TMI Blog1978 (8) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 1963-64 ? Referred Case No. 59 of 1976 relates to the assessment of the trustees of H.E.H. the Nizam's Dependants and Khanazads Trust, for the assessment years 1965-66 to 1971-72. Referred case No. 63 of 1978 is in respect of the assessment years 1962-63 and 1963-64 for the wealth of the Nizam Nawab Mir Barkat Ali Khan Bahadur, L/R of Mir Sir Osman Ali Khan Bahadur. The 1st question in Referred Case No. 59 of 1976 and the question referred in Referred Case No. 63 of 1978 relate to the amount of Rs. 23,50,000 and the point involved is whether a valid trust is created by the Nizam in the month of June, 1961, for this amount, and if no such valid trust is created whether this amount has to be included in the wealth of the Nizam. In the statement of the case sent in Referred Case No. 63 of 1978, the Income-tax Appellate Tribunal stated that the statement of case in Referred Case No. 59 of 1976 be treated as the statement in the present reference also. Sri P. Rama Rao, the learned council for the Revenue mainly raised the following points: 1. The applications before the companies to transfer the shares of the value of Rs. 23.5 lakhs in the name of the trustees were not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect Taxes. Some time in October, 1966, the settlor accepted that there was no valid and proper gift prior to the execution of the trust deed dated August 12, 1957, and, therefore, accepted the correctness of the gift. The late Nizam then wrote a letter to the Central Bank of India stating that the accounts that were maintained by the Financial Adviser on behalf of the members of the family of khanazads and dependants be closed and the balance be transferred to a new account in the name of Khan Bahadur C. B. Taraporevala, who in addition to being the Financial Adviser was also the secretary of the Trust. The settlor had an intention of creating another trust for the benefit of some of the khanazads that were left out at the time of creation of the earlier trust dated August 12, 1957. This trust was to be formed by June 12, 1961. The resolution passed by the trustees on March 14, 1959, also mentions about the intention of late Nizam with regard to creating this trust. Shares of the face value of Rs. 23.5 lakhs were transferred by June, 1961, and that amount formed part and parcel of the trust created on August 12, 1957. The ITO took the view that there was no transfer of ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to the detriment of the interest of the beneficiaries of the original trust dated August 12, 1957. The ITO, accordingly, held that the corpus of Rs. 23.5 lakhs and the income therefrom should be excluded from the wealth-tax and income-tax assessments of the trust for the assessment year 1965-66, and shall be considered in the personal assessment of the owner, i.e., the Nizam. The ITO followed the said order for the subsequent years 1966-67 to 1971-72. The AAC held that the parol trust is not a valid one and agreed with the findings of the ITO. On the assessee's appeals, the Appellate Tribunal passed one common order on March 31, 1975. It held that the order dated August 23, 1974, passed in Wealth-tax Appeals Nos. 64, 65 and 66 of 1972/73, etc., holding that a valid trust was created by the late Nizam to the extent of Rs. 23,50,000 and this trust formed part of the original trust dated August 12, 1957, would hold good in this appeal also. The Appellate Tribunal observed that the Nizam wanted to treat the amount pertaining to the two trusts as forming part of a single trust so that all the beneficiaries will be getting the amounts mentioned in the lists without any detriment to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d " that the entire corpus of this trust comprised of the accumulated balance which had already been given as gifts by His Exalted Highness to the various dependents and khanazads and which has since formed the corpus of the trust. The solicitors were, therefore, of the opinion that the trust executed on August 12, 1957, was null and void, as it was formed with the corpus which was already the property of the khanazads and H.E.H. had no legal right to take back what had previously been given away as gift to the khanazads. Resolved that; in view of the opinion of the solicitors, the trust executed on August 12, 1957, be declared null and void and cancelled forthwith, that the Trust Account with the Central Bank of India Ltd., Hyderabad, be closed immediately and the entire balance in the account and the corpus of the trust be placed at the disposal of the Financial Adviser to H.E.H. the Nizam of Hyderabad, for being credited to the respective accounts of the khanazads in proportion to the amounts given to them as gifts by H.E.H. before the creation of the trust. The meeting terminated with a vote of thanks to His EXALTED HIGHNESS the Nizam of HYDERABAD." From the facts stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded with Rs. 100 per head, was given. Their names are (1) Rahmat Ali, (2) Khadir Ali, (3) Yousuf Ali, (4) Riasat Ali, (5) Shareef Ali, and (6) Saghi Ali (Nazil Ali) (vide paper Book No. 3, page 265). There is another list of the names of eleven khanazads whose maintenance allowance (alongwith their wives) of Rs. 100 each is to be provided in " the Declaration of the Trust " which is to be completed in the near future. No date was mentioned. There is also another list containing 13 names along with the names of their wives who have to be provided in trust No. 3. On May 27,1961, a note was sent to Taraporevala enquiring about the amount of corpus of trust of 1957 which reads as under: Thus, I wish to know from Taraporevala, how much is the amount of corpus of trust including interest which has so far been invested. And the amount of allowance for each couple, i.e., husband and wife Rs. 300, for some girls who are proposed chosen for the young son of Laila Begum (including Poujice Begum with the young child Sadat Jah Rs. 300). Likewise, the niece of Ali Pasha, whose name is Quames and who is proposed for Baquer Ali Khan (This three hundred rupees will be her own amount). Whether al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,50.000 is also transferred to that account. The contention is that no known form of law was adopted to transfer to the account of Nizam's khanazads. We will now examine that aspect. The correspondence that took place between the Central Bank of India and Khan Bahadur C. B. Taraporevala is filed before us which is in Book No. 4, with a memo of clarification filed by the appellant before the Income-tax Appellate Tribunal, Hyderabad, A-Bench. This has been dealt with by the Income-tax Appellate Tribunal in para. 50 of its judgment. The view taken by it is as under: " He has mentioned in the notes written in his own hand which we have referred to earlier, the particulars of the remaining khanazads who were to be provided for in the new trust and the amounts to be paid to each beneficiary. In June, 1961, shares of the face value of (Rs. 23,50,000) 23.5 lakhs, in respect of four limited companies some of which were public, were deposited in the Central Bank of India in the account already opened under the name and style " account Nizam's khanazads ". We have not been furnished the actual letter addressed to the bank under which the shares were deposited, but the correspondence su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt from this correspondence that the bank was aware in 1961 itself that the shares in question were to be held by it in safe custody and the dividends realised from those shares were thereafter being credited to the 'Account-Nizam's khanazads'." After going through the entire correspondence we are of the opinion that the transfer of the securities of the face value of Rs. 23,50,000 was in the year 1961 itself. In Book No. 4, page No. 17, shows that the equity shares of the company of Kaveri Engineers Limited were issued and that they were received by the Financial Adviser to H.E.H., the Nizam khanazads. When the Appellate Tribunal has gone through the entire correspondence and was satisfied that there was transfer of asset of Rs. 23.5 lakhs in the shape of securities of four companies, it is not necessary for us to go into the matter again. The learned counsel for the assessee also, rightly in our view, submitted that when the Appellate Tribunal has accepted, after going through the entire correspondence that the asset is transferred, the method and manner of transfer becomes immaterial as the asset is completely transferred to the account of Nizam khanazads. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay from time to time think fit and also to appoint and employ any person or persons to look after the trust fund and keep the same in good order and condition or otherwise in connection with the administration of the trust at such remuneration and on such terms as the trustees may from time to time think fit. 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essor to Nizam, the late Nizam issued letter dated August 25, 1966, to the Central Bank of India, which is as under : " The Central Bank of India Ltd., Hyderabad, A.P. Dear Sirs, Ref : Current Account with your bank. I have to state that my grandson Prince Mukaram Jah has been recognised by the Govt. of India as my successor as the Nizam of Hyderabad. As such, after my lifetime, he will become the owner of the monies standing to the credit of only my personal accounts with your bank No. 670/56, for which separate instructions are being given by me. In addition to the above account, my Financial Adviser has also opened from time to time, under my instructions, the following accounts, on account of the Members of my family, my khanazads and other dependants. The monies standing to the credit of these respective accounts belong to the respective persons for whose benefits they have been opened and are being operated upon. I have no personal interest in any of these monies. For the sake of convenience and for the continuity of my accounts after my lifetime and to avoid any complications in future, I have decided that the present accounts should be closed and the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 31, 1963, Rs. 1,425; as on March 31, 1964, Rs. 8,456; as on March 31, 1965, Rs., 34,100; as on March 31, 1966, Rs.70,164; as on March 31, 1967, Rs. 1,67,193 ; and as on March 31, 1968, Rs. 1,97,956 were paid. The Nizam died in the month of February, 1967. The payments to the beneficiaries before his death were nominal and it is only after his death that substantial payments were made as shown above. It is also pointed out by the learned counsel for the Revenue that various amounts were paid towards the educational expenses, salaries to servants, nurses of khanazads, etc. Besides the above one finds that on March 31, 1967, 142 khanazads Were for the first time paid after the death of the Nizam. Keeping these various items in view, it was contended that the Nizam never created the trust of this amount nor acted as a trustee. The learned counsel for the assessee, on the other hand, pointed out that as per cl. (c) of para. 3, the income out of the trust could be utilised not only for payment of allowances, but also for the maintenance of educational and other benefits of such beneficiaries and when it comes to the knowledge of the trustees that any beneficiary had incurred any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the trustee should disclaim the trust and thereby revest the property in the settlor." The learned counsel for the assessee referred to Jefferys v. Jefferys [1841] Cr Ph. 138 and Re Wale: Wale v. Harris [1956] 1 WLR 1346; [1956] 3 All ER 280 as quoted in the same volume at pages 54 and 55, which are as under: " Thus, in Jefferys v. Jefferys a father voluntarily conveyed freeholds to trustees upon certain trusts in favour of his daughters, and also covenanted to surrender copyholds to the use of the trustees, to be held by them upon the trusts of the settlement. The settlor afterwards died without surrendering the copyholds, having devised certain portions of both freeholds and copyholds to his wife. In a suit by the daughters to have the settlement enforced, it was held that the court would carry out the settlement of the freeholds, for so far as they were concerned the trust was completely constituted, the title of the daughters complete, and the property actually transferred to the trustees. On the other hand, the court refused to enforce specific performance of the covenant to surrender the copyholds ; for in their case the trust was incompletely constituted, the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiaries of a trust is not essential to its validity as long as it is certain as to some, since as to those it will be held valid although not as to the uncertain ones. A trust conferring on the trustee ample power to determine the beneficiaries thereof has been held not uncertain. A trust leaving to the discretion of the trustee the selection of beneficiaries from a certain class is valid, even though he has discretion to exclude some members of the class altogether." Therefore, the facts noted above make the position clear that the settlor himself was acting as a trustee for the trust created by him in. June, 1961, for the benefit of the remaining khanazads. The learned counsel for the Revenue referred to the decision in Smt. Pankumari Kochar v. CED [1969] 73 ITR 373 (AP) in support of his contention that by a mere declaration a valid trust cannot be said to have been created. The first question that arose for determination in that case was, whether trust was in fact created or not. In paragraph 4 of that trust deed, the donor has stated thus: "The donor shall convey the properties specified above herewith to the trustees and the said trust shall be permanent and irrevoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust created in June, 1961, was a part and parcel of the earlier trust, the same trustees continued for the later trust of June, 1961. So it can safely be concluded that there was a trustee or trustees for the trust created in June, 1961. In view of this, we need not go into the aspect that the trust does not fail for want of trustees. However, it would suffice to refer to a passage pointed out by the learned counsel for the assessee in 0. P. Aggarwala's The Indian Trusts Act, 1882, 7th edn., at p. 239, which runs thus: " 12. Trust does not fail for want of trustee : No trustee named. Provided that a trust is clearly intended, the mere omission to appoint trustee will not invalidate the trust. A trust is not affected by the fact that no trustee is named, or by the fact that the trustee who is named either refuses or is unable, through death, disclaimer, or incapacity, or otherwise, to act, for equity never allows a trust to fail for want of a trustee. In such cases the trust does not fail but fastens upon the conscience of any person (other than a purchaser for value without notice) into whose hands the property comes." The learned counsel for the assessee also referred to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, the trustees found that there were other khanazads who belonged to the same class for which the Nizam wanted to create the trust. This was the reason, the learned counsel for the assessee submits, for the variance in the number of beneficiaries. It was also pointed out by the learned counsel for the assessee that the number has also swelled for the reason that even the amount payable to one khanazad, was split up and paid to his wife. In other words, the amount payable to one beneficiary is split up into two amounts and paid to him as well as to his wife, and the name of the beneficiary as well as his wife's name were shown in the list. For illustration, he pointed out, serial Nos. 128 and 129 in Sch. B to the said resolution dated April 15, 1968. Jawad Ali was to be paid Rs. 100, but this amount was split up into Rs. 50 and Rs. 50 and himself at serial No. 128 and his wife at 129 each were paid Rs. 50. Thus, in this manner, the number increased. Similar are serial Nos. 114-115 and 130-131. That apart, the learned counsel for the assessee submitted that when the class of beneficiaries is indicated by the settlor, the trustees could find out the persons who could be the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Appellate Tribunal rejected this claim of the appellant and the Tribunal at the instance of the appellant stated a case and referred for the consideration of the High Court [Allahabad Batik Ltd. v. CIT [1952] 21 ITR 169 (Cal)] the following question: " Whether, in the facts and circumstances of this case, the Income-tax Appellate Tribunal was right in disallowing Rs. 2,00,000 as a deduction under section 10(2)(xv) of the Indian Income-tax Act ? " The High Court answered the question in the affirmative and, therefore, an appeal was filed in the Supreme Court. On the construction of the several provisions of the deed of trust the High Court held : " I am of opinion that in view of these provisions of the trust deed coupled with the uncertainty as regards the beneficiaries and the absence of any obligation to grant any pension, no legal and effective trust was created, and the so-called trust must be held to be void." The question before the Supreme Court was thus one with regard to the validity of the trust. Their Lordships of the Supreme Court considered the various clauses contained in the deed of trust and held thus : " On a consideration of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be selected by them and even though the particular intention failed from the selection not being made, the court could carry into effect the general intention in favour of the class and that, therefore, the trust was valid. In support of this, reliance was placed on Brown v. Higgs (8 Ves. junior 561; 32 ER 473) and Burrough v. Philcox (5 Mylne and Craig Reports, page 72 ; 41 ER 299). Their Lordships of the Supreme Court quoted the position of law as emerges from these authorities as summarised by Lewin on Trusts, fifteenth edn., at p. 324, which runs thus: " Powers, in the sense in which the term is commonly used may be distributed into mere powers, and powers in the nature of a trust. The former are powers in the proper sense of the word that is not imperative, but purely discretionary; powers which the trustee cannot be compelled to execute, and which, on failure of the trustee, cannot be executed vicariously by the court. The latter, on the other hand, are not discretionary, but imperative, have all the nature and substance of a, trust, and ought rather, as Lord Hardwicke observed, to be designated by the name of trusts. 'It is perfectly clear,' said Eldon, 'that where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him and in the absence of any such obligation imposed upon anybody, it would be futile to urge that a valid trust was created in the manner contended on behalf of the appellant. Accordingly, the Supreme Court held that there was no valid trust created. The facts in this Supreme Court case are, as seen, altogether distinct and separate from the facts in the instant case. Here the intention of the donor is clear that he was adding further amounts to the corpus so as to meet the payments to be made to all the beneficiaries. The donor gave the lists of names of the beneficiaries with the amounts of payments to be made against their names. It was also made clear that the trust created in June, 1961, was for the benefit of the remaining khanazads and that on the date when the settlor made over the amount of Rs. 23.5 lakhs to the account of the Nizam's khanazads the names of the beneficiaries were ascertained and specific. If after the death of the Nizam the settlor, some more names are included in the khanazads by the trustees and the number of beneficiaries has increased thereby, that cannot be a ground to hold that the trust created in June, 1961 was an invalid one, because alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the trust created in 1957, and the interest accrued thereon put together yielded sufficient income to make payments even for the remaining khanazads he need not have increased the corpus. Since, it was found that the original corpus was not sufficient to meet the payments, he increased the corpus in June, 1961, and created the trust. In fact, the corpus pertaining to the trust of June, 1961, forms part and parcel of the original corpus of the trust created in 1957. At this stage, it is relevant to have a look at cl. 5 of the trust deed which runs thus: " 5. If at any time hereinafter the Settlor shall be desirous of settling any other funds or assets upon the trusts and subject to the powers provisions and declarations herein contained concerning the trust fund and shall transfer and hand over the same to the Trustees, they shall receive and hold the same upon the same trusts and subject to the same powers, provisions and declaration as those herein contained concerning the trust fund as if they had originally formed part of the Trust Fund hereby settled." This paragraph leaves no doubt that the settlor himself has provided that if he were to settle any further funds or ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heduled payments under the trust. The very trust created in 1957, shows that the original corpus remained in tact and in fact improved by accretion. The learned counsel for the assessee submitted that the corpus would be dwindled if the trust created in June, 1961, was confined to a corpus of Rs. 23.5 lakhs. But if the scheduled payments under both the trusts are made from out of the income from the corpus of both the trusts created in 1957 and 1961, the position would be different. This points out that the late Nizam wanted that the trust formed in June, 1961, should be part and parcel of the original trust created on August 12, 1957. There are no compelling reasons for the Revenue also to press this point since it will not be advantageous to the Revenue if the trust formed in June, 1961, is not treated as part and parcel of the original trust. We find sufficient force in this contention of the learned counsel for the assessee. It is to be noted that after change of the accounts in 1966, the trust created in 1957, was treated as a valid one. By the time, the validity of the original trust was accepted, the amount of Rs. 23.5 lakhs was deposited in the account of the Nizam's khanaz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 12, 1957, is not accepted the corpus itself in the long run disappears and it will not be advantageous to the Revenue also. In view of this conclusion of ours that the trust formed in June, 1961, forms part of the original trust dated August 12, 1957, it follows that the clause in the original trust dealing with the ultimate vesting of the corpus equally applies to the trust formed in June, 1961. The relevant clause (cl. 3) in the trust deed dated August 12, 1957, reads thus : " 3. The Trustees shall hold and stand possessed of the trust fund upon the following trusts, that is to say: . ...... (f) Subject to the above trusts powers and provisions, the Trustees shall hold and stand possessed of the Trust fund or the balance thereof as the case may be UPON TRUST to pay transfer and hand over the same to Prince Mukarram Jah Bahadur the grandson of the Settlor and the son of His Highness Prince Azam Jah Bahadar his heirs, executors, administrators or assigns absolutely. (g) In case by reason of the Transfer of Property Act or any provisions of the Mohamedan Law or any other provisions of the law any interest in the Trust fund or any part thereof does not take effect then and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y title is that of the trust though the endowment, to start with was invalid and void. In other words, the title of the trust now rests not so much on the provisions of the will, but on the possessory and adverse title acquired for its benefit by continuous and uninterrupted possession its trustees have acquired for over the statutory period. Thus as on the, date of the suit the trust was legal and valid, whatever might have been its infirmity to start with. No person, much less the 1st defendant who had been a trustee, can now question the legality of the ownership of the trust of these two houses. " In support of this view, we also referred to two decisions of the Privy Council (Srinivasa Moorthy v. Venkata Varada Aiyangar, ILR 34 Mad 257 and Hemchand v. Pearey Lal, AIR 1942 PC 64). Relying on these Privy Council decisions, a Division Bench of the Bombay High Court consisting of Beaumont C.J. and Kania J., (as he then was) held in Fazi Hussein v. Mohamadally, AIR 1943 Bom 366 that even though the wakf was void because of the reservation of a life estate in favour of the settlor, the trustees in possession under that void trust would acquire a good title by adverse possession a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder was not put in the Tribunal's record, but was for the first time filed in the High Court and, therefore, that document could not be looked into in this court. The learned counsel pointed out the following observation of the Tribunal: " As rightly pointed out by the learned counsel for the assessee, the late Nizam never admitted in his wealth-tax returns or income-tax returns that he was the owner of the shares in question. The circumstances under which Sri Taraporevala as Financial Adviser to the Nizam applied to the Income-tax Officer for credit of the tax deducted at source on dividends relating to the shares in respect of 1964-65 assessment were explained by the learned counsel and, in our opinion, that letter does not support the Department's stand. " The learned counsel, in this connection referred to CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC) in which it is laid down that the jurisdiction of the High Court in the matter of income-tax references made by the Tribunal under the Indian I.T. Act is an advisory jurisdiction and under the Act the decision of the Tribunal on facts is final unless it can be successfully assailed on the ground that there was no eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wealthtax 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 que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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