1964 (9) TMI 77 - HC - Income Tax

Wakf Income Tax Exemption Denied: Legal Obligation Not Public

Hazrat Pirmohamed Shah Saheb Roza Committee Versus Commissioner of Income-tax

Hazrat Pirmohamed Shah Saheb Roza Committee Versus Commissioner of Income-tax - [1965] 58 ITR 360 Issues Involved:1. Whether the income of the assessee derived from properties held by it is exempt from tax under section 4(3)(i) of the Income-tax Act, 1922.2. Whether the properties are held under trust or legal obligation wholly for religious or charitable purposes.3. Whether the purposes of the wakf are public or private, and whether they benefit the community or a section of the community.4. Whether the decision of the Charity Commissioner under the Bombay Public Trusts Act, 1950, is binding on the revenue authorities.Detailed Analysis:Issue 1: Exemption under Section 4(3)(i)The primary question revolves around whether the income derived from the properties held by the assessee is exempt from tax under section 4(3)(i) of the Income-tax Act, 1922. The Tribunal initially held that the properties were wakf properties and that the income was not exempt under section 4(3)(i) because the benefit of the wakf was confined exclusively to the Murids, who did not constitute a section of the community. The Tribunal concluded that the properties were held under a legal obligation but not for public charitable or religious purposes.Issue 2: Properties Held Under Trust or Legal ObligationThe Tribunal found that the properties were held under a legal obligation, even though they may not have been held under a trust. The properties were recognized as wakf in revenue records and were managed by a committee appointed by the general body of Murids. The Tribunal accepted that the properties were held for the benefit of the Murids, but the benefit was not public in nature.Issue 3: Public or Private Purposes of the WakfThe Tribunal held that the Murids did not constitute a section of the community and were merely a fluctuating body of private individuals. The Tribunal relied on the test laid down by the House of Lords in Oppenheim v. Tobacco Securities Trust Co. Ltd., which stated that a class of beneficiaries must not be defined by personal relationships to a particular individual. Since the Murids were disciples of the saint and their descendants, the relationship was personal and not impersonal, thus failing the test of public benefit.Issue 4: Decision of the Charity CommissionerThe Tribunal noted that the decision of the Charity Commissioner under the Bombay Public Trusts Act, 1950, which held the wakf to be a public trust, was not binding on the revenue authorities. The inquiry by the Charity Commissioner is of a different character from the inquiry under the Income-tax Act, and the revenue authorities are not precluded from examining whether the terms of section 4(3)(i) are satisfied.Conclusion:The High Court concluded that the income derived from the properties held by the assessee is not exempt from tax under section 4(3)(i). The properties were held under a legal obligation, but the purposes of the wakf were not public in nature. The Murids did not constitute a section of the community, and the purposes of the wakf included the maintenance of Madrassas and a library, which were not wholly religious purposes. Therefore, the claim for exemption was not well-founded. The decision of the Charity Commissioner was not binding on the revenue authorities, and the assessee's claim for exemption was rejected.