B.N.BANERJEE, J. - (1.) THIS is a reference under s. 66 (1) of the Indian IT Act, 1922. The assessment years, which are involved, are 1948-49 to 1958-59. The relevant accounting years for asst. yrs. 1948-49 to 1956-57 are the calendar years 1947 to 1955; the relevant accounting years for asst. yrs. 1957-58 and 1958-59 are the financial years respectively ending with 31st March, 1957, and 31st March, 1958. The question of law referred to this Court is: "Whether, on the facts and in the circumstances of the case and on a proper construction of the wakfnamah dt. the 25th July, 1900, the income of the wakf was exempt from taxation under the provisions of s. 4 (3)(i) of the Indian IT Act, 1922 ?"
(2.) THE reference has been made in the circumstances hereinafter stated in brief. One Ibrahim Sulaiman Salehjee, now deceased, executed a deed of wakf on 25th July, 1900, and thereby created a charitable trust. Hereunder are set out material portions from the said deed of wakf: 1. "........And whereas I am desirous of making wakf of the said land hereditaments hereinafter particularly described upon objects hereinafter mentioned with the motive of obtaining Suwab or religious merit as understood and laid down by the Mohamedan Law of the Haneefa Sect. 2. Now this indenture witnesseth that I do hereby make wakf valid and binding according to Mohamedan Law governing the Soonnee Sect to which I belong of all lands and properties hereinafter mentioned and divest myself of the ownership of the same and vest the same in the ownership of God the fruits and profits of the same to be spent on the objects mentioned in this deed...... 3. THE object or objects to which the income of wakf estate is to be applied is left to the discretion of the mutwallis appointed under this wakfnamah provided that the general rule to be observed is that the object or objects should be such as are calculated to bring to me Suwab or religious merit according to the Mohamedan notions and according to the provisions of Faikah and Shara governing the Soonnees such object being hereby generally indicated in the following description of items, viz.: (1) THE feeding of the poor in Calcutta in the month of Ramjan in every year. (2) THE digging of wells in such place or places as the mutwallis may deem expedient. (3) For providing or contributing to the expenses of any Soonnee Mosque or Mosques. (4) For providing or paying such sums as the said mutwallis shall think fit for the support and marriage expenses of any of the children of any of the relations of the said Ibrahim Sulaiman Salehjee who may be for the time being in poor and indigent circumstances. (5) For gifts and donations to Mohamedan Schools, (6) For the expenses of a Mosafirkhana in Calcutta, and (7) For aid to School opened by Ibrahim Sulaiman Salehjee of No. 1, Amratolla Lane, in Calcutta. (8) If any children or descendants become poor then it shall not be considered a disability in them (with ?) reference to their fitness to participate in the benefits of this wakf that they are my children and their descendants on the other hand will be considered equally fit with other poor people to share in the provisions made for the poor by this deed. (9) In regard to the governance of the wakf estate I direct that there shall be always five mutwallis to manage the wakf estate and carry out the directions made down in the deed in regard to the contributions of the profits and income arising from the wakf estate...." We need notice here that the copy of the deed of wakf, made annexure to the statement of case, is admittedly not a correct copy and was not used by the Tribunal. This is also apparent from the quotations from the deed made by the Tribunal. How this came to be, passes our comprehension; Be that as it may, a correct copy of the deed, as was used before the Tribunal, was given to us and the above quotations are from that copy. Let that copy be kept on the record. Apparently the mutwallis did not work well. Ultimately, there was a suit filed in the Original Side of this Court for removal of the mutwallis from office, for accounts against them, for appointment of a fit and proper person as mutwalli and for framing of a scheme for administration of the wakf. The suit was filed in the year 1929 (Suit No. 1496 of 1929--Mahmood Ismail Salehji vs. Ahmed Ebrahim Salehji), and had a long spell of existence in this Court, so much so, that in the year 1954, Sarkar, J.(thereafter Sarkar C.J. of the Supreme Court) observed in one of his orders in the suit "this suit has been in this Court for years and has given rise to many proceedings. It is difficult to see who has benefited by the long and active life granted to it. In the last phase it acquired the movement of a shuttle-cock in a keenly contested game of badminton". Be that as it may, the wakf estate is now governed by a scheme framed by this Court and the receiver appointed by this Court is in possession or was so during all material times. How things fared under the receiver we do not know but we find that the income of the wakf estate is now subjected to large demands for public revenue.
(3.) IN the income-tax returns filed for the assessment years, hereinbefore mentioned, the mutwallis offered a portion of the income of wakf estate, in some of the assessment years, for taxation under the IT Act. The ITO, however, made his own calculations and taxed a major portion of such income at the lower rate applicable under the first proviso to s. 41 (1) of the INdian IT Act, 1922. The exemption granted by the ITO related only to such portion of the income as had been actually applied to religious and charitable purposes, which only, according to the ITO, went towards the objects mentioned in the wakfnamah. Although the mutwallis had themselves offered a portion of the wakf income for taxation, they subsequently grew wiser aud took up the position that no part of the wakf income was taxable. IN appeals, against the assessment orders, before the AAC, it was therefore contended, on their behalf, that no portion of the wakf income should be taxed, inasmuch as the whole of it had been applied for public religious and charitable purposes. The AAC did not uphold the contentions raised on behalf of the assessee and, while confirming the orders passed by the ITO, he modified them to the extent that the income of the wakf estate was directed to be taxed under the first part of the proviso under s. 41 (1) of the IT Act at the maximum rate. Appeals were taken by the assessee before the Tribunal and the contentions raised before the Asstt. CIT were repeated before the Tribunal. The contentions appealed to the Tribunal and the appeals, which were heard together, were allowed with the following observation: "Now in this case before us, among the various objects of the wakf, which have been quoted above, objects Nos. (4) and (8) make provisions for charities to the relations of the donor. For the sake of convenience we reproduce them here also...... No doubt, apparently it looks that it is a direction of the wakf income for the benefit of the poor relations of the donor, but looking at the scheme of the wakf as a whole, we think that the primary object of the wakf is public charity. The wakf's main object is charity to the poor whoever he be. This object is of a public nature even under the general law. The wakf, however, while keeping in view charity to the poor as the main object, has guarded against his own poor relations being handicapped by reason of a discrimination between a poor non-related and poor related at the hands of the mutwalli and by these objects, Nos. 4 and 8 have put his poor relations at par with the other poor persons. But even so, the mutwalli's powers have not been fettered, he may still refuse charity to the wakif's relations, if in his opinion, such a claimant to the charity was not poor.... IN the case before us, all that we mean to say is that the object of charity as laid down under the deed is valid even under the general law, and if incidentally that object instead of being channelised in one direction only, namely, towards the non- relations of the wakif, is also channelised to become all- pervasive so as to include even the relations of the wakif, that portion of the charity, which has thereby gone to the poor relations of the wakif, does not cease to be a charity of a general nature. IN that view of the matter it must, therefore, be held that even such charities are exempt under s. 4 (3)(i), even if the same has been made to the poor relations of wakif." Mr. Gouri Mitter, learned counsel for the CIT, submitted that a charitable purpose would include relief to the poor, education, medical relief and advancement of any other object of general public utility. He did not dispute that cl. (1), in paragraph 3 of the wakf deed, provided for relief to the poor and cls. (2), (3) and (5) to (7), in the said paragraph, provided for other objects of general public utility and as such all those were genuine charitable purposes. He did not also dispute that cl. (8), in paragraph 3 of the deed, providing for participation of the wakif's children and descendants in the provisions made for the poor, that is to say, the provisions to be found in cl. (1) of paragraph (3), if they were "equally fit with other poor people" did not make the charity partake of the character of a private charity. He, however, submitted that cl. (4), in paragraph 3 of the deed, providing for support and for payment of marriage expenses of his children and relations, if poor and indigent was a fly in the ointment and enabled the mutwalli to direct the entire income to that predominantly private purpose, to the exclusion of other purposes. According to him, that detracted from the value of the wakf as a public charitable endowment He sought to distinguish the decision of the Supreme Court in Trustees of the Charity Fund vs. CIT (1959) 36 ITR 513 (SC) : TC23R.1142 referred to in the judgment of the Tribunal, because he thought that that was the first hurdle he should cross. The Supreme Court had to consider the trust deed of Sir Sassoon David, Bart. and others. Clause 13 of the deed of trust provided that the trust fund shall be held by the trustees upon trust to apply for the following purposes: "(a) the relief and benefit of the poor and indigent members of the Jewish or any other community of Bombay or other parts of India or of the world either by making payments to them in cash or providing them with food and clothes and/or lodging or residential quarters or in giving education including scholarship to or setting them up in life or in such other manner as to the said trustees may seem proper or ..... (b) the institution, maintenance and support of hospitals and schools, colleges or other educational institutions or ..... (c) the relief of any distress caused by the elements of nature such as famine, pestilence, fire, tempest, flood, earthquake or any other such calamity or ..... (d) the care and protection of animals useful to mankind or ..... (e) the advancement of religion or ..... (f) other purposes beneficial to the community not falling under any of the foregoing purposes .... Provided always that in applying the income as aforesaid the trustees shall give preference to the poor and indigent relations or members of the family of the said Sir Sassoon David, Bart., including therein distant and collateral relations; provided further that in the application of the income of the said charitable trust fund the said trustees for the time being shall observe the following proportions, viz., that not less than half the income of the said funds shall at all times be applied for the benefit of the members of the Jewish community of Bombay only (including the relations of Sir Sassoon David, Bart., as aforesaid) and Jewish objects and particularly in giving donations to the members of the Jewish community of Bombay on the anniversary of the death of the said Sri Sassoon David, Bart., and his wife Lady Hannah David which falls on the twenty-second day of June and the remaining income for the benefit of all persons and objects including Jewish persons and objects and in such proportions as the said trustees may think proper...." The question before the Supreme Court was whether the income from this trust fund was exempt from taxation as income of a charitable trust, under s. 4 (3)(i) of the IT Act. In answering the question in the affirmative and in favour of the assessee, the Supreme Court observed Trustees of the Charity Fund (supra): "We are not unmindful of the fact that it is open to the trustees to spend the net income entirely for the purpose referred to in sub-cl. (a) to the exclusion of the other clauses. But the very fact that the relations or members of the family do not come in directly under any of those latter sub- clauses cannot be ignored, for they certainly have some bearing on the question as to who or what were the primary objects of the trust as a whole. In the next place, the purpose of sub-cl. (a) is the 'relief and benefit of the poor and indigent members of Jewish or any other community of Bombay or other parts of India or of the world'. It is conceded by the learned counsel that this sub- clause clearly expresses a general charitable intention involving an element of public utility. It follows, therefore, that sub-cl. (a) constitutes a valid public charitable trust having as its beneficiaries the several classes of persons referred to therein. This is the first position. We then pass on to the provisos. The first proviso opens with the words 'in applying the income as aforesaid'. This takes us back to sub-cl. (a). The meaning of the proviso obviously is that in applying the income for the purpose of sub-cl. (a), the trustees shall give preference to the poor and indigent relations or members of the family of Sir Sassoon David, Bart. The proviso does not operate independently but comes into play only 'in applying the income as aforesaid'. The provisions for giving preference involves the idea of selection of some persons out of a bigger class envisaged in sub-cl. (a). The poor and indigent relations or members of the family can claim to participate in the benefits under the trust only if they come within one of the several classes enumerated in sub-cl. (a).... In other words, sub-cl. (a) prescribes the primary class of beneficiaries out of which the actual beneficiaries are to be selected by the application of the provision of the provisos, that is to say, by giving preference to the relations or members of the family of the said Sir Sassoon David, Bart." The Supreme Court approvingly referred to the case In re Koettgen's Will Trusts (1954) Ch. 252 in which "a testatrix bequeathed her residuary estate upon trust for the promotion and furtherance of commercial education. The persons eligible as beneficiaries under the fund were stated to be 'persons of either sex who are British-born subjects and who are desirous of educating themselves or obtaining tuition for a higher commercial career but whose means are insufficient or will not allow of their obtaining such education or tuition at their own expense . . . ' The testatrix further directed that in selecting the beneficiaries ' it is my wish that the .... trustees shall give preference to any employees of John Batt and Co. (London) Ltd. or any members of the families of such employees; failing a sufficient number of beneficiaries under such description, then the persons eligible shall be any person of British birth as the trustees may select provided that the total income to be available for benefiting the preferred beneficiaries shall not in any one year be more than 75 per cent of the total available income for that year." It was held, on a construction of the will, that the gift to the primary class from which the trustees could select the beneficiaries contained the necessary element of benefit to the public ...." In that context Upjohn, J. observed In re Koettgen's case (supra): "If, when selecting from that primary class the trustees are directed to give a preference to the employees of the company and members of their families, that cannot affect the validity of the primary trust it being quite uncertain whether such persons will exhaust in any year 75 per cent of the trust fund. On the true construction of this will, that is not (as to 75 per cent) primarily a trust for persons connected with John Batt and Co. and the class of persons to benefit is not 'confined' to them, and in my judgment the trust contained in cls. (7) and (8) of the will of the testatrix is a valid charitable trust." The Supreme Court approved of the observation as based on sound principles. The Supreme Court further observed Trustees of the Charity Fund (supra): "As we have already stated, the relations or members of the family are clearly not the primary object contemplated by sub- cls. (b) to (f). The first part of sub-cl. (a), omitting the provisos is not said to be too wide or vague and unenforceable. The provision for giving preference to the poor and indigent relations or the members of the family of Sir Sassosn David, Bart., cannot affect the public charitable trust constituted under sub-cl. (a). In our opinion, the income from the trust properties comes within the scope of s. 4 (3)(i) and is, therefore, entitled to exemption." Mr. Mitter submitted that the benefits under cl. (4) of paragraph 3 of the wakf deed, which we have to consider, were not meant for the primary class of the poor, out of which selection of poverty- stricken relatives could be made. Such benefits were reserved for relatives only and other poor persons had no chance of participating in those benefits. Since the whole of the income of the wakf could be diverted by the mutwallis to the channel provided by cl. (4), he submitted, the trust was not wholly for public charity. This is how he sought to distinguish the case of the Trusfees of the Charity Fund (supra).;