Document Fragment View

Matching Fragments

24. Now, the point for consideration is, whether there were any trustees for the trust created in June, 1961. To examine this point, it is necessary to keep the special facts arising in this case in view. Even though the trust was created and registered by the Nizam on August 12, 1957, it was treated as invalid, vide resolution dated March 14, 1959. The account with the Central Bank of India at Hyderabad, was resolved to be closed and the entire balance in the account and the corpus of that trust placed at the disposal of the Financial Adviser to the Nizam for being credited to the respective accounts of the khanazads in proportion to the amounts given to them as gifts by the Nizam before the creation of the trust. This resolution was passed by all the three trustees and was implemented by opening a new account and crediting the entire balance and the corpus of the trust in that account and Taraporevala was to operate the account. This position arose on account of the fact that the trust created on August 12, 1957, was treated as null and void. Even though the trust was treated as null and void for all practical purposes it was treated as a gift given to the khanazads. A new account was opened and Taraporevala was authorised to operate the same. In the very same account Rs. 23.5 lakhs was also credited. The various notes sent by the Nizam giving the list of names is already noted by us. The letter dated May 27, 1961, was also referred in which the Nizam wanted to know from Taraporevala the amount of the corpus of the trust including the interest which had so far been invested. Late Nizam wanted to find out whether all the beneficiaries who were to be provided with the monthly allowances could be provided out of the income of the trust. After knowing that position he wanted to increase or decrease the amount because he had already fixed the date by which time the trust is to be completed. This letter clearly indicates the intention of the settlor that he wanted to provide for the remaining khanazads and for that he wanted to add certain amounts to the corpus, if necessary. This reflects the intention of the settlor to enlarge the corpus of the original trust so as to provide for the remaining khanazads. As a consequence of this arrangement the persons who were the trustees for the trust dated August 12, 1957, would continue to be the trustees for the subsequent trust created in June, 1961.

Referred Case No. 63 of 1978 :

60. The question in this reference is, whether Rs. 23.5 lakhs could be excluded from the net wealth of the assessee for the assessment years 1962-63 and 1963-64. While answering the questions in Referred Case No. 59 of 1976, we held that a valid trust was created in June, 1961, and that it is a part and parcel of the earlier trust created on August 12, 1957. In other words, the amount of Rs. 23.5 lakhs would cease to be the asset of the Nizam and, therefore, not available for inclusion in his net wealth for the assessment years 1961-62 and 1962-63. In this connection, the learned counsel for the assessee referred to CIT v. Motilal Ramswaroop in support of the proposition that when once the wealth goes out of the hands of the assessee, that wealth including the interest accrued thereon, would not be available for assessment of either wealth-tax or income-tax in the hands of the assessee. In that case, the karta of the HUF, the assessee, gifted an amount of Rs. 4 lakhs to seven divided members of the family. The ITO did not accept the gifts on the ground that the karta of the assessee-family was not competent to make the gifts of a substantially large amount and he assessed the total income of the assessee including therein the interest on the said sum of Rs. 4 lakhs. The Tribunal directed that the interest be deleted from the assessment on the ground that under the law gifts made by the karta of an undivided Hindu family were not void. On a reference to the High Court under both the I.T. Act and the W.T. Act, it was argued for the Commissioner that if the gifts were void, then title to the amount of Rs. 4 lakhs remained vested in the assessee and, therefore, he was liable to pay income-tax. The High Court held that the interest accruing on the gifted amount did not accrue to the assessee-family for income-tax purpose, on either view whether the gift of Rs. 4 lakhs was void or voidable because the entire sum of Rs. 4 lakhs had passed into the hands of other persons and they were earning income from that amount and not the assessee. The I.T. Act taxes the person whose income it is and not the person who may per chance have title to the property through which the income has been earned. Answering the wealth tax reference the High Court opined that the amount of Rs. 4 lakhs together with the estimated interest thereon, ceased to be an asset of the assessee for wealth-tax purposes whether the gifts were void or voidable and that amount could not be taxed under the W.T. Act, In the present case also the settlor had parted with the corpus in June, 1961, and, therefore, it had ceased to be an asset of the settlor assessee. Further the successors of the assessee did not question the gift made by H.E.H, the Nizam and on the other hand Nawab Mir Barkat Ali Khan, the successor, has filed the gift-tax returns after the death of Nizam on April 28, 1969, as his legal representative declaring a taxable gift of Rs. 23.5 lakhs for the assessment years 1962-63. It was submitted by the learned counsel for the assessee that gift tax was also paid. In those circumstances, this asset has definitely ceased to be the wealth of the late Nizam.