1940 (7) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessees formed an association of individuals within the meaning of Section 3 of the Income-tax Act.
2. Whether the said association can be said to be the owner of the Wakf properties within the meaning of Section 9 of the Income-tax Act and is rightly assessed as such.
3. Whether the assessment in dispute is invalid because the appeal lodged against the assessment in the name of "Ibrahimji Hakimji Trust" was not decided by the Assistant Commissioner but was kept back for hearing along with the appeal against the assessment in dispute as agreed to by the assessees.
4. Whether the procedure adopted by the Income-tax Officer in serving notices on Seth Ghulam Hussain Ibrahimji contravened the provisions of Section 2(12) and 63 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Association of Individuals (Section 3 of the Act):
The court concluded that the Trustees under the Trust constitute an association of individuals within the meaning of Section 3 of the Act. This was affirmed in the judgment with the statement: "We have no doubt that the Trustees under the Trust constitute an association of individuals within the meaning of Section 3 of the Act." Therefore, the answer to the first question is in the affirmative.

2. Ownership of Wakf Properties (Section 9 of the Act):
The court determined that the income of the Wakf properties should be taxed in the hands of the beneficiaries rather than the trustees. The judgment states: "We think, therefore, this is a case where the income is bound with the beneficiaries and should be taxed in their hands." The court emphasized that the trustees are merely channels through which the income passes to the beneficiaries and do not have ownership of the income. The court also highlighted the distinction between private Wakfs created for the maintenance of the settlor's family and those created for charitable or religious purposes. The judgment cites the Bombay High Court's opinion in Commissioner of Income-tax, Bombay v. Abubaker Abdul Rehman and others, stating that the income is liable to taxation in the hands of the beneficiaries.

3. Validity of Assessment:
The court found that the assessment in dispute was not invalid due to the procedural agreement between the assessees and the Assistant Income-tax Commissioner. The judgment notes: "It would thus appear that the assessees themselves agreed to the course that was taken, and that in equity they had no cause for complaint." The court concluded that the procedural errors were condoned and did not affect the validity of the assessment.

4. Procedure for Serving Notices (Sections 2(12) and 63 of the Act):
The court affirmed that the procedure adopted by the Income-tax Officer in serving notices on Seth Ghulam Hussain Ibrahimji was proper. The judgment states: "He was, therefore, properly served with notice under Section 2(12) (a) read with Section 63 of the Indian Income-tax Act." This confirms that the notices were correctly served according to the provisions of the Act.

Conclusion:
The court answered the questions accordingly, affirming that:
1. The Trustees form an association of individuals.
2. The income from the Wakf properties should be taxed in the hands of the beneficiaries.
3. The assessment procedure agreed upon by the assessees was valid.
4. The serving of notices was in compliance with the relevant sections of the Income-tax Act.

The assessees were entitled to their costs and a refund of the Rs. 100 fee. The answers to the questions for the assessment year 1936-37 were the same as for 1937-38, as there was no material difference in the cases.