Commissioner of Income Tax, Chittagong Vs. Saifuddin A Siddiqui, 32 DLR (AD) (1980) 190

Case No: Civil Appeal Nos. 3 & 4 of 1978

Judge: Shahabuddin Ahmed ,

Court: Appellate Division ,,

Advocate: Mr. Rafique-ul-Huq,A.K.M. Mozammel Hoque Bhuiyan ,,

Citation: 32 DLR (AD) (1980) 190

Case Year: 1980

Appellant: Commissioner of Income Tax

Respondent: Saifuddin A Siddiqui

Subject: Income Tax, Fiscal Law,

Delivery Date: 1980-2-11

 
Supreme Court
Appellate Division
(Civil)
 
Present:
Kemaluddin Hossain, CJ
F. K. M. A. Munim, J
Ruhul Islam, J
Shahabuddin Ahmed, J
 
Commissioner of Income Tax, (Now Commissioner of Taxes), Chittagong
……………...... Appellant.
Vs.
Saifuddin Ahmed Siddiqui, Mutwalli Waqf Estate of Reazuddin Ahmed Siddiqui, Ctg.
………………..Respondents
 
Judgment
Feb. 11, 1980.
 
The Income Tax Act, 1928 (Act IX of 1928)
Section 4(3)(i)
The income of a property held under trust wholly for religious or charitable purposes is exempted from tax, but this exemption will not apply to a case where so much of the income as remaining unexpended during the previous year………….(6)
"Income applied" meant the income set apart in the wakf deed and not the income actually spent by the Mutwalli…………….(7)
The unexpended amount of income, if any, need not be again set apart by the Mutwalli for being expended in the coming year in view of the specific allotment of the 2/3 rd of the income in the wakf deed for religious or charitable purposes…………(7)
 
Lawyers Involved:
Mozammel Hoque Bhuiyan, Advocate ins­tructed by M. R. Khan, Advocate-on-Record— For the Appellant.
Rafiqul Huq, Senior Advocate, instructed by Md. Sajjadul Huq, Advocate-on-Record— For the Respondent.
 
Civil Appeal Nos. 3 & 4 of 1978
Arising out of C. P. Nos. 65 & 66 of 1976
 
JUDGMENT
 
Shahabuddin Ahmed, J.
 
1. These two appeals by special leave arise out of two identical judgments and orders of the High Court Di­vision in Reference Case No. 5 of 1973 and Reference Case No. 11 of 1969 respectively under section 66(1) of the Income Tax Act, 1922. Excepting the assessment years, the re­levant facts of the two appeals and the question of law also being common the appeals have been heard analogously and are being disposed of by this Judgment.
 
Appellant is the Income Tax Commissioner and Respondent is the assessee representating a Wakf Estate. Reference Case No. 11 of 1969 was disposed of by the High Court Division by an elaborate Judgment dated 6.2.76. and on the basis of this judgment the other Reference Case was disposed of on 12-2-76. Relevant facts may be set out in brief as follows:—
 
2. The Wakf Estate in question was crea­ted by late Reazuddin Ahmed Siddiqui of Chittagong by a registered deed as waqf in the year 1907. The Waqif appointed himself as the first Mutwalli under the deed which provides for succession of the mutwalliship. The property dedicated under the deed vested in Almighty Allah. According to the terms of the deed, 1/3rd of the net proceeds of the property, after meeting necessary expenses for its maintenance! is to be paid to the mutwalli as his remuneration and the balance 2/3 rd of the net proceeds has been set apart for reli­gious or charitable purposes: The Income Tax Officer made assessments of the years 1953-54, 1954-55, 1955-56, 1956-57, 1957-1958, 1960-1961 to 1962-63 under section 23 of the Income Tax Act on the total income received from the property and assessed tax thereon at the maximum rate under section 41 of the said Act. The assessee raised objection to the assessments contending that under section 4(3)(i) of the Act 2/3rd of the income from the property which was held wholly for religious and charitable purposes was totally exempt from tax. But the objection was rejected on the ground that the exemption under section 4(3) (i) was not applicable to this case in view of second 'proviso' to this exemption clause which provides that nothing in this clause shall apply to an income, profit or gain which is "not expended during the pre­vious year or is set apart for being expended" within the country. The Income Tax Officer by his own estimation of the income found that there was a huge surplus after meeting necessary expanses which remaining unspent was taxable under this 'proviso'. Against these assessments the assessee filed appeals to the Appellate Assistant Commissioner of income Tax and then to the Income Tax Appellate Tribunal, but without any success. The Ap­pellate Tribunal, however, on an application of the assessee referred the following questions of law to the High Court Division:
 
"(1) whether, on the facts and in the circumstances of the case the provisions of section 4 (3)(1) of the Income Tax Act, 1922 were rightly applied by the Income Tax Officer.
(2) whether, on the facts and in the circumstances of the case, the assessable income of the Estate if at all there be any, was taxable at the maximum rate as envisaged in the provisions of sub­section (1) of section 41 of the Income Tax Act, 1922".
 
The learned Judges of the High Court Di­vision after hearing the parties answered the question in the negative and did not think it necessary to answer the other question. Being dissatisfied with this decision of the High Court Division the Income Tax Com­missioner prayed for and obtained special leave to appeal against this decision.
 
3. Facts as to the terms of the wakf-deed as stated above are not disputed. Under the wakf deed the property has been held wholly for religious or charitable purposes, and l/3rd of the income of the property has been set apart as the Mutawalli’s remuneration which is taxable in his hand, while the remaining 2/3rd of the income has been set apart wholly for religious or charitable purposes. According to clause (i) of sub­section 3 of section 4 of the Income Tax Act this 2/3rd income is exempted from income tax. But the impugned assessments have been made in respect of this 2/3rd income of the Estate minus some amount which was found to have been actually expended for necessary mainte­nance and charitable purposes. The reason of such assessment is that the income was not expended or set apart for being expended with­in Pakistan but remained 'surplus' as such, it is taxable under the second proviso to the exemption clause.
 
4. The only question that falls for deter­mination is whether the provisions of the ex­emption in section 4 (3) (i) of the Income Tax Act have been rightly applied to this case. For better appreciation of this point sub-sec­tion (3) including the second proviso to clause (i) thereof is reproduced below:
(3) Subject to the provisions of this Act, any income, profits or gains falling within the following classes shall not to such extent as may be specified in this sub-section or prescribed in this behalf be included in the total Income of the person receiving them;
(i) Any income derived from pro­perty held under trust or other legal ob­ligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes the income applied, or finally set apart for application thereto:
Provided further that nothing in this clause shall apply to so much of the income profits and gains as is not expended during the previous year or set apart for being expended within Pakistan.
 
5. Mr. Mozammel Haque Bhuiyan, the learned Advocate for the appellant has submitted that the Income Tax Officer estimated the income of the Estate from different sources, such as property tax, ground rent, bazar collection, and worked out a surplus which was not expended or set apart for being ex-pended in Pakistan and as such this surplus is taxable according to the proviso, Mr. Bhuiyan has contended that the High Court Division has misconstrued section 4 (3)(i) and wrongly applied it to this case. Mr. Rafiqul Huq, the learned Advocate for the Respondent has contended that the 'surplus' as found by the Income Tax Officer is a mere national sur­plus having nothing to do with the reality, that is to say, the Income Tax Officer made assessment by estimating the income from the property and determining its total at a sum much higher than what was shown by the estate in its return." In other words, the assessment has been made on an amount of income which was never received from the property but which was simply worked out by the Income Tax Officer by guess-worked and as such this determination of the total income got no basis whatever. Mr. Rafiqul Huq has next contended that when the 2/3 rd income from the property has been specially earmarked in the wakf deed itself for religious or charitable purposes there is no necessity for further set­ting it apart for the same purpose each and every year. The second proviso to the exemption clause, Mr. Huq argues, is not attracted by the 2/3rd income of the estate which is held wholly for religious or charitable purposes.
 
6. There is no dispute as to any unexpended income being taxable under the second proviso as quoted above even if the property is held wholly for religious or chari­table purposes, but dispute is whether there has been any unexpended income or surplus at all in the relevant assessment years. The Income Tax Returns submitted by the Mutwalli do not show any surplus or unspent amount and it is the Income Tax Officer who estimated the income and put it at a figure much higher than what was shown by the estate. On consideration of the points urged before us we are clearly of the view that the income of a property held under trust wholly for religious or charitable purposes is exempted from tax, but this exemption will not apply to a case where so much of the income as remaining unexpended during the previous year. In the instant case the income tax return submitted by the estate did not show any unexpended income but it is the Income Tax Officer who artificially worked out an unexpended income or surplus but then it will not be taxable if it can be shown that the national unexpended income is set apart in terms of the provision of the Wakf-nama.
 
7. As to the question of setting apart of the unexpended income for being expended in future, Mr. Rafiqul Huq contends that even if there were any such income left unexpended, it should be deemed to have been set apart for being expended in future as the wakf deed has itself earmarked it for charitable or religious purposes. In support of this contention Mr. Huq has referred to the case "The Director of Taxa­tion Excise Vs. Mehdi All Khan Panni reported in the Bangladesh Tax Decisions, 1979 (VII), 90. One of questions in that case was whether the expressions in section 4(b) of the Agricul­tural Income Tax Act "income applied" to the charitable purposes meant the actual amount of income spent for such purposes by the Mutwalli or the amount of income set apart for such purposes by the wakif in his wakf deed. The view of the learned Judges of this Division was that the "income applied" meant the income set apart in the wakf deed and not the income actually spent by the Mutwalli. That question, of course, arose in connection with the interpretation of a different statute and the decision thereon is not directly to the point involved in the ins­tant case; but this may be referred to by way of analogy. In this case, we think that the unexpended amount of income, if any, need not be again set apart by the mutwalli for being expended in the coming year in view of the specific allotment of the 2/3 rd of the income in the wakf deed for religious or charitable purposes. In this view of the matter we find that the High Court Division rightly applied the provisions of section (3) (1) of the Income Tax Act in this case.
 
In the result, both the appeals are dismissed on contest without, however, any order as to costs.
 
Ed.