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TMI Blog1987 (3) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... of the mutawallis were indeterminate and, therefore, they were assessable in terms of clause (iv) of sub-section (1) of section 21 of the Wealth-tax Act, 1957 ? " One Sri Sheikh Karim Bux executed a waqf perpetual indellah (i.e., in the name of God) on September 8, 1886 of his properties, valued at Rs. 1,03,150 which included zamindari property and houses specified and bounded, as given in schedule-1 attached to the waqf deed. Under the terms of the waqf deed, the waqf, Sri Karim Bux, was to be the first mutawalli. After his death, the management and administration of the waqf property is provided in columns I and 2 of the deed. It is admitted that on the corresponding valuation date, for the assessment year 1973-74, there were six mutawallis. Sri Syed Mohd. Hashim Rizvi is the managing mutawalli and the waqf is named as Waqf Hazi Sheikh Karim Bux. From the income out of waqf properties, under the deed, the mutawallis are required to make expenses on objects set out in the second schedule to the deed. Headwise details are as under : ----------------------------------------------------------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus of an individual. The assessment was made under section 21(4) and the net wealth assessable was determined by computing the value of the waqf properties. Before the Wealth-tax Officer as well as before the Appellate Assistant Commissioner of Wealth-tax, the assessment was resisted on two grounds, namely, that the waqf was predominantly for public purpose of a charitable or religious nature, and, therefore, it was exempt from tax under section 5(1)(i) of the Act. In the alternative, the assessment should have been made under section 21(1) and not under sub-clause (4) of section 21. The ground was that all the mutawallis should have been treated as separate assessees and section 21(4) did not apply to the facts of the present case. These contentions were rejected by both the authorities. When the matter came before the Income-tax Appellate Tribunal, the first ground was given up. Instead, an entirely new plea was raised. It was argued that when a waqf dedicates his property to the waqf, his own right with regard to the waqf property is extinguished. The property thereafter is detained in perpetuity for God. It is tied up to God. It is, however, not owned by God for a Muslim God ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f waqf properties. In any case, the word " trustee " as used in section 21 of the Act must be construed, according to the assessee's counsel, in its strict legal meaning as understood in the Indian Trusts Act. Thus understood, a mutawalli could not be treated as a trustee. Our attention was also invited to the expression " including a trustee under a valid deed of waqf " used in section 21 of the Act. It is contended that this expression would not cover within its scope the case of a mutawalli. This distinction was maintained on the ground that a mutawalli of a waqf does not hold the properties on behalf of the beneficiaries which is an essential condition for the application of section 21 whereas the trustee does so. Accordingly, it is argued that section 21 has no application. To put it briefly, the argument is that even if section 3 applies, taking section 21 into account, no valid assessment is possible. On the second question, it is argued that the shares of the mutawallis who are also beneficiaries under the waqf are determinate and known. The provisions of section 21(4) are not applicable to the assessee's case. Thus, the assessment, if at all, could only be made under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Section 3 is, therefore, made expressly subject to section 21 and it must yield to that section in so far as the latter makes special provision for assessment of trustee of a trust." The validity of assessment has, therefore, to be judged with reference to section 21 of the Act. This section provides for assessment in those cases where the assets are held not by the individual of whom they are the net wealth, but by other persons. The assessment under this section is made in the hands of those persons who are known as " representative assessees, " and the assessment is described as " vicarious assessment ". Section 21 is mandatory in terms and contains special provisions. This section as it stood at the material time provided as follows : " In the case of assets chargeable to tax under this Act, which are held by a court of wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of a court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including trustee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the term is understood under the English law or under the Indian Trusts Act. We are inclined to place broad, rather than a narrow construction on the word "trustee" used in this section. As observed by the Supreme Court, a mutawalli of a waqf, although not a trustee in the true sense of the term, is still bound by the various obligations of a trustee (See Bibi Siddique Fatima v. Saiyed Mohammad Mahmood Hasain, AIR 1978 SC 1362 at 1375). The words within brackets, namely, " including a trustee under a valid deed of waqf ", in our opinion, will undoubtedly include a mutawalli within the meaning of the term " trustee ". The argument that the position of a mutawalli is different from that of a trustee, the two cannot be equated, for, in the case of the " trustee ", property vests in him, while in the case of a mutawalli, it is not so, is not well-founded. The question of vesting is not germane to the issue nor can the law of waqf under the Mohammadan law be imported in the construction of section 21 of the Act. The matter has been put beyond doubt by the Supreme Court in CIT v. Managing Trustees, Nagore Durgha [1965] 57 ITR 321. This case arose under section 41 of the Indian Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creatures. " In the aforesaid case, it was also held that section 41(1) provides for a vicarious assessment in order to facilitate the levy and collection of income-tax from a trustee in respect of the income of the beneficiaries. For the purpose of section 41, the mutawalli is treated as " a trustee " and on the analogy of a trustee, he holds the property for the benefit of beneficiaries. The contention that in a case of waqf, the property is held for the Almighty and not for any person was rejected by saying that section 41 in specific terms treats the mutawalli as a trustee, though he is not so in the technical sense under the Mohammadan law. The aforesaid decision was given under the Indian Income-tax Act but will equally be applicable to the interpretation of section 21 of the Act. The only difference between section 41 of the Indian Income-tax Act, 1922, and section 21 of the Act is that whereas the former deals with income, the latter deals with assets. Subject to this difference, the two provisions are identically worded (see CWT v. Kripashankar Dayashankar Worah [1971] 81 ITR 763 (SC)). In view of the aforesaid, we hold that a mutawalli can be treated as a trustee in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read along with subsections (1) and (2) and comes into play, the essential ingredients being that shares of the beneficiaries are indeterminate or unknown. In such a situation, the mode and manner of assessment is provided in sub-section (4) of section 21. The assessment under these provisions is contemplated in the hands of representative assessees only. The shares of beneficiaries being indeterminate and unknown, he is assessed in respect of their total beneficial interest in the trust properties for it is not possible to make direct assessment on the beneficiaries in respect of their individual interest. The aggregate beneficial interest of the beneficiaries is grouped in one hand as if it belongs to one individual beneficiary. The assessment is made on the trustee in the same manner and to the same extent as it would be on such fictional beneficiary. Under this clause, it is the beneficial interest which is assessed to wealth tax in the hands of representative assessee and not the corpus of the trust properties. Before proceeding further, it must be stated that the charge of wealthtax is in respect of the net wealth on the relevant valuation date and is an annual charge. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, according to the Department, mutawallis have been assigned two roles, one is that of mutawallis, i.e., the manager, and another that of the beneficiaries. Mutawallis have been directed to manage the waqf and to incur expenses out of the waqf income as they may like and in their discretion and to appropriate the rest amongst themselves. From this, it is concluded that the respective shares of the beneficiaries are not ascertainable and known. The Incometax Appellate Tribunal has upheld these contentions and have held that the provisions of section 21(4) are attracted. In our opinion, the view taken by the Income-tax Appellate Tribunal cannot be sustained. The case set up by the Revenue is plainly erroneous. As observed earlier, wealth-tax is charged on the net wealth as on the relevant valuation date. Whether the shares of the persons or beneficiaries are indeterminate or unknown, the position must be judged on the relevant valuation date. The learned standing counsel could not dispute that on the last day of the year (that is, oil the corresponding valuation date), both the income liable to be divided among the mutawallis and their respective shares therein were known an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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