Judgment on Zakat for Houses

7/30/2019 Judgment on Zakat for Houses

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Zakt on Rental IncomeJudgment Issued For Virtual Sharah Court

Imran A. Nyazee Version 1.0

[email protected] January 3, 2013Cite as: VSCJ-1 (2012)

The Petition

was filed in this court seeking a declaratory pronouncementabout the rules of zakt for real estate, houses and plazas that weremeant for trade or rental income. In particular it was asserted that iftwo persons, each having a million dollars invest their money with oneinvesting in gold and silver and the other in rental property, the person

who has invested in gold and silver has to pay zakat, while the other has to pay noton the value of his property, but only on the rent received after it has been saved fora year (awl). This amounts to some kind of discrimination when the aim of both isinvestment. A judgment is sought that explains the reasons for the different treatmentmeted out to the owner of real estate, along with an elaboration of the rules of zaktfor such a person.

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1. The issues ofzakt tend to be highly complex in the writings of the jurists, eventhough they may appear simple and direct when a ruling has been issued. The reasonis obvious: zakt deals with the entire range of human activity, wealth and the meansof earning wealth. The primary rules in the Qurn are general. For example:

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Of their wealth, take adaqah [Qurn 9:103] where the word adaqah means zakt;

And those in whose wealth is a recognized right, for the (needy) who asks and himwho is deprived (for some reason from asking). [Qurn 70:24, 25]

The word amwl (wealth or property) in the above verses is general, therefore, it canapply to any and all kinds of wealth. The Sunnah then identifies the types of wealth thatis subject tozakt and also prescribes the rates to be charged. The jurists classify thesetypes and keep similar things together applying various standards that are derivedmostly from the texts. At times the item under examination cannot be clearly associatedwith one of the established categories, and this causes confusion in the minds of thosewho have to pay zakt. 2. The issue of rental property is one such case. There is some difficulty in associatingit clearly with one of the established categories. Should it be treated like gold and silveror should it be treated like trading goods? Is it possible to associate it with agriculturalland and its produce? The earlier jurists, at least in the anaf school, were able tosettle this issue with great ability and clarity. 3. In modern times, fatws abound that convey the ruling to people who have to payzakt. Thus, the learned Ahmad Raza Khan Barelvi issues a one-linefatw saying thatthe rent from a house will be subject tozakt after a year has passed after the reciept ofsuch rent.1 The learned Mufti Taqi Usmani, his esteemed brother Mufti Rafi Usmanihave also issued similar rulings.2 Mufti Taqi Usmani says that the rent received will beadded to your cash assets and will be subjected to zakt at the end of the year.3 His son

has also written a similar book, which serves as a guide on zakt for al-Meezan Bank.The guide, relying on Fatw Q Khn and Bahishti Zayvar, says: If a person hasa house that is leased, the value of the house will not be subject matter of Zakah, asleasing a property does not render it a trading asset. However, the rentals receivedwill be the subject matter of Zakah.4 The guide considers rentals and wages to beweak debts and says: The ruling for this class of debts is that Zakah is not payableunless full amount is paid and one Zakah year passes thereon after payment. No Zakahis payable for preceding years.5 There are, and must be, countless other fatws of asimilar type, but our purpose here is merely to indicate the prevailing rulings as factsfrom where we proceed. 4. The above fatws appear to state the correct anaf position on the basis of the

sources of the school. The direction they take is correct, but the rulings are incomplete

1. See Amad Ri Khn Barelvi, Fatw Riawiyyah, vol. 30 (Lahore: Ri Foundation, 2006), vol. 10,161.

2. See, e.g., Usmani, Muhammad Taqi, p Zakt Kis Tarah ad Karen? (Karachi: Memon Islamic Pub-lishers, n.d.), 58.

3. Ibid.4. M. Imran Ashraf Usmani and Bilal Ahmad Qazi, Guide to Zakah: Understanding and Calculation

(Karachi: Quranic Studies Publishers, n.d.), 18.5. Ibid.


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and partially incorrect, as we will show later. Further, no reasoning is provided at all,which gives rise to questions like the one we are facing in this case. It is not clear why ahouse given on rent is not a trading asset or even a commodity that should be subjected

to zakt on the basis of its value, for after all it is wealth. 5. For fatws from the other schools, we may rely on the well known manual ofzaktwritten by the respected Ysuf al-Qaraw.6 We refer to the translation of this manualby Monzer Kahf. Chapter 8 of the manual is devoted to the issue of houses and othersimilar properties. There does not appear to be a clear ruling on the issue in thoseschools, therefore, the Author focuses on different views from the Companions (God bepleased with them), some well known Hanbal jurists, and a variety of sources. In theend he resorts to the formula I select and gives a ruling that is no different from thefatws above. The legal basis or the true rationale we are looking for is missing inthis important work too. Chapter 9 is devoted to wages and personal incomes, aboutwhich there is again some confusion. The manual is indeed a good effort and has to be

appreciated. 6. From this we may turn to the resolutions of the Islamic Fiqh Academy of theOIC located at Jeddah. Resolution No. 2(2/2) of the the Council of the Islamic FiqhAcademy, issued during its second session, held in Jeddah (Kingdom of Saudi Arabia),from 10 to 16 Rabiul Thani 1406 H (22-28 December 1985) states as follows:

Having looked into the studies presented about Zakat on real estates and rented non-agricultural

lands, and after thorough and in-depth deliberations which covered the subject from its different

aspects, it became evident that: 1. No clear statement is traced which levies Zakat on real estate

and rented lands. 2. Similarly, no statement has been reported levying current Zakat on the yield of

real estate and non-agricultural rented lands.

The Council RESOLVES:

1. No Zakat is levied on assets of the real estate and rented lands.

2. Zakat is due and payable on its yield, which is one fourth of the one tenth (2.5%), after the

elapsing of one year period from the date of its actual receipt, if all other conditions are present and

no impediments exist.

The net effect of this resolution is no different from the fatws mentioned above. Wehave found only one study that has been published in the Academys journal.7 It ispossible that there were other studies, but these have not been published. What issurprising is that the study does not prefer this ruling. It goes against it on most

counts. It is only the last para in this study, which says that according to some theseowners should be left alone and whatever income they have will ultimately be added tothe cash assets they have on which zakt can be paid after the passage of a year.8 It is

6. Ysuf Qaradw, Fiqh al-Zakah, trans. Monzer Kahf, vol. 2 (Jeddah: King Abdul Aziz University,n.d.), vol. 1, 235-268; Qarws opinion is also quoted in Amad Fahm, al-Zakt: Wujbuh f Ajral-Aqr, Majallat Majma al-Fiqh al-Islm 2, no. 1 (2003): 118.

7. Amad Fahm, al-Zakt: Wujbuh f Ajr al-Aqr, Majallat Majma al-Fiqh al-Islm 2, no. 1(2003): 10919.

8. Ibid., 119.


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also surprising that an outstanding fatw issued by a scholar, who was apparently thefirst president of the Academy, goes completely against this ruling.9

7. The important point in all these is that the crucial points of legal reasoning,

pointed out by earlier anaf jurists, have not been incorporated in any of the rulingsmentioned above. The result is the lack of a clear understanding of the issue and con-sequently the deficiency in the fatws issued. The deficiencies will, hopefuly, be met inthis judgment. 8. It may be stated again that this issue is not as simple as it might appear tobe. Further, it has the potential of exploding into other areas that are of considerableimportance for modern economies and economic activity. We will try to confine our-self to the bare minimum and deal with only those issues that flow directly from thediscussion. The tangential issues, though important, will be taken up separately.

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The following issues are framed:

With what category is a house, or other property, with rental income associated:gold and silver, trading goods or other?

Is zakt to be paid on the value of the property or on the rental income?

Ifzakt is to be paid on rental income then at what rate and when?

What about a plot of land that is bought with the intention of trading or reselling,but on which no rent is received?

If rental income is subject to zakt, is the rule also extended to wages receivedfor providing some service? If so what about personal income that is subject toincome-tax in modern times?

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9. The word zakt means growth and increase (al-nam). It is also said that it ap-plies to purification.10 Growth is not actual growth here and it means potential growthdepending upon some kind of activation. Al-Kasani says, The meaning of zakt isgrowth and this does not occur except in wealth that has the potential for growth. Bythis we do not mean actual growth as that is not taken into account. We mean by it the

state of readiness of wealth for growth either through tijrah (trade) or pasturing.11

10. No activiation is required for gold and silver as they are by their very nature,having curreny-value and are readied for growth.12 According to Imm al-Sarakhs,

9. Bakr ibn Abd Allh Ab Zayd, Fatw Jmiah f Zakt al-Aqr (Riy: Dr al-imah, 2000).10. Ab Bakr Ksn, Badi al-ani f Tartb al-Shari, ed. Muammad Adnn ibn Ysn Darwsh,

6 vols. (Beirut: Dr Iy al-Turth al-Arab, 2000), vol. 2, 91; Shams al-Aimmah Sarakhs, Kitbal-Mabs, 30 vols. (Beirut: Dr al-Marifah, n.d.), vol. 2, 149.

11. Ksn, Badi al-ani, vol. 2, 91.12. Ibid., vol. 2, 91.


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this meaning is derived from the verse: And there are those who hoard gold and silverand spend it not in the Way of Allah: announce unto them a most grievous chastise-ment.13 He says that the verse includes the meaning ofzakt among other things. The

intention of the owner of making such wealth grow is irrelevant, because the termkanzis applied to buried wealth that is not intended for trade. The Almighty has, however,issued a warning about it which indicates that the intention of trade by the owner isnot relevant.14

11. In all other forms of wealth, other than gold and silver, activation is required onthe part of the owner. This activation requires two things according to the jurists of theanaf school: an intention to treat the wealth as wealth for trade and an act on thepart of the owner.15 Thus, if a person has a few tons of wheat lying in his warehouse,he may form an intention that he will use this for trade. He may then undertake anact like offering the wheat for sale. This will complete the act of activation. Imm al-Ksn says that this activation can be explicit or it may be by implication. Explicit

means that when he is buying something, he forms an intention that the goods will befor trade. He also says something that is relevant for our discussion with respect toexplicit activation: Or he gives his house on rent with the intention of trade, whichthen becomes wealth of trade due to the existence of the explicit intention of trade linkedwith the contract of trade (renting in this case). There is no doubt that purchase (withthe intention of trade) is meant for trade and so also renting, because it is compensationof wealth with wealth, which is trade in its very essence. It is for this reason that theauthorized slave comes to acquire the authority of renting/hiring through an authorityfor trade. Intention linked to the act is acknowledged.16 This statement indicates thatrenting or hiring are part oftijrah which has a wider meaning than the English wordtrade. 12. The cause of the obligation ofzakt is ml (wealth), although it is associated withthe affluence of the owner, which is determined through the minimum scale (nib). Asthe cause is reactivated with renewed growth, the awl or period of one year has beenfixed to facilitate actual or potential growth. With every new awl the obligation isrenewed.17 The term wealth has a very wide meaning and covers everything having avalue. Likewise, the term trade has a very wide meaning in Islamic law and covers evenmatters like renting and currency-exchange.18 The word trade then is anything thatgives, or has the potential of giving, an earning, whatever the form of such earning. 13. Wealth is gold and silver and then trading goods. Land meant for agricultureis also wealth, but is treated separately. The issue is: to what type is rented propertylinked? It is obvious that in cannot be linked to gold and silver that do not require theintention to trade for purposes ofzakt. Even gold and silver fall within the meaning of

trade, but are distinguished as they do not require intention. Rented property, there-fore, falls within the category of trading goods. There is a distinction, however, that has

13. Qurn 9:34.14. Sarakhs, al-Mabs, vol. 2, 191.15. Ksn, Badi al-ani, vol. 2, 91; Sarakhs, al-Mabs, vol. 2, 191.16. Ksn, Badi al-ani, vol. 2, 92.17. For all these statements, see Sarakhs, al-Mabs, vol. 2, 14950.18. To understand the details of such meanings, see generally Imran Ahsan Khan Nyazee, The Concept

of Rib and Islamic Banking (Islamabad: Niazi Publishing House, 1995).


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to be kept in mind. Trading goods are meant for sale, therefore, all real estate meantfor sale can easily fall in this category and can be assigned the same rules as tradinggoods. Property given out on rent is not for sale, so how is this distinction handled by

the jurists? 14. The jurists link rented property with two things at the same time: trading goodsand debts. Are debts ml? In the present times, the issue of debts has been completelyignored, or it is better to say, swept aside casually by modern muftis and scholars. Thefirst ruling19 issued by the Islamic Fiqh Academy of the OIC has the following to say:

After thorough discussions which covered the subject from its different aspects, it became evident

that :

1. There is no statement in the Book of Allah, Almighty, or the Sunnah of His Messenger (PBUH),

elaborating (rules of) Zakat on Debts;

2. Numerous views have been reported from the Companions and the Tabeeen (the generation after

the Companions)May Allah be satisfied with themfrom the viewpoint of the method of paying

Zakat on debts.

3. Accordingly, the Islamic Schools of Jurisprudence have differed clearly on the subject.

4. The difference of opinion (regarding this subject) is, in turn, caused by their differing opinion re-

garding the (following) fundamental principle: whether receivable assets can be classified as actually

received assets.

The Council RESOLVES THE FOLLOWING:

1. The lender is obligated to pay Zakat, every year, on his loaned money, if the borrower is solvent.

2. The lender is obligated to pay Zakat, after the elapse of one year starting from the day he actually

receives his loaned money, if the borrower is impoverished or controverting.

The above analysis and the resolution, we are forced to say, are very weak and highlysuperficial. This will become obvious as we proceed with our analysis. On a lighter notewe may ask: If the schools have differed, then who are these people? Bankers? The netresult of the resolution is: ignore debts for they are not relevant, just focus on the cashassets of the Muslim at the end of the year. The resolution, in terms of its impact, isidentical to the ruling of this Academy on real estate. 15. It is difficult for us to determine the nature of the school authority for the mem-bers of the Academy, but our judgment is based on the position of the anaf school.We will, therefore, have recourse to the two most respectable and authentic works ofour Imms: Shams al-Aimmah al-Sarakhs and al-Ksn (may Allah be pleased withthem). The method we follow in several paragraphs will be that we will paraphraseexcerpts from two pages of al-Mabs. We do not need to give pinpoint refereces toeither author, because al-Ksn says exactly the same thing.20 As long as we do this,the Sun will continue to shine on the Virtual Shariah Court.

19. See Resolution No. 1 (1/2) issued during its second session, held in Jeddah (Kingdom of Saudi Arabia),from 10 to 16 Rabiul Thani 1406 H (22-28 December 1985).

20. The pages numbers on which the following text appears are as follows for both Imms. Sarakhs,al-Mabs, vol. 2, 19596; Ksn, Badi al-ani, vol. 2, 8891.


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16. The learned Imm al-Sarakhs, the Sun of Imms, says: Thereafter, debts areof three types according to Ab anfah, Allah the Exalted bless him. A strong debtthat is a counter-value for property whose basis would be trade, had it continued in his

ownership. A debt of middle strength, which is a counter-value for property on whichthere would be nozakt had it stayed in his ownership, like work-clothes and work tools.The third type is a weak debt, which is a counter-value for things that are not deemedproperty/wealth, like dower, compensation in khul, and ul for intentional homicide.

17. In the strong debt, it is not binding for the him to pay unless he has taken fortydirhams of the debt into possession. When he takes this amount into possession,he pays one dirham on it, and he does so for each forty dirhams recovered. Inthe debt of medium strength, he is not bound to pay until he takes a hundred dirhamsinto possession. When he does so he pays five dirhams. In the case of the weak debt, heis not bound to pay zakt unless he takes possession of the amount and a whole year(awl) has passed.

18. Ibn Samah has narrated from Ab Ysuf from Ab anfah, God bless them,that debt is of two types, and he deemed the medium debt to be the same as the weakdebt. This is also the preferrence exercised by al-Karkh, which he has recorded in hisMukhtaar.

19. Ab Ysuf and Muammad, God bless them, maintain that debts are all of thesame type, and no zakt is due on them prior to possession. Each time an amountis recovered he is bound to pay zakt on it in accordance with the amount

recovered whether this is less or more. This does not apply to the debt created dueto the transaction ofkitbah on which no zakt is due unless a awl has passed afterpossession.

The basis for the above rules is that a debt is not ml (property/wealth) in reality. Thus,

if the creditor makes an oath that he has no ml he is not violating this oath. Yet, itbecomes wealth through ascertainment by means of possession. Thus, the nibforzakt is not constituted until this conversion takes place and the awl does not applyexcept to the nib. As for the amount of debt that is the counter-value of tradinggoods, the ownership of the value is established for it prior to its becoming a

debt. It is, therefore, remains the same as what it was originally, with the

substitute acting as the original leading to zakat prior to possession, however,

the obligation to pay depends upon possession. [This is the crucial point thatmust be appreciated for understanding the reasoning underlying immediate paymenton possession if the nib is complete].

20. In the case of rent/wages, there are three narrations from Ab anfah, God

bless him. In one narration, he deems rent to be similar to dower, because it is nota counter-value for ml in reality as it is a counter-value for benefits (manfaah). Inanother narration he deemed it similar to a counter-value for work clothes, becausebenefits are wealth in some respects, but they are not a subject-matter for zakt. Thesound narration, however, is that the rent for a house meant for trade or wages

of a slave meant for trade have the same status as the price of trading goods.

[Meaning thereby that it is like a debt created of a credit sale. The seller has sold goodson credit for which payment may be received after some months or even years.] Eachtime he possesses forty dirhams, he is under an obligation to pay zakat considering the


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counter-value of benefits to be the counter-value of the ayn (tangible property).

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21. The above reasoning provided by the two Imams highlights several importantpoints:

All strong debts, which are most debts in the commercial world, are subject tozakt even before they have become payable, because they arise from propertythat was in the possession of the owner and is assumed to be in his possessionthroughout the duration of the debt. The awl, therefore, is complete even beforethe debt is paid back giving rise to the obligation of zakt. Zakt cannot be paidunless some amount is taken into possession. Consequently, payment is to bemade as soon as an amount equal to forty dirhams accumulates due to recovery

of the debt. The argument fails that zakt will be levied twice on the same amount, once at

the time of possession and another time after the passage of a awl followingrecovery. The reason is that immediate payment was for the previous awl thatpassed during prior possession of the property and the duration of the debt.

Rented property is just like the strong debt described by the jurists, that is, likethe amount due to the seller after a credit sale (called bay al-nasah or baymuajjal). Zakt is, therefore, to be paid as soon as forty dirhams worth of rentaccumulates in the hands of the owner of property at the rate of one dirham forevery forty. This has to be done for every installment of forty dirhams collected.

Rented property is like debts from one perspective, but is like trading goods fromthe other. If a person who has rented out some property forms an intention to sellthat property and makes an offer for sale or makes other arrangements for sale,he will become liable for zakt on both counts, that is, for the rent as well as thevalue of the property treated as trading property. There is no clash between thetwo charges.

If a person owns a plot of land that he has bought, with the intention of selling,then according to Imm al-Ksns view recorded above it becomes an explicitdecision to trade, however, we may add here that an additional act stipulated byImm al-Sarakhs may be taken into account. Thus, if this person brings his plot

of land into the market by making an offer or making other arrangements for itssale, it will be become trading property and will be subject to zakt.

22. We may now turn very briefly to the issue of the slave rented out by the mas-ter. He is liable to zakt on the wages received, and the zakt has to be paid at oncefor every forty dirhams of wages collected. There are no slaves today, but there areexperts, consultants, and other employees whose services are rented out by indepen-dent contractors or institutions to others. The rules for hired slaves will apply mutatismutandis to employers receiving wages for work done for others by their employees.


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The argument that heavy salaries are paid to these employees by the employers fails,because the master used to spend much more on such slaves taking care of their needs,inlcuding food, health, marriage and children.

23. The personal income of a person is not rental income as the person cannot be hisown asset or property. He pays on the amount held after the awl. 24. This is where the declaration sought by the petitioner ends, and we may turn tothe holding.

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5 T H

25. It is held that zakt is to be paid on all rented property by the owner, whoever hemay be, and is to be paid at once for every amount equivalent to 40 dirhams collected.

26. All employers renting out the services of their employees to others are liable topay zakt at once for every amount equivalent to 40 dirhams collected. 27. Zakt is not payable on a persons personal income as he cannot be his own asset. 28. If this is implemented, no poor person will be left in any Muslim country.

Allah knows best.

Imran Ahsan Khan NyazeeMuharram 2, 1434December 28, 2012

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29. It was state in the main judgment that this issue can explode into areas that arenot the objective of the judgment and the petition. It is better to mention these as obiterdicta. In fact, we will consider just two situations to indicate the nature of problemsthat can emerge from the rules ofzakt. 30. The first situation is where fiat money or paper money issued by states isconsidered as currency equivalent to gold and silver, and is used for the valuation of

other goods and services. Resolution No. 21 (9-3) of 1407H/1986 has already resolvedthat: Paper money is real money, possessing all characteristics of value, and subjectto Sharia rules governing gold and silver vis-a-vis usury, Zakat, Salam and all othertransactions. This has the following implications:

All loans recovered by banks (or other persons) are liable to zakt, which has tobe paid at once if the amount reaches the nib or accumulates to constitute thenib with respect to a single loan transaction. The rate will be one dirham forevery forty dirhams worth of recovery.


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All accounts opened with banks, though they are called deposits, are in reality andlegally loans given to banks. Consequently, all amounts withdrawn by clients fromtheir accounts will be subject to zakt as above as soon as the withdrawn amount

accumulates into the nib.

The payment ofzakt is not affected by and has nothing to do with rib.

This will effectively shut down all banking activity as we know it and will also put anend to the creation of fake money. 31. The second situation is where paper money is not treated as currency as statedin the resolution above. All loan transactions will then be the exchange of debts fordebts, which are unlawful. We do not wish to go any further with this, but one thing isclear: this provision will eliminate paper currency and bring back the gold dinr andsilver dirham.

R

Ab Zayd, Bakr ibn Abd Allh.Fatw Jmiah f Zakt al-Aqr. Riy: Dr al-imah,2000.

Barelvi, Amad Ri Khn. Fatw Riawiyyah. Vol. 30. Lahore: Ri Foundation,2006.

Fahm, Amad. al-Zakt: Wujbuh f Ajr al-Aqr. Majallat Majma al-Fiqh al-Islm2, no. 1 (2003): 109119.

Ksn, Ab Bakr.Badi al-ani f Tartb al-Shari. Edited by Muammad Adnn

ibn Ysn Darwsh. 6 vols. Beirut: Dr Iy al-Turth al-Arab, 2000.Sarakhs, Shams al-Aimmah. Kitb al-Mabs. 30 vols. Beirut: Dr al-Marifah, n.d.

Nyazee, Imran Ahsan Khan. The Concept of Rib and Islamic Banking. Islamabad:Niazi Publishing House, 1995.

Qaradw, Ysuf. Fiqh al-Zakah. Translated by Monzer Kahf. Vol. 2. Jeddah: KingAbdul Aziz University, n.d.

Usmani, Muhammad Taqi. p Zakt Kis Tarah ad Karen? Karachi: Memon IslamicPublishers, n.d.

Usmani, M. Imran Ashraf, and Bilal Ahmad Qazi. Guide to Zakah: Understanding and

Calculation. Karachi: Quranic Studies Publishers, n.d.

Documents

Judgment on Zakat for Houses