1980 (4) TMI 4 - HC - Income Tax

Summary

Issues:
Interpretation of trust deed clause 2(L)(iv) regarding provision of food to beneficiaries and modification of directions post-settlor's death. Assessing the tax liability of trustees for cash payments made to beneficiaries in lieu of supplying food.

Analysis:
The judgment pertains to a trust deed created by the late Nizam for the benefit of his family and dependants, specifying provisions for the maintenance of a palace kitchen to supply daily food to beneficiaries residing in specific locations. The trustees, post the settlor's death, found it impracticable to run the palace kitchen and instead made cash payments to beneficiaries not residing in the designated locations. The Income-tax Officer and Appellate Assistant Commissioner rejected the trustees' claim of deducting these payments from the trust's income, citing lack of enforceable legal obligation on the trustees. However, the Income-tax Appellate Tribunal reversed these decisions, allowing the deduction of cash payments from the trust's income.

The key question raised was whether the cash payments made to beneficiaries were liable to be assessed as income of the trust. The court analyzed the provisions of the Indian Trusts Act and determined that the trustees had the authority to modify the directions of the settlor with the consent of beneficiaries to fulfill the paramount intention of providing food. The court held that the cash payments were in line with the trust deed's clause and did not fall under the purview of section 164(1) of the Income-tax Act.

The court emphasized that the beneficiaries were identifiable, and the amounts payable were specified, leading to the conclusion that the trustees were fulfilling their mandatory duty under the trust deed. Consequently, the court ruled in favor of the trustees, stating that the cash payments were made in accordance with the trust's provisions and were not liable to be assessed as income of the trust. The Revenue was directed to bear the costs of the trustees, with an additional advocate's fee awarded.