1992 P T D 273

[Supreme Court of India]

Present: S. Ranganathan and K. Ramaswamy, JJ

COMMISSIONER OF INCOME-TAX

versus

NAWAB MIR BARKAT ALI KHAN

Civil Appeals Nos. 1404 to 1407 and 1407A of 1975 with Civil Appeals Nos.1208 to 1212 of 1979 and 2989 of 1980.

(Civil Appeals Nos.1404 to 1407 and 1407A of 1975 are by special leave from the judgment and order dated January 20, 1973, of the Andhra Pradesh High Court in C.R. No.20 of 1971).

Income-tax---

----Total income---Inclusions---Trust where settlor has right to reassume income or assets of trust---Absolute discretion to settlor to direct trustee to utilise income or corpus for the religious and charitable objects specified in the deed does not amount to right to reassume---Income cannot be included in total income of the settlor---Assets transferred for benefit of wife or minor child---"Ladies of position" of Nizam's palace---Not wives of Nizam and their children not legitimate---Loose reference to the ladies as "wives"---Not unequivocal or categorical acknowledgment---Income from trust for benefit of such ladies and their minor children not includible in settlor's total income-- Indian Income-tax Act, 1961, S.64(v)---Income-tax Act, 1922, S.16(3)(b).

The late Nizam of Hyderabad had constituted a trust known as "the Nizam's Pilgrimage Money Trust". Clause 3(c) of the trust deed authorised the trustee to utilise the income of the trust, inter alia, "during the lifetime of the settlor to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places ...and making religious offerings and expending monies for charitable purposes as the settlor in his absolute discretion may, from time to time, think fit and require out of the income as well as the corpus..." The question was whether the income of the trust fund had to be included in the total income of the Nizam, the settlor, under the first proviso to section 16(1)(c) of the Income-tax Act, 1922, or section 61 of the Indian Income-tax Act, 1961, on the ground that he had the right to reassume directly or indirectly power over the income or assets. The High Court held that though, under clause 3(c), the settlor had a wide discretion to decide upon the manner in which the income of the fund could be utilised, such power was conferred upon him only in his capacity as trustee, and did not attract the first proviso to section 16(1)(c) of the 1922 Act or section 61 of the 1961 Act. The settlor did not have the right to reassume power, directly or indirectly, over the income or the assets. The Department took the matter in appeal to the Supreme Court. The Supreme Court dismissed the appeals holding that the conclusion arrived at by the High Court following the exposition of section 16 (1)(c) of the 1922 Act by decisions of the Supreme Court was correct.

C.I.T. v. Nawab Sir Mir Osman Ali Bahadur (1985) 153 ITR 514 (AP) approved.

The Nizam had created certain trusts for the benefit of three ladies M, I. and J arid the minor sons born to L and J. Though The Nizam had referred to them as hiss "wives" in four trust deeds and in another deed he had referred to M as his "wife" and "ladies of position" adding within brackets the word "wife", the Nizam a statement before the Income-tax Officer and filed an affidas4t arse: trig that they were not his wives though they enjoyed a special status of ladies of position in the palace There was also a Firman in which J was deferred to as a lady of position. The Department contended that there was are acknowledgment of the ladies by the Nizam ass his wives and, therefore the income of the trusts in favour of those ladies and minor sons of two of them had to be included in the total income of the Nazim in view of section 16(3)(b) of the 1922 Act and section 64(v) of the 1961 Act:

Held, rejecting the contention of the Department that the principle of acknowledgment could not brought two application. There was no unequivocal or categorical acknowledge by the Nizam that the ladies were his wives and, therefore, income arising from the assets transferred by the Nizam to trusts for the benefit of M, L and J and the minor sons of L and J were not income arising to the "wife or minor child" of the assessee within the meaning of section 16(3)(b) of the 1922 Act or to the "spouse" and "minor child" within the meaning of section 64(v) of the 1961 Act.

Decision of the Andhra Pradesh High Court affirmed.

C.I.T. v. jayantilal Amratlal (195) 67 ITR 1 (SC); C.I.T. v, Raghbir Singh (S) (1965) 57 ITR 408 (SC); Hrisliikesh Ganguly v. C.I.T. (1971) 82 YTR 16 (SC); IT.O. v. Nawab Mir Barkat Ali Khan Bahadur (1974) 97 ITR 239 `SC) and Nawab Sir Mir Osman f1 Fr Khan Bahadtir v. 13.0- (1970") 75 ITR 133 (AP) ref.

B.B. Ahuja and Ms. A. Subhashini, Advocates for Appellant.

Y. Ratnakar, Advocate and Mrs. Anjali K. Verma, Advocate (of J.B. Dadachanji & Co.) for Respondent.

JUDGMENT

Civil Appeals Nos.1404--07 and 1407A of 1975.

These five appeals arise out of the assessments of Nawab Mir Barkat Ali Khan as the legal representative of the late Nizam of Hyderabad (hereinafter referred to as "the assessee"). The appeals arise out of the assessments made on the assessee for the assessment years 1959-60, 1960-61, 1961-62, 1962-63 and 1963-64. Two questions which are common for all these assessment years were answered by the High Court of Andhra Pradesh in favour of the assessee and against the Revenue and the Commissioner of Income-tax has preferred these appeals. We shall deal with these two questions.

The first question was in the following terms:

"Whether, on the facts and in the circumstances of the case, the incomes of Rs.83,709, Rs.83,709, Rs.84,076, Rt.84,779 and Rs.96,431 for the assessment years 1959-60, 1960-61, 1961.-62, 1962-63 ands 1963 64, respectively, relating to HEH the Nizam's Pilgrimage Money Trust are not taxable in the assessee's hands by reason of section 16(1)(9) of the Indian Income-tax Act, 1922 /sections 60 and 61 of the Income-tax Act, 1961?"

The High Court answered this question in favour of the assessee, following its earlier decision in C.I.T. v. Nawab Sir Mir Osman Ali Bahadur (1985) 153 ITR 514 (AP). The short point arose this way. The assessee had constituted a trust known as "the Nizam's Pilgrimage Money Trust".

Clause 3(c) of the trust deed authorised the trustees to utilise the income of the trust, inter alia:

"During the lifetime of the settlor, to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places Hedjaz and Iraq and making religious offerings and expending monies for charitable purposes as the settlor in his absolute discretion may from time to time think fit and require out of the income as well as the corpus of the trust fund in such manner and to such extent as the settlor may, from time to time, direct and for all or any of such purposes as aforesaid to pay such monies -out of the income of the corpus of the trust fund as the settlor may from time to time require."

The Department's argument was that this clause gave the settlor/assessee the right to reassume power directly or indirectly over the income or assets which had been transferred to the trustees under the Trust Deed. This question was discussed at length by the Andhra Pradesh High Court. Relying upon the exposition of section 16(1)(c) of the Indian Income-tax Act 1922 in the decision of this court in CIT v. S Raghbir singh (1965)57 ITR 408, C.I.T. v. jayantilal Ameratlal (1968) 67 ITR 1 and HrishikeshGanguly v. C.I.T. (1971) 82 ITR 160, the High Court came to the conclusion that though, under the clause, the settlor had a wide discretion to decide upon the manner in which the income from the trust could be paid for the above purposes, such power was conferred on him only in his capacity as trustee and did not attract the first proviso to section 16(1)(c) of the 1922 Act/section 61 of the 1961 Act. The High Court, accordingly, answered the question against the Department.

We have gone through the judgment of the High Court and we are of the opinion that the conclusion of the High Court follows upon the exposition of section 16(1)(c) of the Indian Income-tax Act by the decisions of this Court earlier cited. It has also been brought to our notice that the Commissioner of Income-tax preferred a special leave petition against the judgment reported in C.I.T. v. Nawab Sir Mir Osman Ali Bahadur (1985) 153 ITR 514 (AP), but the said petition was dismissed by this Court. In the circumstances mentioned above, we are of the opinion that the High Court answered the question correctly and that there are no grounds to interfere.

The second question which arises for our consideration is worded as follows:

"Whether, on the facts and in the circumstances of the case, the income arising for the respective assessment years from the assets transferred by the assessee to the trusts for the benefit of (i)(a) Smt. Mazharunnisa, (b) Smt. Laila Begum, and (c) Smt. Jani Begum, and

(ii) the minor sons born of Smt. Laila Begum and Smt. Jani Begum was, income arising to `wife and minor child' within the meaning of section 16(3)(b) of the Indian Income-tax Act, 1922, and to `spouse' and `minor child' within the meaning of section 64(v) of the Income- tax Act, 1961?"

The short question urged by the Department is that the three ladies mentioned in the above question were the wives of the assessee: that, likewise, the sons born of two of them were also legitimate children; and that, therefore, the provisions of section 16(3)(b) of the Indian Income-tax Act, 1922, and the corresponding section 64(v) of the Income-tax Act, 1961, were attracted it is pointed out that the same question came up for consideration, through in a slightly different context, before the Andhra Pradesh High Court in Nawab Sir Mir Osman Ali Khan Bahadur v. I.T.O. (1970) 75 ITR 133. It appears that an appeal was preferred against this judgment which has been disposed of by this Court by judgment in I.T.O. v. Nawab Mir Barkat Ali Khan Bahadur (1974) 97 ITR 239. However, this Court left open the question whether the three ladies mentioned above were wives of the settlor as contended for by the Department

Sh. B.B. Ahuja, learned counsel for the appellant, draws our attention to the only facts which are available to him, namely, the facts which have been already discussed in the judgment of the High Court in Nawab Sir Mir Osman Ali Khan Bahadur (1970) 75 ITR 133 (AP). It appears that in four trust deeds executed on May 10, 1950, August 6, 1950, March 23, 1957 and December 5, 1957, the settlor has described the abovementioned persons as his wives. However, in a trust deed executed on December 29, 1958, one of the ladies, namely, Mazharunnisa, was referred to as his wife and the other two--Laila Begum and Jani Begum---were referred to as "ladies of position", adding within brackets the word "wife". Shri. Ahuja, on the strength of certain passages in Mulla's Principles of Mahomedan Law (19th Edition, para. 268 on page 230 and para. 344 on page 281) submitted that, under the Mahomedan law, where no marriage formalities had been gone through, it was sufficient to establish the validity of a marriage to show that there was an acknowledgment that a particular person was the wife of the person who makes the acknowledgment.

There is no doubt that there has been some vacillation in the description by the settlor of the three ladies in question but we are unable to accept the plea of Shri Ahuja that these descriptions can be treated as a categorical acknowledgment that the ladies were the wives of the settlor. In fact, in the deeds of 1950, though they were described as wives, the expression "wife" was apparently loosely, employed to include also persons who were admitted by the appellant into his palace and given a particular status. This is clear from the parenthetical clause in the trust deed of December 29, 1950. That apart, the assessee had made a categorical statement before the Income tax Officer on September 9, 1957, explaining the circumstances in which the above description was given. An affidavit by the assessee himself had also been filed before the income-tax Officer in which he specifically asserted that, except for one Dulhan Pasha Begum these ladies, whose names were mentioned in the affidavit, were not his wives though they enjoyed a special status as ladies of position in his palace. In the case of Jani Begum, we also find that a firman was issued by the assessee on Jung 7, 1959, referring to her as "lady of position". This declaration made on the occasion of the demise of this lady is a strong piece of evidence to show that the assessee had never married her and that she was only a lady of position.

We are of the opinion that, in these circumstances, the principle of acknowledgement on which Shri Ahuja relies cannot be brought into application. There was no unequivocal or categorical acknowledgement by the assessee that these ladies were his waves. In these circumstances, we agree with the answer given to this question by the Andhra Pradesh High Court.

In the result, these appeals fail aid are dismissed. There will be no order as to costs.

Civil Appeals Nos. 1208 1208 1212 of 1979 :

The appellant applied to the High Court of Andhra Pradesh for directing the Income-tax Appellate Tribunal to refer certain questions of law for its decision. The said questions were said to arise out of the assessments of tire late Nizam of Hyderabad in respect of the assessments years 1960-61, 1964-65, 1966-67 and 1967-68. The High Court declined the prayer of the appellant.

The appellant filed special leave petitions before this Court which has granted leave to appeal only is respect of following questions Nos.1 and 3:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that no new facts which were not considered by the High Court earlier in this case in its judgment in Nawab Sir Mir Osman Ali Khan Bahadur v. I.T.O. (1970) 75 ITR 133, were brought in by the Income-tax Officer?

"Whether, on the facts and in the circumstances of the case, the income relating to HEH the Nizam's Pilgrimage Money Trust' is no taxable in the assessee's hands by reason of section 60and 61 of the income-tax Act, 1961?"

We have had occasion to deal with one aspect of these questions in our decision of even date in CA. Nos.1404-07 and 1407A of 1975. So far as the first question is concerned, the issue is directly covered by the decision of this Court in I.T.O. v. Nawab Mir Barkat Ali Khan Bahadur (1974) 97 ITR 239. In view of the said judgment, this question is no longer a live one for reference.

So far as question No.3 is concerned, this is directly governed by our decision of even date in the Civil Appeals mentioned above. Following the same, we concur with the High Court and direct that this question also need not be referred by the Tribunal. In the result, these appeals fail and are dismissed accordingly. There will be no order as to costs.

Civil Appeal No.2989 NT of 1980.

This is an appeal from the order of the Andhra Pradesh High Court answering a question referred to it is favour of the assessee and against the Revenue. There was a second question before the high Court but an answer to this was not pressed and, therefore, the Court did not answer it. The appeal before us is, therefore, confined to the first question which reads as follows:

'Whether, on the facts and in the circumstances of the case, the income arising from the assets transferred by the assessee to the trusts for the benefit of (a) Smt. Mazharunaisa Begum, (b) Smt. Latta Begum, and (c) Mst. Jani Begum and (ii) the minor sons born of Smt. Laila Begum and Smt. Jani Begum, was income arising to `spouse' and minor child' within the meaning of section 16(3)(b) of the Indian Income-tax Act, 1922?"

We have had to deal with the same question in the case of the same assessee in relation to certain other assessment years in Civil Appeals Nos.1404-07, 1407A of 1975 which we ham disposed of today. For the reasons set out in that judgment, we are of the opinion that tine High Court was correct in the answer given to the question. This appeal, therefore, fails and dismissed. There will be no order as to costs.

M.BA./1225/T Appeals dismissed.