1984-VIL-519-AP-DT

Equivalent Citation: [1986] 160 ITR 253, 62 CTR 124

ANDHRA PRADESH HIGH COURT

Date: 17.09.1984

COMMISSIONER OF INCOME-TAX

Vs

TRUSTEES OF HEH. THE NIZAM'S MISCELLANEOUS TRUST

BENCH

Judge(s)  : RAGHUVIR., RAMANUJULU NAIDU

JUDGMENT

The judgment of the court was delivered by

RAMANUJULU NAIDU J.-At the instance of the Revenue, the Incometax Appellate Tribunal, Hyderabad, referred to this court for its opinion the following question of law under section 256(1) of the Income-tax Act, 1961 :

" Whether, on the facts and in the circumstances of the case, the sums of Rs. 1,45,920 each representing the 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 ? "

An identical question relating to the very same trust for the earlier assessment years 1969-70 and 1970-71 was answered by a Division Bench of this court consisting of C. Kondaiah, Chief justice, and P.A. Chowdary J., in favour of the assessee and against the Revenue in CIT v. Trustees of H. E. H. the Nizam's Miscellaneous Trust, R. C. No. 126 of 1976, disposed of on April 9, 1980 . Following the said decision, the question is answered in the negative and against the Revenue.

Also at the instance of the assessee, the Income-tax Appellate Tribunal referred the following two questions to this court for its opinion under section 256(1) of the Income-tax Act, 1961:

" (1) Whether, on the facts and in the circumstances of the case, the rent received by the assessee by letting out the property known as 'Parade Villa ' to the H.E.H. the Nizam's Charitable Trust could be assessed under the head ' Other sources ' ?

(2) Whether, on the facts and in the circumstances of the case, the remuneration of Rs. 39,000 paid to the trustees under the terms of the trust deed 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 in the alternative whether the said sums could be considered as deductible expenditure for purposes of computing the income assessable in the hands of the assessee ? "

At the outset, we must observe that the second question covers the assessment year 1971-72. By inadvertence, the remuneration of Rs. 39,000 paid to the trustees under the terms of the trust deed and the sum of Rs. 1,28,910 incurred by the assessee in the administration of the trust for the assessment year 1972-73 were omitted by the Tribunal while framing the second question. It is needless to state that our answer to the second question governs the case of the assessee for the assessment year 1972-73 also.

The material facts for answering the two questions referred to us may be briefly stated: The assessee, H. E. H. the Nizam's Miscellaneous Trust, purchased a building known as " Parade Villa " from H.E.H. the Nizam on December 24, 1970. Though the assessee paid full consideration to the late Nizam for the property, the deed of conveyance executed in that behalf was registered only on February 28, 1972. The building was let out to the offices of the charitable trusts and the other trusts of the Nizam. Estimating the annual value of the building at Rs. 30,000, the trustees declared the income from the property for the two years in question. The income returned was Rs. 10,417 for the assessment year 1971-72, while the income returned was Rs. 25,000 for the assessment year 1972-73. The Income-tax Officer enhanced the annual value of the building and assessed the income therefrom at Rs. 12,500 for the first year and Rs. 50,000 for the second year. The annual value of the building was estimated by the Income-tax Officer at Rs. 60,000 as against Rs. 30,000 adopted by the trustees. While computing the total income of the trust, the assessee claimed the following administrative expenses for two assessment years:

1971-72 1972-73

Rs. Rs.

Trustee's remuneration 39,000 39,000

Secretary's imprest 1,26,500 1,45,500

Bank charges 2,410 3,047

Legal expenses - 3,116

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Total : 1,67,910 1,90,663

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The Income-tax Officer allowed a deduction of 1 1/2% of the total receipts towards administrative expenses following an earlier order of the Tribunal in the case of H.E.H. the Nizam's Jewellery Trust for the assessment year 1954-55.

The assessee preferred appeals to the Appellate Assistant Commissioner While contesting the annual letting value of the building estimated by the Income-tax Officer, the assessee contended that since the Nizam was the legal owner of the building till February 28, 1972, no income from the said property could be assessed in the hands of the assessee under the head 'Income from house property'. Reliance was placed upon the decision of the Andhra Pradesh High Court rendered in CIT v. Nawab Mir Barkat Ali Khan [1974] Tax LR 90 (R. C. No. 20 of 1971-January 30, 1973). While upholding the contention of the assessee, the Appellate Assistant Commissioner held that only a month's income from the building could be included for the assessment year 1972-73. He, however, held that any rent received by the assessee from the building prior to February 28, 1972, could be assessed under the head " Income from other sources ". The Appellate Assistant Commissioner also confirmed the decision of the Income-tax Officer disallowing the administrative expenses claimed by the assessee except to the extent of relief granted by him.

The assessee thereupon preferred appeals to the Appellate Tribunal. The Revenue also preferred appeals to the Tribunal assailing that part of the decision of the Appellate Assistant Commissioner directing the deletion from the assessment of the trustees, of the entire income from the building under the head "Income from house property" except one month's income and treating the same as income of the assessee under the head " Income from other sources ". The Income-tax Appellate Tribunal upheld the decision of the Appellate Assistant Commissioner treating the entire income from the building except one month's income as the income of the assessee under the head " Income from other sources ". The Tribunal also repelled the contention put forward on behalf of the assessee that the remuneration paid to the trustees and the other administrative expenses incurred for administering the trust constituted an overriding title in respect of that part of the income and that the taxable income of the trust would get itself pro tanto reduced. The Tribunal, however, allowed a deduction of 5% of the total receipts from the trust as against 1 1/2% allowed by the Income-tax Officer and the Appellate Assistant Commissioner as reasonable expenditure incurred wholly and exclusively for realising the income of the trust in terms of section 57 of the Income-tax Act.

Though the trust purchased " Parade Villa " from the late Nizam and was put in possession of the same on December 24, 1970, the late Nizam was the legal owner of "Parade Villa" till February 28, 1972, on which date only a registered deed of sale was executed in favour of the trust conveying the property. The trustees were, however, realising the income from property from December 24, 1970, itself by letting out the same. At this stage, we may notice the relevant provisions of the Income-tax Act, 1961.

Section 2(24) defines " ' income " as including- (i) profits and gains;

(ii) dividend; "

Section 2(45) defines " total income " as meaning the total amount of income referred to in section 5, computed in the manner laid down in the Act.

"Section 4. Charge of income-tax.-(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person ......

Section 14. Heads of income.-Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following beads of income:

A. Salaries.

B. Interest on securities.

C. Income from house property.

D. Profits and gains of business or profession.

E. Capital gains.

F. Income from other sources.

Section 22. Income from house Property.-The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'.

Section 56. Income from other sources.-(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head 'Income from other sources', namely

(i) Dividends ........"

There is no difference in the scheme of the relevant provisions under the Act of 1922 and the Act of 1961 in relation to income from house property. Although different words are used, the contents and the intention remained the same. Section 4 of the new Act, which corresponds to section 3 of the old Act, is the charging section. Section 14 merely classifies the heads of income for the purpose of computation of total income as was the position under section 6 of the old Act. Sections 22 to 27 of the new Act deal with computation of income from house property. Section 22 of the new Act is a reproduction of section 9(1) of the old Act except the portion relating to allowances and the deletion of the word " bona fide " occurring in section 9(1). As regards the head of income, viz., " Income from other sources ", the computing Section is section 56 of the new Act, which corresponds to section 12(4) of the old Act. The same scheme which is noticed in section 12(1) and section 12(1 A) of the old Act is also noticed in section 56(1) and (2) of the new Act. What was contained in section 12 of the old Act is now incorporated in sections 56 to 59 of the new Act. The provisions of the new Act have made no difference whatsoever in the scheme of the relevant provisions regarding chargeability to tax and the principles which applied to the provisions of the old Act would still remain valid.

In Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT [1966] 61, ITR 428 (SC), the assessee, who was an advocate, had adopted the calendar year as the accounting year and had kept his accounts on the cash basis. He ceased to carry on his profession from March 1, 1957, when he was elevated to the Bench of the High Court of Bombay. In the years 1958 and 1959 during no part of which he carried on any profession, he received certain moneys on account of fees outstanding for professional work done by him while he was a practising advocate. The question arose as to whether he was liable to pay income-tax on those receipts. The Commissioner of Income-tax, Bombay, held that the receipts were chargeable to tax under the head " Income from other sources ". After enumerating the six sources or heads of income which are chargeable to tax as specified in section 6 of the Indian Income-tax. Act, 1922, their Lordships of the Supreme Court observed, that several heads of income mentioned in section 6 are mutually exclusive; a particular income can come only under one of them."

Adverting to the facts of the case, their Lordships added (at p. 431):

" The receipts in the present case are the outstanding dues of professional work done. They were clearly the fruits of the assessee's professional activity. They were the profits and gains of a profession. They would fall under the fourth head, viz., 'Profits and gains of business, profession or vocation." They were not however chargeable to tax under that head because under the corresponding computing section, that is, section 10, an income received by an assessee who kept his accounts on the cash basis in an accounting year in which the profession had not been carried on at all is not chargeable and the income in the present case was so received. This is reasonably clear and not in dispute ".

Dealing with the correctness of the decision of the Commissioner of Income-tax, their Lordships proceeded to state (at pp. 431 and 432):

" As to the general principles, we first observe that as the heads of income are mutually exclusive, if the receipts can be brought under the fourth head, they cannot be brought under the residuary head. It is said by the Revenue that as the receipts cannot be brought to tax under the fourth head they cannot fall under that head and must, therefore, fall under the residuary head. This argument assumes, in our view, without justification, that an income falling under one head has to be put under another head if it is not chargeable under the computing section corresponding to the former head. If the contention of the Revenue is right, the position would appear to be that professional income of an assessee who keeps his accounts on cash basis would fall under the fourth head if it was received in a year in which the profession was being carried on, but it would take a different character and fall under the residuary head if received in a year in which the profession was not being carried on. We are unable to agree that this is a natural reading of the provisions regarding the heads of income in the Act. Whether an income falls under one head or another has to be decided according to the common notions of practical men, for, the Act does not provide any guidance in the matter. The question under which head an income comes cannot depend on when it was received. If it was the fruit of professional activity, it has always to be brought under the fourth head irrespective of the time when it was received. There is neither authority nor principle for the proposition that an income arising from a particular head ceases to arise from that head because it is received at a certain time. The time of the receipt of the income has nothing to do with the question under which particular head of income it should be assessed."

Repelling the other contention put forward on behalf of the Revenue that the receipts were to be included in the total income stated in section 4 and since the receipts did not fall under any of the exceptions mentioned in that section, the receipts must be liable to tax and, therefore, the same must be considered as income under the residuary head as they could not otherwise be brought to tax, their Lordships observed (at pp. 432 and 433):

" The contention seems to us to be ill-founded. While it is true that under section 4 the receipts are liable to be included in the total income and they do not come under any of the exceptions, the contention is based on the assumption that whatever is included in total income under section 4 must be liable to tax. We find no warranty for this assumption. Section 4 does not say that whatever is included in total income must be brought to tax. It does not refer at all to chargeability to tax. Section 3 states that 'Tax... shall be charged... in accordance with, and subject to the provisions of, this Act in respect of the total income'. This section does not, in our opinion, provide that the entire total income shall be chargeable to tax. It says that the chargeability of an income to tax has to be in accordance with and subject to the provisions of the Act. The income has therefore to be brought under one of the heads in section 6 and can be charged to tax only if it is so chargeable under the computing section corresponding to that head. Income which comes under the fourth head, that is, professional income, can be brought to tax only if it can be so done under the rules of computation laid down in section 10. If it cannot be so brought to tax, it will escape taxation even if it be included in total income under section 4. Furthermore, the expression 'total income' in section 3 has to be understood as it is defined in section 2(15). Under that definition, total income means 'total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act', that is, computed for the purpose of chargeability under one of the sections from section 7 to section 12B. The receipts in the present case, as we have shown, can only be computed for chargeability to tax, if at all, under section 10 as income under the fourth head. If they cannot be brought to tax by computation under that section, they would not be included in 'total income' as that word is understood in the Act for the purpose of chargeability. That all income included in total income is not chargeable to tax may be illustrated by referring to income from the source mentioned in the third head in section 6, namely, 'Income from property'. The corresponding computing section is section 9 which says that tax shall be payable on income under this head in respect of bona fide annual value of property. It is conceivable that income actually received from the property in a year may exceed the notional figure. The excess would certainly be liable to be included in total income under section 4. It, however, cannot be brought to tax as income under the head ' Other sources' : See Salisbury House Estate Ltd. v. Fry [1930] 15 TC 266. It is an income which cannot be taxed at all though it is included in total income as defined in section 4."

Their Lordships also quoted with approval the principle laid down in the earlier case in CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 decided by the Supreme Court that " the heads of income must be decided from the nature of the income by applying practical notions and not by reference to an assessee's treatment of income ". Accordingly, their Lordships came to the conclusion that the receipts were not chargeable to tax either under the head of professional income or under the residuary head. In the result, the receipts were held to be not chargeable to tax at all.

In CIT v. National Storage Pvt. Ltd. [1967] 66 ITR 596, their Lordships of the Supreme Court observed (at p. 601):

" It is not disputed that the scheme of the Indian Income-tax Act, 1922, is that the various heads of income, profits and gains enumerated in section 6 are mutually exclusive, each head being specific to cover the item arising from a particular source. "

Their Lordships also approved the principle laid down in Nalinikant Ambalal Moody v. Narayan Row [1966] 61 ITR 428 (SC) " whether an income falls under one head or another has to be decided according to the common notions of practical men, for the Act does not provide any guidance in the matter ".

In CIT v. Smt. T. P. Sidhwa [1982] 133 ITR 840 (Bom), the question that arose before the Income-tax Officer was whether the income derived by the assessee as rent of the property for the period from April 1, 1959, to February, 1963, when he was not the legal owner of the property was chargeable to tax under the head " Income from other sources " under section 12 of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 and under section 56 of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64. The Income-tax Officer took the view that although the assessee might not be the legal owner of the property till February 2, 1963, the assessee was collecting the rental income to the extent of her one-fourth share from the property and, therefore, she could be regarded as the beneficial owner as regards the property income. He held that though such income could not be brought to tax as " income from property " under the computing section 9 of the Indian Income-tax Act, 1922, or section 22 of the Income-tax Act, 1961, such income was chargeable to tax under the head " Income from other sources " under section 12 of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 and under section 56 of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64. The Appellate Assistant Commissioner confirmed the assessments made by the Income-tax Officer. He held that the assessee was the de facto owner of the property for the period from April 1, 1959, to February 2, 1963, and the income received by the assessee was assessable to tax as " income from other sources ". The Income-tax Appellate Tribunal, relying on the decision of the Supreme Court in Nalinikant Ambalal Mody v. S.A.L. Narayan Row [1966] 61 ITR 428, upheld the contention of the assessee that the rental income could not be brought to tax under the head " Income from other sources " under section 12 of the Indian Income-tax Act, 1922, or under section 56 of the Income-tax Act, 1961. Applying the tests laid down by the Supreme Court in the said decision, the Tribunal held that one had to look to the character of the income and if the character of the income was such that it fell under the head " Income from property ", then it could be charged to tax only as "income from property" on conditions laid down under the relevant provision of the charging section and could not be brought to tax under the residuary head "Income from other sources" merely because the condition mentioned in the computing section was not satisfied. Another argument of the assessee which found favour with the Tribunal was that if the Revenue's contention was accepted, there was a possibility of doable taxation of the same income in two hands in the hands of the owner under section 9 as " income from property " and in the hands of the recipient of income who was not the owner under section 12 of the Indian Income-tax Act, 1922, as " income from other sources ". In the absence of any clear provision for double taxation of the same income, the Tribunal held that the construction which involved the possibility of double taxation of the same income in two hands must be avoided.

On a reference to the High Court at the instance of the Revenue, Division Bench of the Bombay High Court in CIT v. Smt. T. P. Sidhwa [1982] 133 ITR 840, 849 & 850, summed up the following principles laid down in N. A. Mody's case [1966] 61 ITR 428 (SC).

" (i) Several heads of income mentioned in section 6 are mutually exclusive; the particular income can come only under one of them.

(ii) If the receipts can be brought under one head of income, i.e., the fourth head of income in section 6, viz., ' Profits and gains of business, profession or vocation ', they cannot be brought under the residuary head as the heads of income are mutually exclusive.

(iii) Whether an income falls under one head or the other has to be decided according to the common notion of practical men, for, the Act does not provide any guidance in the matter. In other words, the heads of income must be decided on the nature of the income by applying practical common notions and not by reference to the assessee's treatment of income.

(iv) Whether an income is included in any of the heads other than the residuary head would depend on what kind of income it is, and if the income is the profit or gain of profession, it cannot come under section 12, for, section 12 does not say that an income which escapes taxation under a preceding head will be computed under it for chargeability to tax.

(v) An income has to be brought under one of the heads in section 6 and can be charged to tax only if it is so chargeable under the computing section corresponding to that head. Income which comes under the fourth head, that is, professional income, can be brought to tax only if it can be so done under the rules of computation laid down in section 10. If it cannot be so brought to tax, it will escape taxation even if it be included in the total income under section 4. The expression 'total income' in section 3 has to be understood as it is defined in section 2(15). Under that definition, total income means 'total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in the Act', that is computed for the purpose of chargeability under one of the sections from section 7 to section 12B."

The Division Bench added [1982] 133 ITR 840, 850 and 851:

" It is no doubt true that in N. A. Mody's case [1966] 61 ITR 428 (SC), the Supreme Court was required to consider the case of business income and the present case concerns the assessee's income from property. But, in our view, the ratio of that case would equally hold good in this case also as the principle to be applied cannot be different. As laid down by the Supreme Court, one must first determine the head of income, If the kind of income is such as can fall under one of the specific heads of income other than the residuary head, then such income can be brought to tax only under the corresponding computing section corresponding to that head. The fact that the conditions laid down in the computing section are not fulfilled and for that reason such income cannot be chargeable to tax does not entitle the Revenue to fall back on the residuary head of income and bring such income to tax under the computing section 12.

We see no difference whatsoever between a case of business income which falls under the specific head of income in section 6 and the income from property which falls under the specific head of the same section. In the first case, the income could not be brought to tax because the conditions of section 10 are not satisfied while in the latter case the income from property cannot be brought to tax by reason of the condition mentioned in section 9 not being fulfilled, viz., the condition that the assessee must be the owner of the property is not fulfilled. In either of the two cases, the provisions of section 12 will not be attracted. The distinction that is sought to be made by the learned counsel that the Supreme Court dealt with a case of professional income, while we are concerned with case of income from property is, to our mind, no distinction at all on principle. If the contention of the learned counsel that so far as the income from property which cannot be made chargeable to tax under the computing section 9 because the assessee is not the owner becomes chargeable to tax under the residuary head as 'Income from other sources' under section 12 is accepted, on the same reasoning, it must logically follow that if the income of an assessee from profession is not chargeable under the computing section I 0 because he had kept his accounts on the cash basis in the accounting year in which the profession had not been carried on, such income must necessarily come for taxation under the computing section 12 as 'income from other sources'. Such a result would be directly contrary to the ratio laid down in Mody's case [1966] 61 ITR 428 (SC). In our view, there is no valid basis for making a distinction between the case of income from property and the case of income from profession as is sought to be done by the learned counsel."

The Division Bench also added (at p. 859):

" The matter can be looked at from another angle also. The liability to pay tax on income from house property is of the owner as is mentioned in section 9. Further, under section 9, the tax payable by the assessee under the head 'Income from property' is in respect of the bona fide annual value of the Property. If the contention that the rental income in this case must be brought to tax under section 12, it would result in the same property being taxed twice. While the income from property received by the assessee who is not the owner would be chargeable to tax under section 12, the owner of the property would also be liable to pay tax on income under section 9 in respect of the bona fide annual value of the property. It is well settled that the owner's liability to pay tax under section 9 does not depend on his capacity to receive the bona fide annual value. "

The Division Bench ultimately held (p. 861)

" The assessee's rental income from the house property of which he was not the owner, for the assessment years 1960-61 and 1961-62 (1962-63 and 1963-64), cannot form part of the assessable income of the assessee under the residuary head, viz., ' Income from other sources' under section 12 of the old Act (or under section 56 of the new Act). "

We are in complete agreement with the reasoning adopted and the conclusion reached by the Division Bench.

In R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, it was held by the Supreme Court that an assessee whose property remains vested in the Custodian of Evacuee Property by virtue of section 6(1) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, as evacuee property, was not the owner of the property for the purposes of section 9 of the Indian Income-tax Act, 1922, corresponding to section 22 of the new Act, that the assessee could not exercise any rights in that property except with the consent of the Custodian, that he merely had some residual beneficial interest in that property left in Pakistan, that that residual beneficial right could not be considered to be ownership for the purpose of section 9 and that for the purpose of section 9 of the Indian Income-tax Act, 1922, the owner must be the person who could exercise the rights of the owner, not on behalf of the owner but in his own right.

In CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi), the assessee was the registered owner of certain immovable properties at S.P.D. and K. A company, R. Ltd., passed a resolution on May 23, 1950, to the effect that the freehold property comprising the land at S be purchased from the assessee for Rs. 2 lakhs and paid that amount to the assessee. H. Ltd., another company, passed a resolution on January 22, 1950, to the effect that the properties at P, D and K be acquired from the assessee, that the company should take over the premises as from July 1, 1950, and that no rent shall be paid thereafter. H. Ltd. also paid the sale consideration. No registered documents were executed. The question was whether the income from these properties after those dates should be taxed in the hands of the assessee or in the hands of the respective companies which were using the properties by virtue of payment of the sale price.

It was held by a Division Bench of the Delhi High Court that the assessee was liable to be assessed to tax on the entire income from property in relation to the properties at S, P, D and K as he remained the legal owner, that the resolutions of the purchasing companies and the payment of purchase price by them could not have the effect of depriving the seller of his ownership; nor could the fact that the purchasers continued in possession of the property without payment of rent, even assuming it amounted to constructive delivery in consequence of payment of consideration, be equated with a conveyance; and that the entries in the account books of the vendor and the vendee were not relevant for the purpose of determining whether a sale of immovable property had taken place. The Division Bench added that it was too well-settled that the title to lands and buildings could not pass till a conveyance deed was executed and duly registered and that the assessee remained the owner of the properties irrespective of the fact that he was not earning any income therefrom.

The rental income received by the trust from " Parade Villa " could only be treated under the head " Income from house property " having regard to our practical notions of property. During the relevant period covered by the two assessment years 1971-72 and 1972-73, except for one month, the trust was not the legal owner of the property. The legal ownership remained with the late Nizam till February 28, 1972. The rental income from the property cannot, therefore, be assessed to tax under section 22 of the Income-tax Act, 1961. Following the decision of the Supreme Court in Nalinkant Ambalal Mody v. S.A.L. Narayan Row [1966] 61 ITR 428, it cannot also be brought to tax under the head " Income from other sources " chargeable under section 56(1) of the Income-tax Act, 1961.

Admittedly, the income from the property during the two assessment years in question was assessed, though notionally, in the hands of the late Nizam. It was contended by the learned counsel appearing for the assessee that the same income if subjected to tax in the hands of the assessee would amount to double taxation and that under the Income-tax Act, double taxation was not permissible.

In Joli Prasad Agarwal v. ITO [1959] 37 ITR 107 (All), there was an association formed under a scheme formulated by the District Collector, Khand Kothiwal, for distribution of khandsari sugar at controlled rates. The association functioned between January 8, 1947, and January 6, 1948. The members of the association contributed varying amounts towards the working capital of the association. Out of the 30 members of the association, 23 were assessed to income-tax and in their individual assessments, their respective shares of the profits earned by the association during that period were included and the tax levied thereon was paid by them. Later, the Income-tax Officer initiated assessment proceedings and assessed the income of the association in its hands and served notices of demand. Ten of the members thereupon applied to the High Court of Allahabad under article 226 of the Constitution of India for relief against the order of assessment on the association. It was held by a Division Bench of the High Court that once the income of the association was charged to incometax in the hands of the members individually and the assessments of the members remained valid assessments, there could be no fresh assessment of the income. Repelling the contention put forward on behalf of the Revenue that there was no bar to tax the income of the association after it had already been charged to tax in the hands of the individual members of that association on the ground that in the Income-tax Act there was no specific provision barring such action of charging of tax by the Income-tax Officer, their Lordships observed (at p. 111):

"We do not think that any specific provision in this behalf was required. Section 3 of the Act, which is the main charging section, only talks of charging the income of certain persons and does not talk of income-tax being charged on persons. This implies that the charge is to be levied on an income only once. Whether it is to be charged in the hands of one person or another can certainly be determined under section 3 and other relevant provisions of the Income-tax Act. Section 3 is clear enough to indicate that the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same person. "

In C. R. Nagappa v. CIT [1969] 73 ITR 626 (SC), one C. R. Nagappa executed on April 14, 1955, seven separate deeds of trust settling specific properties for the benefit of his minor children. Under each deed, C. R. Nagappa settled certain properties for the benefit of his named minor child and vested the properties in four trustees-C. R. Nagappa, his two wives and a married daughter. Under each deed of trust, a portion of the income arising out of the trust property was to be utilised immediately for the benefit of the beneficiary and the balance was to be accumulated for his or her benefit and to be handed over to the beneficiary at a future date specified in the deed. In the proceeding for assessment for the year 1962-63, the Income-tax Officer included in the total income of C. R. Nagappa the income arising from the trust properties and used for the immediate benefit of the beneficiaries, but not the income directed to be accumulated. The Commissioner, in exercise of the power under section 263 of the Income-tax Act, 1961, directed that the income for the deferred benefit of the minor beneficiaries be also included in the total income of C. R. Nagappa. In respect of the very same income, the minors were also assessed to tax. Their Lordships of the Supreme Court observed (at p. 633):

" It is true that in this case for the assessment year 1962-63, the minors were assessed to tax, but the assessment will not affect the validity of the inclusion of the trust income in the assessment made on C. R. Nagappa under section 64(v). It was conceded before the High Court on behalf of the Revenue that the assessment of the minor beneficiaries in respect of the income could not stand, in view of the assessment of C. R. Nagappa under section 64(v). In our view, that concession was Tightly made, and we have no doubt that all the assessments made against the minor beneficiaries will be annulled and the tax, if any recovered, will be refunded. "

It, therefore, follows that the levy of tax on the rental income from the property earned by the assessee during the assessment years in question cannot also be sustained, the same having suffered tax in the hands of the late Nizam.

Question No. 2. -Admittedly, a sum of Rs. 39,000 each was paid to the trustees towards their remuneration in the assessment year 1971-72 and a like sum in the assessment year 1972-73. Clause 2(b) of the deed of trust specifically provides for payment of remuneration to the trustees, not exceeding Rs. 15,000 per annum for the services expected of and rendered by them. The remuneration paid to the trustees, therefore, constitutes an overriding title in respect of that part of the income of the trust. In other words, the income of the trust liable to tax in the hands of the trustees is ascertainable only after deducting from the total income of the trust, the remuneration payable to the trustees. The remuneration payable to the trustees is not different in character from the payments required to be made to the beneficiaries in terms of the trust. The amounts for remuneration paid to the trustee, therefore, constitute deductible expenditure from the income of the trust.

The trust receives income from (i) securities; (ii) capital gains; and (iii) other sources. It is not denied that the trustees incurred expenditure for the administration of the trust. What constitutes reasonable and permissible expenditure is the question that falls for determination The Tribunal allowed 5% of the total receipts of income by the trust towards expenditure incurred wholly and exclusively for earning the income under section 57 of the Income-tax Act. Section 19(i) of the Act also permits deduction of a reasonable sum expended by the trustees for the purpose of realising interest on securities. As I already stated, interest on securities also formed part of the income of the trust. The Tribunal, however, lost sight of the same. In our opinion, 7 1/2% of the net receipts of the income of the trust after deducting from its total income the remuneration paid to the trustees constitutes reasonable expenditure for administering the trust under sections 57(i) and 19(i) of the Act.

We accordingly hold that, on the facts and circumstances of the case, the rent received by the trust from " Parade Villa " during the assessment years 1971-72 and 1972-73, except for one month, cannot be assessed under the head " Income from other sources " or under any other head.

We also hold that, on the facts and circumstances of the case, the remuneration of Rs. 39,000 each paid to the trustees during the two assessment years in question constitutes deductible expenditure and that 7 1/2% of the net income of the trust after deduction from the total income the remuneration paid to the trustees constitutes deductible expenditure for administering the trust. Both the questions are accordingly answered in favour of the assessee. No costs.

 

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