the present case, it is brought to our notice that the document which is now filed before us was not part of the record before the Tribunal and this was not adverted to before the Appellate Tribunal. Therefore, in our view, it will not be proper for us to express any view on this aspect of the case.
Referred Case No. 63 of 1978 :
60. The question in this reference is, whether Rs. 23.5 lakhs could be excluded from the net wealth of the assessee for the assessment years 1962-63 and 1963-64. While answering the questions in Referred Case No. 59 of 1976, we held that a valid trust was created in June, 1961, and that it is a part and parcel of the earlier trust created on August 12, 1957. In other words, the amount of Rs. 23.5 lakhs would cease to be the asset of the Nizam and, therefore, not available for inclusion in his net wealth for the assessment years 1961-62 and 1962-63. In this connection, the learned counsel for the assessee referred to CIT v. Motilal Ramswaroop in support of the proposition that when once the wealth goes out of the hands of the assessee, that wealth including the interest accrued thereon, would not be available for assessment of either wealth-tax or income-tax in the hands of the assessee. In that case, the karta of the HUF, the assessee, gifted an amount of Rs. 4 lakhs to seven divided members of the family. The ITO did not accept the gifts on the ground that the karta of the assessee-family was not competent to make the gifts of a substantially large amount and he assessed the total income of the assessee including therein the interest on the said sum of Rs. 4 lakhs. The Tribunal directed that the interest be deleted from the assessment on the ground that under the law gifts made by the karta of an undivided Hindu family were not void. On a reference to the High Court under both the I.T. Act and the W.T. Act, it was argued for the Commissioner that if the gifts were void, then title to the amount of Rs. 4 lakhs remained vested in the assessee and, therefore, he was liable to pay income-tax. The High Court held that the interest accruing on the gifted amount did not accrue to the assessee-family for income-tax purpose, on either view whether the gift of Rs. 4 lakhs was void or voidable because the entire sum of Rs. 4 lakhs had passed into the hands of other persons and they were earning income from that amount and not the assessee. The I.T. Act taxes the person whose income it is and not the person who may per chance have title to the property through which the income has been earned. Answering the wealth tax reference the High Court opined that the amount of Rs. 4 lakhs together with the estimated interest thereon, ceased to be an asset of the assessee for wealth-tax purposes whether the gifts were void or voidable and that amount could not be taxed under the W.T. Act, In the present case also the settlor had parted with the corpus in June, 1961, and, therefore, it had ceased to be an asset of the settlor assessee. Further the successors of the assessee did not question the gift made by H.E.H, the Nizam and on the other hand Nawab Mir Barkat Ali Khan, the successor, has filed the gift-tax returns after the death of Nizam on April 28, 1969, as his legal representative declaring a taxable gift of Rs. 23.5 lakhs for the assessment years 1962-63. It wassubmitted by the learned counsel for the assessee that gift tax was also paid. In those circumstances, this asset has definitely ceased to be the wealth of the late Nizam.
61. In the result, our answer to the questions in Referred Case No. 59/76 are that a valid trust was created by the late Nizam in June, 1961, in respect of the shares of the face value of Rs. 23.5 lakhs, and that the Appellate Tribunal was correct in holding that the trust formed in June, 1961 was a part of the trust formed earlier on August 12, 1957. Our answer to the question in Referred Case No. 63 of 1978, is in the affirmative.
62. In the circumstances of the case, the parties will bear their own costs.
63. Advocates's fee Rs. 250 in each.