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TMI Blog1978 (3) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... nd stipends for the maintenance of his dignity. Disputes had arisen between the Nawab, the members of his family and the Government of India represented by the Secretary of State for Council. On 12th March, 1891, there was an indenture of agreement entered into between the Nawab of Murshidabad and the Government of India. The said indenture recited, inter alia, that there were certain disputes between the Government of India and the Nawab and in settlement of the disputes a sum of Rs. 16,85,461-7-5 1/2 had been paid and another sum of Rs. 10 lakhs was paid in satisfaction and in discharge of certain claims. The identure further recited that it had been agreed between the Secretary of State and the said Nawab Bahadur that provision should be made for the maintenance or support of Nawab Bahadur of Murshidabad and Amir-ul-Omrah for the time being and for the maintenance of the honour and dignity of his station; and same should comprise and consist of the following : " 1st.-An annual payment of Rs. 2,30,000 from the revenues of the Government of British India to be made to the Nawab Bahadoor of Moorshidabad for the time being in the manner mentioned in the deed. 2nd.-The income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he honour and dignity of the Nawab Bahadur of Murshidabad ; And, whereas the late Nawab Bahadur of Murshidabad expressed a desire that on his death a trust should be created in respect of all the properties enjoyed by him for the benefit of his sons and daughters; And whereas it is necessary to give effect to the said desire of the late Nawab Bahadur of Murshidabad and to that end to create a trust in respect of the properties of the Murshidabad Estate ; ..........." The said Act provided certain definitions in s. 2. The said Act in sub-s. (10) of s. 2 provides the definition of " properties of the Murshidabad Estate " and the same included the properties movable and immovable specified in the Schedule. It is important to reiterate that the properties of the Murshidabad Estate include the properties movable and immovable specified in the Schedule to the Act. The Schedule to the Act provided that the properties of the Murshidabad Estate would be as follows : " I. Such of the properties, movable and immovable, referred to in the indenture included in, and confirmed by, the Moorshidabad Act, 1891, including the Schedules of properties annexed thereto, with the additional immov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two lakhs and thirty thousand payable to the Nawab Bahadur from the revenues of the Government in pursuance of the Indenture included in, and confirmed by, the Moorshidabad Act, 1891, or to the payment thereof to the Nawab Bahadur in accordance with the provisions of the said Indenture by equal monthly instalments of rupees nineteen thousand one hundred and sixty-six and ten annas and eight pies, are hereby repealed, namely 1. The Moorshidabad Act, 1891. 2. The Murshidabad Estate Administration Act, 1933. 3. The Murshidabad Act, 1946. 4. The Murshidabad Estate Administration (Amendment) Act, 1959." The said Act, as we have mentioned before, was amended again from time to time and at the material time with which we are concerned, the Murshidabad Estate (Trust) (Amendment) Act, 1963 was in force. The said amended provisions, inter alia, provided as follows: " For section 5 of the said Act, the following section shall be substituted, namely:- 5. Application of funds of the estate and income from trust properties.- (1) The Trustee shall pay to the present Nawab Bahadur a lump sum of Rs. 6,00,000 from the funds of the Murshidabad Estate which come into his hands on the ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed this claim. He was of the view that the payment of Rs. 84,000 was not subject to deduction by the Accountant-General while making payment of Rs. 2,30,000 to the trustees and that payment was not in connection with any overriding charge. The ITO, therefore, did not accept the claim of the assessee that the said amount of Rs. 84,000 was to be excluded from the income of the trust. He followed the same order for the subsequent years up to 1967-68 with which we are concerned. There were appeals before the AAC. The AAC took the view that the amended section of the Murshidabad (Estate) Act provided for payment of Rs. 7,000 per month to Nawab Bahadur and created an overriding charge on the income of the trust. He, therefore, excluded the amount of Rs. 84,000 in each of the four years from the consideration of the income of the trust. There were appeals to the Tribunal by the revenue. The Tribunal discussed in detail the various provisions of the Act, as we have set out hereinbefore, and also the relevant authorities. The Tribunal was of the view that the contention of the revenue that the payment of Rs. 84,000 could not be allowed as deduction under s. 57(3) of the I.T. Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his revenue before it became an income in his hand. The said principle enunciated by the Judicial Committee was again, in different contexts, reiterated by the Supreme Court in the case of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367. There, in computing the assessee's total income for the purposes of income-tax, the assessee had sought to deduct amounts paid by him as maintenance to his wife and children under a decree of court passed by consent in a suit. No charge on any property of the assessee was created. It was held by the Supreme Court that this was a case in which the wife and children of the assessee, who continued to be members of his family, received a portion of the assessee's income after he had received it as his own income and was, therefore, one of application of a portion of the income to discharge an obligation and not one in which by overriding charge the assessee became only a collector of another's income. The assessee, it was held by the Supreme Court, was not, therefore, entitled to the deduction claimed by him. The Supreme Court reiterated that the true test for the application of the rule of diversion of income by overriding charge, was whether the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 466 the Supreme Court emphasised the fact that it was neither the physical receipt of certain amount of money which was important but what was important was the legal character of the receipt of money. In that case, the court reiterated the aforesaid principles mentioned hereinbefore and observed in that case the income was the income of the family and it was merely applied to discharge the obligation of the family, viz., obligation to maintain its junior members. The Supreme Court observed that it reached the hands of the family as soon as it reached the hands of any members of the family who were entitled to receive on behalf of the family. The Supreme Court observed that what was important was not the physical act of receipt of money but the legal concept of receipt in law, and from that point of view, according to the Supreme Court, it was clear that the income, with which the Supreme Court was concerned in that case, was received by the family. Counsel for the revenue drew our attention to s. 160 of the I.T. Act, 1961, and submitted that in this case in view of s. 160(1)(iii), the present asssesee could be treated as a representative assessee and the entirety of the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bengal, Bihar and Orissa. It is the right of the Nawab Bahadur to exercise his privileges as Nawab Nazim and Subehdar of Bengal, Bihar and Orissa in consideration of which from " the revenue of the Government of British India " the obligation to pay Rs. 2,30,000 was undertaken. The right of the Nawab to get this amount was not out of the properties of the Nawab or of the Murshidabad Estate, which is mentioned in the schedule to the indenture or Schedule to the Act, which confirmed the indenture; the right is to get from " the revenue of the Government of India ". This right to get the amount in question from the revenue of the Government of India is reiterated in the clause of the indenture which we have set out hereinbefore and the first clause of which provides for the obligation to make the annual payment of Rs. 2,30,000 from the " revenues of the Government of British India ". The second, third and fourth clauses of the said indenture deal with disbursement of income of the immovable properties mentioned in the first, second and third schedule to the said indenture. It is these properties mentioned in the schedule which have been treated as the properties of the Murshidabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of the income from the trust estate. Therefore, on the heading of the section it would not be safe to rely upon. As mentioned hereinbefore, physical receipt is not important. The problem of diversion of income arises only when there is legal physical receipt of an amount by one on behalf of the other. Lawful physical receipt of an amount of revenue by one on behalf of and for another by itself does not solve the question whether the receipt was an income of the recipient or of the person for whom and on whose account the amount is received. Whether the income is the income of the recipient or of the person for or on whose account the amount is received would depend on the nature of the obligation. As we have mentioned before, the obligation has its historical origin in the Nawab Bahadur relinquishing in favour of the British Government his right and privileges as the Nawab Nazim and Subehdar of Bengal, Bihar and Orissa and the amount in question given in consideration of this reliquishment was to be paid out of the revenue of the State of British India and not out of the properties of the Nawab Bahadur or of the Murshidabad Estate. Vesting of certain properties in the truste ..... X X X X Extracts X X X X X X X X Extracts X X X X
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