1967 (6) TMI 14 - HC - Income Tax

One deceased, executed a deed of wakf, and thereby created a charitable trust - income of the wakf - exempt from taxation under the provisions of s. 4(3)(I)

Issues Involved:
1. Exemption of Wakf Income from Taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922.
2. Validity of Charitable Purposes under the Wakf Deed.
3. Interpretation of Specific Clauses in the Wakf Deed.
4. Application of Precedents and Relevant Case Law.
5. Impact of Amendments to Section 4(3)(i) Post-1953.

Issue-wise Detailed Analysis:

1. Exemption of Wakf Income from Taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922:
The core issue was whether the income of the wakf was exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922. The Tribunal had previously ruled in favor of the assessee, holding that the primary object of the wakf was public charity, even though some provisions were made for the poor relatives of the wakif. The High Court upheld this view, emphasizing that the primary object of the wakf was indeed public charity and thus eligible for tax exemption.

2. Validity of Charitable Purposes under the Wakf Deed:
The wakf deed listed various charitable purposes, including feeding the poor, digging wells, supporting mosques, and aiding schools. The main contention was whether these purposes were genuinely charitable and public in nature. The High Court noted that the dominant purpose of the wakf was public charity, as the deed aimed to benefit the poor and other public utilities. The inclusion of poor relatives did not detract from its public charitable nature.

3. Interpretation of Specific Clauses in the Wakf Deed:
Clause (4) of the wakf deed, which provided for the support and marriage expenses of poor relatives, was scrutinized. The Income-tax Officer had argued that this clause allowed the mutwallis to divert the entire income for a predominantly private purpose. However, the High Court found that the primary object of the wakf was public charity, and the provision for poor relatives was incidental and did not alter the charitable nature of the wakf. The court emphasized that the mutwallis' discretion to support poor relatives did not undermine the public charitable intent.

4. Application of Precedents and Relevant Case Law:
The High Court referred to the Supreme Court's decision in Trustees of the Charity Fund v. Commissioner of Income-tax, which dealt with a similar issue. In that case, the Supreme Court had held that a trust's income could be exempt from tax even if it included provisions for the settlor's poor relatives, as long as the primary object was public charity. The High Court also considered the Bombay High Court's decision in Commissioner of Wealth-tax v. J. P. Pardiwala Charity Trust, which supported the view that a trust could be charitable even if it included provisions for indigent relatives.

5. Impact of Amendments to Section 4(3)(i) Post-1953:
The High Court briefly touched upon the amendment to Section 4(3)(i) in 1953, which affected the tax exemption status of certain trusts. However, this argument was not pursued in detail as the framed question did not accommodate this aspect. The court focused on the interpretation of the wakf deed and the dominant charitable purpose.

Conclusion:
The High Court concluded that the primary object of the wakf was public charity, and the inclusion of provisions for poor relatives did not negate its charitable nature. Therefore, the income of the wakf was exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922. The question referred to the court was answered in the affirmative, and the Commissioner of Income-tax was directed to pay the costs of the reference to the assessee.

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