COMMISSIONER OF INCOME TAX Vs. TRUSTEES OF H E H THE NIZAMS WEDDING GIFTS TRUSTS

JUDGEMENT

(1.) SINCE these two references have arisen from out of the trusts created by the late Nizam Nawab Mir Sir Osman Ali Khan Bahadur on September 5, 1951, in respect of jewellery specified in Schedules I and II of the Trust Deed for the use of his two grandsons, Prince Mukkaram Jah and Prince Muffakkam Jah, and since the facts are also the same, they can be disposed of by a common judgment.

(2.) THE objects of the trusts are enumerated in the trust deed. In the accounting year, the trustees sold the jewellery by virtue of their power conferred on them in Part I of the First Schedule and Part I of the Second Schedule. On April 6, 1971, the trustees sold the jewellery mentioned in Part I of the Second Schedule relating to Prince Mukkaram Jah for Rs. 5,98,000 and on November 18, 1971, they sold the jewellery mentioned in Part I of the First Schedule relating to Prince Muffakkam Jah for Rs. 8,27,600. THE trustees filed two separate returns in respect, of the two beneficiaries of the trust and claimed therein that the jewellery was sold in the year of account and it is not a capital gain and hence not taxable. THE ITO, however, issued notice under S. 139(2) of the IT Act calling upon the trustees to file the returns in the status of "AOP". THEreupon, the trustees filed a the return showing an income of Rs. 650 representing interest on Government of India securities, specified in the Third Schedule. THEy contended before the ITO that they cannot be assessed as "AOP" as there are two trusts in respect of the two grandsons and if at all assessment is to be made, there should be two assessments. THEy also contended that no tax can be levied on capital gains inasmuch as the definition of capital assets under S. 2(14)(ii) excludes jewellery held for personal use by the assessee. THE ITO did not accept these contentions. Hence, appeals were preferred by the trustees to the AAC. THE AAC accepted their contention that there are two trusts relating to the two grandsons, though there was only one document and, consequently, he held that a single assessment could not be made combining the income of both the trusts. He also held that the benefit under S. 2(14)(ii) does not enure to the benefit of the trustees. THE AAC cancelled the assessment. THE assessee, therefore, preferred an appeal before the Tribunal questioning the correctness of the finding of the AAC that the trustees are not entitled to the benefit of S. 2(14)(ii). THE Revenue also was not satisfied with the finding of the AAC that there are two trusts and that there should be two assessments. THE Revenue also took up another ground with regard to the actual value of the jewellery as on January 1, 1954, and filed an appeal before the Tribunal. THE Tribunal held that there are two trusts relating to two grandsons and there are distinct provisions relating to each of them, though a single document was drawn up and hence there should be two assessments. .Regarding the jewellery, the Tribunal held that the trustees did not use them for their personal use and the use if at all is for the beneficiaries, who are the assessees. THE Tribunal held that jewellery is exempted under S. 2(14) and, consequently, the beneficiaries cannot be liable to assessment. THE Tribunal, therefore, allowed the appeal filed by the assessees and dismissed the appeal preferred by the Revenue.

(3.) THE Tribunal allowed the said application and framed the said question and referred the same to this Court under S. 256(1). THE reference is registered as R.C. No. 28 of 1979. THE question No. 3 in R.C. No. 92 of 1978 and the question in R.C. No. 28 of 1979 are one and the same. Hence, all the questions in both the references can be answered by a common judgment.