Law:

Section:

Section 11, read with section 164 of the Income-tax Act, 1961 (Corresponding to section 4(3)(i), read with Section 41(1), of the Indian Income Act, 1922) - Charitable or religious trust - Exemption of income from property held under - Assessment years 1956-57 and 1957-58 - Under a wakf deed, annual profits of business was to be divided into three portions ; a portion was to be transferred to reserve fund, a portion to be spent on charities, and a portion to be paid to sole Mutawalli - ITO held that no portion of income transferred to reserve fund was exempt under section 4(3)(i) of 1922 Act and also that entire income so transferred was liable to be assessed at maximum rate under first proviso to section 41(1) of 1922 Act - Whether since reserve fund had two-fold purposes, namely, benefit to community at large and maintenance of family of mutawalli, to extent that reserve fund was ultimately utilised for benefit of community at large, it was exempt from assessment under section 4(3)(i) - Held, yes - Whether since beneficiary of balance of reserve fund was known and his share was also determinate, proviso to section 41(1) of 1922 Act could not be invoked and said amount was taxable in hands of beneficiary at ordinary rates - Held, yes FACTS The business of the assessee was carried on in partnership by 'H', 'S' and their mother 'R'. By a wakf deed dated 28-8-1948, the partners created a trust in respect of the movable properties under the terms of the deed the business income of each year was divided into three portions, (1) to be transferred to a reserve fund, (2) to be spent for charitable purpose, and (3) to be paid to the mutawallis. The portion spent for charitable purposes was termed as quami income and the portion paid to the mutawallis was terms as khandani income. 'R' died and 'S' was declared an evacuee. On 6-9-1950 'H' purchased the share of the khandani income receivable by his brother 'S' out of the charitable funds of the wakf, and this share was also marked for charitable objects by a declaration dated 6-9-1950 where after the profits of the wakf business were allocated under the wakf deed as follows: (a) one-eights to be transferred to reserve…

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