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1971-72 1972-73   Rs.

Rs.

Trustees remuneration 39,000 39,000 Secretarys imprest 1,26,500 1,45,500 Bank charges 2,410 3,047 Legal expenses

-

3,116 Total :

1,67,910 1,90,663

6. The ITO allowed a deduction of 1-1/2% of the total receipts towards administrative expenses following an earlier order of the Tribunal in the case of H.E.H. the Nizams Jewellery Trust for the asst.yr. 1954-55.

7. The assessee preferred appeals to the AAC. While contesting the annual letting value of the building estimated by the ITO, the assessee contended that since the Nizam was the legal owner of the building till 28-2-1972, no income from the said property could be assessed in the hands of the assessee under the head Income from house property. Reliance was placed upon the decision of the Andhra Pradesh High Court rendered in CIT v. Nawab Mir Barkat Ali Khan (1974) Tax LR 90 (R.C. No. 20 of 1971 - 30-1-1973.) While upholding the contention of the assessee, the AAC held only a months income from the building could be included for the asst. yr. 1972-73. He, however, held that any rent received by the assessee from the building prior to 28-1-1972, could be assessed under the head "Income from other sources". The AAC also confirmed the decision of the ITO disallowing the administrative expenses claimed by the assessee except to the extent of relief granted by him.

26. It, therefore, follows that the levey of tax on the rental income from the property earned by the assessee during the assessment years in question cannot also be sustained, the same having suffered tax in the hands of the late Nizam.

27. Question No. 2. - Admittedly, a sum of Rs. 39,000 each was paid to the trustees towards their remuneration in the asst. yr. 1971-72 and a like sum in the asst. yr. 1972-73. Clause 2(b) of the deed of trust specifically provides for payment of remuneration to the trustees, not exceeding Rs. 15,000 per annum for the services expected of and render by them. The remuneration paid to the trustees, therefore, constitutes an overriding title in respect of that part of the income of the trust. In other words, the income of the trust liable to tax in the hands of the trustees is ascertainable only after deducting from the total income of the trust, the remuneration payable to the trustees. The remuneration payable to the trustees is not different in character from the payment required to be made to the beneficiaries in terms of the trust. The amounts for remuneration paid to the trustee, therefore, constitute deductible expenditure from the income of the trust.

28. The trust receives income from (i) securities (ii) capital gains; and (iii) other sources. It is not denied that the trustees incurred expenditure for the administration of the trust. What constitutes reasonable and permissible is the question that falls for determination. The Tribunal allowed 5% of the total receipts of income by the trust towards expenditure incurred wholly and exclusively for earning the income under s. 57 of the IT Act. Sec. 19(i) of the Act also permits deduction of a reasonable sum expended by the trustees for the purpose of realising interest on securities. As I already stated interest on securities also formed part of the income of the trust. The Tribunal, however, lost sight of the same. In our opinion, 7-1/2% of the net receipts of the income of the trust after deducting from its total income the remuneration paid to the trustees constitutes reasonable expenditure for administering the trust under ss. 57(i) and 19(i) of the Act.

29. We accordingly hold that, on the facts and circumstances of the case, the rent received by the trust from "Parade Villa" during the asst. yrs. 1971-72 and 1972-73, except for one month, cannot be assessed under the head "Income from other sources" or under any other head.

30. We also hold that, on the facts and circumstances of the case, the remuneration of Rs. 39,000 each paid to the trustees during the two assessment years in question constitutes deductible expenditure and that 7-1/2% of the net income of the trust after deduction from the total income the remuneration paid to the trustees constitutes deductible expenditure for administering the trust. Both the questions are accordingly answered in favour of the assessee. No costs.