Cutchi Memon Digest
Kerala
ﮐﮁﻲ ﻤﻴﻤﻦ ﮢ ﺍﯿﺠﺴﭧ - ﮐﻴﺮﻻ
Glimpses of Islamic Law
This column derives its interest in the context of Kochi because there are many Cutchi Memon trusts and waqfs in Kochi. Many waqfs in India, particularly the larger ones among them, have had a series of litigations against them both by the Income and Wealth Tax authorities as well as by the beneficiaries and tenanats or other occupa-nts of waqf properties. Though it is not the intention here to reiterate the various cases an attempt is made to submit the salient points coming out of them, particularly the principles which should have been followed by the drafters of trust deeds and which the future bequeathers would better keep in mind.
It had been the practice among Muslims in general and Cutchi Memons in particular to create a waqf or trust by means of a single document bequeathing one or a group of assets. The bequeast would be in a written form created during the life time of the waqif or reduced to writing by successors based on oral wasiyyat. The trust deeds often indicated how the income from the properties bequeathed shall be utilised for various purposes.
The purposes for which waqfs are made included both charitable and non-charitable items. Charitable items would be the ones aimed at beneficiaries at large and set apart in pursuance of religious or social obligations the testator wants to discharge. Such items include construction and maintenance of places of worship, support for poor and destitutes for their livelihood or accommodation. In the Indian society support for the marriage of poor girls is also recognized as an act of charity. Non- Charity items included support for the family members, who would have in the normal course inherited the property. Such provisions are made to ensure that the property does not get fragmented or disposed off resulting in some or all of the descendants eventually becoming deprived of a means of livelihood. It was also a means to avoid disputes arising out of division of property.
The income in the hands of the Trustees who manage the affairs of the Trust could be segreated into charity and non-charity according to the terms of utilization of income provided in the deed and the actual use to whi-ch it is put. If the deed says that the entire income from a specified property should be used for charity, that property is considered charitable and is exempt from wealth tax. If, on the other hand, the property or the income from it is to be used for a charitable and a non-charitable purpose it cannot be said to be a wholly charitable property and hence eligible only for partial exemption from wealth tax.The Tax authorities have dissallowed even the claims for partial exemption in proportion to the charity contained in them or the incomes used for charity. One of the Trusts in Kochi which was affected by the Tax Authorities and had to resort to High Court and Supreme Court for relief was Abdul Sathar Haji Moosa Sait Trust.
The Trust was created on 25th Kanni 1099 ME (11th October 1923) According to Para 8 of the Trust deed -
"after meeting the expenses of upkeep, mainte-nance, etc., of the trust properties, the remaining income should be divided into four equal parts at the end of every year and one such part should be utilised for providing food, clothing, etc., to indigent members of the founder's parents' families and to new converts to Islam; for teaching Islamic tenets ; for popularising other languages among Muslims ; for renovating damaged mosques; for giving ard for constructing new mosques; for constructing new mosques; for purchasing land for mosques and for burial grounds ; for digging free wells; for burying unclaimed dead bodies of Muslims; for providing food, clothing, etc., to indigent Cutchi Memons and widows in Travancore and Cochin; and for giving alms to the poor during Ramzan. The trustees are given freedom to spend this quarter of the income on one or more heads--one head alone or more of them. It is also provided that the whole of this quarter should be spent every year."
2/4ths of the income was reserved for giving assistance to the poor relations of the testator and the remaining 1/4th was earmarked for the purpose of augmenting the corpus.
The High Court of Kerala, in the case Commissioner of Aricultural Income Tax Vs Abdul Sathar Haji Moosa Sait Trust held that the dominant purpose of the trust was not charitable and properties held by the assessee were not held under trust wholly for religious or charitable purposes, but they were held in part only for such purp-oses (as described above). The court further held that in so far as one-fourth of the income derived from these properties was utilised for a public charitable purpose, that portion of the income qualified for exemption from tax under Section 4(b) of the Kerala Agricultural Income-tax Act, 1950, which at the relevant time read :
"Any agricultural income derived from property held under trust or other legal obligation wholly for religious or charitable purposes and in the case of property so held in part only for such purposes, the income applied thereto."
In terms of that provision, the court held that three-fourths of the income did not qualify for exemption. The finding that the properties were held in part only for religious or charitable purposes and that three-fourths of the income derived from those properties were not applied to public charitable purposes was confirmed by the Supreme Court on appeal. (Vide Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commissioner. of Agrlcultural Income Tax [1973] 91 ITR 5 (SC))
In the Wealth Tax matter the High Court, by a majority decision) observed that (1) the Trustee is responsible for the income derived from the Trust as he hold its on behalf of the Beneficiaries. (2) Each beneficiary's is lible for his portion of the beneficial interest in the property (3) the trustees' liability is limited to the aggregate of the liabilities of the bene-ficiaries (4) What the Trustee holds is the benefit accruing to the beneficiaries and not the corpus, so the corpus is not liable for wealth tax (5) Where the quantum of income set apart for public benefit or charitable or religious purposes is defined only that portion of the beneficial interest is exempt from income and wealth taxes.
Though the Trust was eventually exempted from paying income tax on the 1/4 th of the income earm-arked for charitable purpose and 1/4th value of properties from Wealth Tax, it must be noted that the Trustees had to go upto the Supreme Court to obtain these reliefs.
From 1980 any property subject to Wealth Tax ass-essment has to be valued on the basis of market value of the land and buildings. The question that would rise in the context of ever increasing property values and the stagnant property income in future would be the balanc-ing of the benefits and taxes. One might reach a situati-on where tax liability would exceed the benefits. This is of particular concern regarding Waqf alal Aulad which is meant to provide relief to the poor relatives.
The important lessons to be learned from the legal history of Haji Abdul Sathar Haji Moosa Sait Trust is that waqf documents should be specific as to show a clear link between the benefit under the Trust and the asset which provides that benefit, as far as possible. The saving point for the Haji Abdul Sathar Haji Moosa Sait Trust was that the trust deed contai-ned clear indication of the proportion of income that was to be allocated for charitable purpose. Absence of that provision would have rendered the Charity part indeterminate and led to the entire property and the income subject to tax.
Another fact which comes out of the decision of the case is that the income set apart for the benefit of poor family members did not qualify for exemption. Though the question was not raised or discussed, it can be assumed that family members and relatives are not considered as beneficiaries to charity. Othe-rwise the court would have treated 3/4 of the income and assets as exempt. If at all they were to be given a benefit possibly, that would have to be limited within the amount set for the public charity.
Zakat cannot be paid to one's dependents whom he is responsible for supporting. These include the wife, parents, grandparents (up to the eldest living grand grandparent), children, and grandchildren (down to the last born grand grandchild). However it may be noted that relatives, other than those whom the testator, his family members, or his legal heirs down the line are bound to support, are not prohib-ited from accepting Zakat or Sadqa. Then the prov-ision for maintenance of relatives would mean supp-ort to such of those reatives whom the testator or the heirs down the line are bound to maintain, while other relatives could be included in the public charity regime.