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 August 6, 1950, for the benefit of his family and his dependants. Large amounts of cash and securities specified in the 1st 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 cl. 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 settlor's family and his dependants, whose names have been entioned in the Fourth Schedule to the trust deed, so long as those beneficiaries continue to live in Nazri Bagh or Eden Garden or Gough's Bungalow. In the cases of those beneficiaries mentioned in the Fourth Schedule who cease to live for any reason other than their marriage in the aforesaid bungalows, the trustees are empowered to make cash payments to such beneficiaries at a sum not exceeding Rs. 200 per month for the specific purpose of meeting expenses of such person's daily food. During the lifetime of the settlor, the palace kitchen was run and maintained by the trustees in the premises of the King Kothi palace and food was supplied to the beneficiaries in accordance with the aforesaid directions by the trustees. But, subsequent to the death of the settlor on February 24, 1967, the trustees had found it impracticable to run the palace kitchen. Out of the 71 beneficiaries mentioned in Schedule IV, five had pre-deceased the settlor. One of the beneficiaries died subsequent to the date of the settlor's death and 26 of the beneficiaries had ceased to reside in any one of the aforesaid three palaces for reasons other than marriage. In those circumstances, the trustees closed the palace kitchen and in order to meet the food needs of the beneficiaries, have been paying each one of them at the rate of Rs. 190 per month in accordance with an arrangement agreed to by the beneficiaries. ACCORDINGly, the trustees had paid a total sum of Rs. 2,96,400 to the aforesaid beneficiaries for the two years, viz., April 1, 1967, to March 31, 1969. Similarly, for the accounting period ending March 31, 1970, the trustees have paid to the beneficiaries a total sum of Rs. 1,47,820. The trustees have claimed before the ITO that in computing the total income of the trust for the asst. yrs. 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 s. 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 ITO as well as by the AAC. The reasoning of the AAC 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 s. 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 AAC 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 AAC confirmed the order of the ITO.

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