Overriding title excluded trust payment from income where pre-existing obligation attached to the revenue source itself.

The monthly payment payable to the Nawab Bahadur was treated as a diversion of income by overriding title, not a mere application of trust income. The right to receive the payment arose from the 1891 arrangement as consideration for relinquishment of sovereign and titular rights, and it remained distinct from the properties vested in the trustee under the 1963 statute. Applying the overriding title test, the obligation was attached to the revenue source itself, so the amount never became the trust's own income and was therefore excluded from taxable income.

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Issues: Whether the monthly payment of Rs. 7,000 payable to the Nawab Bahadur under the Murshidabad Estate (Trust) Act, 1963 was diverted at source by an overriding title so as to be excluded from the trust income, or was merely an application of the trust income.

Analysis: The right to receive the annual payment originated in the 1891 arrangement as consideration for relinquishment of sovereign and titular rights, and was not a part of the properties vested in the trustee. The 1963 statute vested the estate properties in the trustee but kept distinct the obligation relating to the monthly payment to the Nawab Bahadur. The governing test was whether the amount reached the assessee as its own income or was received on behalf of another under a pre-existing obligation that prevented the amount from ever becoming the assessee's income. On the scheme of the earlier indenture and the later Act, the obligation attached to the revenue source and not merely to the trustee's use of income after receipt.

Conclusion: The payment was held to be a diversion of income by overriding title and not a mere application of income; the amount of Rs. 84,000 was not includible in the trust's taxable income.

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