Trustees of H.E.H. The Nizam''s Dependants and Khanazadas Trust vs Commissioner of Income Tax

B.P. Jeevan Reddy, J.—The question referred in this case for our opinion, u/s 256(1) of the Income Tax Act, is :

"Whether, on the facts and in the circumstances of the case, the assessee should be given credit for the tax deducted at source on dividends from the shares held in the name of C. B. Taraporewala ?"

The assessee is "Trustees of H.E.H. The Nizam''s Dependents and Khanazadas Trust, Hyderabad," and the assessment year concerned is 1970-71. In this case, the assessment was reopened to include the divided income of Rs. 10,684 which was wrongly included in the assessment year 1972-73 and which was deleted by the Appellate Tribunal. While including the said income, the Income Tax Officer did not allow the claim of the assessee with respect to the tax deducted at source from the dividends. Though no reasons were by the Income Tax Officer, the appellate authority was of the opinion that this refusal was based on the ground that the shares were not held in the name of the assessee but n the name of late C. B. Taraporewala, Financial Adviser to the late H. E. H. the Nizam. We may not that before the Appellate Assistant Commissioner, the assessee''s counsel conceded that the point raised in the appeal is concluded against him by the decision of this court in Commissioner of Income Tax Vs. Smt. Batool Begum, . The Appellate Assistant Commissioner, while agreeing with the Income Tax Officer, directed, however, that the assessee should be taxed only on the net dividend income. So the "appellant should only be assessed on the net dividend income..." On further appeal, the Tribunal dismissed the appeal following the aforesaid decision of this court.

We are, however, of the opinion that the facts of the decision in Commissioner of Income Tax Vs. Smt. Batool Begum, are totally different and distinguishable from the facts of the present case. That was a case where the shares were held by the Nizam''s Supplemental Family Trust. The trust received certain dividend income on those shares. While paying the dividend income, the company had deducted the tax at source in the normal course. The assessee was a beneficiary of the Nizam''s Supplemental Family Trust. She received certain moneys from the said trust. In her assessment proceedings, she contended that inasmuch as the income received by her represents the dividend income received by the trust on the shares held by the trust, the tax deducted at source on such share income should be given credit to. This was rejected by the High Court and, in our opinion, rightly, on the ground that the assessee was not the holder of the shares.

Now, coming to the facts of the case before us, the assessee are the trustees of H.E.H. the Nizam''s Dependents and Khanazadas Trust. A certain dividend income is being treated as their income. If so, it must follow that any tax deducted at source from out of the dividend income paid in respect of the said shares should be given credit to. Now, the were held in the name of late C. B. Taraporewala, Financial Adviser of the late H.E.H. the Nizam. If that is so, it is understandable as to how the dividend income of those share could be said or could be treated as the income of this assessee ? If the divided income of those shares can be treated as the income of this assessee notwithstanding the fact that the shares are held in the name of Sri C. B. Taraporewala, it follows on the same parity of reasoning that the tax deducted at source should also be given credit to in the assessment of this assessee. In other words, either the dividend income is that of the trustees or it is not. If the dividend income is the income of the trustees, then they are also entitled to the benefit of being given credit o the tax deducted at source. The grounds upon which the authorities have refused to give credit to the tax deducted at source, logically extended, would also mean that the dividend income cannot be treated as the income of the trustees, i.e., the assessees herein. But that is not what the Revenue has chosen to do in this case.

The above observations are made on the factual assumption that the dividend income received by the trustees is in respect of those very shares in respect of which tax been deducted at source. In other words, the dividend income included in the assessee''s income is the income of those very shares from out of which Income Tax has been deducted at source by the company. The tribunal shall, however, verify this factual aspect while passing orders u/s 260 of the Act. We are only laying down the principle. The Tribunal shall pass appropriate orders keeping the said principle in mind.

In view of the clarification we have made, we do not think that the direction given by the Appellate Assistant Commissioner to tax only the net dividend income is correct. The gross income from the dividends shall be treated as the income of the assessee and the tax deducted at source on those shares shall be given credit to, in accordance with law.

The question referred to us is answered in the above terms. No costs.