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SUPREME COURT OF INDIA
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
Commissioner of Income-tax Madras (In both the Appeals), Appellant
Versus
Managing Trustees, Nagore Durgha, Nagore (In both the Appeals), Respondent.
Civil Appeals Nos. 213 and 214 of 1964.
Advocates appeared
Mr. Niran De, Additional Solicitor General of India, (M/s. R. Ganapathy Iyer and R. N. Sachthey, Advocates, with him), for Appellant (In both the Appeals); Mr. A. V. Viswanatha Sastri, Senior Advocate, (M/s. M. M. Ismail and R. Gopalakrishnan, Advocates, with him), for Respondent (In both the Appeals).
{'KEYWORD': 'INCOME TAX - Assessment - Surplus income of Durgha - Whether assessee entitled to benefit of S. 41 of the Income-tax Act, 1922.', 'SUBJECT': 'Income Tax - Assessment of Surplus Income of Durgha - Applicability of Section 41 of the Income-tax Act, 1922', 'ACT SECTION LIST': ['Income-tax Act, 1922, S. 41'], 'SUMMARY': 'The Supreme Court held that the surplus income of a Durgha, which was managed by Nattamaigars, was assessable to tax in the hands of the Managing Trustee as an association of persons. The Court held that the Nattamaigars were not trustees in the strict sense of the term, but were only managers managing the properties on behalf of the Durgha and kasupangudars. The Court further held that the properties of the Durgha did not vest in the Nattamaigars, but only the management and administration thereof. Therefore, the Managing Trustee was entitled to receive the surplus income on behalf of the kasupangudars and, hence, the provisions of Section 41 of the Income-tax Act, 1922, were attracted.'}
Fact of the Case:
The Nagore Durgha in Tanjore District, Madras State, received large income from immovable properties and offerings made by devotees. The Durgha and its properties were administered under a scheme settled by the Madras High Court in 1955. The scheme vested the management of the Durgha in 8 trustees called Nattamaigars, who constituted a board of trustees. The Managing Trustee was elected from among the Nattamaigars and held office for a term of 3 years. The Managing Trustee was required to prepare a balance sheet at the end of each fasli and ascertain the net amount available for payment to kasupangudars, who were the descendants of Saiyed Muhammed Eusoof, the foster son of the saint. The Managing Trustee was to declare the amount due to each kasupangudar and allocate the amount to each kasupangudar in the list prepared for that purpose in each year.
Finding of the Court:
The Supreme Court held that the surplus income of the Durgha was assessable to tax in the hands of the Managing Trustee as an association of persons. The Court held that the Nattamaigars were not trustees in the strict sense of the term, but were only managers managing the properties on behalf of the Durgha and kasupangudars. The Court further held that the properties of the Durgha did not vest in the Nattamaigars, but only the management and administration thereof. Therefore, the Managing Trustee was entitled to receive the surplus income on behalf of the kasupangudars and, hence, the provisions of Section 41 of the Income-tax Act, 1922, were attracted.
Issues: Whether the surplus income of the Durgha was assessable to tax in the hands of the Managing Trustee as an association of persons.
Ratio Decidendi: The Supreme Court held that the Nattamaigars were not trustees in the strict sense of the term, but were only managers managing the properties on behalf of the Durgha and kasupangudars. The Court further held that the properties of the Durgha did not vest in the Nattamaigars, but only the management and administration thereof. Therefore, the Managing Trustee was entitled to receive the surplus income on behalf of the kasupangudars and, hence, the provisions of Section 41 of the Income-tax Act, 1922, were attracted.
Final Decision: The Supreme Court held that the surplus income of the Durgha was assessable to tax in the hands of the Managing Trustee as an association of persons.
Judgment
SUBBA RAO, J.: In the town of Nagore in Tanjore District, Madras State, there is a Durgha consecrated to Hazerath Sayed Shahul Hameed Quadir Ali Ganja Savoy Andavar, who lived some 400 years ago. The said Durgha receives large income from immovable properties endowed to it and the offerings in cash and kind made by the devotees. The Durgha and its properties are now being administered under a scheme settled by the Madras High Court on March 16, 1955. Under the scheme the management of the administration of the affairs of the said Durgha vests hereditarily in 8 trustees called Nattamaigars, who constitute a board of trustees. The said board of trustees shall from among themselves elect one as a managing trustee and he shall hold office for a term of 3 years. The managing trustee shall at the end of each fasli prepare a balance sheet verified by the manager and ascertain the net amount available for payment to kasupangudars, who are the descendants of Saiyed Muhammed Eusoof, the foster son of the saint. The Managing Trustee shall declare the amount due to each of the kasupangu (share) and shall allocate the amount to each kasupangudar (sharer) in the list to be prepared for that purpose in each year. He shall pay the amount to each kasupangudar in accordance with the list. It is said that at present there are 640 kasupangudars. Briefly stated under the scheme the management of the properties of the Durgha, both movable and immovable, vests in Nattamaigars, and the kasupangudars are entitled to the surplus in accordance with their shares.
2. For the assessment years 1953-54 and 1954-55 the Income-tax Officer assessed the surplus income in the hands of the Managing Trustee as an association of persons. The Appellate Assistant Commissioner, on appeal, confirmed the same. On further appeal, the Income-tax Appellate Tribunal took the same view. At the instance of the assessee, the Tribunal submitted the following question for the opinion of the High Court of Madras under S. 66 (1) of the Income-tax Act, 1922, hereinafter called the Act: "Whether the provisions of S. 41 can be said to apply to the assessee in this case.
A Division Bench of the High Court, which heard the reference, held that the Managing Trustee qua the surplus income managed the property and deprived the income on behalf of the kasupangudars and that the assessment should be made on the said Managing Trustee to the extent of the interest of each of the kasupangudars in the income received by him. In the result it answered the question in the affirmative and in favour of the assessee. The Commissioner of Income-tax, Madras, on a certificate of fitness granted by the High Court, has preferred the present appeals against the said Order.
3. The learned Additional Solicitor General, appearing for the Revenue, contended that the Nattamaigars being trustees, the properties of the Durgha vested in them and, therefore, they or the Managing Trustee administered the trust properties in their own right and not on behalf of the kasupangudars and hence, S. 41 of the Act did not apply, with the result the Income-tax Officer had rightly assessed the surplus income in the hands of the trustees as an association of persons.
4. Mr. A. V. Viswanatha Sastri, learned counsel for the assessee-respondent, argued, on the other hand, that the Nattamaigars of the Durgha were not trustees as understood in the law of trust but were only managers managing the properties on behalf of the Durgha and kasupangudars. On that assumption, his argument proceeded, as the Nattamaigars, as managers, held the surplus on behalf of the kasupangudars for distribution in definite shares, S. 41 of the Act was attracted.
5. At the outset we may make it clear that in this appeal we are concerned only with the surplus remaining on hand with the Nattamaigars after meeting the expenses of the Durgha.
6. The problem presented in these appeals falls to be decided on a true construction of S.41 of the Act. The materia
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