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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri Mahavir Singh & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
These six appeals by same assessee are arising out of orders of Commissioner of Income Tax (Appeals)-XIV, Kolkata in appeals No.382- 377/CIT(A)-XIV/Kol/10-11 dated 29.06.2012. Assessments were framed by DIT(E)-II, Kolkata u/s 143(3)/147/13 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 31.12.2010 for assessment years 2003-04 to 2008-09 respectively.
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 2 2. At the outset, it was observed that this appeal has been remanded back to the Tribunal by the Hon'ble jurisdictional High Court in terms of G.A. No. 2180 of 2014 dated 06.08.2014 with regard to the following question of law raised by the assessee :- “i) whether the Tribunal was justified in law in deciding the appeals without giving adequate/proper opportunity of hearing to the appellant? ii) whether and in any event the provision of remuneration and residence as part of such remuneration to the mutwallis under the scheme of management of the Wakf is hit by the provisions of Section 13(2) read with section 13(3) of the Income Tax Act, 1961 when the Wakf was created before the commencement of the said Act and the first proviso to section 13(1)(c) is applicable in its case? iii) whether the provisions of section 11(4A) of the Income Tax Act, 1961 are applicable in respect of running of Mehmansari incidental to the attainment of the objectives of the Wakf and not as a business activity and the appellant is entitled to exemption under section 11 of the said Act?”
As per the direction in above GA No. 2180 of 2014 of the Hon'ble jurisdictional High Court, assessee came second time before us on the following common grounds of its appeals involving six assessment years, therefore, we heard them together and deem it appropriate to dispose of them by way of this common order.
Shri Subash Agarwal, Ld. Authorized Representative appearing on behalf of assessee and Ms. Sudipta Guha, Ld Departmental Representative appearing on behalf of Revenue.
In all these appeals, assessee has challenged the orders of Ld. CIT(A) whereby Ld. CIT(A) confirmed the order of Assessing Officer. Except the figure, the facts in all the appeals are same, therefore we are taking the facts of the case for the AY 2008-09 as a lead (ITA No.1198/Kol/2012) case for the sake of convenience and passing a consolidated order for all the appeals. The assessee has raised the following grounds of appeal:- ITA No. 1198/Kol/2012 (A.Y 08-09).
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 3 ‘I. For that the Ld. C.I.T.(A) grossly erred both in law and in fact in denying exemption under Section 11 of the Act and his purported findings in that behalf are wholly arbitrary, erroneous, unreasonable and perversed.
II. For that the Ld C.I.T.(A) grossly erred both in law and in fact in holding that the running of the Mehmansari was a business activity or not incidental to the attainment of the objectives of the Wakf or that the assessee should have maintained separate books of account in respect thereof or was hit by section 11(4A) of the Act and therefore benefit U/S II is not applicable to the assessee, without considering the fact that mehmansari was a property held in trust being a part of the corpus of the Wakf and that the activity of the mehmansari is the principal object behind the creation of the Wakf.
III. For that the Ld. C.I.T.(A) grossly erred both in law and in fact by confirming addition of Rs.1,32,744/- towards mutwalli allowance on the alleged ground that the present mutwallis allegedly being persons specified in Section 13(3) of the Act payment of remuneration or provision for accommodation to them was in violation of section 13(2) of the Act. In the process the C.I.T.(A) failed to consider that the allowance to mutwalli and provision for accommodation for them was in compliance to the scheme of management of the Wakf which was created before the commencement of the Act and therefore, by virtue of first proviso to Section 13(1)(C) such allowance or accommodation to mutwalli is not hit by the provisions of Section 13(2) read with Section 13(3) of the Income Tax Act 1961
IV. For that the Ld. C.I.T.(A) grossly erred both in law and in fact in confirming addition of Rs.14,11,200/- as deemed income on the alleged ground that provisions for rent free accommodation for the mutwallis is it by the provisions of Section 13(2) read with Section 13(3) of the Act without considering that the mutwallis were authorized under the mandatory rule framed by the Hon'ble High Court at Calcutta in respect of the assessee Wakf which was created much prior to the commencement of this Act, to enjoy rent free accommodation and as such no addition on account of deemed income should have been made.
V. For that the Ld. C.I.T.(A) grossly erred both in law and in fact in not giving relief to the assessee on account of wrongful action of the assessing officer in subjecting to tax the exempt mutual fund income.
VI. For that further and in any event and without prejudice to the aforesaid, the computation of income as made by the assessing officer and confirmed by the Ld. C.I.T.(A) at Rs.27,18,767/- is contrary to the provision of the Act.
VII. For that the Ld. C.I.T.(A) grossly erred both in law and in fact in not allowing due credit in respect of the TDS for the Assessment Year 2008-09.
VIII. FOR that the assessee denies liability to pay tax computed and interest under Section 234(b) charged in the assessment.”
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 4 First we take up ground No. 1 & 2, the common raised by assessee in this appeal is that Ld. CIT(A) erred in confirming this order of the Assessing Officer by disallowing the exemption u/s 11 of the Act for the income arising from the guest house on account of violation of the provisions of Sec. 11(4A) of the Act.
Facts of the case are that assessee in the present case is a WAKF which was executed by a deed sometime in the year 1803 by Lt. Panchi Bibi by assigning, and dedicating 2 bighas 5 cottahs of land for management and expenses of the mosque and the Mehmansaria and for two Ids and the 10th day of Moharram. The same deed was later enrolled under Bengal Wakf Act 1934. The income of the assessee-trust inter alia was comprising of guest house income for an amount of ₹10,97,035/- for the relevant AY 2008-09. The income from the guest house was shown as business income of the assessee. For this income of guest house the assessee claimed the exemption u/s 11 of the Act. During the course of assessment, AO found that assessee has not maintained the separate profit and loss account in respect to the income earned from guest house. The fact of non maintenance of separate profit and loss account in respect of guest house income was also admitted by Mutawali of the Wakf. So AO found that there was a clear violation of provisions of Sec. 11(4A) of the Act. As per this section the benefit of income tax exemption as provided under section 11(1) of the Act shall not be available for the business undertaking unless the business is incidental to the attainment of objectives of the trust and separate books of accounts are maintained by such trust is respect of such business. In the instant case the assessee fails to maintain the separate books of accounts as required under section 11(4A) of the Act. Accordingly the AO disallowed the exemption u/s.11 of the Act.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) where assessee submitted that mosque and Guest House (GH for short) was part of the Wakf estate and not for separate use for the purpose of business. The GH
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 5 was used for the purpose of pious, religious and charitable activities. The issue raised by Assessing Officer with regard to the application of section 11(4A) of the Act has to be considered in the context of difference between property held in favour of assessee-trust and profit arisen to assessee-trust out of business. This Sec. 11(4A) of the Act is not applicable in the instant case as the property is held in assessee-trust. The GA was always a part of the Wakf estate. So the accounts are audited of Wakf estate. However, Ld. CIT(A) rejected the plea taken by assessee-trust on the ground that the activity of running the guest house is a commercial activity. The receipts from the GA are substantial in nature and the assessee failed to proof that the income has been utilized for the object of Wakf. There was already surplus fund with the Wakf besides income of the GA. No documentary proof was produced that the activity of GA is not commercial and it does not constitute the business. No separate books of account were maintained by assessee- trust as required in terms of Sec. 11(4A) of the Act. As the object or activity of GA for providing the rest of GA to the poor pilgrimages then its name should be “rest house” instead of Victor Guest House. The GA was opened to all guests irrespective of pilgrimages or not.
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. 6. We have heard rival contentions of both the parties and perused the materials available on record. Ld. AR submitted written submissions and paper book which are running pages 1 to 96 and various case laws running pages 1 to 119 respectively. Ld. AR submitted that Panchi Bibi Estate was created by the Lt. Wakif Panchi Bibi by a Wakf deed executed sometime in the year 1803 by assigning and dedicating 2 bighas 5 cottahs of land for management and expenses of the mosque and the Mehmansaria and for two Idds and the 10th day of Moharram. The said Wakf was enrolled under the Bengal Wakf Act 1934 (this fact is stated in the Hon'ble jurisdictional High Court’s order dated 22.12.1961). The mosque and the Mehmansari are part of
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 6 the Wakf estate and are not separately used for the purpose of business. Both the mosque and Mehmansari are dedicated in the name of ALLAH for pious, religious and charitable purpose which is implicated by the Hon'ble jurisdictional High Court in the aforesaid order dated 22.12.1961. The contention of the AO that the provisions of Sec. 11(4A) were applicable in the instant case is unjustified and against the provision of law. The AO in the instant case, has opined that the Mehmansarai run by the Wakf-estate was not maintaining separate books of accounts and as such the benefit u/s 11 was not available to it. It is submitted by Ld AR that the object of running the Mehmansarai is to provide rest house to the pilgrims and, when vacant, to non-pilgrims also but the object was not to earn any profit out of such activity and Mehmansarai is not at all a business activity. From the composite income and expenditure account for the FY 2007-08 on 31.03.2008. It can be seen that the gross receipt from the Mehhmmansarai i.e., guest house is at Rs.10,97,037/-. It is pertinent to note here that the guest house is at 4th and 5th floor of the Wakf-estate in question, 1st and 3rd floor are solely tenanted and 6th floor is in the occupation of the Mutwallis. Ld. AR submitted that the gross receipts from the Mehmansarai is less than Rs.1 lac per month whereas the rental receipts of the Wakf-estate is at Rs.20,10,865/- for the year under consideration. It can be also seen from the debit side of I & E that substantial composite and exclusive expenses towards the Mehmansarai as below:- (a) Repair and renewal Rs.1,20,728/- (b) Salary & wages Rs.2,73,080/- (c) Mehmansarai Rs. 40,710/- (d) Electricity Rs.2,81,539/- (e) Generator Rs. 21,275/- (f) Lift Maintenance Rs. 18,959/- (g) KMC taxes Rs.1,11,942/- (h) Materials, mistri and labour Rs.2,31,952/- (i) Room upkeep Rs.3,61,675/- Rs.10,68,052/-
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 7 From the above, it s evident that there are no nominal expenses against the gross receipts from Mehmansarai as contended by the authorities below. Ld. AR further submitted that various courts have also held that when the predominant object of the trust is to carry out an object of general public utility and not to earn profit then it would not lose its character of a charitable/religious purpose merely because some profit was arising from the said activity. It is further submitted that Ld. CIT(A) in his finding was overly influenced by the terminology used by the assessee in respect of the Mehmansarai viz., Victoria GH when it is a settled position of law that substance of a matter is important and not the nomenclature. Without prejudice to the above, it is humbly submitted by Ld. AR that AO had mistakenly treated the Mehmansarai run by the Wakf-estate as a business incidental to the Wakf. It is submitted that the Mehmansarai is a property/business held under the Trust and as such the provisions of Sec. 11(4A) of the Act is not applicable. Distinction has to be drawn between a property held in Trust and profit and gains arising to the Trust out of business. The provisions of sec. 11(4A) will not apply in a case where the property itself is held under the Trust and as such the Trust would be eligible for exemption u/s 11 of the Act. In the instant case, it is the undisputed fact that Mehmansarai is the property held under the Trust as evidenced by the Wakf Deed executed by Lt. Panchi Bibi. Ld. AR further relied on various judgments which are discussed hereunder:- a) CIT vs. Dharmodayam Co. 225 ITR 686 (Ker) [following the Hon’ble Supreme Court judgment in the case of CIT vs. Dharmodayan Co. 109 ITR 527 (SC)] b) Thanthi Trust v. Central Board of Direct Taxes and Others 213 ITR 639 (Mad)
It is further submitted that the Wakf-estate has been granted exemption u/s 12A vide a Certificate of Registration dated 27.01.1997 issued by DIT (Exemption). Further, the income of the Wakf-estate has been set
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 8 apart/accumulated as the provisions of the Act for the purposes/objects of the Wakf as per the CA’s Certificate in Form No. 10. Thus, from the above, it is submitted that the exemption disallowed by the AO and later on sustained by Ld. CIT(A) is unjustified and against the provision of law. In the present case, the provisions of Sec. 11(4A) are not applicable and thus the non- maintenance of separate books of accounts cannot be a ground for disallowing the claim exemption u/s. 11 of the Act.
On the other hand, Ld. DR submitted that the rooms rent charged from the customers/pilgrimages can be compared with other GH located in the same vicinity. So the argument raised by Ld. AR that the charge for rooms rent at a nominal rent is not acceptable. Therefore, the running of GH is solely for the purpose of business activity and the benefit of Sec. 11(4A) cannot be given to Wakf estate as it failed to comply with the provision of Sec. 11(4A) of the Act. Ld. DR vehemently relied on the orders of authorities below.
From the aforesaid discussion, we find that assessee is a Wakf estate and having its registration u/s. 12A of the Act. The assessee has declared income from the guest house which was managed in the name & style of Victoria Guest House. We find that during the assessment proceedings, AO found that assessee is running a business activity of the guest house but not maintaining separate books of account as required u/s 11(4A) of the Act. Therefore, the exemption claimed by assessee with regard to GH income was denied by AO. However we find that the business is held under trust and it is not separate from the assessee. So the provisions of section 11(4A) are not applicable in the instant case. We are putting our reliance in the case law of Hon’ble Kerala High Court in the case of CIT v. Dharmodayam Co. 225 ITR 686 (Ker), head-note; “The assessee which was engaged in conducting kuries (chit funds) was being held to be a charitable institution entitled to claim exemption under section 11(1) of the Income-tax Act, 1961, till the assessment year 1983-84. The assessee had computed its net profit from kury business at Rs.2,64,939 and deducted the amount spent on charity, scholarships, etc., from the
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 9 business income. For the assessment year 1984-85, the Assessing Office took the view that the company was not eligible to exemption under section 11(1) in view of the insertion of sub-section (4A) in section 11 because the deductions claimed by the assessee were not admissible and the entire income would be subject to tax as income from business. The Commissioner (Appeals) upheld the order of the Assessing Officer. The Tribunal on further appeal, held that the kury business itself was held in trust by the assessee ant it could not be denied the benefit of exemption under section 11(1) in respect of the income from the kury business. On a reference, the assessee contended that the provisions of section 11(4AA) would not apply in respect of business which was held under trust for promotion of charitable objects: Held, that a reading of sub-section (4A) of section 11 would show that it does not deal with the income being profits and gains of business which is held in trust for public religious purposes or a business carried on by an institution wholly or charitable purposes. If the business of kury is to be treated as a business carried on by the assessee for the purpose of achieving its business objects, the assessee would have to satisfy the conditions contained in clauses (a) and ((b) of section 11(4A) to be eligible for exemption. But if the kury business is held in trust the income therefrom would not be governed by sub-section (4A). However, it had become conclusive that the kury business was held in trust by the assessee and that it was not a business carried on by the assessee. By sub-section (4A) the benefit due to an assessee in the case of an income from a business held in trust was extended to an income from a business carried on by it on its satisfying the conditions laid down under clauses (a) and (b). The Tribunal was right in holding that the assessee was entitled to claim exemption under section 11(1) of the Income-tax Act, 1961, in respect of its income from the kury business.”
Similar we also find the support from the case law of Hon’ble Madras High Court in the case of Thanthi Trust v. CBDT And Others (1995)213 ITR 639 (Mad), where it was held that : “As already pointed out according to section 11(1)(a) of the Act income derived from property held under trust (which includes a business undertaking), wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India, shall not be included in the total income of the previous year of the person receiving the same. It is clear that section 11(1)(a) concerns itself with income derived from the property held under trust which includes business undertaking so held, wholly for charitable or religious purposes, whereas sub-section (4A) of section 11, does not concern itself with any income derived from property held under trust for charitable purposes, but only concerns itself with income being profits and gains of business carried on by a trust wholly for public religious purposes or business carried by an institution wholly for charitable purposes. Thus, it is clear that the provisions of sub-section (4A) can be applied only to income being profits and gains of business carried on by a trust, which is not held under trust and the said sub-section (4A) cannot be applied to a case where the business undertaking itself is held under trust for charitable purposes as in
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 10 the present case. There is force in the contention of learned senior counsel for the petitioner that sub-section (4A) of section 11 will apply only in a case where the business carried on by the trust is not held under trust for a charitable purpose, but the said income from business being the profits and gains of business earned by a trust created wholly for public religious purposes or by an institution in such a case, the income will be eligible for exemption only when the two conditions laid down in clauses (a) and (b) of sub-section (4A) of section 11 are satisfied. In th present case, inasmuch as the business carried on by the petitioner is itself held under trust for public charitable purposes and the business is carried on only for the purposes of carrying on the charitable objects as fond by the Division Bench of this court in CIT v. Thanthi Trust [1982] 137 ITR 735, the provisions of sub-section (4A) of section 11 cannot have any application. Section 11(1)(a) grants exemption to income derived from property held under trust wholly for charitable or religious purposes to the extent indicted in that section., whereas section 11(4A) denies exemption to income being profits and gains of business carried on by a trust wholly for public religious purposes or an institution, unless the conditions prescribed in clause (a) or (b) of sub-section (4A) of section 11 are satisfied. Section 11(4A) has no application to the petitioner- trust as it is not a trust wholly for public religious purposes, but it is a trust created for public charitable purposes.
From the above we find that it is not disputed that the business undertaking of the assessee is held under trust and it is for the attainment of the objects of the trust. The assessee has maintained its books of accounts as a whole and got them duly audited. Since the business of the assessee is held under trust and there is no separate business activity, so the assessee is out of the purview of the provisions of section 11(4A) of the Act. We arrived at this conclusion after having reliance on the above case laws. Therefore in our considered view we are inclined to reverse the order of authorities below but assessee’s ground is allowed.
Coming to next issue raised by assessee in its ground No.3 is that Ld. CIT(A) erred in confirming the action by AO by making disallowance of ₹1,32,744/- towards salary/mutwalli allowance.
9.1 During the course of assessment proceedings, AO found that there were three Mutawali and all of them were paid remuneration @ 10% of the
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 11 gross receipt of the Wakf estate. Out of three Mutawali – one Mutawali is a Lieutenant in Indian Military second is advocate and remaining third was the person who was looking after the affairs of Wakf estate. The AO found that all the mutwallis are interested persons in terms of Sec. 13(3) of the Act therefore the payment of remuneration will be subject to compliance of Sec. 13(2) of the Act. On question put by AO, the assessee submitted that three mutawali were appointed since 1988 by the order of Board of Wakf estate and also as per Hon'ble jurisdictional High Court order dated 22.12.1961. So no stranger shall be appointed as mutawali till lineal descendant of Wakf Lt.Panchi Bibi are there. However, AO disregarded the claim of assessee by holding that since mutawalis are the relatives of the founder of the assessee-trust. So the provision of Sec.13(2) of the Act are very much attracted. Out of two mutawali – one is the rank of Lieutenant of Army and other is advocate and both must be busy so they will not be in a position to give the time to look after the affairs of Wakf estate. Therefore paying the salary to them cannot be allowed as deduction. Accordingly, AO opined that the reasonable amount of mutwalli @ 15,000/- p.m. hence, the total remuneration for the year under consideration is coming to ₹1.80 lacs. Therefore, AO disallowed the claim of ₹1,32,744/- (Rs.3,12,744 – Rs.1,80,000.00).
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- “7. Ground no. III, IV and V of the appeal are directed against disallowance of Mutwallis allowances / remuneration to the extent of Rs.1,32,744/-. During the assessment proceedings the Assessing Officer noticed that the appellant had paid Mutwallis remuneration to the tune of Rs.3,12,744/- to the three Mutwallis @ 10% of gross receipts of the estate. One of the Mutwallis is lieutenant in Indian Army and another is advocate. These facts are not disputed as the Mutwallis are directly related with the founder of the trust. The Assessing Officer has invoked the provisions of section 13(2) and 13(3) of the Act. The two of the Mutwallis, i.e. one being lieutenant in Indian Army and another being advocate were not able to give any time to the affairs of management of trust and at the same tie enjoyed benefits of the trust. Accordingly the Assessing Officer held that there is violation of section 13(2) and 13(3) and therefore, he proceeded to deny the benefit of section 11 to the assessee. After careful perusal of the submissions of the appellant and facts narrated in
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 12 the Assessment Order, I find that as per order Dt. Dec. 2, 1961 in appeal no. 5/59, the Division Bench of the Hon'ble High Court held that a scheme of management of the Wakf Estate should be framed which should also provide for a remuneration of the Mutawali and as part of the remuneration, a residence for him in a portion of the Wakf Estate should be provided. However, there is no specific direction in the said order that the remuneration would be strictly 10% or any other sum or any such percentage. How the same percentage of 10% was arrived at, has not been explained. Secondly, the Hon'ble High Court has used the word “him” – which connotes singular only and not plural. There was no need for engaging three mutawalis at a time. Out of the three, one is an acting lieutenant of the Indian Army and another is a practicing advocate of the High Court both of them can hardly give any time to the needs of the Wakf property management. Hence payment of remuneration to them is totally unjustified. Thirdly provision of residence is a part of the remuneration as per the very words used by the Hon'ble High Court. But the Hon'ble High Court has never stated that it would be a rent free accommodation. Also “part of the remuneration” can be interpreted as adjustment of occupation charges against remuneration. The Hon'ble High Court has asked for providing residence of the mutawali in a portion of the Wakf Estate. But that does not mean that one entire floor will have to be provided for their residence free of cost and that two for three mutawlis at a time and two of them non-functioning. Moreover, it is very much apparent that all the mutawalis are enjoying full benefits whereas no services are being rendered at all by two out of the original three. This is really a device of siphoning of the income.
7.1 The appellant has argued that the provisions of section 13(2) and 13(3) will not apply in view of first proviso to section 13(1)(c) as the Wakf was created prior to the commencement of the Act. However, this argument of the appellant is not acceptable for following three reasons:-
(i) The appellant has not explained the existence of the mandatory term of the Wakf or mandatory rule under which the benefit to persons referred in sub-section (3) were required to be given. (ii) Even if it is accepted that the Wakf was created prior to the commencement of the Act the rule regarding remuneration of Mutwallis was framed by the Registrar (O.S) order dated 22.12.1962, i.e., after the commencement of the Act. However, as discussed earlier the residential accommodation was granted in excess of what was required as per the order. As also excessive benefit in form of Mutwalli allowance was granted to the non-functioning Mutwallis which was not envisaged by the scheme of Rules framed by the order dated 22.12.1962. (iii) Since the rules were framed as per order dated 22.12.1962, i.e. after the commencement of the I.T. Act, 1961 the appellant cannot get relief from the restriction imposed by first proviso to sec. 13(1)(c).
Therefore, it is held that the provisions of sec. 13(2) and sec. 13(3) are squarely applicable on the facts of the case and the Assessing Officer has rightly denied the benefit u/s. 11 of the Act, by invoking the said provisions.
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 13 7.2 All mutawalis are to be appointed in term of the Calcutta High Court order dated 22.12.1961. It is a fact that no strangers/outsiders shall be appointed. All of them are direct relatives and fall within the purview of Sec. 13(3) and as such, Sec 13(2) is equally applicable to all of them. Hence, the Assessing Officer has rightly denied benefit u/s. 11 of the I.T. Act and he was right in law in restricting the grant of remuneration only to the Principal Mutwalli. Accordingly grounds no. III, IV and V are dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
We have heard rival contentions and perused the materials available on record. Ld. AR submitted that assessee had made payment to the mutwalis residing at the 6th floor of the premises. Ld. AR submitted the remuneration was made in pursuance of the order of Hon'ble jurisdictional High Court in regard to an appeal filed by assessee-trust in consequence of litigation between the Commissioner of Wakf, West Bengal and the Mutwallis. The Hon'ble jurisdictional High Court in its order had directed that a scheme of Management of the Wakf estate should be framed which should provide for remuneration to the Mutwallis and as a part of the remuneration, a residence for mutwallis in a portion of the Wakf estate. Accordingly, Dr. Mohammad Bela (a relative descendant of Panchi Bibi) was appointed as lifetime mutwalli to manage the said Panchi Bibi Wakf estate by the Hon'ble jurisdictional High Court vide order dated 09.10.1974. Ld. AR further submitted that according to AO, assessee-trust has applied the income of the Wakf estate for the benefit of interested persons specified in Sec. 13(3) of the Act which includes, inter alia, payment to the author, relatives or the manager/trustee, the benefit of exemption was denied by AO. The Ld. AR further submitted that AO has ignored the provision of 1st proviso to Sec. 13(1)© of the Act, according to which the above disability will not apply, if the following conditions are satisfied:- (a) The trust/institution is established before the commencement of the Act. (in the instant case, undisputedly, the Wakf estate was established before the commencement of the Act.
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 14 (b) If such use/application of income is by way of compliance with the mandatory term of the trust or rule governing the trust. In the instant case, the mandatory rule/term as provided by the Hon'ble High Court vide its order dated 22.12.61 at page 17 and at page 26, mandated payment of remuneration to the Mutawalli by the scheme framed by Registrar of the Court.)
Ld. AR further submitted that as per Sec. 13(2)(c), income of a trust is deemed to have been used or applied for the benefit of an interested person only if the salary/remuneration paid is in excess of a reasonable sum. In the present case, admittedly the remuneration paid to the three mutawallis is 10% of the gross receipts, which is quite a reasonable sum and as per the commentary on the Law of Wakf in India, salary may be paid to the mutawalli not exceeding 1/10th of its income (kindly refer to Annexure “C” hereto, internal page-47). Ld. AR submitted that as for disallowance of payments attributable to mutawallis one of whom is an army man and another an advocate, it s submitted that as per the commentary on the Wakf law, the function of a mutawalli is, inter alia, to take all necessary steps for the proper management and safety of the Wakf. It is submitted that an advocate and an army man are the best persons to ensure proper management and safety of the Wakf estate and as such no charge of misappropriation or mismanagement has been brought against the estate, which is closely monitored by the Wakf estate constituted by the Government. Ld. AR relied a case law in the case of ACIT v. Idicula Trust Society (Regd.) (2012) 21 taxmann.com 144 (Del), where the ITAT Delhi Bench held that onus is on the Department to prove that the salary paid by the assessee-trust to its office bearers is unreasonable and in the present case Revenue has failed to discharge its onus.
On the other hand, Ld. DR submitted that a person who is a Central Govt. employee cannot devote his time in the day-to-day affairs of the assessee-trust. Besides, his job is transferable in India. Moreover, the army
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 15 needs to take permission from his senior authority concern for accepting the post of mutawali in Wakf estate in addition to his govt. job. Therefore the Ld. DR vehemently relied on the orders of authorities below.
From the aforesaid discussion, we understand that there were three mutawlis of the Wakf estate out of three, one was engaged in other govt. job and the one was engaged in advocacy work. Therefore, the AO opined that they are not in a position to look after the day-to-day affairs of the Wakf estate. Accordingly, AO held that one mutawali is enough to control the affairs of the trust and allowed him the remuneration @ Rs. 15,000/- per month. So the total remuneration was allowed for Rs. 1.80 lacs and the excess remuneration was disallowed for Rs. 1,32,744/-. We find that as per the trust deed, the management expenses can be incurred out of the income of the trust and same has also been upheld by the Hon’ble jurisdictional High Court. Now in our view, the Mutawali who is actually working for the trust should be entitled for the remuneration. Here in the instant case, the AO disallowed the expenses of remuneration of two mutawalis on the presumption that the mutawali working in Army and other one acting as an advocate will not be having time to look after the day-to-day affairs of the Wakf-trust. So they have no role in the affairs of the trust therefore they are not entitled to get remuneration. We agree with this proposition but at the same time we find nothing has been brought on record whether they are actually participating in the affairs of the trust not. It is also important to note that the there was single mutawali at the time then order passed by the Honble Calcutta High Court though at present there are three mutawalis who are the descendants of the old mutawali. In view of this observation, we are restoring this matter to the file of the AO with the direction to check how many people are actually participating in the affairs of the Wakf-trust. In our view, the muawali who is actually participating in the affairs of the trust should only be entitled for the remuneration. In terms of above, we remit this issue back to the file of AO with
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 16 a direction to verify the above stated facts and adjudicate the matter as per law. This ground of assessee’s appeal is allowed for statistical purpose.
Coming to issue No.3 raised by assessee is that Wakf estate has six storied building situated at No. 54/2, Rafi Ahmed Kidwai Road, Kolkata-700 016. The ground floor is used for car parking. The first and third floor given to rent and forth and fifth floors were used for the running Victoria Guest House. The top floor i.e., sixth was used for the purpose of mutawalis who are the direct descendents of the author of the assessee-trust. During the course of assessment proceedings AO found that provision of Sec. 13(2) was squarely applicable as the mutawallis were direct descendants of the founder of the assessee-trust. All the descendants Members were staying in the property of assessee-trust for their personal resident and they are not paying rent to assessee-trust. The AO further observed that had the sixth floor not been in the occupation of three mutawallis same would have fetch annual income of ₹14,11,200/- as rent. The assessee-trust is already earning same rent from its first and third floors. Therefore, AO treated the deem income of ₹ 14,11,200/- by virtue of provision of Sec. 13(2) of the Act.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- “8. Ground no. VI, VII and VIII are directed against the action of the Assessing Officer in taxing deemed income, being the rent of 6th floor occupied by the Mutwallis by invocation of provisions of section 13(2) of the IT Act 1961. The assessee owns a 6-storied building at premises No. 54/E, Rafi Ahmed Kidwai Road, Kolkata-700 016. The ground floor of which is for car parking. The first and 3rd floor are let out to commercial organization, 4th & 5th floor are used for running Victoria Guest House by the appellant and 6th floor is entirely used for the purpose of the Mutawalis who are the direct descendents of the author of the Trust. The Assessing Officer found that the provisions of section 13(2) are applicable in this case as the Mutawalis i.e, Mr. Feroz Belal, Mr. Faisal Belal and Imtaz Belal, are continuously using the trust property for their personal residence without paying adequate rent or compensation and these persons are direct descendents of the author of the Trust. Accordingly, the Assessing Officer took the fair market rental value of 6th floor at Rs.1,17,600/- per month which is same as the actual rent of 3rd floor received by the appellant from DDFC Bank Limited. Accordingly, the Assessing Officer added Rs.14,11,200/-
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 17 as deemed income for the assessment year 2008-09. I have carefully considered the facts narrated in the Assessment Order and statements given by the Appellant. I find that at page 72 of the paper book (Part of the Double Bench Judgment Dr. 22.12.1961) the Bench directed as follows “while providing for such residence the referee should in no event allow accommodation in excess of the accommodation now enjoyed by the appellant Wahidunnessa Bibi, Mr. Masud stated before us that at present she is in occupation of a room, a verandha and a separate privy only. The same view has again been quoted by the Registrar vide his order dtd. 29/11/1962 at page 87 of the paper book. “while providing for such residence the Registrar should in no event allow an accommodation in excess of the accommodation if any now enjoyed by Musst. Wahidunnessa Bibi”. Against this background, I find that one entire 6th floor is being occupied by the Mutawalis which is clearly against the direction of the Hon'ble High Court judgement dt. 22/12/61 and 29/11/1962. 8.1 At page 91 of the paper book being Exhibit- ‘A’ (Schedule of Properties) to the Registrar (O.S) order dated 22/12/1962, vide clause ‘G’ it is clearly stated – “Remuneration for Mutawalis Rs.30 per month (i.e. Rs.60/- less Rs.30/- for rent) and free quarters at the portion on closed in red in the plan of premises No. 6 Ripon Street”. As such 50% of the Remuneration was treated as rental that too for one room, one veranda and one privy as per submission before the Hon'ble High Court. presently the Mutawalis are in possession/occupation of the entire 6th floor in violation of the order of the Hon'ble High Court. Hence the findings of the Assessing Officer is very logical and correct in view of the said exhibit. Accordingly, it is held that the Assessing Officer was right in law in taxing deemed income. Hence, ground no VI, VII and VIII are dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
We have heard rival contentions and perused the materials available on record. Ld. AR submitted that the premise used by the mutwallis was in consequence of the order passed by Hon'ble jurisdictional High Court. Moreover, the provisions of Sec. 13(2) of the Act will not apply in the present case as the issue is covered by the first proviso to Sec. 13(1)(c). In other words, the residence to mutawallis is to be considered as a part of remuneration as per the above-mentioned order of the Hon'ble High Court. The AR also submitted that sixth floor of the Wakf estate was constructed 50% and 50% was open. It was used in specific for the purpose of residence in terms of direction of Hon'ble jurisdictional High Court. Thus the amount
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 18 deemed as the income of assessee is unjustified and against the law. Ld. AR requested the Bench to reverse the orders of authorities below.
On the other hand, Ld. DR vehemently relied on the orders of authorities below.
From the aforesaid discussion, We find that the AO has added the income of Rs. 14,11,200/- on the premise that other floor of the same building is fetching the rent of the same amount. And the one floor is in full occupation of mutawalis without any rent. However before us the ld. AR submitted that it is constructed only to the extent of 50% and the balance 50% is open to sky. We also find that the Hon’ble Jurisdictional High Court has directed to the registrar of the court to frame the scheme of management for the appointment of mutawali and their remuneration and part of such remuneration a residence for mutawali in a portion of the wakf estate. The relevant portion of the order is extracted below. “The Registrar of this Court do frame a scheme of management of the Wakf- estate and while framing the scheme he do provide for the appointment of a new Mutwalli he do give preference to the family of Sk. Munwar including in particular the son if any of Musstt. Wahidunnessa Bibi. In framing the scheme of management the Registrar will be at liberty to provide for the remuneration of the Mutwalli and part of such remuneration a residence for the Mutwalli in a portion of the Wakf property/. While providing for such residence, the Registrar should in no event allow an accommodation in excess of the accommodation if any now enjoyed by Musstt. Wahidunnessa Bibi”
In the earlier issue of the remuneration we have restored the file to AO with some direction as discussed above. This ground of appeal is consequential to the issue of the remuneration of mutawali. The issue of remuneration has been restored to the file of AO for fresh adjudication. Similarly we are restoring this matter to the file of the AO with the direction to adjudicate afresh as per law. The mutawali who will be entitled for the remuneration shall also be entitled for the place of residence in the wakf property as a part of remuneration. Accordingly we set aside this issue to the file of the AO for fresh
ITA No.1193-1198/Kol/2012 A.Ys. 2003-04 to 2008-09 Panchi Bibi Wakf Estate v. DDIT(E)-II, Kol. Page 19 adjudication as per law. This ground of assessee’s appeal is allowed for statistical purpose.
In the result, assessee’s appeal is partly allowed.
In the remaining appeals, since the facts are exactly identical, both the parties are agreed whatever view taken in the above appeal (ITA No.1198/Kol/2012) may be taken in those appeals also, we hold accordingly.
In the result, all the appeals of assessee are partly allowed for statistical purpose. Order pronounced in the open court 29/02/2016 Sd/- Sd/- (Mahavir Singh) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 29/02/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-Panchi Bibi Wakf Estate, Feroze Belal (Mutwalli), 54/2, Rafi Ahmed Kidwai Road, 6th Floor, P.O. & P.S. Park Street, Kolkata-16 2. राज�व/Revenue-DDIT(E)-II, CIT(A)-XIV, 54/1, Rafi Ahmed Kidwai Road, Kolkata-16 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।