COMMISSIONER OF INCOME TAX Vs. SAIFUDDIN A SIDDIQUI

JUDGEMENT

(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:

(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 Mutawallis 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.