The interpretation of section 160 (1) (iv) of the Income-tax Act, 1961, in the context of a trust where the beneficiary is entitled to a specified amount of income with the balance to be accumulated, and the trustees have the discretion to grant additional amounts for unforeseen emergencies or other necessary expenses.

( 1 ) IN this reference made under section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our determination :"whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that only a sum of Rs. 18,000 could be brought to tax under section 160 (1) and that the balance of income from the share fund could not be taxed ?"

( 2 ) THE facts of the case in brief are : Nawab Sir Mir Osman Ali Khan Bahadur, the Nizam of Hyderabad, created a trust of three properties, namely, (i) jewellery mentioned in the first schedule of the trust deed, (ii) 5% tax-free cumulative preference shares in Greaves Cotton and Company Ltd. of the face value of Rs. 4,00,000, and (iii) a sum of Rs. 75,000 in cash for residence (for brevity the above three are called "the jewellery, the shares and the residence funds", respectively ). In this reference, we are concerned with the share fund only. The trust is called "sahebzadi Anwar Begums Trust". Clause 5 (a) of the trust deed declares that until the death of Sahebzadi Anwar Begum, wife of Prince Muazzam Jah Bahadur (son of the Nizam), or until she was divorced from Prince Muazzam Jah Bahadur or until her remarriage, whichever event takes place first, the said Anwar Begum shall be paid a sum of Rs. 1,500 per month out of the income of the share fund and the balance of the income was to be accumulated. However, the trustees are vested with the absolute discretion to pay or spend out of the said accumulations for any unforeseen emergency or other necessary expenses of the said Anwar Begum. Sub-clauses (b) and (c) of clause 5 indicate the line of succession of the rights of the beneficiary in the event of death, divorce or remarriage of the said Anwar Begum. For the assessment years 1977-78 and 1978-79, the trustees as "representative assessees" were assessed to tax by the Income-tax Officer on the entire income from the share fund under section 160 (1) (iv) of the Income-tax Act on the ground that the beneficiary - Anwar Begum - is entitled to receive the said income. Having failed before the Appellate Assistant Commissioner, the assessees preferred a second appeal before the Appellate Tribunal. The Tribunal held that excepting the amount of Rs. 1,500 per month which the beneficiary is entitled to receive, the other income received from the share fund is not exigible to tax. Hence, this reference.

( 3 ) LEARNED standing counsel for the Revenue contended that as per clause 5 (a) of the trust deed, the beneficiary is entitled to receive the entire income from the share fund, and not merely the sum of Rs. 1,500 as specified therein, to meet emergency and other necessary expenses and that, therefore, the entire income is assessable to tax. To appreciate this contention, it is necessary to have a look at section 160 (1) (iv) of the Income-tax Act, which is as under :"160. Representative assessee.- (1) For the purposes of this Act, "representative assessee" means -. . . (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)); receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees. "

( 4 ) IN support of his contention that the beneficiary is entitled to the entire income from the share fund, learned standing counsel sought to place reliance upon certain observations made by this court in an earlier matter in CWT v. Nizams Sahebzadi Anwar Begum Trust [1981] 129 ITR 796. No doubt, that decision is in respect of the same trust. The observations referred to are (p. 818) :"the question before us is, when she is paid Rs. 1,500 per month (Rs. 18,000 per year) from out of the income of this shares fund, what would be her interest in the shares fund available for being charged to wealth-tax