Earned income relief under wakf deed distributions turns on receipt as beneficiary, not mere business source.

Income received by a beneficiary under a wakf deed from business run under that deed was examined to determine whether it qualified as earned income under the Indian Income-tax Act, 1922. The majority reasoned that the character of the receipt depended on the title under which it was received, namely the wakf deed, and not merely on the business source; because the assessee was taxed as beneficiary and not as mutawalli, the share was neither income from business carried on by the assessee nor income immediately derived from personal exertion. It therefore did not qualify as earned income. H. N. Seth J dissented, treating the managing beneficiary and recipient as the same person for this purpose and accepting earned income relief.

---

---

Issues: Whether the share of income received by a beneficiary under a wakf deed from the business managed under that deed qualified as earned income and entitled the assessee to earned income relief under the Indian Income-tax Act, 1922.

Analysis: The controlling question was whether the receipt, though traceable to business profits, could be treated as earned income in the hands of the assessee in his capacity as beneficiary. The majority held that the legal character of the receipt was governed by the title under which it was received, namely the wakf deed, and not by the original business source. Since the assessee was assessed as beneficiary and not in the capacity of mutawalli, the share income was not income from business carried on by the assessee within section 2(6AA)(b). It was also not income immediately derived from personal exertion within section 2(6AA)(c), because the immediate source of receipt was the wakf deed and the distribution under it, not direct personal exertion. On that reasoning, the income did not qualify as earned income.

Conclusion: The assessee was not entitled to earned income relief; the answer was against the assessee and in favour of the Revenue.

Dissenting Opinion: H. N. Seth J. took the view that the same individual who managed the business as mutawalli did not become a different assessee when receiving his share as beneficiary, and that the income could qualify as earned income under section 2(6AA)(b) or, alternatively, section 2(6AA)(c). On that view, the claim was accepted for Abdul Hameed but rejected for Abdul Shakoor.

---