C.I.T., ANDHRA PRADESH versus TRUSTEES OF H.E.H., THE NIZAM'S FAMILY TRUST

Citation: [1986] 3 S.C.R. 973 · Decided: 30-09-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Judgment (excerpt)

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C.I.T., A_NDHRA PRADESH 
v. 
TRUSTEES OF H.E.H., THE NIZAM'S FAMILY TRUST 
B 
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SEPTEMBER 30, 1986 
"f· 
[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.] 
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Indian Income Tax Act, 1922, s. 147-Nizam's Famiiy Trust 
Deed-Income arising .from Res;rve Fund and Expenses Account-
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Whether can be aggregated in one single assessment-Sett/or-Whether 
has a right to create separate and distinct trusts by a single document. 
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By a Deed of Tru,st dated May 10, 1950, the Nizam of Hyderabad 
created a Family Trust. A corpus of nine crores in Government 
securities was transferred lo the trustees under that Deed, which was 
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notionally divided into 175 equal units, S units to cor.stitute a fund 
called the 'Reserve Fund', 3ll:z units to constitute the 'Family Trust 
·Expenses Account' and the remaining 1661h units were allotted to the 
relatives mentioned in the Schedule in the manner provided therein. 
The Trust Deed provided: (I) that the income or corpus of the Reserve 
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Fund shall he applied for any special, unusual, unforeseen or emer-
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gency expenses for the benefit of the inembers of the settlor's family · 
specified in. the Schedule; (2) that if there was a deficit in the Family 
Trust Expenses Account, a definite proportion of the income or corpus 
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of the Reserve Fund had to be transferred to the Family Trust Expenses 
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Account; (3) that the net income of the Family Trust Expenses Account 
shall be applied to the charges for the collection of the income of the 
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Trust Fund and the remuneration of the trustees and of the members of 
...,,, 
the (:ommittee of Management and to other costs, charges, expenses 
and outgoings relating to the members, (4) that on the death of any of 
the settlor's, relatives, a proportionate share of the corpus, of the 
Reserve Fund must be added to the unit or units of the corpus of the 
Trust Fund allocated to such member, and the amounts so amalgama-
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ted are to be applied in accordance with the terms of the trust deed; and 
(SJ that the corpus of the Family Trust Expenses Account has to be 
ultimately handed over to the Settlor's successor to the dignity ofNizam 
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and falling him to his .eldest male descendant in the direct male line of 
succession in accordance with the rule of primogeniture. 
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973 
974 
SUPREME COURT REPORTS 
[1986) 3 S.C.R. 
A 
The income of the two Funds were separately assessed for the 
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assessment years 1960-61 and 1961-62. Subsequently, the Income-tax 
Officer, being of opinion that there was only one settlement under the 
Trust Deed, reopened the assessments for the assessment years 1960-61 
and 1961-62 under clause(a) of s. 147 of the Income Tax Act, 1961 and 
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assessed the trustees for each of the assessment years on the combined 
income of the Reserve Fund and the Family Trust Expenses Account. 
Following the same line, separate original assessments for the assess-
ment years 1962-63 to 1965-66 were also made. On appeal by the asses-
see,'the Appellate Assistant Commissioner cancelled the assessments for ~
all the years. The Income Tax Appellate Tribunal and the High Court 
confirmed the order of the Appellate Assistant Commissioner. 
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In the .appeals by the Revenue to this Court, on the question 
whether the incomes arising from the Reserve Fund and the Expenses 
Account of the Nizam's Family Trust Deed can be aggregated in a single 
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assessment for each of the assessment years 1960-61 to 1965-66. 
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HELD: 1. The High Court was right that the Settlor intended to 
.create separate Trusts in respect of the Reserve Fund and the Family 
Trust Expenses Account, and that the respective incomes arising from 
the corpus of those Trusts cannot be aggregated in one single assess-
ment but most be assessed separately. [979A-B) 
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2. It is open to a Settlor to constitute two or m\)re distinct trusts 
by a single document. [978C] 
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In the instant case, there is no doubt that separate funds were 
created, even .though the division of the original Trlist Fund may have 
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been notional. The objects for which the tl"nstees held the Reserve Fund 
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and the Family Trust Expenses Account are clearly demarcated and 
there is no overlapping or duplication. There is also no intermingling of 
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the Funds. The transfer of a portion from one to the other cannot lead 
to a confusion in the separate identity of the two Trusts. [978B-E] 
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3. Although the corpus of the Trust Fund vested in the same 
trustees, the trustees nonetheless

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