MOHAMMAD IBRAHIM RIZA vs COMMISSIONER OF INCOME-TAX, NAGPUR

Headnote Court Copy Facts Arguments Court observation Judicial Analysis Case Map Category Hierarchy Table of Content

1930 Supreme(SC) 43

PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD TOMLIN, SIR LANCELOT SANDERSON, SIR GEORGE LOWNDES, AND SIR BINOD MITTER.
MOHAMMAD IBRAHIM RIZA - Appellant
Versus
COMMISSIONER OF INCOME-TAX, NAGPUR - Respondents
On appeal from the Court of the Judicial Commissioner, Nagpur.
Decided On : May. 19. 1930.

Advocates:
Solicitors for appellant:T. L. Wilson & Co. Solicitor for respondent: Solicitor, India Office.

Important Points

Income from trust property is exempt from tax only if the property is held wholly for religious or charitable purposes, or if the income is specifically set apart for such purposes. Inclusion of secular or commercial objectives in the trust deed disqualifies the property from such exemption.

Subject

Tax Law - Income Tax

Act Referred

INCOME TAX ACT: S.3(i), S.4(3)(i)(ii)

Headnote

(A) Indian Income-tax Act, 1922 - Section 4, sub-section 3 (i) and (ii) - Exemption of income from property held under trust for religious or charitable purposes - Income derived from property used for purposes including commercial pursuits, entertaining guests, and political conferences is not exempt - To qualify for exemption, property must be held wholly for religious or charitable purposes, or the income must be specifically set apart for such purposes.

Facts of the case:
The head of a community was assessed for income tax on property vested in him. The property was held under trust deeds providing that the income be used for maintaining the head, providing necessaries for community members, education, and carrying on agricultural, industrial, and commercial pursuits, as well as entertaining guests and making donations for various purposes, including political conferences. The appellant claimed the property constituted a valid wakf devoted to charitable and religious purposes and was thus exempt from tax.

Findings of Court:
The court found that the trust deeds explicitly included purposes that were neither religious nor charitable. Consequently, the income was not derived from property held wholly for religious or charitable purposes, nor was any part of the income identified as being exclusively appropriated for such purposes.

Issues: Whether the income from property vested in the head of a community is exempt from income tax under the provisions of the relevant tax statute when the trust deeds specify purposes that are not exclusively religious or charitable.

Ratio Decidendi: For income to be exempt under the provision for property held under trust for religious or charitable purposes, the property must be held wholly for such purposes. If the trust allows the income to be used for secular, commercial, or social purposes, the exemption does not apply unless a specific portion of the income is identified as being set apart exclusively for religious or charitable use.

Result: Appeal dismissed with costs.

Legal Category Hierarchy

Judgement

Appeal (No. 50 of 1929) from a judgment of the Court of the Judicial Commissioner of the Central Provinces (August 4, 1927), upon a reference under s. 66, sub-s. 2, of the Indian Income-tax Act, 1922.

The appellant, who was the head of a Mahomedan community of about 250 persons of the Dawoodi Bohras of Nagpur, was assessed at Rs.2072-14 for income-tax under the Indian Income-tax Act, 1922, in respect of income arising from property vested in him as head.

Law. Rep. 57 Ind. App. 260 ( 1929- 1930) Mohammad Ibrahim Riza V. Commissioner of Income-Tax, Nagpur 92

The property of the community was held under two trust deeds of August 25, 1917, and November 22, 1922, executed by the previous head of the community. The earlier deed provided that the scheduled properties should be held on trusts, Stated as to clauses 3, 5 and 6 in the judgment. By the remaining clauses the property and income were devoted to the following purposes stated shortly (1.) For suitably maintaining the dignity of the settlor as head, and of the succeeding heads, and defraying all their expenses. (2.) For providing all the members of the community with all the necessaries of life as the head deemed fit. (3.) For giving suitable secular and religious education to the members.

The objects of the trust provided by the deed of 1922 were practically the same as by the deed of 1917.

The substantial question raised by the reference to the Court of the Judicial Commissioner was whether the income from the property was exempt from tax by s. 4, sub-s. 3 (i.) and (ii.), of the Indian Income-tax Act, 1922, the terms of which appear from the judgment.

The Court of the Judicial Commissioner held that no part of the income was exempt.

1930. May 19. Dunne K.C. and E. B. Raikes K.C. for the appellant. The deeds constituted a valid wakf of the whol3 property according to Mahomedan law, and the Mussulman Wakf Validation Act, 1913, although the maintenance of the mutawalli was provided for. According to the conception of that law, which governed the parties, the whole property was devoted to charitable and religious purposes. The income was therefore exempt from tax by s. 4, sub-s. 3 (i.) and (ii.).

De Gruyther K.C. and Wallach for the respondent were not called upon.

The judgment of their Lordships was delivered by

LORD TOMLIN, In this case the appellant seeks to displace an assessment to income-tax made upon him in respect of property vested in him as the head of a community which is a sect of the Dawood Borah tribe, located at Nagpur. The community [have, apparently, a common stock, all the property being vested in the head of the sect. The property is utilized in part in carrying on a series of shops, the profits of the trade being treated as part of the income of the community.

In the Courts below the appellant rested upon certain trust deeds executed, one on August 25, 1917, and the other on November 25, 1922. By the first deed the then head of the community declared the trusts of the property vested in him, and by the second deed the trusts of the same property were explained and expanded.

Their Lordships think that the short point which this appeal raises is, whether, having regard to the terms of those deeds, the income of the property vested in the head of the community is exempt from income-tax, having regard to the provisions of s. 4, sub-s. 3 (i.) and (ii.), of Act XI. of 1922.

That sub-section so far as material is in these terms " This Act shall not apply to the following classes of income (i.) Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application, thereto. (ii.) Any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes."

Law. Rep. 57 Ind. App. 260 ( 1929- 1930) Mohammad Ibrahim Riz

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