PETITIONER:
COMMISSIONER OF INCOME-TAX, MADRAS
Vs.
RESPONDENT:
MANAGING TRUSTEES, NAGORE DURGHA, NAGORE
DATE OF JUDGMENT:
08/04/1965
BENCH:
SUBBARAO, K.
BENCH:
SUBBARAO, K.
SHAH, J.C.
SIKRI, S.M.
CITATION:
1966 AIR 73 1965 SCR (3) 659
CITATOR INFO :
R 1971 SC2463 (14)
ACT:
Wakf--Scheme for management of Muslim Wakf--Trustees called
Nattamaigars to manage wakf property--Surplus income to be
distributed among beneficiaries of trust called
kasupangudars according to definite shares--Income how to
be assessed--Applicability of Indian Income Tax Act, 1922(11
of 1929.), s. 41.
HEADNOTE:
A scheme was settled in 1955 by the Madras High Court for
the management of the income and properties of the Durgah
consecrated to a saint in Tanjore District. Under the scheme
the management of the properties of the Durgah was to be in
the hands of eight trustees called Nattamaigars one of whom
was to be elected by them as Managing Trustee. The net
income of the trust was to be distributed among descendants
of the foster son of the saint, called Kasupangudars, whose
definite shares were to be determined each year by a list
prepared by the Managing Trustee. For the assessment years
1953-54 and 1954-55, the Income-tax Officer assessed the
surplus income of the wakf in the hands of the Managing
Trustee as an association of persons. The trustees
unsuccessfully appealed to the Appellate Assistant
Commissioner and the Appellate Tribunal. The controversy
centred round the question whether s.41 of the Indian
Income-tax Act, 1922 applied to the case. In a reference
made by the Tribunal at the instance of the assessee the
High Court held that that s. 41 applied to the case and that
the income was received by the trustees on behalf of the
beneficiaries. Aggrieved, the Commissioner of income Tax
appealed, by certificate, to this Court.
It was contended on behalf of the appellant that as the
properties vested in the managing trustee and he received
the income in his own right and not on behalf of the
beneficiaries, though for their benefit, the said income in
the hands of the managing trustee fell outside the scope of
s.41 of the Act.
HELD: The High Court had rightly answered the question in
favour of the assessee.
(i) The technical doctrine of vesting is not imported into
s. 41. This is apparent from the fact that a trustee
appointed under a trust deed is brought under the section
though legally the property vests in him. In the case of a
Muslim Wakf the property vests in the Almighty; even so the
mutawallis are brought under the section. Thus in some of
the persons enumerated in the section property vests and in
others it does not. A reasonable interpretation of the
section is that all categories of persons mentioned therein
are deemed to receive them on behalf of another person or
persons or manage the same for his or their benefit. None of
them has any beneficial interest in the income; he collects
the income for the benefit of others. In this view even if
the Nattarnaigars were trustees in whom the
65
660
properties of the Durgah vested, they should be deemed to
have received the income only on behalf of the Kasupangudars
in definite shares. [662G-663B]
(ii) The mutawalli of a Muslim Wakf is merely a manager
and not a "trustee" as understood in the English system.
[663E]
Vidya Varuthi Thirtha v. Balusami Ayyar, (1921) 48 I.A.
32 and Allah Rakhi v. Mohammad Abdur Rahim, (1933) 61 I.A.
50, relied on.
Therefore in terms of s.41 of the Act the Nattamaigars
were the manager of the properties on behalf of other and
were entitled to receive the income therefrom on behalf of
them. [663G-H]
(iii) Under c1.3 of the scheme it was the "management
and administration" of the Durgah and its properties which
was vested in the Nattamaigars and not the properties
themselves. In the absence of clear words it could not be
held that the High Court in framing a scheme for the
endowments of the Durgah had introduced a foreign concept
of "trust" in derogation of Mohammadan Law. The scheme
therefore did not vest the properties of the Durgah in the
Nattamaigars and the contention on behalf of the Revenue
could not succeed. [664D, E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 213 and
214 of 64.
Appeals from the judgment and order dated April 4, 1961,
of the Madras High Court in Case Referred No. 130 of 1956.
Niren De,Additional Solicitor-General R. Ganapathy Iyer
and R.N. Sachthey, for the appellants (in both the appeals.
A. V. Vishwanatha Sastri, M.M. Ismail and R.
Gopalakrishnan, for the respondent in both the appeals.
The Judgment of the Court was delivered by
Subba Rao, J. In the t,own of Nagore in Tanjore
District, Madras State, there is a Durgha consecrated to
Hazerath Sayed Shahul Hameed Quadir Ali Ganja Savoy Andavar,
who lived some 400 years ago. The said Durgha receives large
income from immovable properties endowed to it and the
offerings in cash and kind made by the devotees. The Durgha
and its properties are now being administered under a scheme
settled by the Madras High Court on March 16, 1955. Under
the scheme the management of the administration of the
affairs of the said Durgha vests hereditarily in 8 trustees
called Nattamaigars, who constitute a board of trustees. The
said board of trustees shall from among themselves elect one
as a managing trustee and he shall hold office for a term
of 3 years. The managing trustee shall at the end of
each fasli prepare a balance-sheet verified by the manager
and ascertain the net amount available for payment to
kasupangudars, who are the descendants of Saiyed Muhammed
Eusoof, the foster son of the saint. The Managing Trustee
shall declare the amount due to each of the kasupangu
(share) and shall allocate the amount to each kasupangudar
(sharer) in the list to be prepared for that purpose
661
in each year. He shall pay the amount to each kasupangudar
in accordance with the list. It is said that at present
there are 640 kasupangudars. Briefly stated under the
scheme the management of the properties of the Durgha, both
movable and immovable, vests in Nattamaigars, and the
kasupangudars are entitled to the surplus in accordance
with their shares.
For the assessment years 1953-54 and 1954-55 the Income-
tax Officer assessed the surplus income in the hands of the
Managing Trustee as an association of persons. The Appellate
Assistant Commissioner, on appeal, confirmed the same. On
further appeal, the Income-tax Appellate Tribunal took the
same view. At the instance of the assessee, the Tribunal
submitted the following question for the opinion of the High
Court of Madras under s.66(1) of the Income-tax Act. 1922,
hereinafter called the Act:
“Whether the provisions of Section 41 can be said to
apply to the assessees in this case.”
A Division Bench of the High Court, which heard the
reference. held that the Managing Trustee qua the surplus
income managed the property and derived the income on behalf
of the kasupangudars and that the assessment should be made
on the said Managing Trustee to the extent of the interest
of each of the kasupangudars in the income received by him.
In the result it answered the question in the affirmative
and in favour of the assessee. The Commissioner of Income-
tax, Madras, on a certificate of fitness granted by the High
Court, has preferred the present appeals against the said
Order.
The learned Additional Solicitor General, appearing for
the Revenue, contended that the Natmaigars being trustees,
the properties of the Durgha vested in them and, therefore,
they or the Managing Trustee administered the trust
properties in their own right and not on behalf of the
kasupangudars and hence s.41 of the Act did not apply, with
the result the Income-tax Officer had rightly assessed the
surplus income in the hands of the trustees as an
association of persons.
Mr. A.V. Viswanatha Sastri, learned counsel for the
assessee respondent, argued, on the other hand, that the
Nattamaigars of the Durgha were not trustees as understood
in the law of trust but were only managers managing the
properties on behalf of the Durgha and kasupangudars. On
that assumption, his argument proceeded. as the
Nattamaigars, as managers, held the surplus on behalf of the
kasupangudars for distribution in definite shares, s.41 of
the Act was attracted.
At the outset we may make it clear that in this appeal
we are concerned only with the surplus remaining on hand
with the Nattamaigars after meeting the expenses of the
Durgha.
662
The problem presented in these appeals falls to be
decided on a true construction of s.41 of the Act. The
material part of s.41 reads:
(1) In the case of income, profits or
gain chargeable under this Act, which the
Courts of Wards, the Administrators-General,
the Official Trustees or any receiver or
manager (including any person whatever his
designation who in fact manages property on
behalf of another) appointed by or under any
order of a Court, or any trustee or trustees
appointed under a trust declared by a duly
executed instrument in writing whether
testamentary or otherwise (including the
trustee or trustees under any Wakf deed which
is valid under the Mussalman Wakf Validating
Act, 1913), are entitled to re
ceive on
behalf of any person, the tax shall be levied
upon and recoverable from such Court of
Wards, AdministratorsGeneral, Official
Trustee, receiver or manager or trustee or
trustees, in the like manner and to the same
amount as it would be leviable upon and
recoverable from the person
on whose behalf such income, profits or
gains are receivable, and all the provisions
of this Act shall apply accordingly.
Under this section the income of properties receivable
by the enumerated persons for the benefit of others is
liable to be assessed to tax in their hands in the like
manner and to the same amount as it would be leviable upon
and recoverable from the person or persons on whose behalf
such income is receivable. This section centres on the basic
fact that the person in whose hands the income is assessable
shall be entitled to receive the same on behalf of any
person; if he is not so entitled, the provisions of the
section cannot be invoked. So. it is contended that, as the
properties vested in the managing trustee and he received
the income in his own right and not on behalf of the
beneficiaries, though for their benefit,, the said income in
the hands of the managing trustee fell outside the scope of
s.41 of the Act.
There are two answers to this contention. The doctrine
of vesting is not germane to this contention. In some of the
enumerated perso,ns in the section the property vests and in
others it does not vest, but they only manage the property.
In general law the property does not vest in a receiver or
manager but it vests in a trustee, but both trustees and
receivers are included in s.41 of the Act. The common thread
that passes through all of them is that they function
legally or factually for others: they manage the property
for the benefit of others. That the technical doctrine of
vesting is not imported in the section is apparent from the
fact that a trustee appointed under a trust deed is brought
under the section though legally the property vests in him.
In the case of a Muslim Wakf the property vests in the
Almighty; even so the mutawallis are brought under the
section. A reasonable interpretation of the
663
section is that all the categories of persons mentioned
therein are deemed to receive the income on behalf of
another person or persons or manage the same for his or
their benefit. None of them has any beneficial interest in
the income; he collects the income for the benefit of
others. In this view, even if the Nattamaigars were trustees
in whom the properties of the Durgha vested, they should be
deemed to have received the income only on behalf of the
kasupangudars in definite shares.
The same conclusion will be reached even if the problem
was approached from a different angle. In the well-known
decision of the Privy Council in Vidya Varuthi Thirtha v.
Balusami Ayyar(1) the inappropriateness of the use of the
expression “trustee” to the manager of a Hindu or Mahommedan
religious endowments was brought out. Therein their
Lordships observed:
“Neither under the Hindu Law nor in the
Mahommedan system is any property “conveyed”
to a shebait or a mutawalli, in the case of a
dedication. Nor is any property vested in him;
whatever property he holds for the idol or the
institution he holds as manager with certain
beneficial interests regulated by custom and
usage. Under the Mahommedan Law, the moment a
wakf is created all rights of property pass
out of the wakf, and vest in God Almighty. The
curator, whether called mutawalli or
saijadanishin, or by any other name, is merely
a manager. He is certainly not a “trustee” as
understood in the English system.”
The Privy Council, in the context of a wakf property,
reaffirmed the said observations, in Allah Rakhi v. Mohammad
Abdur Rahirn(2). The effect of the said decisions is that
Nattamaigars are only the managers of the properties in
which the Durgha and the kasupangudars have beneficial
interests. The properties do not vest in them. They
receive the income therefrom on behalf of both of them.
After meeting the expenses of the Durgha they hold the.
balance on behalf of the kasupangudars and distribute the
same in accordance with their shares. In this view, in terms
of s. 41 of the Act the Nattamaigars are the managers of the
properties on behalf of others and, are entitled to receive
the income therefrom on behalf of them. With the result, the
income which they hold on behalf of the kasupangudars can be
assessed only in their hands in the manner prescribed
thereunder. But it is said that whatever may the doctrine of
Hindu or Mohammadan law, under the terms of the aforesaid
scheme the properties vested in the Nattamaigars and,
therefore, they receive the income in their own right and*
not on behalf of the kasupangudars. A careful reading of the
relevant
(1)(1921) L.R. 48 I.A. 302, 315.
(2) (1933) L.R.61.’. I.A. 50.
664
part of the scheme does not countenance this argument.
Clause 3 of the scheme, which is the material clause, reads:
“The management and administration of
the affairs of the Nagore Durgha at Nagore,
Tanjore District, and other thakias and
shrines connected therewith (mentioned in
Schedule A hereunder) and all
properties–movables and’ immovables–which
belong to or have been or may hereafter be
given, dedicated, endowed thereto, shall
subject 10 the provisions thereof vest
hereditarily in the eight trustees or
nattamaigars of the Durgha who shall
constitute the Board of Trustees. Each trustee
or nattamaigar is entitled to hold’ office for
life, and after him the trusteeship shall
devolve on his next male heir in accordance
with the custom prevailing in respect of such
office in the Durgha.”
Under this clause the management and administration of
the Nagore Durgha and its properties vest in the
Nattamaigars. What vests in the Nattamaigars is not the
properties of the Durgha but the management and
administration thereof. Unless the words are clear we are
not prepared to hold that the High Court in framing a scheme
for the endowments of the Durgha had introduced a foreign
concept of “trust” in derogation of Mohammadan law. ‘We,
therefore, hold that the scheme did not vest the properties
of the Durgha in the Nattamaigars.
Lastly, a faint argument was raised to the effect that under
the scheme the managing trustee was not appointed under any
order of a Court but was appointed by an agreement among the
trustees. But in cl. 4 of the scheme the High Court gave a
specific direction that the managing trustee shall be
elected from among the Board of Trustees. The Managing
Trustee elected was certainly appointed under an order of a
Court, for the election was held pursuant to the order of
the Court. That apart, in the view we have taken, namely,
that the Nattamaigars are not trustees in the English sense
of the term, this question does not arise for consideration.
In the result, we hold that the High Court has rightly
answered the question referred to it in the affirmative and
in favour of the assessee. The appeals fail and are
dismissed with costs. One hearing fee.
Appeals dismissed.
665