Wric/1000800/2000 Of Azad Ahmad Khan v. Income Tax Apellate Tribunal

[A.F.R.][Reserved] Court No. - 3 Case :- WRIT - C No. - 1000800 of 2000 Petitioner :- Azad Ahmad Khan Respondent :- Income Tax Apellate Tribunal Counsel for Petitioner :- Z.Zillani,Amar Mani Tiwari,Nazam Zafar,Pradeep Agrawal,Rafat Siddiqui,Z. JilaniCounsel for Respondent :- S.C.Misra,Manish Mishra Hon'ble Vivek Chaudhary,J. 1. By the present writ petition, the petitioner is challenging the assessment orderdated 31.01.1989, passed by respondent No. 3; order dated 16.09.1991 wherebyAppellate Authority partly allowed petitioner’s appeal against the assessmentorder and; order dated 30.11.1999, passed by the Income Tax Appellate Tribunalwhereby it dismissed petitioner’s appeal. 2. Brief facts of the case are that one Gulam Ahmad Khan was running aengineering workshop in the name and style M/s. General Engineering Works.On 25.08.1951, he claims to have created a waqf-alal-aulad under the provisionsof the Mussalman Waqf Validating Act, 1913 (hereinafter referred to as the Actof 1913) through a registered deed and transferred his business to the waqf andbecame its first mutwalli. Gulam Ahmad Khan was isueless and claims to haveadopted his nephew Sardar Abdullah Khan alias Azad Ahmad Khan, thepetitioner, as his son. As per the terms of the Waqf deed, an amount of Rs. 100out of the total proceeds of the M/s. General Engineering Works was to be spenttowards almighty and rest of the proceeds were to be utilised as per the wishesof the waqif Gulam Ahmad Khan during his lifetime. Gulam Ahmad Khan alsoreserved to himself right to effect titamma of the original waqf deed and sell off the assets entrusted to the waqf including M/s. General Engineering Works. Withregard to succession of mutwalli, it provided that one Mst. Hasina Khatun wouldbe the next mutwalli and after her demise, her children and their descendantswere to succeed her as mutwalli. In case, Mst. Hasina Khatun was to dieissueless, then Inam Ahmad Khan, who is the brother of waqif Gulam AhmadKhan and after him his son Azad Ahmad Khan and his descendants wouldsucceed as Mutwalli of the Waqf. As per clause C (jim) of the waqf-deed, afterdeath of Gulam Ahmad Khan, Rs. 100 were to be continued to spent towardscharitable purposes and with regard to rest of the proceeds from the waqfproperty, Rs. 400 was to be paid to Inam Ahmad Khan for helping Mst. Hasinain managing the waqf property and the remaining amount was to be dividedamongst Inam Ahmad Khan, Azad Ahmad Khan and Mst. Hasina Khatun. It isan admitted fact that even after creating the waqf, Gulam Ahmad Khancontinued to mention the waqf property as his personal property while filing hisincome tax returns. Waqif Gulam Ahmad Khan amended the original waqf-deedby a titamma dated 22.01.1980. As per the relevant amendments effected by thetitamma, the waqf now excludes Inam Ahmad Khan from ever becoming amutwalli and he was also ousted from receiving any benefits out of the waqfproperty. Since, Mst. Hasina Khatun died issueless, therefore, two-third of sharewould now go to Azad Ahmad Khan and one-third was to be utilised forcharitable purposes. It is also disclosed in the titamma that a portion of theproperty of the workshop was rented out and machineries lying in the workshopwere sold to pay off personal debts of the waqif Gulam Ahmad Khan. 3. Gulam Ahmad Khan died issueless on 02.12.1980, and as per the terms of theamended deed, petitioner Azad Ahmad Khan, became mutwalli of the waqf. Thepetitioner filed returns under Estate Duty Act, 1953 (hereinafter referred to asthe Act of 1953) with regard to the properties of the waqf and claimed immunityfrom paying estate duty on the same. However, a show cause notice was issuedto the petitioner on 24.11.1988 seeking explanation for the exemption claimedby him from paying estate duty. Petitioner submitted his reply on 29.12.1988 3. Gulam Ahmad Khan died issueless on 02.12.1980, and as per the terms of theamended deed, petitioner Azad Ahmad Khan, became mutwalli of the waqf. Thepetitioner filed returns under Estate Duty Act, 1953 (hereinafter referred to asthe Act of 1953) with regard to the properties of the waqf and claimed immunityfrom paying estate duty on the same. However, a show cause notice was issuedto the petitioner on 24.11.1988 seeking explanation for the exemption claimedby him from paying estate duty. Petitioner submitted his reply on 29.12.1988 and on the basis of the same impugned assessment order dated 31.01.1989 ispassed. Petitioner challenged the assessment order before the Appellatecontroller of Estate Duty, which upheld the assessment order by its order dated16.09.1991. Against the same, petitioner preferred an appeal before the IncomeTax Appellate Tribunal, which was dismissed by order dated 30.11.1999. 4. Shri Pradeep Agarwal, learned counsel for the petitioner challenges thejudgment and order of the Tribunal on the ground that the Tribunal was wrong inholding that the waqf created by late Gulam Ahmad Khan was not a valid waqfas he never intended to give effect to the waqf deed. He submits that it is asettled law that once a waqf is created the waqif stands divested of his title to thewaqf properties. In support of his argument learned counsel for the petitionerrelies upon the judgment of the Supreme Court in the case of ‘Chhedi Lal Misrav. Civil Judge, Lucknow'; (2007) 4 SCC 632. The second ground of challenge isthat the Tribunal erred in holding that section 5 and 12 of the Act of 1953 areapplicable in the present case. He submits that the Tribunal has misinterpretedthe explanation to Section 12(1) of the Act of 1953 and wrongly held that sincewaqif has reserved to himself the right to modify the deed therefore, it amountsto reservation in the property for life. Whereas as per the explanation reservationof interest must be for settler himself as well as for any of his relatives. Unlessthe interest is reserved for both, the waqif as well as any of his relatives, suchreservation would not amount to passing of the property upon settler’s death. Insupport of his contention counsel for the petitioner relies upon a Division BenchJudgment of the Bombay High Court in the case of ‘Controller of Estate Dutyv. B.B. Nigudkar’ reported as (1988) 170 ITR 578. Relevant paragraph of thesame reads, “...We have considered the Explanation to section 12(1) carefully. In ourview, the word “and” used in the Explanation to section 12(1) cannot beread as “or” as held by the Gujarat and the Madras High Court decisions:Kikabhai Samsuddin v. CED, [1969] 73 ITR 241 (Guj) and CED v. K.A.Kader, [1974] 96 ITR 289 (Mad). It may be true that if there was anyreservation of interest in favour of the settlor/deceased, the provisions of subsection (1) of section 12 would have applied. The Explanation is,however, to our mind, enacted to meet a situation where reservation ofinterest is for the settlor as well as his relatives and an argument might beadvanced that the reservation of interest being not for the settlor himselfalone, sub-section (1) would not apply. Any decision where a contrary viewmay have been taken has not been brought to our notice.” subsection (1) of section 12 would have applied. The Explanation is,however, to our mind, enacted to meet a situation where reservation ofinterest is for the settlor as well as his relatives and an argument might beadvanced that the reservation of interest being not for the settlor himselfalone, sub-section (1) would not apply. Any decision where a contrary viewmay have been taken has not been brought to our notice.” 5. Learned counsel for the respondent, Shri Manish Mishra opposes thesubmissions made by the counsel for the petitioner. He submits that there is noperversity in the judgment of the Appellate Tribunal. He further submits thatGulam Ahmad Khan created the waqf only to avoid tax liabilities. GulamAhmad Khan never intended to give effect to the waqf since he kept includingthe waqf property and income from M/s General Engineering Works in hisannual income tax returns. Counsel for the respondent even questions thevalidity of the waqf and submits that as per the waqfnama, it was a waqf-alal-aulad, created under Section 3(a) of the Act of 1913. However, including Mst.Hasina Khatun as one of the beneficiaries, who did not have any blood or familyrelations with Gulam Ahmad Khan, is against the objectives of waqf-alal-aulad.He further submits that Gulam Ahmad Khan also throughout treated the waqfproperty as his personal and never actually delivered/dedicated it to the waqfand instead sold certain machineries without seeking any permission from aCourt. Since there was no such action taken on the part of Gulam Ahmad Khanwhich would amount to creation of a valid waqf, therefore it has been rightlyheld in the impugned order that the waqf was never created and therefore thispetition is liable to be dismissed. 6. I have perused the record with the assistance of counsels and considered theirsubmissions. 7. As per the waqf-deed, a waqf-alal-aulad was created under the provisions ofthe Act of 1913. As per Section 3(a) of the Act of 1913, a waqf could be createdfor maintenance and support, wholly or partially, of waqif’s family, children ordescendants. Inclusion of Mst. Hasina Khatun as one of the beneficiary of the usufruct of the waqf property, without establishing waqif Gulam Ahmad Khan'srelationship with her, goes against the tenets of a waqf-alal-aulad. Further, nodoubt creation of a waqf divests the waqif of the waqf property and dedicates itto the almighty, but, there should be actual dedication/delivery of possession ofthe waqf property to constitute a valid waqf. When the waqif is himself the firstmutwalli of the waqf, it becomes difficult to establish actual dedication/deliveryof possession, and thus, his subsequent conduct with regard to the waqf propertybecomes relevant to decide whether there was an actual dedication and creationof a waqf. In the present case even after dedicating M/s General EngineeringWorks to almighty, waqif Gulam Ahmad Khan continued to show the same ashis own property in income tax returns filed by him. He even sold off some ofthe waqf property to pay off his personal debts without seeking necessarypermisssion from appropriate authority. Furthermore, there is no evidence onrecord to prove that Gulam Ahmad Khan ever spent Rs. 100 towards anycharitable purpose. Absence of any real dedication and subsequent treatment ofthe property by waqif Gulam Ahmad Khan as his personal property, thus, fallsinto the exception to the rule, once a waqf always a waqf, carved out by theirLordships in the case of Chhedi Lal Mishra (supra) relied upon by the counselfor the petitioners. Aforesaid judgment which is relied upon by the counsel forthe petitioner also reads in para 7: “7. Having gone through and considered the judgment of the learned SingleJudge of the Allahabad High Court, we see no reason to take a viewdifferent from those expressed therein. In our view, the law relating to thecreation and continuation of wakfs has been correctly explained by thelearned Judge in keeping with the well-established principles that once awakf is created, the wakif stands divested of his title to the properties whichafter the creation of the wakf vests in the Almighty.It is no doubt true thatin a given case the creation of a wakf may be questioned if it is shownthat the wakif had no intention to create a wakf but had done so to avoida liability…”(emphasis added) 8. Privy Council in the case of ‘Mohammad Ali Mohammad Khan v. Mt.Bismillah Begam’; AIR 1930 PC 255 has held that when there is no intention todedicate the waqf property to the almighty rather there were some ulterior motives, the deed can not be treated to be a valid waqf. Relevant part of thejudgment reads, “On a careful consideration of the whole evidence, their Lordships havecome to the conclusion that defendant No. 2 executed the deed of wakf butwithout any intention of divesting himself of his ownership of the property,and that his real intention was to utilise the document should it becomenecessary as a shield against any claims that the appellant might haveagainst him either then or at any future time. Their Lordships are thereforeof opinion that this appeal should be allowed and the decree of theSubordinate Judge should be restored and that the appellant should havehis costs in the Chief Court and of this appeal. They will humbly advise HisMajesty accordingly.” 9. Actions of the waqif Gulam Ahmad Khan shows that he has throughouttreated the waqf property as his personal, therefore, it could rightly be held thatthere was no actual dedication of property and he had no intention to create awaqf and as such the deed can not be held to have constituted a valid waqf. 10. The second ground of challenge that the Appellate Tribunal has wronglyinterpreted the explanation to Section 12(1) of the Act of 1953 and read the word‘and’ as ‘or’ to reject petitioner’s claim for exemption from paying estate dutyalso does not hold good as waqif Gulam Ahmad Khan had, while executing thewaqf deed made provisions for maintenance of himself, his brother and thepetitioner, who himself claim to have been adopted as a son by the waqif GulamAhmad Khan. Therefore, the conditions laid down in the case of B.B. Nigudkar(supra) as relied upon by the counsel for the petitioner is already fulfilled.Furthermore, what is required to avail the exemptions from paying estate duty asprovided under Section 12 of the Act of 1953 is that there should not be anyreservation of interest in the settled property for life by the settler. For referenceSection 12 of Act of 1953 reads, “12. (1) Property passing under any settlement made by the deceased bydeed or any other instrument not taking effect as a will whereby an interestin such property for life or any other period determinable by reference todeath is reserved either expressly or by implication to the settlor orwhereby the settlor may have reserved to himself the right by the exercise of any power, to restore to himself or to re-claim the absolute interest in suchproperty shall be deemed to pass on the settlor's death: Provided that the property shall not be deemed to pass on the settlor's deathby reason only that any such interest or right was so reserved if by means ofthe surrender of such interest or right the property is subsequently enjoyedto the entire exclusion of the settlor and of any benefit to him by contract orotherwise, for at least two years before his death. Explanation.—A settlor reserving an interest in the settled property for themaintenance of himself and any of his relatives (as defined in section 27)shall be deemed to reserve an interest for himself within the meaning of thissection. any power, to restore to himself or to re-claim the absolute interest in suchproperty shall be deemed to pass on the settlor's death: Provided that the property shall not be deemed to pass on the settlor's deathby reason only that any such interest or right was so reserved if by means ofthe surrender of such interest or right the property is subsequently enjoyedto the entire exclusion of the settlor and of any benefit to him by contract orotherwise, for at least two years before his death. Explanation.—A settlor reserving an interest in the settled property for themaintenance of himself and any of his relatives (as defined in section 27)shall be deemed to reserve an interest for himself within the meaning of thissection. (2) Notwithstanding anything contained in sub-section (1), where propertyis settled by a person on one or more other persons for their respective livesand after their death, on the settlor for life and thereafter on other personsand the settlor dies before his interest in the property becomes an interest inpossession, the property shall not be deemed to pass on the settlor's deathwithin the meaning of this section.” 11. As Gulam Ahmad Khan reserved to himself the right to modify the terms ofthe waqf-deed and he actually effected a titamma not less than a year before hisdemise goes to show that he had reserved life interests in the property whilesettling it through the waqf deed. This issue has already been decided by aDivision Bench of this Court in a reference by Central Board Direct Taxation inthe case of ‘Hamid Hussain v. Controller of Estate Duty'; (1972) 83 ITR 309,relevant paragraphs of the same reads, “17. It is next contended on behalf of the accountable person that thedeceased had no interest in the property which could attract the provisionsof section 12. It is pointed out that after vacating the office of mutawalli in1950, he had no interest left in the wakf property. Now, section 12(1) speaksof property in which the deceased settlor has reserved to himself an interestin the property passing under the settlement for life or any other perioddeterminable by reference to death. Upon analysing the terms andconditions of the wakf deed, as last amended, it appears that the settlorretained to himself the right to reside in certain specified house propertiesand the power to amend the terms of the wakf deed, the list of beneficiariesand the extent of their shares. Are these conditions sufficient to bring theproperty within the scope of section 12? The power to amend the terms ofthe settlement is couched in the following language: “7. (e) In future also, I the wakif during my life-time,shall have the right of making amendments; alterations, cancellations and additions of conditionsin this wakf deed, as warranted by the prevailingconditions, which right I enjoy at present; and duringmy life-time I shall specially have the power to makeamendments in the rights of the grantees, to includesome stranger amongst them and to exclude any bodyand to increase or decrease the amount of theirshares.” 18. The power reserved by this clause is expressed in the widest termst.While perhaps it does not extend to the power of revoking the wakf, itenables the settlor to travel over a wide field, curtailing interests presentlyenjoyed on the one hand, and in creating or enlarging them in otherdirections. In so far as the power is exercised for the purpose of includingsome one not already a beneficiary, it could extend to including the settlorhimself. The wide amplitude of power in the clause supports such aconclusion. If that be so, the settlor has reserved to himself the right tobenefit from the wakf property for life by the simple device of includinghimself in the list of beneficiaries or grantees. ….. 18. The power reserved by this clause is expressed in the widest termst.While perhaps it does not extend to the power of revoking the wakf, itenables the settlor to travel over a wide field, curtailing interests presentlyenjoyed on the one hand, and in creating or enlarging them in otherdirections. In so far as the power is exercised for the purpose of includingsome one not already a beneficiary, it could extend to including the settlorhimself. The wide amplitude of power in the clause supports such aconclusion. If that be so, the settlor has reserved to himself the right tobenefit from the wakf property for life by the simple device of includinghimself in the list of beneficiaries or grantees. ….. 23. In the instant case, it is true that the settlor had not included himself inthe list of beneficiaries and that so long as he did not do so, he was notentitled to the benefits enjoyed by the other beneficiaries. But the power todo so vested in him absolutely. It was a power which he could exercise inhis absolute discretion. We see little difference between a case where thesettlor included himself among the beneficiaries and left it to the absolutediscretion of the trustees to extend the benefit of the trust income to him andthe instant case where the settlor had reserved to himself the right toinclude his name among the beneficiaries thereby automatically entitlinghimself to the benefit of the income of the wakf property. The power toamend the wakf deed so as to include himself among the beneficiaries isonly an instance of the wide powers reserved by the settlor to himself. Aswe have said the powers under clause 7(e) are expressed in the widesttermst. So long as the character of the wakf is maintained, it is open to thesettlor to make any changes—and changes which may directly benefit him—in the terms and conditions of the deed. We are of opinion that the settlorreserved an interest in the wakf property for life and therefore the case fallswithin the scope of section 12. And that would mean, as was held by theBombay High Court in Khatizabai Mohomed Ibrahim v. Controller ofEstate Duty [[1959] 37 I.T.R. (E.D.) 53 (Bom.).] , that not merely theinterest so reserved but the whole of such property must be deemed to passon the death of the settlor." 12. Since waqif Gulam Ahmad Khan reserved to himself the absolute right to amend the waqf deed and made provisions therein for his maintenance out of thewaqf property therefore it is held that petitioner cannot claim exemptions from paying estate duty. 13. In light of the above, this writ petition is dismissedaccordingly. Order Date :- 31.7.2023Arti/- [Vivek Chaudhary,J.]