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TMI Blog1969 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... al law and/or the covenant, dated January 25, 1950, between the assessee and the Government of India, the assessee was liable to tax under the Income-tax Act, 1922, in respect of any part of his income ? 2. Whether, on the facts of the case, the interest in respect of securities of the Government of India or of the Government of Hyderabad (including the Nizam Government promissory notes), which became payable to the assessee under the trusts created by him known as the Housing Accommodation Trust, Pilgrimage Money Trust, Family Trust, Jewellery for Family Trust and Miscellaneous Trust was exempt from payment of tax in his hands by virtue of item 8 of the notification under section 60 of the Indian Income-tax Act, 1922, dated March 21, 1922 ? 3. Whether, on the facts of the case, the sum of Rs. 1,00,000 received by the assessee from the trustees of Princess Niloufer Trust was liable as income under the Income-tax Act and, if so, whether the assessee was entitled to exemption from tax of the income under the terms of the agreement entered into with the Government of India on October 8, 1949 ? It may be mentioned here that several of the exemptions and deductions which the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with went up to the Supreme Court. That relates to the claim of the assessee that he was totally immune from taxation, because as a sovereign prince he was not amenable to the municipal law of another State. The Supreme Court held in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Khan Bahadur, that neither the erstwhile Hyderabad State nor the assessee as its Nizam acquired international personality under international law and so he cannot claim immunity from taxation on his personal properties. It further held that on and from 1st April, 1950, he was not a ruling chief, but was only an ordinary citizen of India, residing, within the meaning of section 4 of the Indian Income-tax Act, 1922, in that part of India which was a part of the Hyderabad State and so he was liable to income-tax on 1st April, 1950, for the assessment year 1950-51, in respect of the total income of the previous year in the taxable territories. The resistance to the taxation based on the covenant dated January 25, 1950, was also found to be without force by the Supreme Court on the earlier occasion. Following its own earlier decision, the Supreme Court held that the privileges guaranteed by the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower authorities. It is true that in its order, the Tribunal has not specifically adverted to this claim and considered it. But, there is no doubt under the circumstances and in view of the facts stated above, the omission was only by inadvertence on the part of the Tribunal. We have no doubt that the reference to the exemption under the notification dated March 21, 1922, alone and the failure to refer to the other exemption under section 8 in the question framed by the Tribunal arose only out of inadvertence. Since the claim of the assessee in regard to the interest accrued under the trusts was exemption from payment of tax on account of both the provisions, we think it proper and desirable to reframe the issue accordingly. The essence of the matter is that the real dispute between the parties should be brought out by the question framed. As we have stated, there is no doubt about the real dispute between the parties in this regard. It is undoubtedly a claim for exemption from tax under both the heads. We are satisfied that we have necessary power to recast the question so as to bring out the whole of the dispute between the parties into consideration. Section 66(5) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me payable to the assessee under the truts created by him known as the Housing Accommodation Trust, Pilgrimage Money Trust, Family Trust, Jewellery for Family Trust and Miscellaneous Trust was exempt from payment of tax in his hands? " The answer to this question also is practically covered by the decision of the Supreme Court in Commissioner of Income-tax v. A. E. H. Mir Osman Ali Khan Bahadur. The assessee was the sole beneficiary under there trusts. As we have stated earlier, exemption was claimed by him under both the heads even in earlier assessments. But, the family and the Miscellaneous Trusts alone were then under consideration. The other three trusts, viz., Housing Accommodation Trust, Pilgrimage Trust and jewellery for Family Trust, were not before the Supreme Court and exemption in respect of them has been claimed for the first time in these assessments. In so far as the Family and Miscellaneous Trusts are concerned, the Supreme Court held that the assessee was exempt only from the payment of income-tax and that he was not exempt from the payment of super-tax. This result followed from the conclusion of the Supreme Court that the income from the said two trusts did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird proviso to section 8, and that they are not exempt from taxation on account of item 3 of the Notification dated March 21, 1922. The learned counsel for the assessee, however, admitted before us that the securities comprised in the other three trusts' viz., the Housing Accommodation Trust, Pilgrimage Money Trust and Jewellery for Family Trust, are not income-tax free and interest therefrom is not exempt from income-tax. He, therefore, fairly conceded that the question must be answered against the assessee in so far as the securities in these three trusts are concerned. Consequently, the answer to the second question referred at the instance of the assessee is in favour of the assessee in respect of the securities comprised in the Family and the Miscellaneous Trusts, in so far as exemption from income-tax is concerned and against him, in so far as super-tax is concerned. In regard to the securities in the other three trusts, the question is answered against him. Now remains the last question. It relates to the inclusion of a sum of Rs. 1 lakh in the income of the assessee. The facts relevant to this item are : By an indenture made at Hyderabad on October 8, 1949, between the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred to the settlor, if he be then living, and in the event of the settlor predeceasing the said Princess, it was to be handed over to the Nizam of Hyderabad living at that time. In case of divorce by her husband, if the trustees were of the opinion that the divorce was not due to any act or default on the part of the said Princess, it was open to the trustees to pay the net interest of the trust fund or of the balance thereof for the time being to the said Princess, until death or remarriage whichever event should take place first. This arrangement went on till the year 1952 when the marriage of the Princess with the son of the settlor-assessee was dissolved on September 18, 1952. Evidently the trustees were of the opinion that the dissolution of the marriage was not occasioned by any act or default on the part of the Princess. They were, therefore, prepared to continue the payments to her as per the terms of the settlement of October 8, 1949. However, on September 18, 1952, itself, the Princess under a deed of release, transferred her right to receive a sum of Rs. 1 lakh per annum in favour of the assessee for a lump sum payment of Rs. 10 lakhs. It was thus the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows that the amounts of Rs. 1 lakh received by the assessee in pursuance of the release deed executed by the Princess in his favour on September 18, 1952, constitute his income. The next part of the question is whether the assessee was entitled to exemption from tax on the income under the terms of the agreement entered into with the Government of India on October 8, 1949 ? We have briefly referred to the gist of that agreement. It was a tripartite agreement to which the Government of India, the assessee as the settlor and the three trustees of the trust were parties. A copy of the trust deed was also annexed to the agreement. It is common case between the parties that the rate of interest prevailing at the time of the agreement on Government and gilt-edged securities was 3 1/2% to 4% per annum. Nevertheless, the interest stipulated on the sum of Rs. 30 lakhs deposited with the Government of India was only 1% per annum. In order to understand the background of the agreement, it becomes necessary to read the following portion of the preamble : " And whereas for the purpose of completing the said transaction an agreement has been arrived at with the Government of India under wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dues, duties or assessments shall be charged or levied on either the settlor or the trustees or the beneficiaries under the said deed of trust or any of them in respect of any income or corpus of the said sum of Rs. 30 lakhs (rupees thirty lakhs) so deposited or any part thereof or if any part of such income or corpus be included in the total income of any of them for computing his or her total income for the purpose of assessment of his or her income, gains or profits by virtue of the provisions of the Indian Income-tax Act or of any other enactment or law for the time in force in that behalf in India, then the Government of India shall forthwith refund, reimburse and pay to such person the amount of tax, dues, duties or assessments, charged or levied on him or her and/or the amount of additional tax, dues, duties or assessments which shall have been charged or levied on him or her by reason of any part of the said income or corpus being included in the total income of such person for the purpose of assessing his or her total income, gains or profits under the provisions of the Indian Income-tax Act or any other law or enactment for the time being in force in that behalf in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer made in his favour, became a beneficiary within the meaning of clause (4) of the agreement dated October 8, 1949, and thus was entitled to the exemption from tax by virtue of its provisions. We must also notice another contention urged before us for the revenue. It has been pointed out that there is no provision in the Act or the Rules made thereunder, empowering the Government of India to enter into an agreement of the nature of the arrangements of October 8, 1949, and, therefore the agreement was entered into without jurisdiction and was void. We cannot go into this question for the simple reason that it has not been referred to us. It should be noted that this argument was never taken by the revenue at any stage, in any form, before the lower authorities and has been for the first time urged before us. We are not, therefore, called upon to answer this question. From what is stated above, it follows that the answer to the last question is that, though the payments of Rs. 1 lakh per year were " income " in the hands of the assessee, he was entitled to exemption from tax thereon, under the terms of the agreement of October 8, 1949. The questions are answered as stated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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