COMMISSIONER OF INCOME TAX Vs. TRUSTEES OF H E H THE NIZAMS MISCELLANEOUS TRUST

JUDGEMENT

(1.) The late Nizam created a miscellaneous trust by means of a registered trust deed dated 6/08/1950, for the benefit of his family and his dependants. Large amounts of cash and securities specified in the Ist Schedule to the trust deed were settled upon the trust. The beneficiaries under the trust were mentioned in the several schedules to the trust deed. The portion of the trust deed which gives rise to this referential litigation is contained in clause 2(L)(iv) of the trust deed and it is, therefore, set out in full :

(2.) According to the directions of the settlor contained in the above clause, it is the duty of the trustees to set apart every year out of the income of the trust fund such sum as they deem fit but not exceeding Rs. 1.50 lakhs for the purpose of running a palace kitchen in order to supply daily food to the members of the settlors family and his dependants, whose names have been mentioned in the Fourth Schedule to the trust deed, so long as those beneficiaries continue to live in Nazri Bagh or Eden Garden or Goughs Bungalow. In the cases of those beneficiaries mentioned in the Fourth Schedule who cease to live for any reason other than their marriage in the aforesaid bungalows, the trustees are empowered to make cash payments to such beneficiaries at a sum not exceeding Rs. 200 per month for the specific purpose of meeting expenses of such persons daily food. During the lifetime of the settlor, the palace kitchen was run and maintained by the trustees in the premises of the King Kothi palace and food was supplied to the beneficiaries in accordance with the aforesaid directions by the trustees. But, subsequent to the death of the settlor on 24/02/1967, the trustees had found it impracticable to run the palace kitchen. Out of the 71 beneficiaries mentioned in Schedule IV, five had pre-deceased the settlor. One of the beneficiaries died subsequent to the date of the settlors death and 26 of the beneficiaries had ceased to reside in any one of the aforesaid three palaces for reasons other than marriage. In those circumstances, the trustees closed the palace kitchen and in order to meet the food needs of the beneficiaries, have been paying each one of them at the rate of Rs. 190 per month in accordance with an arrangement agreed to by the beneficiaries. Accordingly, the trustees had paid a total sum of Rs. 2,96,400 to the aforesaid beneficiaries for the two years, viz., 1/04/1967, to 31/03/1969. Similarly, for the accounting period ending 31/03/1970, the trustees have paid to the beneficiaries a total sum of Rs. 1,47,820.

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