PETITIONER:
AHMED G.H. ARIFF & ORS.
Vs.
RESPONDENT:
COMMISSIONER OF WEALTH TAX, CALCUTTA
DATE OF JUDGMENT:
20/08/1969
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C. (CJ)
RAMASWAMI, V.
CITATION:
1971 AIR 1691 1970 SCR (2) 19
CITATOR INFO :
C 1991 SC2023 (5)
ACT:
Wealth Tax Act (27 of 1957), ss. 2(e), (m) and 7(1)-Right
to receive share from wakf-alal-aulad-Whether asset
assessable to wealth tax-"If sold in open market" meaning
of.
HEADNOTE:
A hanafi Muslim created a wakf-alal-aulad and appointed
himself as the sole Mutwalli and provided that after his
death his widow and sons would act as Mutawallis jointly.
The wakf was for the benefit of the settler's wife, children
and their descendants, and they were each to be paid a
specified share of the net monthly income of the property.
The ultimate benefit in the case of complete intestacy of
the descendants of the settler was reserved for poor
musalmans of sunni community deserving help On the question
whether the right of the assessee who were the beneficiaries
under the deed of wakf, to receive a specified share of the
net income from the estate, was an asset assessable to weath
tax, this Court,
HELD: (i) The right in question was assessable to wealth
tax.
(i) "Property" is a term of widest import and subject to
any limitation which the context may require, it signifies
every possible interest which a person can clearly hold or
enjoy. [25 C--D]
The definition of "assets" in s. 2(e) and that of "net
wealth" in s. 2(m) of the Wealth Act were comprehensive
provisions and all assets were included in the net wealth by
the very definition. Therefore, when s. 3 imposed the
charge of wealth tax on the net wealth it necessarily
included in it every description of property of the assessee
movable and immovable, barring the exceptions stated in s.
2(e) and other provisions of the Act. There is no reason or
justification to give any restricted: meaning to the word
"assets" as defined by s. 2(e) of the Act when the language
employed shows that it was intended to include property of
every description. [25 H; 26 A--B]
On a proper construction of the relevant clauses in the
wakf deed, it must be held that the aliquot share of the
income provided for the beneficiaries was not meant merely
for their maintenance and support. But even on the
assumption that it was so intended or to preserve the
validity of the deeds it should be so construed the right to
the share of the income would certainly be asset within the
meaning of s. 2(e) and would be liable to be included in the
net wealth of the assessee. [26 B---C]
Vidya Varuthi v. Balusami Ayyar, 48 I.A. 302, 312, Abdul
Karim Adenwalla v. Rahimabai, 48 Bom. L.R. 67, Commissioner,
Hindu Religious Endowments, Madras v. Shri Lakshmindra
Thirtha Swamiar of Sri Shirur Mutt. [1954] S.C.R. 1005, 1019
and Commissioner of Inland Revenue v. Crossman, [1937]
A.C. 26, referred to..
20
Commissioner of Wealth Tax, Bombay City v. Purshottam
N.Amersey & Anr. 71 I.T.R. 180, approved.
(ii) When the statute uses the words "if sold in the
open market" it does not contemplate actual sale or the
actual state of the market, but only enjoins that it should
be assumed that there is' an open market and the property
can be sold in such a market and on that basis the value has
to be found out. It is a hypothetical ease which is
contemplated and the Tax Officer must assume that there is
an open market in which the asset can be sold. [26 E--F]
(iii) The contention, that the right to receive a share
of the income was a mere right to an annuity where the terms
and conditions relating thereto precluded the commutation of
any portion into a lump sum grant must be rejected. The
word "annuity" could not be given its popular and dictionary
meaning, but should be given the signification which it has
assumed as a legal term owing to judicial interpretation.
Where the legislature uses a legal term which has received
judicial interpretation courts must assume that the terms
has been used in the sense in which it has been judicially
interpreted. [26 G--H; 27 A--B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2129 to
2132 of 1968.
Appeals from the judgment and order dated December 4,’
1964 of the Calcutta High Court in Tax Matters Nos. 69, 62
and 64 of 1963.
A.K. Sen, S.K. Hazare and P.K. Mukherjee, for the
appellants (in all the appeals).
B. Sen, S. A. L. Narayana Rao and R.N. Sachthey, for
the respondent (in ‘all the appeals).
The Judgment of the Court was delivered by
Groper, J. These appeals by certificate from a judgment
of the Calcutta High Court involve a common but important
question, namely, whether the right of an assessee to
receive a specified share of the net income from an estate
in respect of which Wekf-alal-aulad has been created is an
asset assessable to Wealth Tax.
By a deed dated November 19, 1928 as modified by a deed of
rectification dated July 5, 1930 one Golam Hossain Kasim
Ariff, a muslim governed by the Hanafi School of the
Mohammadan Law created a wakf in respect of his properties
in Noormul Lohia Lane and Armenian Street in Calcutta. The
settler appointed himself as the sole Mutwalli for the term
of his life and provided that after his death his widow
Aisha Bibi and his sons would act as Mutwallis jointly.
The settler died on January 1, 1937. He left behind his
widow Aisha Bibi and three tons who are the appellants
before this Court. The wakf created was of the nature of
Wakf-alal-aulad for the benefit of the settler’s wife,
21
children and their descendants. The extent of the benefit
conferred on them would appear from clause 5 of the deed of
wakf as modified:
“5. After payment of all necessary out
goings such as establishment charges,
collections charges, revenue taxes, costs of
repairs, law charges and other expenses for
the upkeep and management of the said Wakf
property, the Mutwalli or Mutwallis shall
apply the net income of the said Wakf property
as follows, viz.:
(a) In payment to me during the term of my
life of one-fifth of the said net income by
monthly instalments.
(b) In payment to each of my sons during
the respective terms of their lives one-sixth
of the said net income by monthly instalments.
(c) In payment to my wife Aisha Bibi
during the term of her life one tenth of the
said net income by monthly instalments.
The moneys payable as aforesaid to such of my
sons as are minors shall until they attain the
age of majority be respectively invested
(after defraying the expenses of their
maintenance and education) in proper
securities or in landed property in Calcutta
and such securities or property shall be made
over to the said sons on their respectively
attaining the age of majority.”
The ultimate benefit in the case of complete intestacy of
the descendants of the settlor was reserved for poor
musalmans of Sunni community deserving help.
The appellants who are the beneficiaries under the
deed of wakf were paying income tax on the amount which was
being received by them in terms of that deed from the
Mutwalli. In the year 1957 the Wealth Tax Act 27 of 1957,
hereinafter called the Act, came into force. During the
assessment years 1957-58 and 1958-59 the appellants were not
only assessed to income tax in respect of the income
received by them from the wakf estate but were also assessed
to Wealth tax by the Wealth Tax Officer on the basis that
they had a share in the wakf estate. The total value of the
immovable property belonging to the wakf estate was valued
at 20 times the annual municipal valuation and 16th of the
value of the immoveable property along with other
properties was taken to be the net wealth of each assessee.
Appeals were taken to the Appellate Assistant Commissioner
of Wealth Tax but these were dismissed. There were further
appeals to the Income tax Appellate Tribunal where no
dispute was raised as indeed it could not be raised with
regard to the validity of the deed of wakf.
22
It was held that the right of the sons of the wakf to
receive a share of the rents and profits of the wakf
property was property or an interest in property and as it
was not limited in enjoyment to a period of six years it
fell within the definition of the term “assets” as defined
by s. 2(e) of the Act. The contention of the appellants
that the right of the beneficiaries under the deed of wakf
was a mere right to an annuity as mentioned in s. 2(e)(iv)
and was, therefore, not an asset assessable to wealth tax
was rejected. The third argument which had been raised
before the Tribunal that the allowances under assessment
were payable to the beneficiaries by way of maintenance
were not transferable under s. 6(dd) of the Transfer of
Property Act and therefore they had no market value, for
inclusion in the net wealth was also refuted. It was pointed
out that the right to maintenance was not one of the assets
mentioned in s. 5 which alone entitled an assessee to claim
exemption in respect of certain assets. The Tribunal did
not find it possible to hold on the facts of the case that
the amounts in dispute were receivable by the beneficiaries
as maintenance under the terms of the wakf. As regards the
quantum of valuation a direction was made that the value of
the assessee’s life interest may be capitalised on the
basis of the valuation table set out in Park’s Principles
and Practice of Valuations taking the rent security at
6%.
On applications for referring the question of law, the
following common question was referred to the High Court
under s. 27 of the Act:
“Whether on the facts and circumstances
stated the right of the assessee to receive a
specified share of the net income from the
Wakf Estate is an asset the capitalised value
of which is assessable to Wealth-tax?”
The High Court negatived the contentions of the appellants
that the right to receive a definite share of the net income
from wakf property did not fall within the meaning of the
word “assets” as defined by s. 2(e) of the Act or that it
was a mere right to an annuity which under the Mohammedan
Law could not be commuted into a lumpsum. It was held that
the fight of each assessee was to receive an aliquot share
of the net income of the properties which were made the
subject matter of the wakf and there was a clear
distinction between an aliquot share of income and an
annuity. The High Court was of the view that even if the
asset of the nature under consideration was non-transferable
and could not be sold in the open market it could not be
said that such an asset had no value. For the purpose of
the Act the Wealth Tax Officer must proceed to value it as
if it was an asset which was saleable in the market and that
would depend on actuarial valuation. The question was
consequently answered in the affirmative and in favour of
the revenue.
23
The definition of the word “assets” as
given in s. 2 (e) of the Act to the extent it
is material is in the following terms:
(e) “assets” includes property of
every description, movable or immovable but
does not include–
(iv) a right to any annuity in any case
where the terms and conditions relating
thereto preclude the commutation of any
portion thereof into a lump sum grant;
(v) any interest in property where the
interest is available to an assessee for a
period not exceeding six years ;”
“Net wealth” is defined by section 2(m). Section 3 is the
charging valuation date of every individual etc. Section 4
gives the financial year a tax in respect of the net wealth
on the corresponding valuation date of every individual etc.
Section 4 gives the assets which have to be included in
computing the net wealth. Section 5 gives those assets
which are exempt from and are not to be included in the net
wealth of the assessee. Section 7 (1) provides that value of
any asset other than cash shall be estimated to be the price
which, in the opinion of the Wealth Tax Officer,, it would
fetch, if sold in the open market, on the valuation date.
It is to be essentially decided whether the right to
receive an aliquot share of the net income of the properties
which were made the subject matter of the wakf would be
covered by the definition of “assets” within the meaning of
s. 2(e) of the Act. There can be no difficulty if such a
right can be regarded to be property giving that word the
widest meaning as is contemplated by the language employed
in the aforesaid clause. The principal argument of Mr. A.K.
Sen for the appellants is that the right to receive a share
of the income under a deed creating wakf-alal-aulad can, by
no stretch of reasoning, be regarded to fall within the
meaning of the word “property” even in its wide and
extended sense. He has referred to the incidents of such a
right with particular reference to the Mohammedan Law
relating to wakf. That law owes its origin to a rule laid
down by the Prophet of Islam; and means “the tying up of
property in the ownership of God the Almighty and the
devotion of the profits for the benefit of human beings.”
Once it is declared that a particular property is wakf, the
right of the wakf is extinguished and the ownership is
transferred to the Mutawalli (vide Vidya Varuthi v.
Balusami Ayyar(1). Wakfs could be divided into two classes:
(i) public and (ii) private. A private wakf is one for the
benefit of the (1) 481.A. 302 atp. 312.
24
settlor’s family and his descendants. It is called Wakf-
alal-aulad. -Before the enactment of the Mussalman Wakf
Validating Act 1913, a wakf, exclusively for the benefit of
the settlor’s family, children and descendants in
perpetuity, was invalid. It was, however, valid if the
property was given in substance to charitable uses. Section
3 of the aforesaid Act declared it lawful for a person
professing the Mussalman faith to create a wakf which in all
other respects was in accordance with the provisions of the
Mussalman law, for the following among other purposes :–
“(a) for the maintenance and support
wholly or partially of his family, children
or descendants, and
(b) where the person creating a wakf is
a Hanafi Mussalman, also for his own
maintenance and support during his lifetime or
for the payment of his debts out of the rents
and profits of the property dedicated;
Provided that the ultimate benefit in
such cases expressly or impliedly reserved for
the poor or for any other purpose recognised
by the Mussalman law as a religious, pious or
charitable purpose of a permanent character.”
As mentioned before, the moment a wakf is created, all
rights of property pass out of the Wakif and vest in the
Almighty. Therefore, the Mutawalli has no right in the
property belonging to the wakf. He is not a trustee in the
technical sense, his position being merely that of a
superintendent or a manager. A Mutawalli has no power,
without the permission of the court, to mortgage, sell or
exchange wakf property or any part thereof unless he is
expressly empowered by the deed of wakf to do so: (ss. 202
and 207, Mulla’s Principles of Mahomedan Law, 16th Edn.)
In Abdul Karim Adenwalla v. Rahimabai(1), a distinction
was made between a settlor belonging to the Hanafi sect
reserving for his own maintenance and support during his
lifetime the income of the trust property and has reserving
for his absolute use income of the whole of the property
during his lifetime. It was ‘pointed out that a Hanafi
Mussalman was not permitted to follow the latter course and
it was only when he reserved the income for his maintenance
and support that the provisions of the Mussalman Wakf
Validating Act, 1913 would not be offended, There would be
a difference in law between these two provisions; if a
settlor reserved to himself income for his own maintenance
and support that would not be transferable as property under
the Transfer of Property Act nor would it be attachable
under the provisions of the Civil Procedure Code. If he,
however, reserved for himself a life interest, s. 6 of the
Transfer of Property Act
(1) 48 Bom. L.R. 67.
25
and s. 60 of the Code with regard to the non-transferability
and non-liability to an attachment would nor be attracted.
The crux of the matter, according to Mr. Sen, is that the
aliquot share of income under the deeds executed in the
present case was reserved for the maintenance and support of
the wakf and other beneficiaries during their lifetime. It
is pointed out that if the provisions contained in cl. (5 )
of the deed of wakf were not to be read in that manner,. the
deed would be rendered void a result which has to be avoided
by the courts. It is thus contended that the right, in
question, is a right to future maintenance measured by the
aliquot part of the income and it is neither partible nor
alienable, and is one which is wholly personal to the
beneficiary. It lacks the basic attributes of property.
Now “property” is a term of the widest import and
subject to any limitation which the context may require, it
signifies every possible interest which a person can clearly
hold or enjoy. The meaning of the word “property” has come
up for examination before this Court in a number of cases.
Reference may be made to one of them in which the question
arose whether Mahantship or Shebaitship which combines
elements of office and property would fall within the ambit
of the word “property” as used in Article 19(1)(f) of the
Constitution. It was observed in the Commissioner, Hindu
Religious Endowments, Madras v. Shri Lakshmindra Thirtha
Swamiar of Sri Shirur Mutt(1) that there was no reason why
that word should not be given a liberal and’ wide
connotation and should not be extended to those well
recognised types of interests which had the insignia or
characeristics of proprietary right. Although Mahantship was
not heritable like the ordinary property, it was still held
that the Mahant was entitled to claim protection of Art.
19(1) (f) of the Constitution. It is stated in the
Halsbury’s Laws of England, Vol. 32 3rd Edn. page 534 that
an annuity (which is a certain sum of money payable yearly
either as a personal obligation of the grantor or out of
property not consisting exclusively of land) can be an item
of property separate and distinct from the beneficial
interests therein and from ‘the funds and other property
producing it is property capable of passing on a death
and can be separately valued for the purpose of estate
duty.
The only direct case on the point under consideration
is a decision of the Bombay High Court in Commissioner of
Wealth Fax, Bombay City v. Purshottam N. Amersey and
Another(2). There the deed of settlement provided that the
trustees shall apply he net income from the fund for the
support, maintenance and advancement in life and otherwise
for the benefit of the settlor and is wife etc. It was held
that the definition of “assets” in s. 2(e) and that of “net
wealth” in s. 2(m) were comprehensive provi-
(1) [1954] S.C.R. 1005, 1019. (2) 71
I.T.R. 180.
CI/70-3
26
sions and all assets were included in the net wealth by the
very definition. Therefore, when s. 3 imposed the charge of
wealth tax on the net wealth it necessarily included in it
every description of property of the assessee, movable and
immovable, barring the exceptions stated in s. 2 (e) and
other provisions of the Act. We are in entire concurrence
with that view. There is no reason or justification to give
any restricted meaning to the word “asset” as defined by s.
2(e) of the Act when the language employed shows that it
was intended to include property of every description. On a
proper construction of the relevant clauses in the wakf
deed we are not satisfied that the aliquot share of the
income provided for the beneficiaries was meant merely for
their maintenance and support. But even on the assumption
that it was so intended or to preserve the validity of the
deeds it should be so construed the right to the share of
the income would certainly be an asset within the meaning of
s. 2(e) and would be liable to be included in the net wealth
of the assessee.
Mr. Sen has laid emphasis on the language of s. 7 (1 )
of the Act and has contended that the right to a share in
the income is not capable of any valuation and the price
which it would fetch if sold in the open market, could not
possibly be ascertained. Such an argument was fully
examined in the Bombay case(1) in which the High Court
referred to the provisions of the English statutes, which
were in pari materia as also decisions given by the
English Courts including the one by the House of Lord,’
(Commissioner of Inland Revenue v. Crossman) (2). It has
beet rightly observed by the High Court that when the
statute uses the words “if sold in the open market” it does
not contemplate actual sale or the actual state of the
market, but only enjoins that I should be assumed that
there is an open market and the property can be sold in such
a market and on that basis, the value has to be found out.
It is a hypothetical case which is contemplated and the
Tax Officer must assume that there is an open market it
which the asset can be sold.
A faint attempt was made to invoke the exception
contained in s. 2(e) by suggesting that the right to receive
a share of the income was a mere right to an annuity where
the terms and conditions relating thereto precluded the
commutation of any portion into a lump sum grant. The High
Court in the judgment under appeal dwelt at length on the
true meaning and import of the expression “annuity” and
negatived that suggestion. The burden of the argument was
and is that the word “annuity” should be given its popular
and dictionary meaning and not the signification which it
has assumed as a legal term owing to judicial inter
pretation. Such a contention has only to be stated to be
rejected
(1) 71 I.T.R.180. (2) (1937) A.C.
26.
27
because it is well settled that where the legislature uses
a legal term which has received judicial interpretation,
the courts must assume that the term has been used in the
sense in which it has been judicially interpreted.
For the reasons given above, the appeals fail and are
dismissed with costs. (One hearing fee.)
Y.P. Appeals dismissed.
28