1984 (9) TMI 4 - HC - Income Tax

Summary

Issues Involved:

1. Assessment of cash payments to beneficiaries.
2. Classification of rental income.
3. Deductibility of trustee remuneration and administrative expenses.

Summary:

Issue 1: Assessment of Cash Payments to Beneficiaries

The court addressed whether sums of Rs. 1,45,920 each, representing cash payments made to certain beneficiaries in lieu of supply of food as contemplated in clause 2(1)(iv) of the trust deed, are liable to be assessed as the income of the Trustees of H. E. H. the Nizam's Miscellaneous Trust, Hyderabad, for the assessment years 1971-72 and 1972-73. Following a previous decision by a Division Bench in CIT v. Trustees of H. E. H. the Nizam's Miscellaneous Trust, the question was answered in the negative and against the Revenue.

Issue 2: Classification of Rental Income

The court examined whether the rent received by the assessee from letting out the property known as "Parade Villa" to the H.E.H. the Nizam's Charitable Trust could be assessed under the head "Income from other sources." The court noted that the trust was not the legal owner of the property until February 28, 1972, despite being in possession since December 24, 1970. The rental income from the property during the two assessment years in question was assessed in the hands of the late Nizam, and thus, the same income could not be subjected to tax again in the hands of the assessee to avoid double taxation. The court held that the rental income could not be assessed under the head "Income from other sources" or any other head.

Issue 3: Deductibility of Trustee Remuneration and Administrative Expenses

The court considered whether the remuneration of Rs. 39,000 paid to the trustees and the sum of Rs. 1,28,910 incurred by the assessee in the administration of the trust were liable to be excluded from the income assessable in the hands of the assessee or could be considered as deductible expenditure. The court held that the remuneration paid to the trustees constitutes an overriding title and deductible expenditure. Additionally, the court determined that 7 1/2% of the net receipts of the income of the trust, after deducting the remuneration paid to the trustees, constitutes reasonable expenditure for administering the trust under sections 57(i) and 19(i) of the Income-tax Act.

Conclusion:

Both questions were answered in favor of the assessee, confirming that the rent received from "Parade Villa" during the assessment years 1971-72 and 1972-73, except for one month, cannot be assessed under "Income from other sources" and that the remuneration paid to the trustees and 7 1/2% of the net income of the trust are deductible expenditures. No costs were awarded.