1990 (7) TMI 43 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the assessee's life interest under the trust had value within the meaning of section 7 of the Wealth-tax Act.
2. Whether the life interest to which the assessee was entitled was an "annuity" exempt under section 2(e)(iv) of the Wealth-tax Act.

Detailed Analysis:

1. Value of Life Interest Under Section 7 of the Wealth-tax Act

The primary issue was whether the assessee's life interest in the income from the trust fund constituted an "asset" under section 2(e) of the Wealth-tax Act and whether it could be valued under section 7(1). The Tribunal had previously held that such an interest was an "asset" but could not be valued as it was not saleable due to a ban on its alienation. The Tribunal also considered it an annuity, which would exempt it from being an "asset" under section 2(e)(iv).

The court examined the definition of "asset" under section 2(e), noting that it includes property of every description, movable or immovable, but excludes certain types like non-commutable annuities. The Supreme Court's decision in Ahmed G. H. Ariff v. CWT was cited, which held that "property" signifies every possible interest a person can hold and enjoy. Consequently, the court had no difficulty in holding that the assessee's life interest was an "asset."

The court then addressed whether this interest fell within the exception in section 2(e)(iv), which excludes non-commutable annuities from being considered assets. The court referred to the Supreme Court's decisions in CWT v. P. K. Banerjee and (Late) Nawab Sir Mir Osman Ali Khan v. CWT, which clarified that an annuity must be a fixed or pre-determined amount not subject to variation based on the general income of the fund. Since the assessee was entitled to the entire income from one part of the trust fund, and not a fixed sum, it was not considered an annuity.

Thus, the court concluded that the assessee's life interest was an "asset" under section 2(e) and did not fall within the exception of non-commutable annuities.

2. Life Interest as "Annuity" Exempt Under Section 2(e)(iv)

The second issue was whether the life interest was an "annuity" exempt under section 2(e)(iv). The Tribunal had held that the life interest was an annuity, which was non-commutable and hence not an asset. However, the court, relying on the Supreme Court's decisions, determined that the life interest was not an annuity because it was not a fixed or pre-determined amount. The payment varied depending on the income of the trust fund.

The court cited the Supreme Court's observation in CWT v. P. K. Banerjee that for a payment to be considered an annuity, it must be a fixed or pre-determined sum, not subject to variation based on the general income of the fund. Since the assessee's interest was in receiving the net income of the trust fund, it did not qualify as an annuity.

Given this, the court held that the life interest was not an annuity and, therefore, did not fall within the exemption provided by section 2(e)(iv). Consequently, it was an asset subject to valuation under section 7(1) of the Wealth-tax Act.

Conclusion:

The court answered both questions in the negative, concluding that the assessee's life interest was an "asset" within the meaning of section 2(e) and could be valued under section 7(1) of the Wealth-tax Act. The life interest was not an annuity and did not qualify for the exemption under section 2(e)(iv). The valuation done by the arbitrators under section 24(6) was binding, and the court ruled in favor of the Revenue, with no order as to costs.