INCOME TAX OFFICER Vs. TRUSTEES OF HEH THE NIZAMS WEDDING GIFT TRUST
INCOME TAX APPELLATE TRIBUNAL
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A. Venku Reddy, Judicial Member -
(1.) REVENUE is the appellant in all these appeals. The assessment years involved in these appeals are 1984-85 and 1985-86. The main appeals are ITA Nos. 856/Hyd/88 and 859/Hyd/88. The decision in these appeals decides the fate of the remaining three appeals. Since identical issues arise in all these appeals they have been heard together for disposal by a common order.
(2.) Let us first consider ITA No. 856/Hyd/88 relating to the assessment year 1985-86 and ITA No. 859/Hyd/88 relating to the assessment year 1984-85. 'The Trustees of the Wedding Gift Trust of HEH the Nizam's two grand daughters" in their representative capacity filed these appeals on behalf of the beneficiaries. The facts that led to the filing of these appeals are as follows.
Heh the Nizam of Hyderabad created a Trust called "Wedding Gifts Trust of Heh the Nizam's two grand daughters" under a trust deed dated 4-9-1951. The beneficiaries of the said trust are the settlor's grand daughters Fatima Fouzia and Ameena Marzia who are the daughters of Prince Mouzam Jah Bahadur, second son of the settlor. The Settlor transferred certain items of his jewellery to the said trust and the same have been described in the first and second schedules of the trust deed. The first schedule comprises of 32 items of ladies jewellery of the oriental type. Likewise, the second schedule of the trust-deed also comprises of 32 items of jewellery. The Settlor appointed four trustees including himself to manage the trust property. The jewellery described in the First and Second Schedules were handed over to the trustees. The trust deed, clause 6, directs the Trustees to keep the said jewellery in safe custody in some reputed bank preferably at Bombay. Accordingly the said jewellery was kept in the lockers of Mercantile Bank, Bombay in the names of the trustees. Under the terms of the trust-deed, Fatima Fouzia and Ameena Marzia were given the right or privilege of wearing the jewellery specified in the First Schedule and the Second Schedule respectively on special ceremonial occasions and festival occasions only. Sub-clause (c) of clause 3 of the trust-deed directs the trustees to give the jewellery specified in the First Schedule to Fatima Fouzia on the occasion of her marriage as wedding gift to her from the settlor. Further it directs that soon after the ceremonies and festivities in respect of the wedding of the said Fatima Fouzia are over, she shall return and hand over the articles of jewellery specified in the First Schedule to the trustees and thereafter the trustees shall hold the same upon trust by keeping them in safe custody in bank lockers. The relevant clause 3(c) relating to Fatima Fouzia in respect of the jewellery specified in the first schedule is as follows :
On the marriage of the said Fatima Fouzia to give the articles of jewellery specified in the First Schedule hereunder written to the said Fatima Fouzia as wedding gift to her from the Settlor along with other jewellery which may be given to her on the occasion provided, however, that soon after the ceremonies and festivities in respect of the wedding of the said Fatima Fouzia shall be over, she shall return and hand over to the trustees all the said articles of jewellery specified in the First Schedule hereunder written and thereafter the trustees shall hold the same. Upon trust to allow the said Fatima Fouzia to wear and use the said articles of jewellery or such of them as may be required on and for the purpose of any special ceremonial or festive occasion and after any such ceremonial or festive occasion shall be over to take charge of such article from the said Fatima Fouzia. Provided always that the trustees shall not be liable or held responsible in any manner whatsoever by any person whomsoever for any loss or damage that may be caused to or in respect of any of the said articles for the purposes aforesaid or for any other consequences resulting from the action of the trustees in allowing the said articles or any of them to be worn or used as aforesaid.
Clause 3(d) of the trust deed states that on and after the death of Fatima Fouzia, the trustees shall hold the articles of jewellery specified in the first Schedule upon trust as mentioned in clause 4. The trust deed contains similar clauses 3(e) and 3(f) in respect of the articles of jewellery specified in the second schedule relating to Ameena Marzia also. She was also given wearing right to wear the said jewellery mentioned in the Second Schedule on the occasion of her marriage and subsequently on special ceremonial occasions and festivities. Thereafter the trustees shall take over charge of the said items of jewellery and keep them in safe custody. Sub-clause (g) and (h) of clause 3 prohibit the alienation of the jewellery specified in the first and second schedules either by sale or otherwise during the life time of Fatima Fouzia and the life time of Ameena Marzia. Clauses 4 and 5 of the trust deed state as to what should happen to the articles of jewellery specified in the first schedule on the death of Fatima Fouzia and the jewellery specified in the second schedule on the death of Ameena Marzia. Clause 4 states that on the death of Fatima Fouzia, the trustees shall hold the articles of jewellery specified in the First Schedule (hereinafter called Fatima Fouzia's jewellery fund) upon trust to divide the same amongst her children and/or remote issues then living per stirpes in the proportion of two shares for every male child and one share for every female child. If the said Fatima Fouzia shall die without leaving any child or remoter issue the trustees shall hold Fatima Fouzia's jewellery fund upon trust for the Nizam of Hyderabad who may be suiviving at the date of the death of Fatima Fouzia. In case, there is no Nizam of Hyderabad existing at the date of the death of Fatima Fouzia then the trustees shall hand over the Fatima Fouzia's jewellery fund to the eldest male descendant in the direct male line of succession of the settlor according to law of primogeniture. Clause 5 contains identical conditions in respect of the articles of jewellery specified in the second schedule relating to Ameena Marzia also. Clause 7 of the trust deed states that on the death of Fatima Fouzia the trustees shall sell the jewellery specified in the First Schedule within a period of 3 years after the date of her death and invest the net sale proceeds of the articles in such manner as they think tit. In case the Settlor survives the said Fatima Fouzia and if he desires the postponement of the sale of the said articles beyond the said period of 3 years from the date of the death of Fatima Fouzia he shall be entitled to do so. Clause 8 of the trust deed contains similar terms and conditions in respect of jewellery mentioned in the Second Schedule relating to Ameena Marzia. Thus, the ultimate beneficiaries of the trust property are the children of Fatima Fouzia and Ameena Marzia. Clause 18 of the trust deed states that if any person that becomes entitled to the possession or receipt of any part of the corpus of the trust property is a minor the trustees shall pay a part of the income of any such part of the corpus of the trust property towards the maintenance and education of the minor. As and when the said person attains the age of majority. the trustees shall pay and hand over to him his share of the corpus of the trust property and his share in the accumulated income and investments.
(3.) THIS trust was created in the year 1951. In the year 1957, the Wealth-tax Act came into force w.e.f. 1 -4-1957, that is, from the assessment year 1957-58. Thereafter, the wealth-tax authorities started assessing the value of the jewellery in question to wealth-tax and started making huge demands right from the assessment year 1957-58 onwards. The trustees had no funds with them to meet the said arrear wealth-tax demands. The wealth-tax authorities were attempting to take coercive steps to recover the arrear demands. The settlor did not contemplate this contingency when he created the trust in 1951. He passed away in the year 1967. The arrear wealth-tax demand created a piquant situation to the trustees in the management of the trust property. The jewellery was lying idle as dead wealth in the lockers of a bank at Bombay. Therefore the trustees filed OP No. 210 of 1979 on the file of the Chief Judge, City Civil Court, Hyderabad under Section 34 of the Indian Trust Act seeking the Court's opinion regarding the management of the trust property and also as to how best the unforeseen liability should be met. The trustees would appear to have requested the Court for permission to sell one item of jewellery from the First Schedule and one item of jewellery from the Second Schedule for meeting the outstanding tax liability. Fatima Fouzia and Ameena Marzia who were respondents 1 and 2 respectively in OP No. 210 of 1979 opposed the sale of jewellery. The Chief Judge, City Civil Court by his order dated 21 -4-1980 permitted the trustees to sell as many items of jewellery as are necessary from the jewellery mentioned in Schedules 1 & 2 and meet the tax liability and deposit the balance sale proceeds and invest the balance sale proceeds in securities. Aggrieved by the said order of the City Civil Court, Ameena Marzia filed C.R.P. No. 4025 of 1980 on the file of the High Court of Andhra Pradesh contending, inter alia, that piece-meal sale of one or two items of jewellery for meeting the tax demands would not solve the problem, that similar sales of jewellery have to be made periodically for meeting the ever growing tax demands and that in case the jewellery is sold piece-meal in that fashion the corpus would dwindle down and ultimately there might be nothing left for the ultimate beneficiaries, that is, the children of Fatima Fouzia and Ameena Marzia. It would appear that Ameena Marzia suggested to the High Court that the entire jewellery mentioned in the First and Second Schedules may be sold and the sale proceeds may be invested in capital gains units and other securities and that out of the income arising on such investments the recurring tax demands of wealth-tax may be met. Fatima Fouzia who was also one of the respondents to the CRP filed in the High Court agreed to the suggestion made by her sister. She filed a memo in the High Court stating that she has no objection for the sale of the entire jewellery. The High Court after considering the facts and circumstances of the case and the position of law on the subject made an order dated 25-3-1981 permitting the trustees to sell the entire jewellery specified in schedules 1 and 2 of the trust deed. The operative portion of the High Court's order dated 25-3-1981 is as follows :
The trustees will be entitled to take proceedings for the sale of the jewellery in Schedules 1 and 2 of the trust deed as per the provisions of Sections 37 and 38 of the Indian Trusts Act in consultation with respondents 1 & 2, viz., Shahbzade Fatima' Fouzia and Shahbzade Ameena Marzia. It is however made clear that the sale of jewellery would be subject to confirmation by the Chief Judge, City Civil Court.
On oehalf of Ameena Marzia, a request was made to the High Court to direct the trustees to pay the interest that accrues on the sale proceeds to be deposited in securities to Fatima Fauzia and Ameena Marzia as they are being deprived of the right of wearing the jewellery. While negativing the said request the High Court observed as follows :
It may be noted that they did not wear the jewellery even on a single occasion previously and there is no likelihood of wearing the jewellery in future. At any rate such questions cannot be decided in this petition. It is open for respondents 1 & 2 to raise such points as they desire with regard to payment of interest only after the sale of the jewellery by separate applications. Whether, in the interest of the beneficiaries interest is to be paid to respondents 1 & 2 or to be allowed to be accumulated to the corpus is a question to be decided as and when such applications are filed.
The High Court granted permission to the trustees to sell the entire jewellery mentioned in schedules 1 and 2. The said permission was not subject to any condition that the interest accrued on the investment of the said sale proceeds shall be paid to the beneficiaries.;
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