1985 PLP 376 (PTD)

Date of hearing: 30th October 1984. FARHAT ALI KHAN. (MEMBER).‑‑In this appeal an interesting point of law has arisen. The brief facts giving rise to this appeal are that the appellant an individual, derived his income in assessment year 1977‑78 from salaries, dividend and interest etc. He showed Rs.34,625 as an interest accruing from Khas Deposit Certificates. However, the Income‑tax Officer discovered that the aforesaid amount was including Rs.17,500 which the appellant received as maintenance allowance from Muhammad Suleman C .... M.... W... He was of the view that since the appellant received aforesaid amount from W... as maintenance allowance and not from Khas Deposit Certificates, it was liable to be taxed. On appeal, it was urged before the learned Commissioner of Income‑tax (A) that in view of Miller's case, P L D 1959 S C (Pak.) 219 since the income in the hands of the W... was exempt from tax, it was also exempt from tax even if it came in the hands of the appellant as maintenance allowance. The learned Commissioner of Income‑tax, (A) however, vide his order dated 6th May, 1981, recorded by him in Income‑tax Appeal No.6324/Z‑1/1980, turned down the contention of the appellant on the ground that since the decision of the Miller's case the law was subsequently changed. The learned Commissioner of Income‑tax (Appeals) in this connection referred to subsection (4‑AA) of section 15BB, which was inserted in the Repealed Income‑tax Act, 1922 in 1971. The appellant was not yet satisfied and he has filed this second appeal.

2. Mr. T... Advocate appearing for the appellant reiterated before us that this case was covered by Miller's case. Referring to subsection (4‑AA) of section 15BB the learned counsel pointed out that it was regarding tax‑holiday and did not overrule Miller's case. He also invited our attention to section 151 of the Income‑tax Ordinance, 1979, but contended that it was not applicable in his case.

3. Mr. M....F.... the learned Departmental Representative on the other hand, vehemently argued that Miller's case was not applicable under the facts and circumstances of the present case. According to learned Departmental Representative, the Miller's case was relating to agricultural income, which was exempt under the repealed Income‑tax Act. Referring to section 4(3)(i) of there repealed Income‑tax, Mr. M.... F...., the learned Departmental Representative pointed out that the income the W... was exempt from tax provided the condition referred to in aforesaid section were fulfilled. The learned Departmental Representative, however, conceded that subsection (4‑AA) of section 15BB did not apply in the case of the appellant but added that every income was chargeable to tax under section 4 of the Repealed Income‑tax Act, unless it was shown to be exempt. He submitted that the amount received by the appellant was not an income derived from Khas Deposit Certificates but it was received as such by the W... and then subsequently handed over to the appellant as maintenance allowance. The learned Departmental Representative concluded that for aforesaid reason it was rightly taxed by the I.T.‑O.

4. We have heard both the learned representatives at length and have also perused the impugned as well as the assessment order. We have also perused the Miller's case. However, we feel that there is not enough material before us to dispose of this appeal. In reply to our question Mr. M....F.... the learned Departmental Representative pointed out that no Waqf Deed was produced before the Income‑tax Officer. Mr. T

however, informed us in reply to our question that M .

S

C . . . . W . . . . A . . . but he regretted his inability to produce before us the W...D.... In the absence of the W...D... we are not in a position to proceed further in the matter.

5. As far as the Miller's case is concerned, it is true that it dealt with the agricultural income which is not only exempted by the Repealed Income‑tax Act, 1922, but also carries a constitutional guarantee that no legislation would be enacted to impose tax thereon. Nevertheless the principle, which was enunciated in Miller's case was that a company being a creation of legal fiction was actually earning income for the benefit of its shareholders who were natural persons as against the legal personality conferred on such company. On these premises it was held by the Supreme Court that agricultural income exempt in the hands of the company was also exempt from tax when it came in the hands of shareholder as divided. But in any case, the existence of two separate legal entities, company and share holder, was recognised. Subsequently section 151 of the Income‑tax Ordinance, hereinafter referred to as the Ordinance, was brought on Statute Book. This section specifically made distinction between original and subsequent recipient of income etc. However, the legal position of a W . . . . A . . . . A . . . is quite different. Let us mention at this juncture that institution of W . . . . . A . . . . A . . . is, amongst several, one of the most wonderful creation of Islamic jurisprudential genius. It is based on concepts of corpus and usufruct of a property. When it is created the corpus is tied up in perpetuity and is not ion ally vested in Allah, The Almighty. However, the usufruct thereof is reserved for the off springs of the wakf in succession under a scheme. Generally some part of the usufruct is reserved for religious or charitable purposes but bulk of it goes to the progeny under the scheme till it is totally extinct. In the scheme there is always a provision that in case of total extinction of the progeny of the wakf the whole of usufruct would revert to specified religious or charitable purposes. Thus, it is now quite obvious that the usufruct belongs to a beneficiary named in the waqf scheme though it is received through the agency of the waqf. In case of Miller the company was mentioned to be an earning entity for the benefit of a share‑holder. In case of W . . . A . . . on the contrary, the W . . . does not earn but only receives usufruct accruing from corpus. Here the beneficiary is legally the owner of the usufruct subject, of course, to the scheme of the Waqf. He is in law the original recipient though it is through the agency of the waqf. But it is for all purposes a mere agency. Let us also mention here that in case of a company the consideration for the dividend is ownership of the shares. But it is important to note that for the entitlement to the usufruct no consideration flows from the beneficiary. He receives the benefit under the scheme by virtue of his being in line of sucessession as laid down by the wakf. It is result of unilateral act and not act of an agreement coupled with same considera tion. We are, therefore, of the view that the benefit reserved for a beneficiary would not be subject to tax if it is exempt otherwise. We think that in case of alal aulad neither the Miller's case nor section 151 of the Ordinance would be applicable. Letter would not be applicable because "the original recipient" within the meaning of the expression for all intent and purposes, means recipient in his own right and not as 'an agent receiving for its principal to whom the benefit legally belongs.

6. Now, reverting to the merits of this appeal let us point out that it is not clear from the assessment order or otherwise as to whether aforesaid waqf derived its income only from Khas Deposit Certificates. There is no doubt that the income derived from Khas Deposit Certificates is exempt from the tax. However, if the waqf is deriving income from other sources which are not exempt from tax, the appellant would have to pay the tax to such benefit received by him.

7. In view of the discussion made above, we allow this appeal and set aside the order of learned Commissioner of income‑tax (appeals)and send the case back to Income‑tax Officer for further investigation with the direction that he should call upon the appellant to produce the waqf deed and then find out not only its terms and conditions regarding the distribution of the income accruing to such waqf, but also various sources of such income. Needless to say that the Income‑tax Officer would proceed according to law in framing de novo assessment.

8. The appeal thus stands disposed of accordingly. M. B. A. Case remanded.