COMMISSIONER OF INCOME TAX Vs. ANWAR BEGUM

JUDGEMENT

(1.) In this reference made under section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our determination :

(2.) The facts of the case in brief are : Nawab Sir Mir Osman Ali Khan Bahadur, the Nizam of Hyderabad, created a trust of three properties, namely, (i) jewellery mentioned in the first schedule of the trust deed, (ii) 5% tax-free cumulative preference shares in Greaves Cotton and Company Ltd. of the face value of Rs. 4,00,000, and (iii) a sum of Rs. 75,000 in cash for residence (for brevity the above three are called "the jewellery, the shares and the residence funds", respectively). In this reference, we are concerned with the share fund only. The trust is called "Sahebzadi Anwar Begums Trust". Clause 5(a) of the trust deed declares that until the death of Sahebzadi Anwar Begum, wife of Prince Muazzam Jah Bahadur (son of the Nizam), or until she was divorced from Prince Muazzam Jah Bahadur or until her remarriage, whichever event takes place first, the said Anwar Begum shall be paid a sum of Rs. 1,500 per month out of the income of the share fund and the balance of the income was to be accumulated. However, the trustees are vested with the absolute discretion to pay or spend out of the said accumulations for any unforeseen emergency or other necessary expenses of the said Anwar Begum. Sub-clauses (b) and (c) of clause 5 indicate the line of succession of the rights of the beneficiary in the event of death, divorce or remarriage of the said Anwar Begum. For the assessment years 1977-78 and 1978-79, the trustees as "representative assessees" were assessed to tax by the Income-tax Officer on the entire income from the share fund under section 160(1)(iv) of the Income-tax Act on the ground that the beneficiary - Anwar Begum - is entitled to receive the said income. Having failed before the Appellate Assistant Commissioner, the assessees preferred a second appeal before the Appellate Tribunal. The Tribunal held that excepting the amount of Rs. 1,500 per month which the beneficiary is entitled to receive, the other income received from the share fund is not exigible to tax. Hence, this reference.

(3.) Learned standing counsel for the Revenue contended that as per clause 5(a) of the trust deed, the beneficiary is entitled to receive the entire income from the share fund, and not merely the sum of Rs. 1,500 as specified therein, to meet emergency and other necessary expenses and that, therefore, the entire income is assessable to tax. To appreciate this contention, it is necessary to have a look at section 160(1)(iv) of the Income-tax Act, which is as under :