COMMISSIONER OF INCOME TAX, HYDERABAD versus NAWAB MIR BARKAT ALI KHAN BAHADUR

Citation: [1975] 2 S.C.R. 453 · Decided: 16-10-1974 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed

Judgment (excerpt)

A 
B 
c 
D 
E 
G 
H 
COMMISSIONER OF INCOME TAX, HYDERABAD 
v. 
NAWAB MIR 
BARK.AT ALI KHAN BAHADUR 
October 16, 1974 
(H. R. KHANNA, R.S. SARKARIA AND A. C. 0UPTA, JJ.] 
453 
Indian Income-tax Act 1922-Trust created by assessee Corpus deposited with 
the Government-Government agreed to pay Interest free of all taxes. Beneficiary 
released and assigned all rights In the trust to the settlor-assessee-Whether settlor-
assessee entitled to tM same exemption from taxation as the beneficiary. 
The assessee had created a trust of thirty lacs of rupees for the benefit of his 
daughter-in-law on 8th October, 1949. On the same day an agreement was entered 
into between the assessee and Government of India, the important terms of which 
were that the trustees would deposit the corpus of the trust with the Government 
of India; that the Government of India would pay interest on that amount at the 
rate of Re. one per cent per annum free of income-tax and other taxes, to pay out 
of the cor)lus such sum every year together with interest accrued thereon or on the 
balance sum thereof which would in all be a sum of Rs. one lac; that the Govern-
ment of India would not assess or levy on the settlor or the trustees or any of the 
beneficiaries under the deed of trust any income-tax, super-tax or other taxes in 
respect of the Income or corpus of the said sum of Rs. thirty lacs or part thereof, 
The beneficiary released, assigned and transferred her rights, title and interest in the 
trust fund in favour of the assessee and it was stated that tho settlor would be en-
titled to receive the amount whioh the beneficiary was entitled to free of income-
tax, super-tax and other taxes. The Income-tax Officer held that the receipt Qf 
Rs. one lac per annum by the assessee from the trustees constituted the assessee's 
income and so he was liable to pay tax thereon. The order was affirmed by the 
Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The 
High Court held that though the amounts received by the assessee in pursuance of 
·the release deed were his income, he was entitled to exemption from payment of 
taxes upon those amounts because of the agreement dated October 8, 1949, that the 
assessee stood in the shoes of the original beneficiary under the trust deed and had 
become entitled to all the benefits to which she was entitled. 
On appeal to this Court it was contended that (I) the assessee who was a trans-
feree of the rights of the beneficiary under the trust deed, could not get the benefit 
of that exemption and (2) the question of grant of exemption to the payment of tax 
to the assessee could not arise because the settlor got divested of the ownership of 
the corpus. 
Disniissins the appeals, 
HELD : A fair reading of the agreement showe1 that the basic scheme was 
that the payment of Rs. one lac under the agreement would be exempted from the 
payment of tax. There is nothing in the agreement that the Government wanted 
to show a special favour to the beneficiary personally and that the same would have 
been with held in case the person entitled to receive Rs. one lac was not the bene-
ficiary but the settlor. The consideration which appears to have weighed with the 
Government of India in agreeing to grant exemption in the matter of tax was the 
deposit of Rs. thirty lacs with the Government. That censideration held equally 
good whether the person to whom the payment of Rs. one lac was made by the 
trustees was the beneficiary or the assessee. The exemption was of a general and 
comprehensive nature and was not restricted to the beneficiary alone. Agreement 
which the Government entered into with the settlor and the trustees expressly grant-
ed exemption in the matter of payment of tax in respect of the said sum Rs. one lac 
to the settlor also. The agreement makes it clear that in no event were the settlor 
and the trustees and the beneficiary to be taxed in respect of payment of Rs. one 
L·lac. [461 B-D; F; HJ 
(2) In spite of the knowlcdse that the settlor had transferred the amount of 
the trust the Government of India asreed to grant exemption to the settlor in respect 
454 
SUPREME COURT REPORTS 
[1975] 2 S.C.R 0 
of any income from the corpus or part thereof. It would follow that the intention 
of the parties was that the settlor was to be exempt in any case from payment of ~ax 
in respect of income from that amount and that in the event of the ~ssessee beconung 
entitled to the beneficial interes

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