A. Banerji, J. - (1.) THE following questions have been referred for the opinion of thiscourt by the Appellate Tribunal under Section 256(1) of the I.T. Act, hereinafter referred to as the Act. "1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to any earned income relief on the share of the income received by him from the business which is the subject-matter of wakf in his capacity as beneficiary ? 2. Whether, the assessment in the year in question having directly been made in the hands of the beneficiary, the Income-tax Appellate Tribunal was right in holding that the assessee was not entitled to earned income relief ?"
(2.) THE assessee is the Mutawalli of a wakf, Haji Lal Mohd. Bin Works and also one of the beneficiaries of the wakf. In the assessment year 1970-71, the disclosed income from the wakf was stated to be Rs. 1,51,534 after deducting a sum of Rs. 8,700 payable to the other beneficiary. In the assessment-proceeding it was held that the assessee was the real owner of the business carried on in the name of the wakf. Consequently, the income of the wakf was treated as the assessee's income, subject to a deduction of Rs. 8,700 payable to the other beneficiary, Haji Abdul Shakoor. THE ITO at Rs. 8,45,320 (sic). THE assessee preferred an appeal and disputed the rejection of the book results and the application of the proviso to Section 145(1) of the Act. THE AAC held that the account had been entirely manipulated and effective verification of the actual consumption on the basis of raw material was not possible. It was further held that the assessee's accounts were liable to be rejected both in terms of Sub-sections (1) and (2) of Section 145 of the Act. He confirmed the assessment order for the other two years 1962-63 and 1970-71. He passed separate orders and confirmed the assessments. The assessee then filed an appeal before the Appellate Tribunal. The Appellate Tribunal held that the objections taken by the Revenue authorities had been satisfactorily explained and in view of the assessee's past history and further that the profit shown was reasonable declined to take a view contrary to that taken by the AAC. The contention raised on behalf of the assessee, that the income should be assessed in the hands of the assessee-beneficiary as earned income, did not find favour. The Appellate Tribunal observed that the High Court in ITR No. 13 of 1965 [Haji Abdul Hameed v. CIT--[1971] 82 ITR 495 (All)] and ITR No. 201 of 1966 rejected the aforesaid contention and had held against the assessee. It further observed that even though the appeal had been filed before the Hon. Supreme Court, they would prefer to follow the High Court decision so long as it stood. The Appellate Tribunal held that the income accrued from the business in the above case could not be treated as earned income in the hands of the assessee. Therefore, the above two questions were referred to this court at the instance of the assessee. On behalf of the assessee, Mr. R.K. Gulati urged that the view taken in Haji Abdul Hameed v. CIT [1971] 82 ITR 495(A11) is no longer good law, for, in a later decision concerning the same assessee, a Division Bench of this Court in Haji Abdul Hamid v. CIT [1980] 122 ITR 1000 (All), had taken a view that a beneficiary of a wakf would be entitled to earned income relief in respect of the income received from a business carried on by a trustee of the wakf, as the business could be treated as being carried on on his behalf. Mr. Gulati urged that the earlier decision in [1971] 82 ITR 495 had been noticed by the Division Bench, that it referred to the decisions of the Supreme Court in support of the view taken by it. These decisions are in the case of (1) CIT V. Puthiya Ponwanichinl akam Waqf [1962] 44 ITR 172 (SC), (2) W. O. Holdsworth v. State of U.P. [1957] 33 ITR 472 and (3) CIT v. P. Krishna Warier [1970] 75 ITR 154.
(3.) IN the case of CIT v. Puthiya Ponmanichintakam Waqf [1962] 44 ITR 172, their Lordships of the Supreme Court were considering the position of a trustee under a waqf with reference to Section 41 of the Act. Their Lordships observed (p. 1004 of 122 ITR): "Section 41, however, equates the mutawalli of a waqf to the trustee. Nevertheless, as Section 41 contains the word 'on behalf of any person', it means that the mutawalli receives the income on behalf of the beneficiaries." It was, therefore, held that the beneficiaries were the primary assessees. The ITO is entitled to make a direct assessment on the beneficiaries, but if he chooses to assess the trustees, he has to assess the income in the same manner as an assessment on the beneficiaries is made. The Division Bench also pointed out that in the case of CIT v. Krishna Warier [1970] 75 ITR 154 their Lordships of the Supreme Court held that as the business was being carried on by the trustees, even though he had no beneficial interest in the income, the income would be earned income. The question is whether "earned income relief" can be denied to the beneficiaries of a waqf, when direct assessment is made on them. The Supreme Court held that in the case of trustees carrying on business, they are entitled to earned income relief on the basis that the income was referable to the business being carried on by the trustees.;