P L D 1957 (W (PLP)

KAIKAUS, J.‑

This appeal arises out of a suit relating to the liability of the estate of a deceased person to pay estate duty. One Haji Shahab‑ud‑Din, who was possessed of considerable property, executed a waqf deed in respect of the whole of his property on the 2nd of January 1931. The deed was of the kind that is called waqf alannafs wal‑aulad, i.e., the waqif reserved to himself the income of the dedicated properties for his life, and, after his death the income was to be enjoyed by his descendants generation after generation. The ultimate benefit of course was to go to charity as is required by law for the creation of a valid waqf alai‑aulad. Haji Shahab‑ud‑Din appointed himself the first Mutawali and made a declaration in the waqf deed that henceforward his possession was that of a Mutawalli. Later, on the 27th of April 1935, he executed another waqf deed of his property. The object of this deed was to exclude certain waqf property, which was included in the earlier waqf deed on the ground that it did not belong to him. The terms and conditions of waqf in this deed are the same as in the earlier deed, except that there is some amplification of those conditions. Haji Shahab‑ud‑Din died on the 24th of August 1951, the Estate Duty Act having come into force on the 11th of April 1950. A demand was made by the relevant Government authorities from the succeeding Mutawali, Master Ali Muhammad (son of the deceased), to pay a sum of Rs. 23,712 as estate duty in respect of the property covered by the waqf deed of the 27th of April 1935. Upon this, Master Ali Muhammad filed the suit, out of which the present appeal arises, against the Federation of Pakistan for a declaration that the property made waqf was not liable to estate duty at all and for an injunction restraining the defendant from realising the duty. In order to appreciate the claim of the plaintiff and the defence of the defendant, it is necessary to quote here the relevant sections of the Estate Duty Act :‑ `

4. In the case of every person dying after the commence ment of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as hereinafter provided, of all property, settled or not settled, which passes on the death of such a person, a duty called 'estate duty' at the graduated rates hereinafter mentioned.

6. Property of which the deceased was at the time of his death competent to dispose shall be deemed to pass on his death.

7. Property in which the deceased or any other person had an interest ceasing on the deceased's death shall be deemed to pass on his death to the extent to which a benefit accrues or arises by the cesser of such interest, including in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara School of Law, but exclusive of property in which the deceased or other person had an interest only as holder of an office or recipient of the benefits of a charity.

8. Property taken as a gift in contemplation of death shall be deemed to pass on the donor's death.

9. Property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, which shall not have been bona 'fide made one year or more before the death of the deceased shall be deemed to pass on the death. Provided that in the case of gifts made for public or for any charitable purpose within the meaning of section 2 of the Charitable Endowments Act, 1890, the period shall be three months and not one year.

10. Property taken under any gift, whenever made, shall be deemed to pass on the donor's death if bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise: Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means; of the surrender of the reserved benefit or otherwise, it is sub sequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least one year before the death: Provided further, and subject to the foregoing proviso that in the case of property dedicated by way of waqf, where the person making the dedication has reserved any benefit to himself the property which shall be deemed so to pass is the value of the benefit and not the value of the property as a whole.

12. Property passing under any settlement made by the deceased by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settler or whereby the settler may have reserved to himself the right by the exercise of any power, to restore to himself or to reclaim the absolute interest in such property shall be deemed to pass on the settler's death. Explanation:‑A settler reserving an interest in the settled property for the maintenance of any of his relatives (as defined in section 30) or of himself and any of his relatives shall be deemed to reserve an interest for himself within the meaning of this section. 38. (1) The principal value of any property shall be estimated to be the price which, in the opinion of Controller, it would fetch if sold in the open market at the time of the deceased's death. (2) In estimating the principal value under this section the Controller shall fix the price of the property according to the market price at the time of the deceased's death and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time Provided that where it is proved to the satisfaction of the Controller that the value of the property has been depreciated by reason of the death of the deceased, the depreciation shall be taken into account in fixing the price.

41. The value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased shall‑ (a) if the interest extended to the whole income of the property, be the principal value of that property ; and (b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended". I have given the numbers of the sections of the Act as it stands amended now. The amended Act was not applicable at the date of the death of the deceased but the sections have remained the same having only been renumbered, and I find it convenient to refer to the present numbers. The scheme of the Estate Duty Act is that it first provides (in section 4) the basis for the charge of estate duty. That basis is that the property should "pass at the death of the deceased". It then provides in a number of sections for cases wherein property is to be deemed to have passed at the death of the deceased. The object of these sections is to apply the Estate Duty Act to cases where (1) property does actually pass from one person to another at his death, i.e., where the property goes to the ordinary heirs ; (2) where one person succeeds to property on the death of another and substantially takes as an heir though technically he does not take as his representative ; and (3) where there is an attempt to evade payment of estate duty by an improper device but for which the property would be deemed to have passed at death. The contention before the trial Court on behalf of the plaintiff was that the property being waqf it could not be property that passed on the death of the deceased. It had been made waqf during the lifetime of the deceased and it had, therefore, passed to the Almighty. On behalf of the Federation, it was not pleaded that the property itself passed but it was contended that the income of the property did " pass on death". It was pointed out that the waqif had in the deeds of waqf reserved to himself the right to appropriate the whole of the income for his lifetime without any liability to render accounts to any person and it was he who had determined the manner in which income was to be disposed of after his death. It was contended that the case was one covered by the last proviso to section 10 of the Estate Duty Act which enacts that where in a waqf deed a waqif retains any benefit for himself, then to the extent of the benefit the property shall be deemed to pass at his death. The defendant, it may be stated, made it clear at the close of arguments in the trial Court that the corpus of the property was not liable to estate duty. It is only the income from the property which was the benefit that the waqif retained for himself and it is only this right to income which was liable for payment of such duty. The trial Court decreed the suit holding that even the income of the dedicated property was not liable to be taxed. On appeal, the learned District judge dismissed the suit on the ground that the case was covered by section 10 of the Estate Duty Act. The only question with which I am concerned is whether the income from the dedicated property was property that passed at death within the meaning of section 4 of the Estate Duty Act and is, therefore, liable to estate duty. In order to decide whether the deceased really took any benefit under the terms of the waqf deed, it is necessary to quote here clause (2) of the deed of the 2nd of January 1931. It runs :‑ "That the executant will have the full power to spend the income of the property which may accrue during the period of his own tawalliat in accordance with his own wishes on charity, on religious matters and also for the necessities as well as the comforts of himself and his descendants in pursuance of this waqf deed and no one shall have any right to demand from the executant accounts of income and expenditure of the waqf property nor to put any obstacle in the way of the executant spending the property in accordance with his own wishes". The first question to be decided for the purpose of determining the applicability of the last proviso to section 10 is whether the waqif had reserved any benefit to himself. It is apparent that the waqif had under the deed full control over the income of the property during his lifetime. He could spend it for himself and for his children as he pleased and he was not liable to account for it. It is no doubt mentioned that he would spend the income on charitable purposes but the comforts of the waqif and his descendants are also mentioned as legitimate objects of expenditure, and in any case the manner in which he spent the income could not be questioned. It cannot be said, therefore, that the waqif had not reserved any benefit to himself. Learned counsel for the plaintiff‑appellant contends that the income he received during his lifetime is to be regarded only as the emoluments of a Mutawalli, and this was "an interest only as holder of an office" which is exempt from estate duty by virtue of section

7. The argument would be good if I accepted that what he received was only the salary of a Mutawalli. An authority to spend the whole income off waqf property for one's benefit is not by itself a provision for salary of a Mutawalli. A Mutawalli gets a remuneration for the management of waqf. The waqif does not say in the waqf deed that he is to get the income in lieu of management. What the effect would have been if he had said so and whether the question of bona fides would also not have arisen in that case are matters into which I need not go. An important point to bear in mind in connection with this contention of learned counsel for the appellant (that this is not a case of reservation of benefit for himself) is that if the argument be accepted, the second proviso to section 10 would become redundant and would never apply to any case. The only benefit which the "person making the dedication" can reserve to himself in case of creation of a waqf is that he should be entitled to appropriate the income of the waqf property during his lifetime to his own use. If even this is to be regarded as the remuneration of a Mutawalli, there can be no case of reservation of benefit which may be covered by the second proviso to section

10. Prima facie then this provision is applicable, but I have to mention here the difficulties that do arise in its application. The first difficulty arises in this way. Are we to regard the second proviso to section 10 as by itself providing for the passing of property at death in a particular case, i.e., is it a substantive provision with respect to the passing of property or is it just an explanation that it is not the whole property but the benefit that will be deemed to pass ? If we say that it is a substantive provision, the result would be that even if a waqif reserves any benefit, say income for a year, then the property, i.e. the income of the dedicated property for one year shall be deemed to pass at death and would be liable to estate duty. The dedicator may have made a waqf forty years before his death and may have enjoyed the income for a year only, yet there would be some property which would be liable to estate duty. This, however, could hardly be the intention of the legislature, a matter which is even otherwise clear, but will be particularly so if we have regard to section 12 which applies to a case of settlement and in which only the reservation of income up to death or up to a time which has reference to death, and not reservation of benefit for any period without reference to death, will have the effect of passing property at death in spite of the settlement. If the second proviso to section 10 be not a substantive provision what is the provision under which property passes in case of a waqf like the one in dispute? The learned District judge had referred to section 12 in addition ‑to the proviso to section 10 though it does not appear whether he regarded it as a provision governing the present case. Before me too, section 12 is one of the sections relied upon. I have no d3ubt, however, that this is not a case of a settlement which means "an interest limited to or in trust for any person by way of succession" I have no doubt also that the second proviso to section 10 is only an exception to the first paragraph of that section, which contains the substantive provision as to passing of property at death in such cases. The marginal note to section 10 speaks of gifts but it is obvious from the mention of waqf in the second proviso that waqf is only regarded as a gift‑a gift to charity or technically to the Almighty. On account of the first paragraph of section 10, the whole of the gifted property passes at death if the donor has not been wholly excluded from enjoyment of gifted property. When a person makes a waqf alannafs wal‑aulad, he is not being entirely excluded from the enjoyment of the dedicated property and by virtue of the first paragraph of the section, the whole of the waqf property would, in cases of waqf s alannaf s wal‑aulad, have passed at death but for the second proviso. The object of this proviso was obviously to provide that in such cases not the whole of the waqf' property but only its income shall be deemed to pass. Of course. even this will pass only when the waqif dies and not when the next Mutawalli dies. The proviso limits the application of the first paragraph off section 10 so as to exclude, in case of reservation of benefid by the waqif, the corpus of the waqf property from the operation of the Estate Duty Act and to include only the income of the property and that too at death of waqif. So in cases which would otherwise be covered by the first paragraph of section 10 only the benefit and not the dedicated property itself is deemed to pass at death. The other difficulty that arises in connection with the application of the proviso is as to the "principal value" of the benefit. Estate duty is to be levied in accordance with section 4 on the "principal value". Section 38 provides that principal value is the price which the property would fetch if sold at the time of death of the deceased. How is the market value of this benefit to be determined ? Learned counsel for the respondent relies on section 41, according to which the value of income is the value of the whole property, but that section is obviously inapplicable because the very object of the second proviso to section 10 was to enact that what passes will not be the value of the whole property. Section 41 is intended to cover cases falling under section 7 as the marginal notes to both sections will show. Learned counsel for the respondent urges that the value of the property may not be determined in the present proceedings and similarly it need not be decided whether the amount of estate duty already assessed is the correct amount. He says the Government will, in view of the finding that it is only the income and not the corpus of the property that is subject to estate duty, re‑assess the same and it may be that the appellant accepts the amount at which estate duty is re‑assessed. If he does not accept it, the matter, he, says, can be agitated by a new suit. I agree. It is not necessary to determine the exact liability as regards estate duty in this suit, particularly because it was the liability and not its extent that had been attacked. The Government may re‑assess the duty and the appellant, if aggrieved, may sue again. The learned District judge had dismissed the suit altogether. That was not correct because the suit was with respect to the liability of the corpus of the property to estate duty and it had been held that the corpus was not liable. The Government had taken up the position that the income was liable to be assessed but it has not been contended that the present amount of estate duty had been calculated on the basis of the liability of the income alone to estate duty. The result is that this appeal succeeds in part. The plaintiff is granted a decree that the corpus of the property in dispute is not liable to estate duty but its income is liable to such duty. The question as to the amount of liability is left undetermined. Parties shall bear their own costs in all Courts. Leave to appeal under the Letters Patent is granted. A.H. Appeal accepted.