{"id":167558,"date":"1974-10-16T00:00:00","date_gmt":"1974-10-15T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-nawab-mir-barkat-ali-khan-bahadur-on-16-october-1974"},"modified":"2018-06-11T13:01:16","modified_gmt":"2018-06-11T07:31:16","slug":"commissioner-of-income-tax-vs-nawab-mir-barkat-ali-khan-bahadur-on-16-october-1974","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-nawab-mir-barkat-ali-khan-bahadur-on-16-october-1974","title":{"rendered":"Commissioner Of Income Tax, … vs Nawab Mir Barkat Ali Khan Bahadur on 16 October, 1974"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Income Tax, … vs Nawab Mir Barkat Ali Khan Bahadur on 16 October, 1974<\/div>\n
Equivalent citations: 1975 AIR 838, \t\t 1975 SCR (2) 453<\/div>\n
Author: H R Khanna<\/div>\n
Bench: Khanna, Hans Raj<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME TAX, HYDERABAD\n\n\tVs.\n\nRESPONDENT:\nNAWAB MIR BARKAT ALI KHAN BAHADUR\n\nDATE OF JUDGMENT16\/10\/1974\n\nBENCH:\nKHANNA, HANS RAJ\nBENCH:\nKHANNA, HANS RAJ\nSARKARIA, RANJIT SINGH\nGUPTA, A.C.\n\nCITATION:\n 1975 AIR  838\t\t  1975 SCR  (2) 453\n 1975 SCC  (4) 360\n\n\nACT:\nIndian Income-tax Act 1922-Trust created by assessee  Corpus\ndeposited  with\t the  Government-Government  agreed  to\t pay\ninterest  free\tof  all\t taxes.\t  Beneficiary  released\t and\nassigned  all rights in the trust to  the  settlor-assessee-\nWhether settlor assessee entitled to the same exemption from\ntaxation as the beneficiary.\n\n\n\nHEADNOTE:\nThe assess had created a trust of thirty lacs of rupees\t for\nthe benefit of his daughter-in-law on 8th October, 1949.  On\nthe  same  day\tan agreement was entered  into\tbetween\t the\nassessee  and  Government of India, the important  terms  of\nwhich were that the trustees would deposit the corpus of the\ntrust  with the Government of India; that the Government  of\nIndia  would pay interest on that amount at the rate of\t Re.\none  per cent per annum free of income-tax and other  taxes,\nto  pay out of the corpus such sum every year together\twith\ninterest accrued thereon or on the balance sum thereof which\nwould in all be a sum of Rs. one lac; that the Government of\nIndia  would  not  assess  or levy on  the  settlor  or\t the\ntrustees or any of the beneficiaries under the deed of trust\nany  income-tax, super-tax or other taxes in respect of\t the\nincome or corpus of the said sum of Rs. thirty lacs or\tpart\nthereof.  The beneficiary released, assigned and transferred\nher  rights, title and interest in the trust fund in  favour\nof the assessee and it was stated that the settlor would  be\nentitled  to  receive the amount which the  beneficiary\t was\nentitled  to free of income-tax, super-tax and other  taxes.\nThe Income-tax Officer held that the receipt of Rs. one\t lac\nper annum by the assessee from the trustees constituted\t the\nassessee's  income and so he was liable to pay tax  thereon.\nThe   order   was  affirmed  by\t the   Appellate   Assistant\nCommissioner  and  the Income-tax Appellate  Tribunal.\t The\nHigh  Court  held that though the amounts  received  by\t the\nassessee  in pursuance of the release deed were his  income,\nhe  was\t entitled to exemption from payment  of\t taxes\tupon\nthose amounts because of the agreement dated October 8, 1949\nthat  the  assessee  stood in the  shoes  of  the  original.\nbeneficiary under the trust deed and had become entitled  to\nall the benefits to which she was entitled.\nOn  appeal  to\tthis Court it was  contended  that  (1)\t the\nassessee  who  was  a  transferee  of  the  rights  of\t the\nbeneficiary under the trust deed, could not get the  benefit\nof that exemption and (2) the question of grant of exemption\nto  the\t payment  of tax to the\t assessee  could  not  arise\nbecause\t the  settlor got divested of the ownership  of\t the\ncorpus.\nDismissing the appeals,\nHELD : A fair reading of the agreement showed that the basic\nscheme\twas  that  the\tpayment of Rs.\tone  lac  under\t the\nagreement would be exempted from the payment of tax.   There\nis  nothing in the agreement that the Government  wanted  to\nshow a special favour to the beneficiary personally and that\nthe  same  would  have been with held  in  case\t the  person\nentitled to receive Rs. one lac was not the beneficiary\t but\nthe  settlor.\tThe  consideration  which  appears  to\thave\nweighed\t with the Government of India in agreeing  to  grant\nexemption in the matter of tax was the deposit of Rs. thirty\nlacs  with the Government.  That consideration held  equally\ngood  whether the person to whom the payment of Rs. one\t lac\nwas  made  by  the  trustees  was  the\tbeneficiary  or\t the\nassessee.  The exemption was of a general and  comprehensive\nnature\tand  was not restricted to  the\t beneficiary  alone.\nAgreement which the Government entered into with the settlor\nand  the trustees expressly granted exemption in the  matter\nof payment of tax in respect of the said sum Rs. one lac  to\nthe  settlor also.  The agreement makes it clear that in  no\nevent were the settlor and the trustees and the\t beneficiary\nto be taxed in respect of payment of Rs. one  lac. [461 B-D;\nF; H]\n(2)  In\t spite\tof  the\t knowledge  that  the  settlor\t had\ntransferred the amount of the trust the Government of  India\nagreed to grant exemption to the settlor in respect\n454\nof  any\t income\t from the corpus or part  thereof  It  would\nfollow\tthat  the  intention of the  parties  was  that\t the\nsettlor was to be exempt in any case from payment of tax  in\nrespect of income from that amount and that in the event  of\nthe  assessee becoming entitled to the\tbeneficial  interest\nunder the trust deed the exemption from payment of tax would\nbe available to him. [462 C-D]\n(3)  Under  s.\t58 of the Indian Trusts Act 1882 (Act  2  of\n1882)  the beneficiary competent to contract,  may  transfer\nhis  interest.\t The  present case is  not  covered  by\t the\nproviso\t because the beneficiary transferred  her  interest,\nnot during the subsistance    of  her marriage, but  at\t the\ntime of the dissolution of her marriage.\n[462 E-F]\n(4)  During  the three years in question the Government\t has\nacted  upon agreement dated October 8, 1949 even though\t the\nbeneficial   interest\tunder  the  trust  deed\t  had\tbeen\ntransferred  by Princess Niloufer to the assessee.   Despite\nthat transfer the Government paid the amount of Rs. 1,00,000\nunder the agreement.  The payment of Re. 1,00,000 under\t the\nagreement and the exemption in the matter of tax were linked\ntogether.   It\twould certainly appear\tanomalous  that\t the\nGovernment  should  keep  the corpus of the  trust  fund  in\ndeposit\t with itself on a nominal rate of interest of Re.  1\nper  cent per annum and, at the same time, decline  to\tgive\nthe benefit of the other part of the agreement which relates\nto  the exemption in respect of payment of tax.\t It is\ttrue\nthat there is no equity about tax.  The above dictum has are\nlevance\t when  the matter relates to giving  effect  to\t the\nprovisions  of tax law.\t The dictum would not,\thowever,  be\nattracted  when\t the  question before the court\t as  in\t the\npresent case is the construction of an agreement and finding\nout  the intention of the parties thereto as  manifested  by\nits terms. [462 G-H]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1184  to
\n1186 and 1198 to 1200 of 1970
\nFrom the Judgment & Order dated the 25th July, 1969 and 25th
\nSeptember, 1969 of the Andhra Pradesh High Court in Referred
\nCase No. 39 of 1965 and 10 of 1966 respectively.
\nM.   C.\t Manchanda,  B.\t B. Ahuja and S. P.  Nayar  for\t the
\nAppellant.\n<\/p>\n
S.   V.\t Gupte, Anwarulla Pasha, J. B. Dadachanji, A.  Subba
\nRao and Mrs. Anjali K. Varnia, for the Respondent.
\nThe Judgment of the Court was delivered by
\nKHANNA, J.-The short question which arises for determination
\nin  these  six civil appeals Nos. 1184 to 1186 and  1198  to
\n1200  of  1970 which have been filed on certificate  by\t the
\nCommissioner of Incometax against the judgment of the Andhra
\nPradesh High Court is whether, on the facts of the case, the
\nsum  of\t Rs. 1,00,000\/- received by the\t assesses  from\t the
\nTrustees of Princess Niloufer Trust constituted income under
\nthe Indian Income-tax Act, 1922 (hereinafter referred to  as
\nthe  Act)  and if so, whether the assesses was\tentitled  to
\nexemption from tax in respect of the income under the  terms
\nof  the agreement entered into with the Government of  India
\non  October  8,\t 1949.\tThe High Court to  which  the  above
\nquestion  was referred under section 66 (1) of the Act\theld
\nthat  though  the  payment of Rs. 1,00,000\/-  per  year\t was
\nincome\tin  the\t hand of the assessee, he  was\tentitled  to
\nexemption  from\t tax thereon under the\tterms  of  agreement
\ndated October 8, 1949.\n<\/p>\n
The  matter relates to the assessment of the income for\t the
\nyears  1952-53,1953-54\tand 1954-55 of Nizam Mir  Osman\t Ali
\nKhan Bahadur, ,who was the Ruler of Hyderabad State prior to
\nits integration with
\n455<\/span>
\nthe  Union  of\tIndia.\tA large number\tof  questions  arose
\nduring\tthe course of the assessment, but we are  no  longer
\nconcerned  with\t them.\tIndeed, most of the  questions\twere
\ndecided\t in  the  light of the decision\t of  this  Court  in
\nrespect\t of  the assessment of this very  assessee  for\t the
\nprevious  years.  The decision of this Court is reported  in
\n59 ITR 666.\n<\/p>\n
We  may\t now set out the facts giving rise to  the  question
\nreproduced  above  Prince Muazzam Jah Bahadur is the  second
\nson  of\t the assessee.\tThe Prince was married\tto  Princess
\nNiloufer in Nice (France) on November 12, 1931 according  to
\nMuslim\trites.\t On  October 8, 1949  the  assessee  made  a
\nsettlement of Rs. 30,00,000 by transferring that amount to a
\ntrust  created\ton  that day for  the  benefit\tof  Princess
\nNiloufer.   The\t assessee,  Sir\t Sultan\t Ahmed\tand   Shavax
\nArdeshir Lal, a nominee of the Government of India, were the
\nthree trustees appointed under the Trust Deed.\tOn the\tsame
\nday an agreement was entered into between the Government  of
\nIndia,\tthe assessee, as the settlor of the trust,  and\t the
\nthree  trustees\t for the deposit of Rs. 30,00,000  with\t the
\nGovernment  of\tIndia.\tThe amount deposited  was  to  carry
\ninterest  at the rate of Re. 1 per cent per annum.   Clauses
\n2, 3 and 4 of the agreement were as under :\n<\/p>\n
\t      “2.  The Government of India shall out of\t its
\n\t      revenue  pay to the Trustees interest  on\t the
\n\t      said sum of Rs. 30,00,000 (Rupees Thirty\tLacs
\n\t      )\t at the rate of one per cent per annum\tfree
\n\t      of income-tax, super-tax and all, other  taxes
\n\t      dues,  duties and other  assessments  whatever
\n\t      from  the date from which the said sum of\t Rs.
\n\t      30,00,000\t  (Rupees  Thirty  Lacs)  shall\t  be
\n\t      deposited by the Trustees with the  Government
\n\t      of  India until the said sum of Rs.  30,00,000
\n\t      (Rupees Thirty Lacs) shall be wholly paid\t out
\n\t      by  the Govt. of India in accordance with\t the
\n\t      provisions of these presents PROVIDED  HOWEVER
\n\t      that if and when the Government of India shall
\n\t      pay  to the Trustees any sum of money  out  of
\n\t      the corpus of the sum of Rs.30,00,000  (Rupees
\n\t      thirty lacs) in accordance with the provisions
\n\t      hereof,  interest\t shall cease to run  on\t the
\n\t      sums  so\tpaid  from the\tdate  on  which\t the
\n\t      Government of India shall pay the same to\t the
\n\t      Trustees and thereupon interest shall run only
\n\t      upon  the\t balance  of the  said\tsum  of\t Rs.
\n\t      30,00,000\t (Rupees thirty lacs) for  the\ttime
\n\t      being remaining in the hands of the Government
\n\t      of India.\n<\/p><\/blockquote>\n
\t      3.    The Government of India shall out of the
\n\t      corpus  of  Jr the said sum of  Rs.  30,00,000
\n\t      (Rupees  thirty  lacs)  pay  to  the  Trustees
\n\t      untill  the said corpus is exhausted such\t sum
\n\t      every  year  as  together\t with  the  interest
\n\t      accured  due on the said sum of Rs.  30,00,000
\n\t      (Rupees thirty lacs) or on the balance thereof
\n\t      for   the\t time  being  remaining\t  with\t the
\n\t      Government of India will in all makeup the sum
\n\t      of  Rs. 1,00,000 (Rupees one lac ) per  annum,
\n\t      the first, of such payments to be made on\t the
\n\t      1st  day\tof  November 1949 and  each  of\t the
\n\t      subsequent payments to be made on the 1st\t day
\n\t      of October of each and every year thereafter.\n<\/p><\/blockquote>\n
\t      456<\/span><\/p>\n
\t      4.The Government of India hereby declares\t and
\n\t      agrees  that  the\t interest  payable  on\t the
\n\t      security of these presents shall be free\tfrom
\n\t      income-tax,  super-tax  and all  other  taxes,
\n\t      dues,   duties,  and  assessments\t  and\tthat
\n\t      accordingly the Government of India shall\t not
\n\t      at  anytime assess or levy on the\t Settlor  or
\n\t      the  Trustees or any of them or on any of\t the
\n\t      beneficiaries under the said Deed of Trust any
\n\t      income-tax,  supertax  or\t other\ttaxes  dues,
\n\t      duties or assessments in respect of any income
\n\t      or  corpus  of the said sum of  Rs.  30,00,000
\n\t      (Rupees thirty lacs) so deposited or any\tpart
\n\t      thereof  shall not at any time be included  in
\n\t      the  income  of the  beneficiaries  under\t the
\n\t      provisions of the Indian Income-tax Act or any
\n\t      other Act relating to taxation on the  income,
\n\t      gains  and  profits of any  persons  in  India
\n\t      PROVIDED\tHOWEVER that if notwithstanding\t the
\n\t      provisions  there in above contained any\tsuch
\n\t      tax,  dues,  duties or  assessments  shall  be
\n\t      charged or levied on either the Settlor or the
\n\t      Trustees\tor the beneficiaries under the\tsaid
\n\t      Deed of Trust or any of them in respect of any
\n\t      income  or  corpus  of the  said\tsum  of\t Rs.
\n\t      30,00,000 (Rupees Thirty lacs so deposited  or
\n\t      any part thereof or if any part of such income
\n\t      or  corpus be included in the total income  of
\n\t      any  of  them for computing his or  her  total
\n\t      income for the purpose of assessment of his or
\n\t      her income, gains or profits by virtue of\t the
\n\t      provisions of the Indian Income-tax Act or  of
\n\t      any other enactment of law for the time  being
\n\t      in  force\t in that behalf in India,  then\t the
\n\t      Government  of India shall  forthwith  refund,
\n\t      reimburse and pay to such person the amount of
\n\t      such tax, dues, duties or assessments  charged
\n\t      or  levied on him or her and\/or the amount  of
\n\t      additional  tax,\tdues, duties  or  assessment
\n\t      which shall have been charged or levied on him
\n\t      or  her  by  reason or any part  of  the\tsaid
\n\t      income  or corpus being included in the  total
\n\t      income  of such person for the purpose of\t as-
\n\t      sessing  his  or her total  income,  gains  or
\n\t      profits  under  the provisions of\t the  Indian
\n\t      Income-tax  Act or any other law or  enactment
\n\t      for the time being in force in that behalf  in
\n\t      India”.\n<\/p><\/blockquote>\n
According to the trust deed, the settlor, who was  possessed
\nof a sum of Rs. 30,00,000, out of love and affection for his
\ndaughter  in-law Princess Niloufer was desirous of making  a
\nsettlement  of the said amount and for that purpose  he\t had
\ntransferred and handed over the amount to the trustees.\t The
\nTurst deed referred to the agreement which had been on\tthat
\nday entered into with the Government of India.\tThe trustees
\nwere  required\tto  deposit the said sum  of  Rs.  30,00,000
\nforthwith  with the Government of India in  accordance\twith
\nthe  agreement\twith the Government.  The trustees  were  to
\nhold  the  trust  fund in  accordance  with  the  directions
\ncontained  in the different sub-clauses of clause 2  of\t the
\ntrust  deed.   Sub-clause (a) required the  deposit  of\t the
\namount\twith the Government of India in accordance with\t the
\nagreement  entered  into on that day  with  the\t Government.
\nSub-clause (b) of the trust deed was as under :\n<\/p>\n
\t      “(b) To pay the net interest of the Trust Fund
\n\t      or  the balance thereof for the time being  as
\n\t      and when recovered from the
\n\t      457<\/span>
\n\t      Government of India to the said Princess\tfree
\n\t      of  Income-tax, Super-tax and all other  taxes
\n\t      whatsoever,  until  her death  or\t remarriage,
\n\t      whichever\t event shall happen  first  PROVIDED
\n\t      THAT in the event of the said Prince divorcing
\n\t      the  said\t Princess it shall be open.  to\t the
\n\t      Trustees to pay the net interest of the  Trust
\n\t      Fund  or of the balance thereof for  the\ttime
\n\t      being  to\t said Princess until  her  death  or
\n\t\t\t    remarriage,\t whichever event shall tak
\ne  place.\n<\/p><\/blockquote>\n
\t      first, if the Trustees are of the opinion that
\n\t      the divorce was not due to any act or  default
\n\t      on  the part of the said Princess AND THE\t de-
\n\t      cision  of the Trustees in this respect  shall
\n\t      be  final and binding on all persons  claiming
\n\t      under this clause and shall not be  questioned
\n\t      in any Court of Law or otherwise howsoever.”\n<\/p><\/blockquote>\n
Sub-clause (c) required the trustees to recover and  receive
\nfrom  the Government of India and to pay  Princess  Niloufer
\nout of the corpus of the trust fund as long as the same\t was
\navailable  such\t sum  every year as together  with  the\t net
\ninterest  of trust fund would in all makeup the sum  of\t Rs.
\n1,00,000  per  annum.  The first payment was to be  made  on
\nNovember 1, 1949 and each of the subsequent payments were to
\nbe  made  on  the first day of October in  each\t year.\t The
\npayment\t was to be made to the Princess free of\t income-tax,
\nsuper-tax and all other taxes.\tThe Princess was entitled to
\nthat sum even in the event of the Prince divorcing the\tsaid
\nPrincess;  provided  the  divorce  in  the  opinion  of\t the
\ntrustees was not due to any act or default on her part.\t The
\namount\twas  to be paid to the Princess until her  death  or
\nremarriage  whichever event was to occur first.\t In no\tcase
\nwas  the  Princess  to\treceive any sum\t in  excess  of\t Rs.
\n1,00,000  in  a year.  Subclause (d) required  that  on\t the
\ndeath  of the Princess, the corpus of the trust fund was  to
\nbe transferred to her issues from Prince Muazzam Jah Bahadur
\nin accordance with the Muslim law of succession.  Sub-clause\n<\/p>\n
(e) read as under:\n<\/p>\n
\t      “(e)  Subject to the provisions of  sub-clause\n<\/p><\/blockquote>\n
\t      (a), (b) (c) and (d) hereof  on and after\t the
\n\t      death  of\t the said Princess to  transfer\t and
\n\t      hand over the corpus of the Trust Fund or\t the
\n\t      balance thereof then remaining in the hands of
\n\t      the Trustees, as the case may be, to  Settlor,
\n\t      if he be then living, and in the event of\t the
\n\t      Settlor  predeceasing  the  said\tPrincess  to
\n\t      transfer and hand over the corpus of the\tsaid
\n\t      Fund or the balance thereof then remaining  in
\n\t      the  hands of Trustees as the case may  be  to
\n\t      the Nizam of Hyderabad living at that time.”\n<\/p><\/blockquote>\n
Unhappy differences arose between Prince Muazzam Jah Bahadur
\nand  Princess Niloufer.\t The husband and  wife\tconsequently
\nstarted\t living separately.  No child was born, to  Princess
\nNiloufer by marriage with the Prince.  On September 18- 1952
\ntwo documents were executed.  One of those documents related
\nto  the\t dissolution of the marriage of Prince\tMuazzam\t Jah
\nBahadur and Princess Niloufer.\tThe above dissolution of the
\nmarriage  in the opinion of the three trustees, was not\t due
\nto any act or default on the part of Princess Niloufer.\t The
\nother  document\t was  a deed of release.   The\tparties\t who
\nexecuted  the deed of release were Princess Niloufer of\t the
\nfirst part, the assesee of the second
\n458<\/span>
\npart,  Prince Mauzzam Jah Bahadur of the third part and\t the
\nthree trustees appointed under the trust deed dated  October
\n8,  1949 in respect of the sum of Rs. 30,00,000\t principally
\nfor  the  benefit of Princess Niloufer of the  fourth  part.
\nThe trustees appointed by a trust deed in respect of a trust
\ncreated by the assessee on October 8, 1949 for a sum of\t Rs.
\none  crore cithty two lakhs principally for the\t benefit  of
\nPrince Muazzam Jah Bahadur were also parties to this deed of
\nrelease.  By this release deed Princess Niloufer on  receipt
\nof  Rs. 10,00,000 from the asseseee released,  assigned\t and
\ntransferred  her  rights,  title and  interest\tin  Princess
\nNiloufer  Trust\t Fund in favour of the assessee and  it\t was
\nstated\tthat he would be entitled to receive the amounts  to
\nwhich  Princess\t Niloufer was entitled\tfree  of  Incometax,
\nsuper-tax  and\tother  taxes.  Clauses 1, 2  and  3  of\t the
\nrelease deed read as under:\n<\/p>\n
\t      “(1)  That in pursuance of the said  agreement
\n\t      between  the parties and in  consideration  of
\n\t      the  premises  and  of the  said\tsum  of\t Rs.<\/p><\/blockquote>\n
\t      10,00,000\t (Rupees  ten  lacs)  paid  by\t His
\n\t      Exalted Highness to the Princess on or  before
\n\t      the  execution of these presents (the  receipt
\n\t      whereof  the  Princess both hereby  admit\t and
\n\t      acknowledge  and\tof and from  the  same\tboth
\n\t      hereby acquit release exonerate and  discharge
\n\t      His  Exalted  Highness  for  every)  she\t the
\n\t      Princess\t both  hereby  release\tassign\t and
\n\t      transfer\tunto His Exalted Highness, a11\tthat
\n\t      the net interest of Princess Niloufer’s  Trust
\n\t      Fund  or of the balance thereof for  the\ttime
\n\t      being which is payable to the Princess free of
\n\t      income-tax,  super-tax  and ‘all\tother  taxes
\n\t      whatsoever  until\t her  death  or\t  remarriage
\n\t      whichever event shall happen first as provided
\n\t      in  clause 2 (b) of Princess Niloufor’s  Trust
\n\t      Deed  and\t which net interest  may  accrue  or
\n\t      arise  or\t become payable after  the  date  of
\n\t      these presents until her death or\t remarriage,
\n\t      whichever event shall happen first, from or in
\n\t      respect of the said Princess Niloufer’s  Trust
\n\t\t\t    Fund together with full power to deman
\nd sue for
\n\t      and  give\t discharges to\tPrincess  Niloufor’s
\n\t      Trustees for the said net interest of Princess
\n\t      Niloufer’s Trust Fund AND ALL the estate right
\n\t      title interest proper claim and demand of\t the
\n\t      Princess in to and upon the said net  interest
\n\t      as aforesaid to HAVE RECEIVE AND TAKE the same
\n\t      unto  His Exalted Highness absolutely  TO\t THE
\n\t      EXTENT  that  His Exalted\t Highness  shall  be
\n\t      entitled\tto receive from Princess  Niloufer’s
\n\t      Trustees\tthe  said net interest\tof  Princess
\n\t      Niloufer’s  Trust Fund free of income-tax\t and
\n\t      super-tax and all other taxes whatsoever which
\n\t      the  Princess would have received but for\t the
\n\t      present assignment.\n<\/p>\n
\t      45 9
\n\t      (2)   In\t further  pursuance  of\t  the\tsaid
\n\t      agreement and for the consideration  aforesaid
\n\t      the  Princess doth hereby release\t assign\t and
\n\t      transfer\tunto His Exalted Highness  the\tsums
\n\t      which  the  Princess is  entitled\t to  receive
\n\t      under clause 2(c) of Princess Niloufer’s Trust
\n\t      Deed being such sum payable to her by Princess
\n\t      Niloufer’s  Trustees  out\t of  the  Corpus  of
\n\t      Princess\tNiloufer’s Trust Fund every year  as
\n\t      together\twith  the net interest\tof  Princess
\n\t      Niloufer’s  Trust\t Fund payable to  her  under
\n\t      clause  2(b) thereof will in all make  up\t the
\n\t      sum of Rs. 1,00,000 (Rupees one lac) per annum
\n\t      and  which sum of Rs. 1,00,000 payable to\t her
\n\t      free  of income-tax, super-tax, and all  other
\n\t      taxes whatsoever and which sums may accrue  or
\n\t      arise  or\t become payable after  the  date  of
\n\t      these presents from or in respect of  Princess
\n\t      Niloufer’s Trust Fund
\n\t      (3)   Princess  Niloufer’s Trustees do  hereby
\n\t      covenant\twith His Exalted Highness that\tthey
\n\t      the  Princess Niloufer’s Trustees shall  until
\n\t      the  death  or  remarriage  of  the   Princess
\n\t      whichever event shall happen first, pay to His
\n\t      Exalted  Highness the net interst of  Princess
\n\t      Niloufer’s  Trust\t Fund  or  of  the   balance
\n\t      thereof  for  the\t time  being  as  and\twhen
\n\t      recovered from the Government of India free of
\n\t      income-tax,  super-tax  and  all\tother  taxes
\n\t      whatsoever as also such sum every year out  of
\n\t      the  corpus of Princess Niloufer’s Trust\tFund
\n\t      as together with the net interest of  Princess
\n\t      Niloufer’s Trust Fund as aforesaid will in all
\n\t      make  up the sum of Rs. 1,00,000\t(Rupees\t one
\n\t      lac) per annum TO THE EXTENT that the whole of
\n\t      the said sum of Rs. 1,00,000 (Rupees one\tlac)
\n\t      which  the Princess would have received  under
\n\t      clauses  2(b)  and 2(c) of the  said  Princess
\n\t      Niloufer’s  Trust\t Deed but  for\tthe  present
\n\t      assignment  shall\t be  paid  to  His   Exalted
\n\t      Highness free of income-tax, super-tax and all
\n\t      other  taxes  whatsoever so long as  the\tsame
\n\t      shall be available.”\n<\/p>\n
Pursuant to the above release deed, the sum of Rs.  1,00,000
\nreceived from the Government of India under agreement  dated
\nOctober\t 8,  1949 which used to be paid by the\ttrustees  to
\nPrincess  Niloufer, was paid during each of the three  years
\nwith which we are concerned to the assessee. The  income-tax
\nofficer\t held  that  the  receipt of  Rs.  1,00,000  by\t the
\nassessee  in  each year from the  trustees  constituted\t his
\nincome\tand he was liable to pay tax thereon.  The order  of
\nthe  income-tax\t officer  was  affirmed\t on  appeal  by\t the
\nAppellate Assistant Commissioner as well as by the Tribunal.
\nOn  application\t filed under section 66 (1) of the  Act\t the
\nfollowing  question,  along with some other  questions,\t was
\nreferred to the High Court .\n<\/p>\n
\t      “Whether on the facts of the case, the sum  of
\n\t      Rs. 1,00,000 received by the assessee from the
\n\t      Trustees of Princess Niloufer Trust was liable
\n\t      as income under the income Tax Act and if
\n\t      so,  whether  the\t assessee  was\tentitled  to
\n\t      exemption\t from  tax of the income  under\t the
\n\t      terms  of the Agreement entered into with\t the
\n\t      Government of India on 8\/10\/1949?”\n<\/p><\/blockquote>\n
460<\/span><\/p>\n
The High Court held, as already mentioned earlier, that\t the
\namounts of Rs. 1,00,000 received by the assessee in each  of
\nthe  three  years  in pursuance of the\trelease\t deed  dated
\nSeptember 18, 1955 consituted his income.  It was,  however,
\nheld  that  the\t assessee was  entitled\t to  exemption\tfrom
\npayment\t of  tax in respect of the amount  of  Rs.  1,00,000
\nbecause\t of  the agreement dated October 8,  1949.   In\t the
\nopinion,  of the High Court the assessee stood in the  shoes
\nof Princess Niloufer who was the original beneficiary  under
\nthe  trust deed and become entitled to all the\tbenefits  to
\nwhich the Princess was entitled.\n<\/p>\n
Mr.  Manchanda on behalf of the appellant has  assailed\t the
\njudgment  of  the  High Court and  has\tcontended  that\t the
\nexemption  from payment of tax in respect of the sum of\t Rs.
\n1,00,000  received under the trust deed could be availed  of
\nby Princess Niloufer.  The assessee, who was a transferee of
\nthe  rights  of Princess Niloufer’s under  the\ttrust  deed,
\ncould  not get the benefit of that exemption.\tNormally  an
\namount\treceived as income is exigible to tax, and  in\tcase
\nthe  assessee  seeks exemption from the payment\t of  tax  in
\nrespect\t of  that  income,  the onus  lies  upon  him.\t The
\nassessee,  according to the learned counsel, has  failed  to
\ndischarge  that\t onus.\tAs against the above, Mr.  Gupte  on
\nbehalf of the assessee-respondent has contended that a\tfair
\nreading of the agreement dated October 8, 1949 goes to\tshow
\nthat the benefit of exemption from payment of tax in respect
\nof  the\t sum of Rs. 1,00,000 was not  confined\tto  Princess
\nNiloufer only but could also be availed of by the  assessee.
\nAfter hearing the learned counsel for the parties at length,
\nwe  are of the opinion that the contention of Mr.  Gupte  is
\nwell founded.\n<\/p>\n
We  have set out above the material part of agreement  dated
\nOctober 8, 1949 which was entered into by the Government  of
\nIndia,\tthe  assessee and the three trustees, and  it  would
\nappear therefrom that an arrangement was arrived at  between
\nthe three parties in respect of the amount of Rs. 30,00,000.
\nIt  was agreed that the trustees would deposit\tthat  amount
\nwith  the Government of India.\tThe Government of India\t for
\nits  part agreed to pay interest on that amount at the\trate
\nof  Re.\t 1 per cent per annum free of income-tax  and  other
\ntaxes.\t The Government of India also agreed to pay  out  of
\nthe corpus of Rs. 30,00,000 such sum every year as  together
\nwith  interest accrued due on the said sum of Rs.  30,00,000
\nor  on the balance sum thereof would in all make up the\t sum
\nof Rs. 1,00,000.  It was further agreed that the  Government
\nof India would not at any time assess or levy on the settlor
\nor  the trustees or any of the beneficiaries under the\tdeed
\nof trust any income-tax, super-tax or other taxes in respect
\nof the income or corpus of the said sum of Rs. 30,00,000  or
\npart  thereof.\tThe rate of interest prevailing at the\ttime
\nof the agreement on Government and gilt-edged securities was
\nadmittedly  3 1\/2 to 4 per cent per annum.  In\tagreeing  to
\ngrant exemption from payment of tax in respect of the amount
\npayable\t under the agreement, the Government was  apparently
\ninfluenced by the consideration that it was paying  interest
\nat  the\t rate of Re.  1 per cent instead of  the  prevailing
\nrate  of Rs. 3 1\/2 to 4 per cent.  The\texemption  regarding
\ntax appears to
\n461<\/span>
\nhave constituted the quid pro quo for the saving made by the
\nGovernment  of India in the matter of payment  of  interest.
\nAt the time the agreement was entered into, the\t beneficiary
\nunder  the deed of trust was Princess  Niloufer.   Question,
\nhowever,  arises whether the benefit of that  exemption\t was
\nrestricted to Princess Niloifer or whether the assessee, who
\nstepped\t into the shoes of Princess Niloufer under the\tdeed
\nof  release,  could also avail of that benefit.\t So  far  as
\nthis aspect is concerned, we are of the opinion that a\tfair
\nreading of the agreement shows that the basic scheme of\t the
\nagreement  was\tthat the payment of Rs. 1,00,000  under\t the
\nagreement would be exempted from the payment of tax. in\t the
\nopening\t words of clause 4 of the agreement, the  Government
\nof  India  declared  and  agreed  unequivocally\t “that\t the
\ninterest payable on the security of these presents shall  be
\nfree  from income-tax, super-tax and all other taxes,  dues,
\nduties and assessments”.  There is nothing in the  agreement
\nthat  the  Government  wanted to show a\t special  favour  to
\nPrincess  Niloufer personally and that the same\t would\thave
\nbeen  withheld\tin case the person entitled to\treceive\t Rs.
\n1,00,000  was not the princess but her\tfather-in-law.\t The
\nconsideration  which  appears  to  have\t weighed  with\t the
\nGovernment  of India in agreeing to grant exemption  in\t the
\nmatter\tof  tax was the deposit of Rs.\t30,00,000  with\t the
\nGovernment.    That consideration held equally good  whether
\nthe person to whom  the payment of Rs. 1,00,000 was made  by
\nthe trustees was Princess     Niloufer or the assessee.
\nIt was also agreed under the agreement that “the  Government
\nof India shall not at any time assess or levy on the settlor
\nor  the trustees or any of the beneficiaries under the\tsaid
\ntrust  deed  any incometax, super-tax or  other\t tax,  dues,
\nduties\tor assessments.\t There is nothing in respect of\t any
\nincome\tor  corpus  of\tthe said sum  of  Rs.  30,00,000  so
\ndeposited  or any part thereof”.  Reference to the  settlor,
\ntrustees  or beneficiaries in the above passage\t shows\tthat
\nthe exemption was of a general and comprehensive nature\t and
\nwas  not  restricted to Princess Niloufer alone.   The\tsaid
\nreference would also not detract from the dominant intention
\nof the parties manifested in the agreement that the  payment
\nof Rs. 1,00,000 was to be free of tax.\n<\/p>\n
It  is not necessary to express opinion on the point  as  to
\nwhether\t the assessee to whom under clause (e) of the  trust
\ndeed  the corpus of trust fund or the balance  thereof\tthen
\nremaining in the hands of the trustees was to be paid on the
\ndeath  of  Princess  Niloufer was a  beneficiary  under\t the
\ntrust.\t The  assessee\tin any case as the  settlor  of\t the
\ntrust.\t The  fact that he became entitled  to\treceive\t Rs.
\n1,00,000  per  annum because of the release deed  would\t not
\naffect\tthe  status  of the assessee as\t the  settlor.\t The
\npresent is not a case wherein the release deed was  executed
\nin  favour of a stranger but, on the contrary,\tthe  release
\ndeed was executed in favour of the settlor and his status as
\nsuch was not obliterated by the fact that a release deed had
\nalso  been executed in his favour.  The agreement which\t the
\nGovernment  entered into with the settlor and  the  trustees
\nexpressely granted exemption in the matter of payment of tax
\nin respect of the said sum
\n462<\/span>
\nof Rs. 1,00,000 to the settlor also.  The agreement makes it
\nclear  that in no event were the settlor, the  trustees\t and
\nthe  beneficiaries to be taxed in respect of the payment  of
\nRs. 1,00,000.\n<\/p>\n
It  has\t been  argued on behalf of the\tappellant  that\t the
\nquestion of the grant of exemption on the payment of tax  to
\nthe  assessee  as :a settlor of the trust  could  not  arise
\nbecause\t as  a\tresult of the creation\tof  the\t trust,\t the
\nsettlor\t got divested of the ownership of the amount of\t Rs.
\n30,00,000.  Reference  in  this connection is  made  to\t the
\nrecitals  in the trust deed to the effect that\tthe  settlor
\nhad  transferred and handed over to the trustees the  amount
\nof  Rs. 30,00,000.  We are not impressed by  this  argument.
\nThe  Government of India was aware of the above recitals  in
\nthe  trust  deed at the time it entered into  the  agreement
\ndated October 8, 1949.\tThe copy of the trust deed was\tmade
\nan  annexure of the agreement and there was a  reference  to
\nthe  terms of the trust deed in the agreement.\tIn spite  of
\nthe knowledge that the settlor had transferred the amount of
\nRs.  30,00,000\tthe Government of India agreed to  grant  an
\nexemption  to the settlor in respect of any income from\t the
\ncorpus of the said amount of Rs. 30,00,000 or part  thereof.
\nIt  would  follow from the above that the intention  of\t the
\nparties\t was that the settlor was to be exempt in  any\tcase
\nfrom  payment  of  tax in respect of the  income  from\tthat
\namount\tand  that  in the event\t of  the  assessee  becoming
\nentitled  to the beneficial interest under the\ttrust  deed,
\nthe exemption from payment of tax would be available to him.
\nArgument  was also advanced by Mr. Manchanda  that  Princess
\nNiloufer, who was the beneficiary under the trust, could not
\ntransfer her beneficial interest in favour of the  assessee.
\nThis contention cannot be accepted in view of section 58  of
\nthe  Indian Trusts Act, 1882 (Act 2 of 1882),  according  to
\nwhich\tthe  beneficiary  if  competent\t to  contract,\t may
\ntransfer, his interest, but subject to the law for the\ttime
\nbeing in force as to the circumstances and extent in and  to
\nwhich he may dispose of such interest.\tThe present case  is
\nnot  covered  by the proviso to that section.\tThe  proviso
\nprevents  a married woman from depriving herself during\t her
\nmarriage  of  her beneficial interest in property  which  is
\ntransferred or bequeathed for her benefit.  As would  appear
\nfrom  the  resume of facts given  above,  Princess  Niloufer
\ntransferred  her interest not during the subsistence of\t her
\nmarriage but at the time of the dissolution of her marriage.
\nIt  may also be mentioned that during the three\t years\twith
\nwhich  we  are\tconcerned, the\tGovernment  has\t acted\tupon
\nagreement  dated October 8, 1949 even though the  beneficial
\ninterest  tinder  the  trust deed had  been  transferred  by
\nPrincess  Niloufer to the assessee.  Despite  that  transfer
\nthe  Government\t paid the amount of Rs. 1,00,000  under\t the
\nagreement.  The payment of Rs. 1,00,000 under the  agreement
\nand the exception in the matter of tax were linked to-ether.
\nIt  would  certainly appear anomalous  that  the  Government
\nshould\tkeep  the corpus of the trust fund in  deposit\twith
\nitself on a nominal rate of interest of Re.  1 per cent\t per
\nannum  and, at the same time decline to give the benefit  of
\nother  part of the agreement which relates to the  exemption
\nin respect of payment of tax. it is true that
\n463<\/span>
\nthere  is  no  equity about tax.  The  above  dictum  has  a
\nrelevance  when the matter relates to giving effect  to\t the
\nprovisions  of tax law.\t The dictum would not,\thowever,  be
\nattracted  when\t the  question before the court\t as  in\t the
\npresent case is the construction of an agreement and finding
\nout  the intention of the parties thereto as  manifested  by
\nits  terms.  What we are here essentially concerned with  is
\nwhether the parties to the agreement intended or it was ever
\nwithin\ttheir contemplation that the settlor should pay\t tax
\non  the\t amount of Rs. 1,00,000 in case\t of  the  beneficial
\ninterest under the trust deed devolved upon him, even though
\nthe  corpus of the trust fund remained in deposit  with\t the
\nGovernment on an interest of Re.  1 per cent per annum.
\nMr.  Manchanda has referred to the case of  Commissioner  of
\nIncometax Gujarat II v. B. M. Kharwar<\/a>(1) wherein it has been
\nlaid  down that the taxing authorities are not entitled,  in
\ndetermining  whether  a receipt is liable to  be  taxed,  to
\nignore\tthe legal character of the transaction which is\t the
\nsource of the receipt and to proceed on what they regard  as
\n“the  substance\t of the matter”.  The  taxing  authority  is
\nentitled,  and is indeed bound, to determine the true  legal
\nrelation resulting from a transaction.\tIf the parties\thave
\nchosen to conceal by a device the legal relation, it is open
\nto  the\t taxing\t authorities to unravel the  device  and  to
\ndetermine  the true character of the relationship.  But\t the
\nlegal effect of a transaction cannot be displaced by probing
\ninto  the  “substance of the transaction”.   This  principle
\napplies\t alike\tto  cases in which  the\t legal\trelation  is
\nrecorded in a formal document, and to cases where it has  to
\nbe  gathered from evidence oral and documentary-and  conduct
\nof  the\t parties  to the transaction.\tThere  can,  in\t our
\nopinion,  be  hardly  any  dispute  so\tfar  as\t the   above
\nproposition  is concerned.  The appellant,  however,  cannot
\nderive assistance from it.  The answer to the question\twith
\nwhich we are concerned in the present case depends upon\t the
\nterms  of agreement dated October 8, 1949.  In case we\tfind
\nthat the payment of Rs. 1,00,000 in each of the three  years
\nis  covered  by the above agreement, the  exemption  granted
\nthereby cannot be withheld from the assessee.
\nIn the result the appeals fail and are dismissed with costs.
\nOne hearing fee.\n<\/p>\n
P.B.R.\n<\/p>\n
Appeals dismissed.\n<\/p>\n
(1) [1969] 72 I.T.R. 603.\n<\/p>\n
464<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Income Tax, … vs Nawab Mir Barkat Ali Khan Bahadur on 16 October, 1974 Equivalent citations: 1975 AIR 838, 1975 SCR (2) 453 Author: H R Khanna Bench: Khanna, Hans Raj PETITIONER: COMMISSIONER OF INCOME TAX, HYDERABAD Vs. RESPONDENT: NAWAB MIR BARKAT ALI KHAN BAHADUR DATE OF JUDGMENT16\/10\/1974 BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-167558","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Income Tax, ... vs Nawab Mir Barkat Ali Khan Bahadur on 16 October, 1974 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-nawab-mir-barkat-ali-khan-bahadur-on-16-october-1974\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Commissioner Of Income Tax, ... vs Nawab Mir Barkat Ali Khan Bahadur on 16 October, 1974 - 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