Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court :
'Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provision of West Bengal Act No. II of 1963, as amended by the West Bengal Act No. XXXIX of 1963, the Tribunal was right in holding that the sum of Rs. 84,000 was not deductible in computing the total income of the assessee ?'
2. The assessment years involved are 1964-65 to 1967-68. This question is an echo from the old history of Bengal. Nawab of Murshidabad was the Nawab Nazim and Subedar of Bengal, Bihar and Orissa and was entitled to the title of Nawab Nazim and the authority, dignity, stipend, pay, allowances, privileges and rights thereof and up to 1891, the said Nawab of Murshidabad was receiving these allowances and stipends for the maintenance of his dignity. Disputes had arisen between the Nawab, the members of his family and the Government of India represented by the Secretary of State for Council. On 12th March, 1891, there was an indenture of agreement entered into between the Nawab of Murshidabad and the Government of India. The said indenture recited, inter alia, that there were certain disputes between the Government of India and the Nawab and insettlement of the disputes a sum of Rs. 16,85,461-7-51 had been paid and another sum of Rs. 10 lakhs was paid in satisfaction and in discharge of certain claims. The identure further recited that it had been agreed between the Secretary of State and the said Nawab Bahadur that provision should be made for the maintenance or support of Nawab Bahadur of Murshidabad and Amir-ul-Omrah for the time being and for the maintenance of the honour and dignity of his station ; and same should comprise and consist of the following ;
'1st--An annual payment of Rs. 2,30,000 from the revenues of the Government of British India to be made to the Nawab Bahadoor of Moorshedabad for the time being in the manner mentioned in the deed.
2nd.--The income of the immovable properties mentioned and specified in the said 1st and 2nd Schedules to these presents.
3rd.--The income of the immovable properties mentioned in the 3rd Schedule to these presents as purchased with the sale proceeds of the jewels mentioned and specified in Schedules V and VI to the said report and certificate to the said Commissioner and all properties that may in future be purchased with the sale proceeds of the said jewels.
4th.--The income of properties purchased with the sale proceeds of such of the immovable properties mentioned and specified in the 1st, 2nd and 3rd Schedules to these presents as may at any time with the sanction of His Excellency the Governor-General in Council be disposed of.' The other parts though historically interesting are not fiscally relevant. The said indenture was confirmed by statutory recognition by Bengal Act XV of 1891. The same was later on amended from time to time. It is not necessary for us to refer to the said amendments. The said indenture as mentioned hereinbefore contained certain Schedules. Schedules I and II consisted of certain immovables and Schedule III also consisted of certain immovables which had been purchased with the sale proceeds of the jewellery mentioned in the said indenture. The Schedule of the properties did not, however, contain the annual payment of Rs. 2,30,000. The said sum was to be paid by the Government to the Nawab Bahadur of Murshidabad for the time being from the 'revenue of British India'. It is important to emphasise that the annual payment of Rs. 2,30,000 from the revenue of the Government of British India was mentioned in the said indenture to be in consideration of relinquishment of certain rights and privileges by the Nawab Bahadur of Murshidabad in favour of the British Government. As mentioned hereinbefore, the said indenture was confirmed by the Murshidabad Act of 1891. The said Act was, as we have indicated before, amended from time to time. Thereafter in 1963, the West Bengal Act II of 1963, being the Murshidabad Estate (Trust) Act, 1963, was passed. The said Act recited as follows:
'An Act to provide for the creation of a trust in respect of the properties enjoyed by the late Nawab Bahadur of Murshidabad for the benefit of his sons and daughters.
Whereas it is no longer necessary in the altered circumstances to make provision for the maintenance of the honour and dignity of the Nawab Bahadur of Murshidabad ;
And, whereas the late Nawab Bahadur of Murshidabad expressed a desire that on his death a trust should be created in respect of all the properties enjoyed by him for the benefit of his sons and daughters ;
And whereas it is necessary to give effect to the said desire of the late Nawab Bahadur of Murshidabad and to that end to create a trust in respect of the properties of the Murshidabad Estate ;.........'
3. The said Act provided certain definitions in Section 2. The said Act in Sub-section (10) of Section 2 provides the definition of 'properties of the Murshidabad Estate'' and the same included the properties movable and immovable specified in the Schedule. It is important to reiterate that the properties of the Murshidabad Estate include the properties movable and immovable specified in the Schedule to the Act. The Schedule to the Act provided that the properties of the Murshidabad Estate would be as follows :
'I. Such of the properties, movable and immovable, referred to in the indenture included in, and confirmed by, the Moorshedabad Act, 1891, including the Schedules of properties annexed thereto, with the additional immovable properties added under the provisions of:
(a) Sub-section (1) of Section 3 of the Act, and
(b) Section 32 of the Land Acquisition Act, 1894, as formed part of the Murshidabad Estate immediately before the commencement of this Act and are situated in West Bengal or in any place outside West Bengal.
II. All moneys awarded or payable under the Land Acquisition Act, 1894 or the West Bengal Estates Acquisition Act, 1953, as compensation for the acquisitionVtf any of the immovable properties referred to in item I mentioned above.
III. All moneys received in West Bengal as income from, or compensation for requisition or acquisition of, such of the properties referred to in item I mentioned above as are situated in any place outside West Bengal.' It may be noted that the right of Nawab Bahadur to receive the sum of Rs. 2,30,000 does not find a place amongst the items included in the Schedules to the Act or within the definition of the properties of Murshidabad Estate. Section 3 of the said Act provided as follows :
'3. As from the appointed day-
(1) all the properties of the Murshidabad Estate (hereinafter referred to as the trust properties) shall vest in the Trustee to be held by him in trust for the benefit of the sons and daughters of the late Nawab Bahadur.
(2) The Trustee shall receive a monthly sum of rupees nineteen thousand one hundred and sixty-six and ten annas and eight pies, referred to in the Indenture included in, and confirmed by, the Moorshedabad Act, 1891, payable from the Government Treasury at Berhampore in the district of Murshidabad and shall give receipts therefor.
(3) The Trustee shall receive and recover all rents, issues and profits due in respect of the properties of the estate, and shall upon receiving such rents, issues and profits give receipts therefor.'
4. Item No. 2 is the right of the Nawab to receive the yearly sum of Rs. 2,30,000 mentioned above. Section 4 stipulated for the management of the trust properties and Section 5 dealt with 'application of the income from the trust properties'. It is not necessary to set out in detail the provisions of Section 5 as it originally stood because the same has been amended and we shall refer to the amended provision hereinafter. Section 10 which dealt with repeal was as follows :
'10. The following enactments, in so far as they do not relate to the descent of the title of Nawab Bahadur or to the sum of rupees two lakhs and thirty thousand payable to the Nawab Bahadur from the revenues of the Government in pursuance of the Indenture included in, and confirmed by, the Moorshedabad Act, 1891, or to the payment thereof to the Nawab Bahadur in accordance with the provisions of the said Indenture by equal monthly instalments of rupees nineteen thousand one hundred and sixty-six and ten annas and eight pies, are hereby repealed, namely :--
1. The Moorshedabad Act, 1891.
2. The Murshedabad Estate Administration Act, 1933.
3. The Murshidabad Act, 1946.
4. The Murshidabad Estate Administration (Amendment) Act, 1959.'
5. The said Act, as we have mentioned before, was amended again from time to time and at the material time with which we are concerned, the Murshidabad Estate (Trust) (Amendment) Act, 1963 was in force. The said amended provisions, inter alia, provided as follows:
'For Section 5 of the said Act, the following section shall be substituted, namely:--
5. Application of funds of the estate and income from trust properties.--(1) The Trustee shall pay to the present Nawab Bahadur a lump sum of Rs. 6,00,000 from the funds of the Murshidabad Estate which come into his hands on the vesting of the trust properties in him under Section 3.
(2) The Trustee shall pay to the Nawab Bahadur a monthly sum of Rs. 7,000 from the sum received by him under Clause (2) of Section 3.
(3) From the balance of the sum received under Clause (2) of Section 3 and the sums received under Clause (3) of that section the Trustee shall pay--
(a) First:
(i) all costs incurred by the Trustee in managing and administering the trust properties and the income therefrom, including costs of such repairs and improvements of any of the Trust properties other than the Mosques and Imambarahs as appear necessary to the Trustee and are approved by the State Government, and
(ii) all revenues, rents, cesses, rates, taxes, debts and liabilities in respect of the Murshidabad Estate and the Trust properties and all amount required to satisfy any decree, order or judgment of the court in relation thereto ;
(b) secondly, to the Imambarah Committee for the purpose of the maintenance of the Mosques and Imambarahs and the performance of the prescribed religious ceremonies such amount as may be specified by the State Government by order made in this behalf from time to time;
(c) thirdly, after making the payments referred to in Clauses (a) and (b) which shall be apportioned proportionately and adjusted against the sums received under Clauses (2) and (3) respectively of Section 3 and the monthly payment referred to in Sub-section (2), the balance remaining out of the sum received under Clause (2) of Section 3, to the Nawab Bahadur and from the balance remaining out of the sum received under Clause (3) of the section, an allowance of-
(i) a monthly sum of Rs. 3,000 to the Nawab Bahadur ;
(ii) a monthly sum of Rs. 2,000 each to the sons of the late Nawab Bahadur (including the present Nawab Bahadur in his personal capacity) by his wife the Nawab Begum of Murshidabad ;...... '
6. In connection with the assessment for the relevant assessment years, itwas claimed by the assessee, the official trustee, that the payment ofRs. 7,000 per month, viz., Rs. 84,000 per year was to be excluded from theincome of the trust as that payment was made to the Nawab Bahadur ofMurshidabad on account of Section 5(2) of the West Bengal Act XXXIX of 1963,and the payment made was an overriding charge on the income of thetrust. The ITO passed his order for the assessment year 1964-65, in whichhe disallowed this claim. He was of the view that the payment of Rs. 84,000 was not subject to deduction by the Accountant-General while making payment of Rs. 2,30,000 to the trustees and that payment was not in connection with any overriding charge. The ITO, therefore, did not accept the claim of the assessee that the said amount of Rs. 84,000 was to be excluded from the income of the trust. He followed the same order for the subsequent years up to 1967-68 with which we are concerned. There were appeals before the AAC. The AAC took the view that the amended section of the Murshidabad (Estate) Act provided for payment of Rs. 7,000per month to Nawab Bahadur and created an overriding charge on the income of the trust. He, therefore, excluded the amount of Rs. 84,000 in each of the four years from the consideration of the income of the trust.
7. There were appeals to the Tribunal by the revenue. The Tribunal discussed in detail the various provisions of the Act, as we have set out hereinbefore, and also the relevant authorities. The Tribunal was of the view that the contention of the revenue that the payment of Rs. 84,000 could not be allowed as deduction under Section 57(3) of the I.T. Act, 1961, was beside the point in controversy. The Tribunal noted that the assessee had not claimed the payment as a deduction as being an expenditure. The Tribunal thereafter on consideration of the entire provision of the Act came to the conclusion that the payments were not on account of any overriding charge. The Tribunal was of the view that the payment was only application of the income of the trust and as such could not be excluded from the assessment of the income of the trust. The order of the AAC on this point was, therefore, set aside and the order of the ITO restored.
8. In those circumstances, under Section 256(1) of the I.T. Act, 1961, the question, as mentioned hereinbefore, has been referred to this court.
9. Whether, in a particular case, a payment is on account of overriding charge or is a mere application of income must be determined in accordance with the settled principles. Though the principles are clear enough, it is often difficult to apply those principles to the facts and circumstances of a particular case. In the case of Raja Bejoy Singh Dudhuria v. CIT [1933] 1 ITR 135, the Judicial Committee had an occasion to consider this aspect of the matter. There, the assessee had succeeded to the family ancestral estate on the death of his father. Subsequently, his step-mother brought a suit for maintenance against him in which a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his step-mother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee. In computing his income, the assessee claimed that the amounts paid by him to his step-mother under the decree should be excluded. It was held by the Judicial Committee that the assessee's liability under the decree did not fall within any of the exemptions or allowances conceded in Sections 7 to 12 of the Indian I.T. Act, 1922, but the sums paid by the assessee to his step-mother were not the 'income' of the assessee at all. The decree of the court by charging the appellant's whole resources with a specific payment to his step-mother had to that extent diverted his income from him and had directed it to his step-mother and to that extent what he received for her was not his income. It was not a case of the application by the appellant of a part of his income in a particular way but it was rather an allocation of a sum out of his revenue before it became an income in his hand. The saidprinciple enunciated by the Judicial Committee was again, in different contexts, reiterated by the Supreme Court in the case of CIT v. Sitaldas Tirathdas : [1961]41ITR367(SC) . There, in computing the assessee's total income for the purposes of income-tax, the assessee had sought to deduct amounts paid by him as maintenance to his wife and children under a decree of court passed by consent in a suit. No charge on any property of the assessee was created. It was held by the Supreme Court that this was a case in which the wife and children of the assessee, who continued to be members of his family, received a portion of the assessee's income after he had received it as his own income and was, therefore, one of application of a portion of the income to discharge an obligation and not one in which by overriding charge the assessee became only a collector of another's income. The assessee, it was held by the Supreme Court, was not, therefore, entitled to the deduction claimed by him. The Supreme Court reiterated that the true test for the application of the rule of diversion of income by overriding charge, was whether the amount sought to be deducted, in truth, never reached the assessee as his income. The obligations, no doubt, may be there, in very many cases, but it was the nature of the obligation which was the decisive factor. There was a difference between an amount which a person was obliged to apply out of his income and the amount which by nature of the obligation could not be said to be a part of the income of the assessee. Where by the obligation income was diverted before it reached the assessee, it was deductible but where income was required to be applied to discharge an obligation after such an income reached the assessee the same consequence in law did not follow. It was the first kind of payment which could truly be excused and not the second one. The second payment was merely an obligation to pay another a portion of one's own income which had been received and was since applied.
10. In the case of Trustees of Chaturbhuj Raghavji Trust v. CIT : [1963]50ITR693(Bom) , the Division Bench of the Bombay High Court had to consider this question and though their Lordships reiterated the same principle, in the facts of that case which were entirely different from the facts with which we are concerned in this case, and for which it is not necessary to refer in detail to that case, it was held by the Division Bench that there was no diversion of income by any overriding title. The Supreme Court, again, in the case of Murlidhar Himatsingka v. CIT : [1966]62ITR323(SC) , had to consider this question in the case of a sub-partnership. There, the Supreme Court reiterated that the sub-partner had a definite enforceable right in the facts and circumstances of that case who claimed a share in the property accrued to or received by the partner in the original partnership.. When sub-partnership was entered into, the partner changed his character vis-a-vis the sub-partners and the income-tax authorities, althoughother partners in the original partnership were not affected by the changes that might have taken place. In the case of partnership, the sub-partnership created a superior title and diverted the income from the main firm before it became the income of the partner. In other words, the partner in the main firm received the income not only on his own behalf but also on behalf of the partners of the sub-partnership. In the case of V. Venugopala Varma Rajah v. Commr. of Agrl. IT : [1972]84ITR466(SC) the Supreme Court emphasised the fact that it was neither the physical receipt of certain amount of money which was important but what was important was the legal character of the receipt of money. In that case, the court reiterated the aforesaid principles mentioned hereinbefore and observed in that case the income was the income of the family and it was merely applied to discharge the obligation of the family, viz., obligation to maintain its junior members. The Supreme Court observed that it reached the hands of the family as soon as it reached the hands of any members of the family who were entitled to receive on behalf of the family. The Supreme Court observed that what was important was not the physical act of receipt of money but the legal concept of receipt in law, and from that point of view, according to the Supreme Court, it was clear that the income, with which the Supreme Court was concerned in that case, was received by the family.
11. Counsel for the revenue drew our attention to Section 160 of the I.T. Act, 1961, and submitted that in this case in view of Section 160(1)(iii), the present asssesee could be treated as a representative assessee and the entirety of the receipt should be taxed in his hands if he was receiving the amount on behalf of the Nawab of Murshidabad. He, in this connection, referred us to the observations of the Supreme Court in the case of CIT v. Managing Trustees, Nagore Durgha : [1965]57ITR321(SC) in aid of the proposition that for application of Section 160 legal vesting as such was not necessary. In our opinion, the true test must be to find out in the background of the obligations imposed whether the amount in question reaches the assessee as his income. If the obligation is of such nature that though the amount is received by an assessee such receipt is not as an income of the assessee with an obligation imposed upon him, but merely a receipt of the revenue for passing over the quantum received to the person in whose favour the obligation exists, then the said refceipt must be excluded from the income of the assessee. It is the nature of the obligation as such, and the manner of receipt of the amount in question that would determine the question whether there is receipt of money with an overriding charge. The essential point is whether the receipt of the amount, and it is important to emphasise, receipt of the amount and not receipt of income--is made by a person on behalf of the other with an obligation not to treat that amount as the income of therecipient but it is meant for the person on whose account the amount is received, then there would be a diversion of income by overriding charge. But merely if an obligation is created upon a person in respect of his income to disburse it in certain manner after he receives the amount as his income that will be application of the income. In that context, the provisions of Section 160 would be of no help because Section 160 would only be applicable in case where one receives income on behalf of another. It does not solve the question whether receipt of money on behalf of another in the context of certain obligation would still be receipt of income by the person concerned on behalf of another. That would, as we have mentioned before, depend upon the nature of the obligation in respect of which the money is received.
12. We have referred to the historical background of the provision for payment of this money. This amount was originally in the indenture of 1891 stipulated for and on account of the relinquishment by the Nawab of Murshidabad of his rights as Nawab Nazim and Subehdar of Bengal, Bihar and Orissa. It is the right of the Nawab Bahadur to exercise his privileges as Nawab Nazim and Subehdar of Bengal, Bihar and Orissa in consideration of which from 'the revenue of the Government of British India' the obligation to pay Rs. 2,30,000 was undertaken. The right of the Nawab to get this amount was not out of the properties of the Nawab or of the Murshidabad Estate, which is mentioned in the schedule to the indenture or Schedule to the Act, which confirmed the indenture; the right is to get from 'the revenue of the Government of India'. This right to get the amount in question from the revenue of the Government of India is reiterated in the clause of the indenture which we have set out hereinbefore and the first clause of which provides for the obligation to make the annual payment of Rs. 2,30,000 from the 'revenues of the Government of British India'. The second, third and fourth clauses of the said indenture deal with disbursement of income of the immovable properties mentioned in the first, second and third schedule to the said indenture. It is these properties mentioned in the schedule which have been treated as the properties of the Murshidabad Estate in the definition clause of the Act, 1963. Section 3 of the Murshidabad Estate Trust Act, 1963, being West Bengal Act II of 1963, makes a clear distinction between the properties of the Murshidabad Estate and the right to receive the monthly sum of Rs. 19,166 which comes to an annual sum o Rs. 2,30,000. The properties of the Murshidabad Estate vested in the trustee. But the right to get the amount of the monthly sum of Rs. 19,166-10-8, being equivalent to the annual sum of Rs. 2,30,000, is not vested in the trustee as such but he is given the legal right to receive the amount payable from the Government Treasury at Berhampore for disbursement in discharge of certain pre-existing rights of the Nawab ofMurshidabad. There again under the amended provisions of Section 5, as amended by the West Bengal Estate Trust Act, 1963, there is a distinction between the vested properties mentioned in Section 3 and the right to get Rs. 7,000 under Clause (2) of Section 3.
13. Counsel for the revenue drew our attention to the observation of the Supreme Court in the case of CIT v. Vadilal Lallubhai : [1972]86ITR2(SC) , at page 11, that the marginal note gave an indication as to what exactly was the mischief that was intended to be remedied. The said observations of the Supreme Court were made in the context of the marginal note of Section 44F of the I.T. Act, 1922. Our attention was also drawn to the observations of the Supreme Court in the case of Bhinka v. Charan Singh, : 1959CriLJ1223 , and reliance was placed on the observations of the Supreme Court appearing at pages 965 and 967 of the report, where it was observed that in case of doubt the heading of a section was a good guide for determining the effect of a provision. He urged that in view of the heading of the section. 'Application of funds of the estate and income from trust properties' in Section 5 it should be held that the intention of the legislature was that the amount of Rs. 7,000 was to be applied from the income of the trustee and not a diversion of income by any overriding charge. The concept of diversion of income by overriding charge is a concept peculiarly germane in determining the fiscal liability in a particular situation. We do not think that while passing the Murshibadad Estate (Trust) (Amendment) Act, 1963, the West Bengal legislature was in any way concerned with the fiscal consequences of either the receipt of the money or the receipt of the income from the trust estate. Therefore, on the heading of the section it would not be safe to rely upon. As mentioned hereinbefore, physical receipt is not important. The problem of diversion of income arises only when there is legal physical receipt of an amount by one on behalf of the other. Lawful physical receipt of an amount of revenue by one on behalf of and for another by itself does not solve the question whether the receipt was an income of the recipient or of the person for whom and on whose account the amount is received. Whether the income is the income of the recipient or of the person for or on whose account the amount is received would depend on the nature of the obligation. As we have mentioned before, the obligation has its historical origin in the Nawab Bahadur relinquishing in favour of the British Government his right and privileges as the Nawab Nazim and Subehdar of Bengal, Bihar and Orissa and the amount in question given in consideration of this reliquishment was to be paid out of the revenue of the State of British India and not out of the properties of the Nawab Bahadur or of the Murshidabad Estate. Vesting of certain properties in the trustee has not, by the specific terms of the Acts, we have referred, alfered the paramountcy of the right of the Nawab of Murshidabad in respect of the moneythough the quantum has been modified. The Act of 1963 does not repealthis right but only implements in certain manner this right recognised infavour of the Nawab. Therefore, in our opinion, the obligation is of suchnature that the amount in question is not receipt by the trustee as hisincome with an obligation to disburse it in a particular manner. The obligation was not of the trustee. The obligation was of the revenue of Government and the obligation was being implemented in the manner of the moneybeing received by the trustee and handing over the same to the NawabBahadur. In that view of the matter, the question referred to us must beanswered in the negative and in favour of the assessee. Parties will beartheir own costs.
Sudhindra Mohan Guha, J.
14. I agree.