COMMISSIONER OF WEALTH TAX ANDHRA PRADESH HYDERABAD Vs. TRUSTEES OF H E H NIZAMS FAMILY REMAINDER WEALTH TRUST HYDERABAD

JUDGEMENT

(1.) These appeals by special leave are directed against a judgment of the High Court of Andhra Pradesh answering certain questions referred to it by the Tribunal in favour of the assessee. The questions are of some importance and complexity and they turn on the true interpretation of Sections 3 and 21 of the Wealth Tax Act, 1957 but since they can be answered only by applying the correct interpretation to the facts of the case, it is necessary to briefly recapitulate the facts giving rise to these appeals.

(2.) In the year 1950 the late Nawab Sir Mir Osman Ali Khan Bahadur, The Nizam of Hyderabad and Berar created several trusts out of which we are concerned in these appeals with the trust known as the Family Trust. The Nizam, by a Deed of Trust dated 16th May, 1950, created the Family Trust by transferring a corpus of Rs. nine crores in Government securities to the trustees constituted by him. The corpus was nationally divided into 175 equal units, out of which five units constituted a Fund called the Reserve Fund, 31/2 units constituted a Family Trust Expenses Fund and the remaining 166 1/2 units were allocated amongst the relatives mentioned in the first column of the Second Schedule in the manner specified in that Schedule, the number of units allocated to each individual relative being that mentioned in the second column. The Second Schedule was divided into two parts. Part I specified the names of the Nizam's wife Laila Begum, her five sons and two daughters and his another wife Jani Begum and her minor son as beneficiaries and in Part II were mentioned the names of the other wives, sons, daughters, daughters-in-law, sons-in-law, would-be sons-in-law and certain other ladies of the Palace. None of the beneficiaries mentioned in the Second Schedule, whether in Part I or Part II, was to be entitled to the corpus of the units allocated to him or her. Each was entitled to be paid the income from the units allocated to him or her and detailed provisions were made for the manner in which the units were to devolve after his or her death, Clause (4) of the Trust Deed provided that 30 out of 168 1/2 units shall be allocated amongst the relatives mentioned in Part I of the Second Schedule in such manner that one unit each shall be allocated to Laila Begum and Jani Begum, two units each shall be allocated to the daughters of Laila Begum and four units each shall be allocated to five sons of Laila Begum and the minor son of Jani Begum, So far as one unit allocated to Laila Begum was concerned, the trustees were directed by sub-clause (a) of Cl. (4) to pay the income of this one unit to Laila Begum during her lifetime and after her death, it was to be divided into 12 equal parts and 2 equal parts each were to be added to the four units allocated to each of her five sons and one equal part each was to be added to the two units allocated to each of her two daughters to be held upon the same trusts as those declared in respect of the original units allocated to each son or daughter as the case may be. Each of the five sons of Laila Begum was allocated four units and under sub-clause (b) of Cl. (4) it was provided that the income from these four units, supplemented by parts out of Laila Begum's unit on her death, shall be paid to the respective son during his lifetime and on and after his death, the corpus of the four units allocated to him together with the parts out of Laila Begum's unit added to it, shall be divided amongst his children or remoter issues per stripes in the proportion of two shares for every male child to one share for every female child standing in the same degree of relationship. If such son died without leaving any child or remoter issue him surviving. sub-cl. (b) of Clause (4) provided that the trustees shall divided the four units allocated to him together with the sub-sequently added parts our of Laila Begum's unit into such sub-parts and in such manner that they shall allocate two equal sub-parts each to each of the then surviving sons of Laila Begum by the settlor and the issue then surviving of any pre-deceased son and one equal sub-part each to each of the then surviving daughters of Laila Begum by the settlor and the issue then surviving of any pre-deceased daughter. The parts of such surviving sons and daughters of Laila Begum as are specified in the Second Schedule were to be added to and amalgamated with the basic units, four or two as the case may be, allocated to them and they were to be held on the same trusts as those declared in respect of such basic units. So far as concerns the sub-parts allocated to the surviving sons and daughters of Laila Begum who were born after the date of the Trust Deed, it was directed that such sub-parts would be taken by them absolutely and so also the sub-parts allocated to the issue of any pre-deceased son or daughter of Laila Begum were to be divided between them absolutely per stirpes in the proportion of tow shares for every male child to one share for every female child standing in same degree of relationship. Sub-clause (c) Cl. (4) made similar provisions with regard to the two units allocated to each of the two daughters of Laila Begum. The income of the two units together with the subsequently added parts out of Laila Begum's unit was to be given to the respective daughter for her lifetime and on her death, the corpus was to be divided amongst her children and remoter issue per stripes in the proportion of two shares for every male child to one share for every female child standing in the same degree of relationship and if she died without leaving any issue her surviving, the corpus was to be divided into such sub-parts and in such manner that one equal sub-part was to go to each of the then surviving children of Laila Begum by the settler and the issue then surviving of any pre-deceased son or daughter. The other provisions in regard to the interest taken by these beneficiaries in that corpus were the same as in sub-clause (b) of Cl. (4). Sub-clause (d) of cl. (4) dealt with the unit allocated to Jani Begum and provided that the income of this unit would go to Jani Begum and provided that the income of this unit would go to Jani Begum during her lifetime and on her death, the corpus of this unit would be added to and amalgamated with the four units allocated to her minor son Imdad Ali Khan to be held upon the same trusts as those declared in respect of those four units and if nether Imdad Ali Khan nor any child or remoter issue of his was living at the date of the death of Jani Begum, then this one unit of Jani Begum was to be held upon the same trusts as the one unit allocated to Laila Begum on her death. Similarly, sub-clause (e) of Clause (4) provided that the income of the four units allocated to Imdad Ali Khan shall be paid to him during his lifetime and on his death, the corpus shall be divided amongst his children and remoter issue per stripes in the proportion of two shares for every male child to one share for every female child standing in the same degree of relationship and if he dies without leaving any child or remoter issue him surviving, the corpus shall be held on the same trusts as those upon which the four units allocated to any of the five sons of Laila Begum are held on the death of such son without leaving any child or remoter issue him surviving. It will thus be seen that detailed and elaborate provisions were made in the Trust Deed regarding the disposition of the different units allocated to the various beneficiaries specified in Part I of the Second Schedule and every contingency was taken care of in laying down the mode of devolution, so that at any particular point of time, one could always say who would be the beneficiaries entitled to the corpus, if the owner of the life interest were to die at that point of time.

(3.) The remaining 136 1/2 units left after the allocation of 30 units as set out in Cl. (4) were dealt with in Cl. (5) of the Trust Deed. These 136 1/2 units were allocated to the respective relatives of the settlor specified in Part II of the Second Schedule in the respective proportions set out against their names. Sub-clause (a) of Cl. (5) provided that the income of the respective unit or units or fraction thereof allocated to the respective relative shall be paid to them respectively for life. But so far as the 15 daughters of the settlor were concerned, to each of whom three units were allocated, it was provided that out of the income of such three units, each daughter was to be paid only 2/3rd part of the income and the remaining 1/3rd part was to be set apart by way of a reserve fund. Such reserve fund was to be utilised for any special, unusual, unforeseen or emergency expenses relating to the particular daughter from whose income the reserve fund was created and on her death, the reserve fund or the unutilised portion thereof was to be amalgamated within the three units of the corpus allocated to her, to be held on the same trusts as those declared in respect of such three units. There was also a special provison made regarding Nawab Rashid Nawaz Jung, the son-in-law of the settlor, that, though allocated one unit, he was not to receive the income of that unit so long as he received the allowance as Amir of the Vikar-al-Mulk-Paigah and till then, the income of this unit was to be added to the five units allocated to the Reserve Fund created under Cl. (6) to be held upon the same trusts as those declared in respect of such Reserve Fund. The other son-in-law and the future husbands of the 13 other daughters of the settlor were also allocated 1/2 unit each and it was provided that until the marriage of each of these 13 daughters the income of 1/2 unit allocated to her future husband should be set apart as a reserve fund and utilised in the same manner as the Reserve Fund of such daughter created out of one-third part of the income of the three units allocated to her and after her marriage, the income of such 1/2 unit should be paid to her husband. So far as Fauzia Begum, the daughter of the second son of the settlor was concerned, a special provision was made that the income of two units allocated to her should be set apart and credited in her account called Fauzia Begum Reserve Fund and on the death of the second son of the settlor during the minority of Fauzia Begum, the income to these two units should be paid to a committee of management for the maintenance, education, welfare, advancement in life and benefit of Fauzia Begum until she attained the age of majority and during the minority of Fauzia Begum, the trustees were also authorised to spend out of the Reserve Fund such sums as may be necessary for any special, unusual, unforeseen or emergency expenses for her benefit and on Fauzia Begum attaining the age of majority, the trustees were to hand over the reserve fund or the unutilised portion thereof to her absolutely and also to pay to her the income of the two units during her lifetime. Sub-clause (b) of Clause (5) provided for the devolution of the respective unit or units or fraction thereof allocated to the respective relatives on their death. It was directed that on the death of any of these relatives, the corpus of the unit or units or fraction thereof allocated to him or her should be divided and distributed, subject to some restrictions, amongst the children and remoter issue per strips in the ratio of 2:1 as between male and female children standing in the same degree of relationship. The contingency of any of these relatives dying without leaving any child or remoter issue him or her surviving was dealt with in sub-clause (c) of Clause (5) which provided that in that event the unit or units or the fraction thereof allocated to such relative should be divided amongst the other relatives of the settlor but in accordance with certain specified rules. Sub-clause (d) of Clause (5) made a special provision in regard to Dulhan Pasha Begum, namely that on her death, the five units allocated to her should be added to and amalgamated with the four units allocated to her daughter Shahzadi Begum, to be held upon the same trusts as those declared in respect of such four units. It will thus be seen that according to the scheme envisaged in Cl. (5), each of the relatives specified in Part II of the 2nd Schedule was given life interest in the unit or units or fraction thereof allocated to him or her and on his or her death, subject to certain special provisions in regard to some of the relatives, the corpus of such unit or units or fraction thereof was to be divided and distributed amongst the children or remoter issue and if any of the relatives died without leaving any child or remoter issue him or her surviving, the corpus allocated to him or her was to go to the other relatives in accordance with certain specified rules.