ivil Appeal Nos
1856 61 of 1974 etc
From the Judgment and order dated 1611974 of the Andhra Pradesh High Court in Case Referred No 2 of 1977 VS Desai Ms A Subhashini and BB Ahuja for the Appellant
YRatnakar and DN Misra for the Respondent
The Judgment of the Court was delivered by PATHAK J
These appeals have been preferred by the Revenue against the common judgment of the High Court of Andhra Pradesh answering the following questions in favour of the assessee 1 Whether on the facts and in the circumstances of the case the incomes arising from the Reserve Fund and the Expenses Account of the Nizam s Family Trust Deed dated s 1051950 can be aggregated in a single assessment for each of the assessment years 1960 61 to 1965 66 2 If the answer to the above question is in the affirmative whether the assessments made under section 148 of the Act for the assessment years 1960 61 and 1961 62 were legal and valid By a Deed of Trust dated May 10 1950 the Nizam of Hyderabad created a Family Trust
A corpus of nine crores in Government securities was transferred to the trustees under that Deed
The corpus was notionally divided into 175 equal units
Five units were to constitute a fund called the Reserve Fund  and 3 12 units were to constitute the Family Trust Expenses Account
The remaining 166 12 units were allotted to the relatives mentioned in the Schedule in the manner provided therein the number of units allocated to each individual relative being specified there
Two clauses of the Trust Deed hold the centre of the stage in 976 these appeals Clause 6 creates a Reserve Fund comprising five equal units of the corpus of the Trust Fund
The trustees hold the Reserve Fund upon trust to apply the income or corpus thereof for any special unusual unforeseen or emergency expenses for the benefit of the members of the Settlor s family specified in the Schedule
Additionally if the income of the Family Trust Expenses Account is insufficiently meet the charges of collection of the income of the Trust Fund and the remuneration of the trustees and of the Committee of Management and the other costs charged expenses and outgoings relating to the Trust the trustees are enjoined to make good such deficit out of the income or corpus of the Reserve Fund and for that purpose they may transfer to the Family Trust Expenses Account such sums as may be required
It is further provided that on the death of any of the Settlor s relatives specified in the Schedule the trustees must set apart out of the Reserve Fund a certain portion calculated in accordance with the directions contained in the clause and to add such portion to the units of the corpus of the Trust Fund allocated to the member specified in the Schedule and to amalgamate the same and to hold it upon the same trusts as those hereinafter declared and contained of and concerning the unit or units of the corpus of the Trust Fund allocated to such relative of the settlor as aforesaid  Clause 7 directs the trustees to hold 3 12 equal units of the corpus of the Trust Fund allocated to the Family Trust Expenses Account and to apply the net income of that Fund to the charges for the collection of the income of the Trust Fund and the remuneration of the trustees and of the members of the Committee of Management and to other costs charges expenses and outgoings relating to the Trust
There is a further provision
After all the other Trusts constituted under the Deed have been fully administered and carried out and the corpuses of all such units have been handed over and transferred to the ultimate respective beneficiaries the trustees are enjoined to transfer and hand over the 3 12 units comprising the Family Trust Expenses Account to the Settlor s successor who may be describe as the Nizam of by any other title or rank or designation and failing such person to the eldest male descendant in the direct male line of succession of the Settlor accordmg to the rule of primogeniture
For the assessment year 1959 60 and the assessment years prior thereto the incomes accruing to the Reserve Fund and the Family Trust Expenses Account were aggregated in a single assessment made on the trustees of the Nizam s Family Trust
But thereafter the asses 977 see s appeals having been allowed by the Appellate Assistant Commissioner of Income tax against the assessments for the years 1955 56 to 1959 60 the incomes of the two Funds were separately assessed for the assessment years 1960 61 and 1961 62 the assessee being described in the one case as the trustees of the Nizam s Family Trust Reserve Fund and in the other as the trustees of the Nizam s Family Trust Expenses Account
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 section 147 of the Income Tax Act 1961 in order to assess the trustees on the combined income of the Reserve Fund and the Family Trust Expenses Account
Following the same line he made separate original assessments for the assessment years 1962 63 to 1965 66
On appeal by the assessee the Appellate Assistant Commissioner relied on an order of the Appellate Tribunal in the Wealth Tax Appeals pertaining to the same trust arrangements and cancelled the assessments for all the years
The Revenue appealed to the Income Tax Appellate Tribunal but the view taken by the Appellate Assistant Commissioner was upheld by the Appellate Tribunal and the appeals were dismissed
Upon that the Revenue obtained a reference to the High Court of Andhra Pradesh on the two questions of law set forth earlier for the assessment years 1960 61 to 1965 66
By its judgment dated January 16 1974 the High Court answered both the questions in the negative
And hence these appeals
For the subsequent assessment years 1967 68 to 1970 71 the High Court adopted the same view in regard to the first question
The second question did not arise for those assessment years
Special Leave Petition Nos 4171 to 4174 of 1978 have been filed against the judgment of the High Court in those cases
We grant special leave and the consequent appeals are also being disposed of by this judgment
The primary question in these appeals is whether the incomes arising from the Reserve Fund and the Family Trust Expenses Account of the Nizam s Family Trust can be assessed separately or must be aggregated in a single assessment
It seems to us clear that by the Deed of Trust dated May 10 1950 the Nizam created a number of separate and distinct Trusts
They were created for specific and distinct purposes and although the corpus of the Trust Fund vested in the same trustees the trustees nonetheless held distinct and severable portions of the corpus of the Trust Fund 978 under those separate trusts
That this construction of the document accords with the intention of the Settlor is borne out by the provisions of sub clause 4 of clause 3 of the Trust Deed which specifically provides that on the death of the Settlor the corpus of the Trust Fund was to be divided or to be treated as notionally divided into the 175 equal units mentioned therein for being allocated to the Settlor s relatives specified in the Schedule 166 12 units being apportioned between the relatives in the proportion set out five equal units to constitute the Reserve Fund and the last 3 12 equal units to constitute the Family Trust Expenses Account
There is no doubt that separate funds were thus created even though the division of the original Trust Fund may have been notional
There is also no denying that it is open to a Settlor to constitute two or more distinct trusts by a single document
See Commissioner of Income tax Bombay vs Manilal Dhanji  886
The entire position becomes absolutely clear if regard is had to clause 10 of the Trust Deed which permits the trustees to have separate Trust Deeds made and executed in respect of the different funds carved out of the 175 equal units of the corpus of the Trust Fund
It is also apparent that the objects for which the trustees held the Reserve Fund and the Family Trust Expenses Account are clearly demarcated and there is no overlapping or duplication
There is also no intermingling of the Funds
It is true that if there is a deficit in the Family Trust Expenses Account a definite portion of the income or corpus of the Reserve Fund has to be transferred to the Family Trust Expenses Account
But the two Funds remain distinct from each other at all times The transfer of a portion from one to the other cannot lead to a confusion in the separate identity of the two Trusts
A further indication evidencing the creation of two distinct Trusts is the completely different manner of disposal of the corpus of the two Funds
As regards the Reserve Fund we have seen 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 members and the amounts so amalgamated are to be applied in accordance with the terms of the Trust Deed mentioned earlier
In the case of the Family Trust Expenses Account the corpus of that Fund has to be ultimately handed over to the Settlor s successor to the dignity of Nizam and failing him to his eldest male descendant in the direct male line of succession in accordance with the rule of primogeniture
We agree with the High Court that the Settlor intended to create 979 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 assessment but must be assessed separately
The first question in these Appeals is therefore answered in the negative in favour of the assessee and against the Revenue
Inasmuch as the answer to the first question is in the negative the second question does not arise and we need not consider that question in these Appeals
The Appeals are dismissed with costs
MLA Appeals dismissed


Summary:
By a Deed of Trust 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 notionally divided into 175 equal units 5 units to constitute a fund called the Reserve Fund  312 units to constitute the Family Trust Expenses Account  and the remaining 116 12 units were allotted to the relatives mentioned in the Schedule in the manner provided therein
The Trust Deed provided 1 that the income or corpus of the Reserve Fund shall be applied for any special unusual unforeseen or emergency expenses for the benefit of the members 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 of the Preserve Fund had to be transferred to the Family Trust Expenses 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 Trust Fund and the remuneration of the trustees and of the members of the Committee 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 ted are to be applied in accordance with the terms of the trust deed and 5 that the corpus of the Family Trust Expenses Account has to be ultimately handed over to the Settlor s successor to the dignity of Nizam and falling him to his eldest male descendant in the direct male line of succession in accordance with the rule of primogeniture
974 The income of the two Funds were separately assessed for the 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 clausea of section 147 of the Income Tax Act 1961 and 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 assessment 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
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 assessment for each of the assessment years 1960 61 to 1965 66  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 assessment but must be assessed separately
979A B 2
It is open to a Settlor to constitute two or more distinct trusts by a single document
978C In the instant case there is no doubt that separate funds were created even though the division of the original Trust Fund may have been notional
The objects for which the trustees held the Reserve Fund and the Family Trust Expenses Account are clearly demarcated and there is no overlapping or duplication
There is also no intermingling of 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 3
Although the corpus of the Trust Fund vested in the same trustees the trustees nonetheless held distinct and severable portions of the corpus of the Trust Fund under those separate trusts
That this construction of the document accords with the intention of the Settlor is borne out by the provisions of sub clause 4 of clause 3 of the Trust Deed which specifically provides that on the death of the Settlor the corpus of the Trust Fund was to be divided or to be created as notionally 975 divided into the 175 equal units mentioned therein for being allocated to the Settlor s relatives specified in the Schedule
977G H 978A B