'Gross Annual Income' Under Section 38 Waqf Act Includes All Sources Before Deductions: Kerala High Court

"The gross annual income mentioned in Section 38 is inclusive of the income derived by the Wakf from all sources, and it cannot be calculated after deducting the expenses," Kerala High Court has clarified that the term 'gross annual income' under Section 38 of the Waqf Act, 1995, refers to the total earnings of a Waqf from all sources before any deductions or expenses are subtracted.

A Division Bench comprising Justice Anil K. Narendran and Justice Muralee Krishna S., in a judgment, held that for the purpose of the Waqf Board's jurisdiction to appoint an Executive Officer, it is the gross income that is relevant, not the net income calculated after expenditures.

The matter arose from a dispute regarding the management of the Ayilakkad Mahallu Juma Masjid Palli Hayathul Islam Madrassa. Beneficiaries of the Waqf filed a petition before the Kerala State Waqf Board alleging financial irregularities and mismanagement by the existing Mutawalli. While the Waqf Board initially declined to appoint an Executive Officer (EO) citing minor discrepancies, the Waqf Tribunal, Kozhikode, set aside the Board's order and directed the appointment of a competent officer to manage the Waqf's affairs. The appellants challenged this direction before the High Court.

The primary question before the court was whether the 'gross annual income' mentioned in Section 38 of the Waqf Act should be determined before or after deducting expenses. The court was also called upon to determine if the Waqf Board possesses the jurisdiction to appoint an Executive Officer when the total income exceeds the statutory threshold of five lakh rupees, despite high expenditures resulting in low net income.

Scope Of Gross Annual Income Under Section 38

The Court observed that the Waqf Act does not explicitly define 'gross annual income' but provides a specific definition for 'net annual income' under Section 3(j). The Bench noted that in ordinary parlance, gross income refers to the total amount earned by an entity without any taxes, benefits, or other deductions being subtracted. The judges emphasized that the statutory threshold for appointing an EO is tied specifically to this broader 'gross' figure rather than the net surplus.

Distinction Between Gross and Net Income

Examining the scheme of the Act, the Court referred to Section 72 and its Explanations, which detail how net annual income is calculated by deducting land revenue, taxes, and cultivation costs from the gross receipts. The Bench reasoned that since Section 38 specifically uses the term 'gross annual income,' the legislature intended to include all income derived by the Waqf from all sources before the deduction of any expenses.

Court Clarifies Interpretation Of Section 38

The Court held that the reading of Section 38 along with Section 3(j) makes it clear that the income threshold must be checked against the total receipts. The Bench observed that if the income is calculated after deducting expenses, it would frustrate the purpose of Section 38, especially in cases where mismanagement is alleged through the showing of inflated expenditures to reduce the net surplus.

"The gross annual income mentioned in Section 38 is inclusive of the income derived by the Wakf from all sources, and it cannot be calculated after deducting the expenses."

Evidence Of Financial Mismanagement

Upon perusing the audit reports, the Court found that the Waqf’s income had increased from Rs. 7 Lakhs in 2016-17 to over Rs. 24 Lakhs in 2021-22. However, the committee had shown corresponding increases in expenditure, resulting in almost nil net income. The Bench took a serious view of unexplained expenditures during the COVID-19 pandemic for conducting 'Nabidinam' and noted that vouchers and ledgers appeared to have been prepared just prior to the audit.

Board's Duty To Supervise Waqf Administration

The Court remarked that the Waqf Board went wrong in initially holding that the discrepancies were merely minor results of ignorance. The Bench held that the Board is bound to supervise the proper management of Waqfs and should have exercised its power under Section 38 to ensure transparent administration. The non-production of genuine receipts prima facie fortified the allegations of improper management raised by the respondents.

"Being bound to supervise the proper management of the Wakfs under it, the Board ought to have exercised its power under Section 38 of the Waqf Act till a properly constituted committee was put in operation as per law."

Final Directions and Dismissal of Appeal

The High Court concluded that there was no illegality or impropriety in the Waqf Tribunal's order directing the appointment of an Executive Officer. The Bench dismissed the Miscellaneous First Appeal, affirming the Tribunal's decision. However, the Court clarified that since the original petition regarding the removal of the Mutawalli is still pending before the Board, the Board shall take a final independent decision on the merits of that case without being prejudiced by the observations made in this interlocutory stage.

The ruling reinforces the supervisory jurisdiction of the Waqf Board over institutions with a significant turnover. By clarifying that 'gross annual income' is the yardstick for appointing an Executive Officer, the Court has ensured that committees cannot evade regulatory oversight by simply exhausting their total income through high expenditures, especially where such spending lacks documentary evidence.

Date of Decision: June 3, 2026