1986 (5) TMI 48 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the amount of Rs. 78,820 lying in the CDS account of the assessee constituted an asset under section 2(e) of the Wealth-tax Act, 1957, and therefore includible in the net wealth of the assessee.
2. Whether the deposit in the Compulsory Deposit Scheme (CDS) was an annuity and thus exempt from wealth tax.
3. Whether the value of the deposit should be discounted due to restrictions on withdrawal.

Issue-Wise Detailed Analysis:

1. Whether the amount of Rs. 78,820 lying in the CDS account of the assessee constituted an asset under section 2(e) of the Wealth-tax Act, 1957, and therefore includible in the net wealth of the assessee:

The appeal by the assessee questioned whether the amount in the CDS account constituted an asset under section 2(e) of the Wealth-tax Act, 1957, and thus includible in the net wealth. The Tribunal noted that the nature of the deposit in the Compulsory Deposit Scheme was akin to a fixed deposit, making it difficult to infer that such a deposit does not constitute an asset under section 2(e) of the Wealth-tax Act.

2. Whether the deposit in the Compulsory Deposit Scheme (CDS) was an annuity and thus exempt from wealth tax:

The learned counsel for the assessee argued that the deposit in the CDS was not an asset under section 2(e) (2) (ii) and was an annuity, thus exempt. He referred to the CDS Act, the Annuity Deposit Scheme, 1964, and chapter XXIIA of the Income-tax Act, 1961, and the definition of 'annuity' in section 280B (4) of the 1961 Act. The counsel contended that the CDS Act followed the annuity deposit scheme, and thus, the deposits under the CDS should also be considered annuities. However, the Tribunal noted that the repayment under the CDS was a variable amount regarding interest and repayment components, and it could not be an annuity since it was purchased by the assessee himself.

The Tribunal referred to various rulings, including the Supreme Court ruling in CWT v. P. K. Banerjee, which held that a payment to be an annuity should be a fixed or predetermined sum and not liable to variation. Since the interest rate under the CDS Act was variable, the Tribunal concluded that the deposit under the CDS Act could not be considered an annuity.

3. Whether the value of the deposit should be discounted due to restrictions on withdrawal:

The counsel for the intervener argued that the value of the deposit should be discounted since the amount was not immediately payable, relying on the Supreme Court ruling in Pandit Lakshmi Kant Jha v. CWT. However, the Tribunal noted that the deposit in the CDS was earning a high rate of interest payable only on long-term deposits, and the amount was repayable in installments after a lapse of two years. Therefore, there was no question of discounting its value, and the face value of the deposit would be included in the net wealth of the assessee.

Conclusion:

The Tribunal concluded that the deposit under the CDS Act was not exempt as an annuity because the installments of principal and interest were not fixed sums payable periodically. It was also noted that the deposit was purchased by the assessee, and the terms did not preclude commutation. Therefore, the deposit in the CDS account was includible in the net wealth of the assessee, and its face value would be included without any discounting. The assessee's appeal was dismissed.