1984 Supreme(AP) 347

Andhra Pradesh High Court
Judges : A.RAGHUVIR, G.RAMANUJULU NAIDU
Commissioner of Income Tax - Appellant
Versus
Trustees of H.E.H.The Nizams Miscellaneous Trust - Respondent
Decided On : 09-17-84

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. The remuneration paid to the trustees, therefore, constitutes an overriding title in respect of that part of the income of the trust.

Headnote:

INCOME TAX - Assessment - Trust - Income from house property - Whether the rent received by the assessee by letting out the property known as Parade Villa to the H. E. H. the Nizams Charitable Trust could be assessed under the head Other sources? - Whether 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?

Fact of the Case:

The assessee, H. E. H. the Nizams Miscellaneous Trust, purchased a building known as "parade Villa" from H. E. H. the Nizam on 24/12/1970. 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 28-2-1972. 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 ITO 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 ITO 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. Trustees remuneration 39,000 39,000 Secretarys imprest 1,26,500 1,45,500 Bank charges 2,410 3,047 Legal expenses - 3,116 ----------------------------------- Total : 1,67,910 1,90,663 -----------------------------------

Finding of the Court:

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 asst. yrs. 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 28-2-1972. The rental income from the property cannot, therefore, be assessed to tax under s. 22 of the IT Act, 1961. Following the decision of the Supreme Court in Nalinikant Ambalal Mody v. S. A. L. Narayan Row (1966) 61 ITR 428 (SC), it cannot also be brought to tax under the head "income from other sources" chargeable under s. 56 (1) of the IT 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 IT Act, double taxation was not permissible. 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 payment 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.

Issues: None

Ratio Decidendi: The heads of income must be decided from the nature of the income be applying practical notions and not by reference to an assessees treatment of income. 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 asst. yrs. 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 28-2-1972. The rental income from the property cannot, therefore, be assessed to tax under s. 22 of the IT Act, 1961. Following the decision of the Supreme Court in Nalinikant Ambalal Mody v. S. A. L. Narayan Row (1966) 61 ITR 428 (SC), it cannot also be brought to tax under the head "income from other sources" chargeable under s. 56 (1) of the IT Act, 1961. 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 payment 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.

Final Decision: Both the questions are accordingly answered in favour of the assessee. No costs.