1972 (12) TMI 30 - HC - Income Tax

Explanation to Section 12(1) not applicable: Properties in Khajaminan Wakf excluded from dutiable estate

The court held that the Explanation to Section 12(1) of the Estate Duty Act was not applicable in this case. Therefore, the properties in the Khajaminan ... Estate Duty Act, 1953 - One N. M. Khajamian Rowther died on November 9, 1954. Prior to his death he executed on May 29, 1945, a wakfnama in respect of certain properties. The four sons and four daughters of the wakif were nominated as mutawallis of the trust properties and the properties themselves were transferred in the name of Khajamian Wakf Estate. The wakfnama provided for the utilisation of the income of the trust properties for payment of certain expenses - ' Whether Tribunal was right in law in holding that the properties comprised in the Khajaminan Wakf cannot be included in the dutiable estate under section 12 of the Estate Duty Act, 1953 ? ' Issues Involved:1. Applicability of Section 12 of the Estate Duty Act, 1953.2. Interpretation of Clause 19 of the Wakfnama.3. Relief of Settlor's Obligation to Maintain Family.4. Interpretation of the Explanation to Section 12(1) of the Estate Duty Act.Detailed Analysis:1. Applicability of Section 12 of the Estate Duty Act, 1953:The primary issue was whether the properties comprised in the Khajaminan Wakf could be included in the dutiable estate under Section 12 of the Estate Duty Act, 1953. Section 12(1) reads: 'Property passing under any settlement made by the deceased by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor or whereby the settlor may have reserved to himself the right by the exercise of any power to restore to himself or to re-claim the absolute interest in such property shall be deemed to pass on the settlor's death.'2. Interpretation of Clause 19 of the Wakfnama:Clause 19 of the Wakfnama stated: 'During the lifetime of the founder he shall have rights of control and supervision over the mutawallis and may alter, cancel or modify any of the proposals or resolutions of the mutawallis.' The revenue contended that this clause amounted to a reservation of an interest for life in the settled property, thus attracting Section 12. However, the court found this contention unsustainable, stating that the settlor had made a permanent dedication of the properties for the maintenance and support of his family, children, and descendants with the ultimate benefit to the poor. The court emphasized that under Mohamedan law, once a wakf is created, all rights in the property pass out of the wakif and vest in the Almighty. The mutawalli is merely a superintendent or manager without any right in the property.3. Relief of Settlor's Obligation to Maintain Family:The revenue argued that to the extent the wakfnama relieved the settlor of his obligation to maintain his family, it amounted to a reservation of an interest for life in the settled properties. The court, however, referred to the case of Kikabhai Samsuddin v. Controller of Estate Duty, where it was held that even if the settlor was relieved of his obligation to maintain his family, it would not attract Section 12(1) unless the obligation was for the life of the settlor or determinable by his death. The court further stated that the Act does not contemplate any inquiry into the complex personal law of the parties regarding the maintenance of the settlor's family.4. Interpretation of the Explanation to Section 12(1) of the Estate Duty Act:The revenue contended that the words 'for the maintenance of himself and any of his relatives' in the Explanation to Section 12(1) should be read disjunctively, i.e., 'and' should be read as 'or.' The court rejected this argument, stating that the conjunction 'and' could not be read as 'or.' The court reasoned that if 'and' were read as 'or,' it would make the entire Explanation otiose, as the main part of Section 12(1) already covers cases where an interest is reserved for the life of the settlor. The court also referred to the legislative history, noting that the Explanation in the Estate Duty Bill, 1953, initially included the words 'any of his relatives (as defined in section 26) or of himself and any of his relatives,' but the final version adopted by Parliament omitted the first part. This indicated that the intention was not to read 'and' as 'or.' The court concluded that the Explanation was intended to apply only where the interest was reserved for the joint maintenance of the settlor and his relatives, not merely for the maintenance of the settlor or his relatives alone.Conclusion:The court held that the Explanation to Section 12(1) of the Estate Duty Act, 1953, was not attracted in this case. Consequently, the properties comprised in the Khajaminan Wakf could not be included in the dutiable estate under Section 12. The reference was answered in the affirmative and against the revenue, with costs awarded to the accountable person.