1962 (11) TMI 54 - HC - Income Tax

High Court Upholds Tax Exemption for Wakf Income under Income-tax Act, 1922

COMMISSIONER OF INCOME-TAX Versus MOOSA HAJI AHMED AND OTHERS

COMMISSIONER OF INCOME-TAX Versus MOOSA HAJI AHMED AND OTHERS - [1964] 52 ITR 147 (Guj) Issues Involved:1. Validity of the Wakf deed.2. Interpretation of the Wakf deed.3. Applicability of Section 4(3)(i) of the Indian Income-tax Act, 1922.4. Assessment of the trust income under Section 41(1) of the Indian Income-tax Act, 1922.Issue-wise Detailed Analysis:1. Validity of the Wakf Deed:The deed of Wakf dated July 6, 1953, was created after an earlier Wakf was declared void by the Bombay High Court. The Tribunal noted that the new Wakf deed might be valid, and the department did not dispute this position. However, the primary concern was whether the income derived from the properties under this Wakf was exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922.2. Interpretation of the Wakf Deed:The Wakf deed specified several purposes for utilizing the income, including helping poor relatives of Haji Ahmed Haji Kadar, poor members of the Memon community, and other charitable purposes such as supporting education, aiding orphans, widows, and maintaining mosques and schools. The Tribunal emphasized that the trustees had discretion in applying the income to any of these purposes. The Tribunal concluded that the primary and predominant object of the Wakf appeared to be the relief of poverty and maintenance of institutions, although poor relations could also benefit.3. Applicability of Section 4(3)(i) of the Indian Income-tax Act, 1922:Section 4(3)(i) exempts income derived from property held under trust wholly for religious or charitable purposes. The Tribunal held that the income from the Wakf was exempt under this section because the primary object of the Wakf was charitable, focusing on the relief of poverty and maintenance of institutions. The Tribunal's decision was influenced by the interpretation that the dominant intention of the settlor was to benefit the poor, even though there was a provision for helping poor relations first.4. Assessment of the Trust Income under Section 41(1) of the Indian Income-tax Act, 1922:The Income-tax Officer and the Appellate Assistant Commissioner initially held that the trust income was not exempt under Section 4(3)(i) and should be assessed under the first proviso to Section 41(1). They reasoned that the income was not receivable on behalf of any one person, and the shares of the beneficiaries were not defined. However, the Tribunal disagreed, noting that the discretion given to trustees to apply the income for charitable purposes did not negate the primary charitable intent of the Wakf.Conclusion:The High Court affirmed the Tribunal's decision, holding that the income of the Wakf was exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922. The dominant intention of the Wakf was charitable, focusing on the relief of poverty and maintenance of institutions, despite the provision for helping poor relations first. The High Court also noted discrepancies in the translation of the Wakf deed but concluded that the dominant charitable intention was clear. The question of law referred to the High Court was answered in the affirmative, confirming the tax exemption for the Wakf income.