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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAJAGOPALA IYENGAR & THE HONOURABLE MR. JUSTICE SATYANARAYANA RAO
Trustees, Nagore Durgah - Appellant
Versus
Commissioner of Income Tax, Madras - Respondent
Case No : Case Referred No. 22 of 1952
Decided On : 16 September 1953
INCOME TAX - Assessment - Res judicata - Applicability - Whether the decision of the Appellate Assistant Commissioner for the assessment year 1940-41 operates as res judicata in respect of proceedings for the assessment year 1944-45 - Whether the surplus income of the Durgah is exempt from income-tax - Whether such income, if assessable, is to be assessed in the hands of the trustees in the status of an association of persons or, has it to be assessed directly in the hands of the kasu-pangudars.
Fact of the Case:
The assessee, Trustees of Nagore Durgah, is a religious and charitable institution. The surplus income of the Durgah, after meeting expenses, is divided among the descendants of the saint, known as kasu-pangudars. The Income-tax Officer completed the assessment for the year 1944-45 on the assessees in the status of an association of persons. The Appellate Assistant Commissioner cancelled the assessment on the ground that the shares of the kasu-pangudars were determinate and known, and the income was assessable directly in their individual hands under Section 41 of the Act and not upon the trustees as an association of persons. The Appellate Tribunal dismissed the Department's appeal as time-barred.
Finding of the Court:
1. The decision of the Appellate Assistant Commissioner for the assessment year 1940-41 does not operate as res judicata in respect of proceedings for the assessment year 1944-45. 2. The surplus income of the Durgah is not exempt from income-tax under Section 4(3)(i) or (ii) of the Indian Income-tax Act, 1922. 3. Such income is assessable in the hands of the trustees in the status of an association of persons.
Issues: 1. Whether the decision of the Appellate Assistant Commissioner for the assessment year 1940-41 operates as res judicata in respect of proceedings for the assessment year 1944-45? 2. Whether the surplus income of the Durgah is exempt from income-tax, either under Section 4(3)(i) or under Section 4(3)(ii) of the Indian Income-tax Act, 1922? 3. If the answer to question (2) is in the negative, is such income assessable in the hands of the trustees in the status of an association of persons, or has it to be assessed directly in the hands of the kasu-pangudars?
Ratio Decidendi: 1. The assessment made in each year is to ascertain the income of the assessee from various sources and estimate it in accordance with the provisions of the Act. The amount arrived at in each year may vary. The determination of the amount by the department involves no lis inter partes and it is not a court. 2. The surplus income of the Durgah is not exempt from income-tax under Section 4(3)(i) or (ii) of the Act, as there was no written deed of trust constituting a trust. 3. The trustees are within the general charging section and as they were an association of persons, the assessment was rightly made on that footing.
Final Decision: The reference is answered accordingly. The assessee is directed to pay the costs of the respondent, which is fixed at Rs. 250.
By this application, the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the Tribunal's order, dated 11th July, 1951, in I.T.A. No. 588 of 1949-50. Inasmuch as questions of law do arise out of the aforesaid order, we hereby draw up a statement of the case, agreed to by both parties, and refer it to the High Court of Judicature at Madras under Section 66(1) of the Indian Income-tax Act.
2. The assessees are the Trustees of Nagore Durgah, Nagore. The Nagore Durgah is consecrated to the holy saint Hazerth Sayed Sahul Hameed Quadir Ali Gangasavoy Andavan, who lived some 400 years ago. He travelled far and wide performing innumerable miracle and was held in general esteem and veneration. He was a celibate and had a foster son by name Saiyed Muhammed Eusoof Sahib. The Durgah contains the tombs of the saint, his foster son and wife and a mosque is also attached thereto. The Durgah is an object of great veneration not only for the Muslims but also for members of other communities. The Rajas of Tanjore made large endowments of properties to the said Durgah. On every Thursday, a large number of people of all classes assemble in the Durgah and make offerings to the saint. The anniversary of the Durgah called the Kandoori Festival also attracts a large number of pilgrims who make offerings.
3. The assets of the Durgah consist of large immovable properties in the shape of lands, shops, etc. The source of income is from these properties as well as income from offerings in cash and kind received from the devotees.
4. The Durgah is managed by a body of trustees, called nattamaigars, who are said to be the lineal descendants of the sons and daughters of Syed Muhammad Eusoof Sahib, the foster son of the saint, and whose office is hereditary. The surplus income of the Durgah from all sources after meeting expenses is divided into 640 shares among the descendants of the said Eusoof Sahib now called kasu-pangudars. There is admittedly no written document of trust or settlement deed. The management and distribution of the surplus income was being made according to custom in compliance with the oral directions said to have been given by the saint himself to his foster son. The custom has been recognised by court of law.
5. Notice to the assessees under Section 22(2) was for the first time issued for the 1944-45 assessment year and assessment was completed on the assessees in the status of an association of persons. This is the subject-matter of the present reference. Action under Section 34 was also taken in the same year for the earlier assessment years, viz. 1940-41 to 1943-44, and these assessments under Section 34 were, in the first instance, completed in March, 1945.
6. The assessees claimed firstly, that the Durgah was religious and charitable institution and that the net income of the Durgah after meeting all expenses was being divided and distributed as charity amongst the poor people known as kasu-pangudars, and secondly, even if it were to be held that such division and distribution of the surplus income is not a charitable purpose, no assessment could be made on the trustees as an association of persons as a whole, inasmuch as the shares of the kasu-pangudars are determinate and known.
7. The right of the kasu-pangudars for a share in the surplus income of the Durgah was the subject-matter of a suit filed in the Court of the Subordinate Judge, Nagapattinam (O.S. No. 45 of 1918) in which one of the reliefs claimed was for a declaration that the kasu-pangudars were not entitled to a share in the surplus income and that the division was a breach of trust. It was held (vide order, dated 16th August, 1923 annexed hereto as Annexure 'A' and forming part of the case) that the evidence conclusively showed that the custom as to the division of surplus income among the descendants of Eusoof Sahib (kasu-pangudars) is as old as the institution itself and the division of
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