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 8/10/1949?
Pursuant to the above release deed, the sum of Rs.
The income tax officer held that the receipt of Rs.
1184 to 1186 and 1198 to 1200 of 1970 From the Judgment Order dated the 25th July, 1969 and 25th September, 1969 of the Andhra Pradesh High Court in Referred Case No.
The trustees were required to deposit the said sum of Rs.
30,00,000 Rupees thirty lacs for the time being remaining in the hands of the Government of India.
1,00,000 received by the assessee in each of the three years in pursuance of the release deed dated September 18, 1955 companysituted his income.
Clauses 2, 3 and 4 of the agreement were as under The Government of India shall out of its revenue pay to the Trustees interest on the said sum of Rs.
1,00,000 received under the trust deed companyld be availed of by Princess Niloufer.
On application filed under section 66 1 of the Act the following question, along with some other questions, was referred to the High Court .
1 per cent per annum free of income tax and other taxes.
30,00,000 Rupees Thirty Lacs shall be wholly paid out by the Govt.
The Government of India for its part agreed to pay interest on that amount at the rate of Re.
The assessee, who was a transferee of the rights of Princess Niloufers under the trust deed, companyld number get the benefit of that exemption.
30,00,000 Rupees Thirty Lacs at the rate of one per cent per annum free of income tax, super tax and all, other taxes dues, duties and other assessments whatever from the date from which the said sum of Rs.
The assessee, according to the learned companynsel, has failed to discharge that onus.
of India in accordance with the provisions of these presents PROVIDED HOWEVER that if and when the Government of India shall pay to the Trustees any sum of money out of the companypus of the sum of Rs.30,00,000 Rupees thirty lacs in accordance with the provisions hereof, interest shall cease to run on the sums so paid from the date on which the Government of India shall pay the same to the Trustees and thereupon interest shall run only upon the balance of the said sum of Rs.
1,00,000 per annum.
45 9 In further pursuance of the said agreement and for the companysideration aforesaid the Princess doth hereby release assign and transfer unto His Exalted Highness the sums which the Princess is entitled to receive under clause 2 c of Princess Niloufers Trust Deed being such sum payable to her by Princess Niloufers Trustees out of the Corpus of Princess Niloufers Trust Fund every year as together with the net interest of Princess Niloufers Trust Fund payable to her under clause 2 b thereof will in all make up the sum of Rs.
The Government of India also agreed to pay out of the companypus of Rs.
By this release deed Princess Niloufer on receipt of Rs.
Normally an amount received as income is exigible to tax, and in case the assessee seeks exemption from the payment of tax in respect of that income, the onus lies upon him.
Whether on the facts of the case, the sum of Rs.
In the opinion, of the High Court the assessee stood in the shoes of Princess Niloufer who was the original beneficiary under the trust deed and become entitled to all the benefits to which the Princess was entitled.
1 per cent per annum.
Clauses 1, 2 and 3 of the release deed read as under That in pursuance of the said agreement between the parties and in companysideration of the premises and of the said sum of Rs.
30,00,000 Rupees Thirty Lacs shall be deposited by the Trustees with the Government of India until the said sum of Rs.
No child was born, to Princess Niloufer by marriage with the Prince.
The above dissolution of the marriage in the opinion of the three trustees, was number due to any act or default on the part of Princess Niloufer.
The matter relates to the assessment of the income for the years 1952 53,1953 54 and 1954 55 of Nizam Mir Osman Ali Khan Bahadur, ,who was the Ruler of Hyderabad State prior to its integration with the Union of India.
1,00,000 in a year.
The other document was a deed of release.
30,00,000 Rupees thirty lacs pay to the Trustees untill the said companypus is exhausted such sum every year as together with the interest accured due on the said sum of Rs.
first, if the Trustees are of the opinion that the divorce was number due to any act or default on the part of the said Princess AND THE de cision of the Trustees in this respect shall be final and binding on all persons claiming under this clause and shall number be questioned in any Court of Law or otherwise howsoever.
One of those documents related to the dissolution of the marriage of Prince Muazzam Jah Bahadur and Princess Niloufer.
1 per cent instead of the prevailing rate of Rs.
Sub clause e read as under Subject to the provisions of sub clause a , b c and d hereof on and after the death of the said Princess to transfer and hand over the companypus of the Trust Fund or the balance thereof then remaining in the hands of the Trustees, as the case may be, to Settlor, if he be then living, and in the event of the Settlor predeceasing the said Princess to transfer and hand over the companypus of the said Fund or the balance thereof then remaining in the hands of Trustees as the case may be to the Nizam of Hyderabad living at that time.
The rate of interest prevailing at the time of the agreement on Government and gilt edged securities was admittedly 3 1/2 to 4 per cent per annum.
30,00,000 or on the balance sum thereof would in all make up the sum of Rs.
3 1/2 to 4 per cent.
It was, however, held that the assessee was entitled to exemption from payment of tax in respect of the amount of Rs.
one crore cithty two lakhs principally for the benefit of Prince Muazzam Jah Bahadur were also parties to this deed of release.
The Turst deed referred to the agreement which had been on that day entered into with the Government of India.
1,00,000 Rupees one lac per annum and which sum of Rs.
1,00,000/ per year was income in the hand of the assessee, he was entitled to exemption from tax thereon under the terms of agreement dated October 8, 1949.
30,00,000 such sum every year as together with interest accrued due on the said sum of Rs.
1,00,000 by the assessee in each year from the trustees companystituted his income and he was liable to pay tax thereon.
1,00,000 because of the agreement dated October 8, 1949.
39 of 1965 and 10 of 1966 respectively.
V. Gupte, Anwarulla Pasha, J. B. Dadachanji, A. Subba Rao and Mrs. Anjali K. Varnia, for the Respondent.
30,00,000 principally for the benefit of Princess Niloufer of the fourth part.
The first payment was to be made on November 1, 1949 and each of the subsequent payments were to be made on the first day of October in each year.
In agreeing to grant exemption from payment of tax in respect of the amount payable under the agreement, the Government was apparently influenced by the companysideration that it was paying interest at the rate of Re.
10,00,000 Rupees ten lacs paid by His Exalted Highness to the Princess on or before the execution of these presents the receipt whereof the Princess both hereby admit and acknowledge and of and from the same both hereby acquit release exonerate and discharge His Exalted Highness for every she the Princess both hereby release assign and transfer unto His Exalted Highness, a11 that the net interest of Princess Niloufers Trust Fund or of the balance thereof for the time being which is payable to the Princess free of income tax, super tax and all other taxes whatsoever until her death or remarriage whichever event shall happen first as provided in clause 2 b of Princess Niloufors Trust Deed and which net interest may accrue or arise or become payable after the date of these presents until her death or remarriage, whichever event shall happen first, from or in respect of the said Princess Niloufers Trust Fund together with full power to deman d sue for and give discharges to Princess Niloufors Trustees for the said net interest of Princess Niloufers Trust Fund AND ALL the estate right title interest proper claim and demand of the Princess in to and upon the said net interest as aforesaid to HAVE RECEIVE AND TAKE the same unto His Exalted Highness absolutely TO THE EXTENT that His Exalted Highness shall be entitled to receive from Princess Niloufers Trustees the said net interest of Princess Niloufers Trust Fund free of income tax and super tax and all other taxes whatsoever which the Princess would have received but for the present assignment.
C. Manchanda, B. B. Ahuja and S. P. Nayar for the Appellant.
Sub clause c required the trustees to recover and receive from the Government of India and to pay Princess Niloufer out of the companypus of the trust fund as long as the same was available such sum every year as together with the net interest of trust fund would in all makeup the sum of Rs.
Sub clause a required the deposit of the amount with the Government of India in accordance with the agreement entered into on that day with the Government.
The amount was to be paid to the Princess until her death or remarriage whichever event was to occur first.
The High Court to which the above question was referred under section 66 1 of the Act held that though the payment of Rs.
The Government of India shall out of the companypus of Jr the said sum of Rs.
30,00,000.
Subclause d required that on the death of the Princess, the companypus of the trust fund was to be transferred to her issues from Prince Muazzam Jah Bahadur in accordance with the Muslim law of succession.
30,00,000 forthwith with the Government of India in accordance with the agreement with the Government.
The order of the income tax officer was affirmed on appeal by the Appellate Assistant Commissioner as well as by the Tribunal.
30,00,000, out of love and affection for his daughter in law Princess Niloufer was desirous of making a settlement of the said amount and for that purpose he had transferred and handed over the amount to the trustees.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
1,00,000 Rupees one lac per annum TO THE EXTENT that the whole of the said sum of Rs.
The amount deposited was to carry interest at the rate of Re.
The payment was to be made to the Princess free of income tax, super tax and all other taxes.
The trustees were to hold the trust fund in accordance with the directions companytained in the different sub clauses of clause 2 of the trust deed.
30,00,000 Rupees thirty lacs or on the balance thereof for the time being remaining with the Government of India will in all makeup the sum of Rs.
30,00,000 or part thereof.
On October 8, 1949 the assessee made a settlement of Rs.
The Princess was entitled to that sum even in the event of the Prince divorcing the said Princess provided the divorce in the opinion of the trustees was number due to any act or default on her part.
1184 to 1186 and 1198 to 1200 of 1970 which have been filed on certificate by the Commissioner of Incometax against the judgment of the Andhra Pradesh High Court is whether, on the facts of the case, the sum of Rs.
30,00,000 with the Government of India.
10,00,000 from the asseseee released, assigned and transferred her rights, title and interest in Princess Niloufer Trust Fund in favour of the assessee and it was stated that he would be entitled to receive the amounts to which Princess Niloufer was entitled free of Incometax, super tax and other taxes.
According to the trust deed, the settlor, who was possessed of a sum of Rs.
Mr. Manchanda on behalf of the appellant has assailed the judgment of the High Court and has companytended that the exemption from payment of tax in respect of the sum of Rs.
to the Trustees to pay the net interest of the Trust Fund or of the balance thereof for the time being to said Princess until her death or remarriage, whichever event shall tak e place.
30,00,000 by transferring that amount to a trust created on that day for the benefit of Princess Niloufer.
On the same day an agreement was entered into between the Government of India, the assessee, as the settlor of the trust, and the three trustees for the deposit of Rs.
Sub clause b of the trust deed was as under To pay the net interest of the Trust Fund or the balance thereof for the time being as and when recovered from the Government of India to the said Princess free of Income tax, Super tax and all other taxes whatsoever, until her death or remarriage, whichever event shall happen first PROVIDED THAT in the event of the said Prince divorcing the said Princess it shall be open.
1,00,000 received from the Government of India under agreement dated October 8, 1949 which used to be paid by the trustees to Princess Niloufer, was paid during each of the three years with which we are companycerned to the assessee.
It was agreed that the trustees would deposit that amount with the Government of India.
Unhappy differences arose between Prince Muazzam Jah Bahadur and Princess Niloufer.
In numbercase was the Princess to receive any sum in excess of Rs.
The Prince was married to Princess Niloufer in Nice France on November 12, 1931 according to Muslim rites.
On September 18 1952 two documents were executed.
The exemption regarding tax appears to have companystituted the quid pro quo for the saving made by the Government of India in the matter of payment of interest.
The parties who executed the deed of release were Princess Niloufer of the first part, the assesee of the second part, Prince Mauzzam Jah Bahadur of the third part and the three trustees appointed under the trust deed dated October 8, 1949 in respect of the sum of Rs.
The husband and wife companysequently started living separately.
The trustees appointed by a trust deed in respect of a trust created by the assessee on October 8, 1949 for a sum of Rs.
1,00,000/ received by the assesses from the Trustees of Princess Niloufer Trust companystituted income under the Indian Income tax Act, 1922 hereinafter referred to as the Act and if so, whether the assesses was entitled to exemption from tax in respect of the income under the terms of the agreement entered into with the Government of India on October 8, 1949.
1,00,000 Rupees one lac per annum, the first, of such payments to be made on the 1st day of November 1949 and each of the subsequent payments to be made on the 1st day of October of each and every year thereafter.
The assessee, Sir Sultan Ahmed and Shavax Ardeshir Lal, a numberinee of the Government of India, were the three trustees appointed under the Trust Deed.
1,00,000 Rupees one lac which the Princess would have received under clauses 2 b and 2 c of the said Princess Niloufers Trust Deed but for the present assignment shall be paid to His Exalted Highness free of income tax, super tax and all other taxes whatsoever so long as the same shall be available.
The Judgment of the Court was delivered by KHANNA, J. The short question which arises for determination in these six civil appeals Nos.
1,00,000.
