1. These two S. J. Cs. were heard analogously and will be dealt with in one judgment.
2. The two cases arise out of a reference made by the Income-tax Appellate Tribunal, Patna Branch, stating the following case for the opinion of this Court:
'Whether in the facts and circumstances of this case the tax shall be levied and recoverable at the maximum rate upon the income determined under Section 23 (3)'.
3. The facts found by the Tribunal are as follows:
One Haji Altaf Khan of Cuttack executed a Wakf deed dated 24-2-1944, creating a religious endowment in the name of Sayed Mohammed Taki-Oli Allah Pir Saheb transferring all his properties to the said Endowment and appointing himself as the first Motwali. He directed that out of the income of the Wakf property arrangement should be made for reading quuran on every Friday, on every day during the month of Ramzan and other auspicious days, for offering prayers to God, and also for giving alms and money to the poor.
He further directed that the income of the Wakf property should also be utilised for his own maintenance, and for the maintenance of the members of his family during his life-time and that after his death his cousins Shyamsuddin Khan and Quamruddin Khan (Petitioners) should be the joint Metwalis of the Wakf and perform all the duties mentioned in the deed. He further directed payment of maintenance to his wife Saleman Bibi, and his two younger daughters Khatija Bibi and Sayaran Bibi alias Papana Bibi, out of the income from the Wakf properties.
The deed also contained provisions for the future devolution of the Motwaliship. Further there was a provision to the effect that if his two cousins, Shyamsuddin and Quamruddin have no issues and become heirless the Wakf should be utilised partly in giving alms and feeding the poor and partly in giving light before Sayed Mohammed Taki Oli Allah Pir and entertaining and feeding the Fakirs (Annexure G).
4. Haji Altaf Khan died sometime in March 1948 and the two petitioners became the joint Motwalis. The Income-tax Officer, while assessing them to income-tax for the year 1950-51 in respect of the income from the Wakf property, assessed them to tax at the maximum rate under the proviso to Sub-section (1) of Section 41 of the Income-tax Act read with Sub-section (3) of Section 23. An appeal to the Appellate Assistant Commissioner was unsuccessful but an appeal to the Income-tax Tribunal, the case was remanded to the Appellate Assistant Commissioner for a finding as to whether the beneficiaries under the Wakf have any personal income chargeable under the Act.
The finding of the Commissioner was that a part from the Wakf property, petitioner Shyam-suddin on his own affidavit was in receipt of an income of Rs. 840/- as 'Salary' and Rs. 60/- under 'Property.' Similarly petitioner Quamruddin on his own affidavit, was in receipt of an income of Rs. 840/- as 'salary' and Rs. 572/- under 'Property'. On receipt of this finding the Tribunal held that the petitioners were liable to assessment at the maximum rate, by virtue of the proviso to Sub-section (1) of Section 41 of the Income-tax Act; and then at the request of the assessees, stated a case, as aforesaid, for the decision of this Court.
5. Sub-section (1) of Section 41 of the Income-tax Act (Omitting immaterial portions) may now be quoted:
'41. (1) In the case of income, profits or gains chargeable under this Act which ..... any trustee or trustees appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including the trustee or trustees under any wakf deed which is valid Under the Mussalman Wakf Validating Act of 1913), are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from the trustee or trustees in the like manner and to the same amount as would be leviable upon and recoverable from the person on whose behalf such income profits or gains are receivable and all the provisions of this Act shall apply accordingly: Provided that where any such income, profits or gains or any part thereof are not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable, are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate; but where such persons have no other personal income chargeable under this Act and none of them is artificial judicial person, as if such income, profits or gains or such part thereof were the total income of an association of persons.'
6. Mr. R.K. Ghosh for the petitioners very properly did not challenge the validity of the wakf deed. The petitioners being Motwalis are in the position of 'trustees' for the purpose of the aforesaid sub-section. He however raised the following two contentions:
(i) The beneficiary under the Wakf deed is only the religious endowment known as Sayed Mohammed Taki-Oli Allah Pir Sahib and not the petitioners or other members of the family of the original donor and consequently the proviso to Sub-section (1) of Section 41 would not apply; and (ii) Even if the said proviso be held to apply the personal income of the petitioners (apart from the income from the Wakf) being far below the statutory minimum that income would not be 'chargeable to income-tax, and consequently the latter portion of the proviso would apply and tax should not be assessed at the maximum rate but only at the rate applicable to the total in-come of an association of persons.
7. In my opinion, neither of these two contentions is sound.
8. The first contention goes against the fundamental principle of a private wakf which can be validly created under the Mussalman Wakf Validating Act of 1913. That Act has set all previous doubts at rest and has made it clear that a wakf can be validly created for the maintenance and support of the founder, his family and descendants provided an ultimate benefit is reserved for the poor or for any other purpose recognised by the Mussalman law as a religious, pious or charitable purpose of a permanent character.
The material portions of the contents of the Wakf deed have already been referred to and they show clearly that the income of the wakf, apart from some minor expenses, was intended for the maintenance first of the founder, his wife and two younger daughters and then of his two cousins, namely the petitioners, and their descendants, with a further clause to the effect that if the petitioners become heirless, the property will be used for other pious or charitable purposes. In a wakf of this type it will be difficult to hold that the beneficiary is only the endowment and not the petitioners and other members of the family of the founder.
Mr. Ghosh has not cited any authority in support of this argument. On the other hand in the two reported decisions dealing with wakfs, namely Commissioner of Income-tax Bombay v. Firm Ibrahimji Hakimji 1940 8 ITR 501 : AIR 1941 Sind 9 (A) and Commissioner of Income-tax, B. & O. v. Habibur Rahaman : 13ITR189(Patna) (B), it was taken as axiomatic that a person whose maintenance was provided for in the wakf deed was a beneficiary notwithstanding the fact that a portion of the income was meant for certain other charitable and religious purposes.
I must therefore overrule Mr. Ghosh's contention that the two petitioners the widow and two younger daughters of the founder are not beneficiaries under the Wakf deed and hold that the income of the wakf property in the hands of the Motwalis is 'income' received by them on behalf of these beneficiaries.
9. The wakf deed does not give any indication as to how the income is to be apportioned amongst these beneficiaries. The quantum of maintenance payable to each of them is not specified, nor are their shares specified as in the Patna case cited above, namely : 13ITR189(Patna) (B), so as to enable a Court to ascertain the amounts specifically receivable on behalf of every one of the beneficiaries. Hence, the first pan of the proviso to Sub-section (1) of Section 41 of the Act would apply and tax would be leviable at the maximum rate.
Mr. Ghosh contended, however, that the second part of that proviso would apply inasmuch as (1) none of the beneficiaries is an artificial juridical person and (2) their personal income is not chargeable under the Act. This leads to the most important question for decision namely whether income from other sources admittedly received by the two petitioners as stated by them in their own affidavits, is personal income chargeable under this Act' within the meaning of the aforesaid proviso.
Mr. Ghosh's contention is that the income of a person is not chargeable under the Act unless it is above the exemption limit as provided in Part I of the First Schedule to the Finance Act. According to him therefore, if the total income of a person is below the limit laid down in the said Schedule and consequently no tax is payable in respect of that income that income will not be 'chargeable' under the Income-tax Act. This argument overlooks the fundamental distinction between 'changeability' of an income to tax and the 'payability' of tax on that income.
This distinction has been clearly brought out in a recent decision of the Supreme Court in Chatturam Horiram v. Income-tax Commissioner, B & O. : 27ITR709(SC) (C). The various classes of income that are chargeable to tax are described in Section 6 of the Act and an income which comes under any of these classes will be chargeable to tax unless it comes within any of the exemptions provided in other sections of the Act.
But the quantum of assessment of tax on that income depends on the provisions or the Finance Act which is an annual Act fixing the various rates of income-tax and providing for exemption and deductions. Section 3 of the Income-tax Act says that the tax shall be at a rate specified in the annual Finance Act. The Finance Act says that the tax shall be levied at the rate specified in the Schedule to that Act; and the Schedule while specifying the rates payable on various slabs of income says in the proviso that
'no income-tax shall be payable on a total income which before deduction of the allowance if any, for earned income, does not exceed the limit specified below.'
It is conceded that the petitioners' personal Income is below the minimum specified in the Schedule to the Finance Act of the relevant year. Hence income-tax is not 'payable' on that income, but that income comes within the classes of income specified in Section 6 of the Income-tax Act and is therefore chargeable to Income-tax. In the aforesaid decision of the Supreme Court their Lordships had to construe the expression 'income chargeable to income-tax' occurring in Section 34 of that Act and they held that charge-ability of the income does not depend on the Finance Act, but entirely on the provisions of the Income-tax Act.
They quoted with approval the well known Federal Court decision in Chatturam v. Commissioner of Income-tax Bihar AIR 1947 FC 32 (D), where three stages in the imposition of the tax were described. There it was held that the first stage, namely declaration of liability, is based on that part of the statute which determines what persons in respect of what property are liable. Next comes the state of assessment and liability does not depend on assessment; the assessment merely particularises the exact sum which a person is liable to pay. The third stage relates to the mode of recovery of the tax. Their Lordships of the Supreme Court held (at page 623 of the report cited above):
'Hence, according to the scheme of the Act, the quality of chargeability of income is independent of the passing of the Finance Act.'
These observations would apply with full force in the instant case. The personal income of the two petitioners is admittedly within class (i) of Section 6 of the Act and is not excluded from the operation of that Section by virtue of any other provision of that Act. It is therefore chargeable to tax under the Act whatever may be the provisions of the Finance Act as regards the payability of the tax.
10. The second part of the first proviso to Sub-section (1) of Section 41 of the Income-tax Act will not be attracted and consequently under the first part of the said proviso tax is leviable and recoverable at the maximum rate.
11. The answer to the question stated by the Tribunal is therefore in the affirmative.
The petitions are rejected with costs. Hearing fee Rs. 100/- (Rupees one hundred only).
S. Barman, J.
12. I agree.