COMMISSIONER OF INCOME TAX Vs. ABUBAKER ABDUL REHMAN

JUDGEMENT

(1.) AN argument was addressed to us that in any case the trustees are not liable to be assessed to tax because of section 4, sub-section (3) (i) of the Income-Tax Act which exempts income derived from property held under trust or other legal obligation wholly for religious or charitable purposes. In my opinion, this property, although validly given as Wakf under the Wakf Validating Act, is not held for religious or charitable trusts. Prior to the date of the Act it had been held by the Privy Council that trusts of this nature for the benefit of the settlors family and afterwards for charity were void, and in my opinion, the Wakf Act did not in any way alter the law as declared by the Privy Council. It only validated trusts which otherwise would have been held void. That view is in accordance with a decision of the Full Bench of the Lahore High Court in Umar Baksh v. Commissioner of Income-tax, Punjab, I.L.R. (1931) Lah. 725.

(2.) THE main question which arises is whether under the Wakf the trustees or the beneficiaries ought to be assessed. Up to a recent date, the Commissioner of Income-tax had assessed the beneficiaries on the income which they received under the Wakf deed, as appears from his order of the 20th of June 1935 which is an accompaniment to exhibit E". But recently he has altered that practice in accordance with what he considers to be the law as laid down by this Court in Commissioner of Income-tax, Bombay v. Laxmidas and Commissioner of Income-tax, Bombay v. Dwarkanath Pitale and two unreported cases to which the learned Commissioner refers. Those cases, in my opinion, do not govern the present questions, because in none of those cases was the Court dealing with trustees. In all those cases immovable property had become vested in two or more persons who were using it for the purpose of producing income for their own benefit, and the Court held that they were properly assessable as an association of individuals under section 3 in respect of their respective interests in the property. But in none of those cases, as I have said, was there any question as between a trustee and beneficiary. THE trustees in this case are no doubt an association of individuals, but that consideration does not determine the question whether they or their beneficiaries should be assessed to income-tax. THEre are graver practical difficulties in assessing trustees where, as in India, the tax is imposed on a sliding scale. Such an assessment may result in beneficiaries being charged at a higher rate than is appropriate to them because they have a wealthy trustee, and in a trustee being charged at a higher rate than is appropriate to him because he holds large trust income. THE question whether trustees or the persons beneficially entitled to the income of the property should be assessed to income-tax came before this court and subsequently before the Privy Council, in Sir Currimbhoy Ebrahims case reported, in this Court and in the Privy Council. I think that both this Court and the Privy Council adopted the view which LORD CAVE had expressed in a case under the English Act, viz., Williams v. Singer, (1921) 1 A.C. 65 that prima facie it is the owner of the income who has to be assessed and that where property is vested in a trustee in trust for a beneficiary, prima facie it is the beneficiary who is to be assessed, though there may be cases, and Sir Currimbhoy Ebrahims case was one of them, in which the assessment is properly made upon the trustee, there being nothing in the Income-Tax Act which precludes assessment on a trustee.

(3.) THEN follow various allowances in respect of outgoings for repairs, insurance premiums and so forth which may be deducted. The effect of Section 9 seems to be that the assessable income of immovable property is the annual value of such property, as defined in sub-section (2), less the authorised allowance, and without taking into account any part of the property which the assessee may occupy for the purposes of his business. No doubt the language of sub-section (1) does seem to involve that the assessee must be the owner of the property from which the income is derived, but in my opinion, in order to bring the section into conformity with the general scheme of the Act, it is necessary to read the words of which he is the owner as meaning of which annual value he is the owner. I think that the Privy Council really adopted this view of the section in Sir Currimbhoy Ebrahims case (Supra), because their Lordships discussed the question whether the Baronet was the owner within the meaning of Section 9 in some detail. They held that he was not the owner, because he was only entitled to the balance of income which remained after providing for a Sinking Fund and Repair Fund, and then simply as so much money. But if the owner" in Section 9 means owner of the property from which the income is derived, there was no question to discuss, since the Baronet was at the most of tenant for life. As far as I know, the construction which, I think, should be placed on Section 9 is the one which has been adopted in practice, and we have been referred to no authority in support of the Audited in practice, and we have been referred to no authority in support of the Advocate Generals argument that the income of the immovable property must be assessed on the owner of such property, and not on the owner of the income. I think, therefore, that the original view of the learned Commissioner was right and that it is the beneficiaries who should be assessed, and not the Mutavalees of the property.