1986 (9) TMI 385 - SC - Income Tax

Whether the incomes arising from the Reserve Fund and the Expenses Account of the Nizam s Family Trust Deed can be aggregated in single assessment - HC was right in holding that the settlor intended to create separate trusts in respect of the Reserve Fund and the Family Trust Expenses Account & that the respective incomes arising from the corpus of those trusts cannot be aggregated in one single assessment but must be assessed separately - question is answered in favour of the assessee

Summary

Issues:
Whether incomes from Reserve Fund and Family Trust Expenses Account can be aggregated for assessment.
Validity of assessments made under section 148 for specific years.

Analysis:
The judgment pertains to an appeal by the Revenue against a High Court decision favoring the assessee regarding the aggregation of incomes from the Reserve Fund and Family Trust Expenses Account for assessment. The trust deed created by the Nizam of Hyderabad established separate trusts for the Reserve Fund and the Family Trust Expenses Account. The Reserve Fund was to be used for special expenses benefiting family members, while the Family Trust Expenses Account was designated for trust management costs. The trustees were directed to handle these funds distinctly, with provisions for transferring amounts between them if necessary. The High Court ruled in favor of the assessee, stating that the settlor intended to create separate trusts for the two funds, and their incomes should be assessed separately.

The judgment emphasizes the distinct purposes and management of the Reserve Fund and the Family Trust Expenses Account, highlighting the absence of overlap or intermingling between the two funds. The trust deed's provisions clearly delineate the handling of each fund's corpus and income, reinforcing the separation of the trusts. The judgment references legal precedent supporting the creation of multiple trusts within a single document, further solidifying the conclusion that the Nizam intended to establish separate trusts for the two funds. The High Court's decision is upheld, affirming that the incomes from the Reserve Fund and the Family Trust Expenses Account must be assessed separately, contrary to the Revenue's position.

The judgment concludes by dismissing the appeals and upholding the High Court's decision in favor of the assessee. As the first question regarding the aggregation of incomes is answered in the negative, the second question about the validity of specific assessments under section 148 does not need to be addressed. The judgment affirms the separate assessment of incomes from the Reserve Fund and Family Trust Expenses Account, emphasizing the distinct nature of the trusts created by the Nizam's family trust deed.