1988 (3) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement of the assessee-wakf to exemption u/s 11 of the Income-tax Act, 1961.
2. Applicability of section 11 read with section 13(1)(c)(ii) of the Income-tax Act, 1961.

Summary:

Issue 1: Entitlement to Exemption u/s 11 of the Income-tax Act, 1961
The assessee, a wakf established by a deed dated January 17, 1930, claimed exemption for the assessment year 1940-41 under section 4(3)(i) of the Indian Income-tax Act, 1922. The Income-tax Officer denied the exemption, reasoning that the trust was not for the benefit of the general public but primarily for the donor's relations and acquaintances. This decision was upheld by the Appellate Assistant Commissioner and the Tribunal. The High Court, in its 1944 judgment (CIT v. Aga Abbas Ali Shirazi [1944] 12 ITR 179), confirmed that a settlement for the settlor's poor relations was not a charitable purpose under section 4(3)(i).

For the assessment years 1972-73 to 1974-75, the assessee contended that the inclusion of the wakf in the list of wakfs under the Muslim Wakfs Act, 1954, and the provisions of the Income-tax Act, 1961, entitled them to exemption u/s 11. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal rejected this claim. The Tribunal referred the matter to the High Court, which upheld the earlier decision, stating that the wakf's objects were independent and not exclusively charitable. The court cited Supreme Court rulings in East India Industries (Madras) P. Ltd. v. CIT [1967] 65 ITR 611 and other cases to affirm that the trust did not meet the criteria for exemption under section 11 due to the discretion given to mutawallis to allocate income for non-charitable purposes.

Issue 2: Applicability of Section 11 read with Section 13(1)(c)(ii) of the Income-tax Act, 1961
The court addressed whether the assessee-wakf was entitled to exemption under section 11 read with section 13(1)(c)(ii). Section 13(1)(c)(ii) provides exceptions to section 11, stating that income used for the benefit of certain persons is not exempt. The court concluded that since the wakf did not qualify for exemption under section 11, section 13(1)(c)(ii) was inapplicable. The court rejected the assessee's argument that the Wakfs Act, 1954, altered the trust's character, emphasizing that the Wakf Board's supervisory role did not change the discretionary powers of the mutawallis as per the wakf deed.

Conclusion:
The High Court ruled that the assessee-wakf was not entitled to exemption under section 11 of the Income-tax Act, 1961, and consequently, section 13(1)(c)(ii) did not apply. The assessee was ordered to pay the costs of the reference to the Revenue.