1988 (9) TMI 82 - AT - Wealth-tax

Issues Involved:
1. Whether annuity policies constitute taxable wealth of the assessee and the valuation thereof.
2. Whether royalty in the hands of the assessee is a taxable asset/wealth and the valuation thereof.

Detailed Analysis:

Issue 1: Annuity Policies as Taxable Wealth

Assessment Order:
The assessee received annuity policies in lieu of professional remuneration. These policies were taken out by cine producers to ensure a steady income for the assessee. The assessee claimed exemption from Wealth Tax (WT) on the ground that her accounts are on a cash basis. However, based on the Supreme Court's decision in CWT vs. Vyasraju Badrimurtiraj, the claim was deemed untenable. The annuity policies were considered valuable assets and taxable as wealth. The policies were not covered by exemptions under sections 2(e)(2), 5(1)(via), or 5(1)(vii) of the WT Act. The valuation was determined by discounting the future income at 4% per year, resulting in a taxable value of Rs. 4,27,680.

First Appellate Authority:
The discounting rate of 4% was considered too low. A rate of 12% was deemed reasonable, aligning with the interest rate of National Savings Certificates. Using a discounting rate of 12%, the valuation was recalculated to Rs. 2,89,696, providing the assessee a relief of Rs. 1,37,984 for the assessment year 1982-83. The same method was directed to be applied for the assessment years 1983-84 and 1984-85.

Tribunal's Decision:
The assessee was identified as an 'Assignee' rather than a 'Purchaser' or 'Annuitant'. Based on the definition of 'Assignment of income' from Black's Law Dictionary, nothing is taxable in the hands of the assessee regarding annuity policies. The matter was remanded back to the first appellate authority for fresh adjudication, requiring the assessee to provide all policies issued by LIC and alleged to be annuity policies.

Issue 2: Royalty as Taxable Wealth

Assessment Order:
The assessee, a renowned singer, received royalty income from record sales. This right to receive royalty was considered a valuable asset. The average yearly royalty income over the past five years was calculated to be Rs. 5,03,861, rounded to Rs. 5,00,000. Capitalizing this income at 12% interest, the capital worth of the asset was determined to be Rs. 41,50,000 for WT assessment.

First Appellate Authority:
The average royalty income was recalculated over a 10-year period, resulting in an average of Rs. 4,44,000 per annum. Using a discounting rate of 12% and a multiple of 5.65, the value of the royalties was determined to be Rs. 24,86,000 for the assessment year 1982-83. The same method was directed to be applied for the assessment years 1983-84 and 1984-85.

Tribunal's Decision:
The tribunal noted that royalty income was becoming doubtful and decreasing. An example from the Law & Practice of Gift Tax & Wealth Tax was adopted, suggesting a multiple of 2.402 for capitalizing the royalty income. The orders of the lower authorities were modified accordingly, directing a revised valuation based on this multiple.

Conclusion:
The tribunal remanded the issue of annuity policies back to the first appellate authority for fresh adjudication, considering the assessee as an 'Assignee'. For the royalty income, the tribunal adopted a multiple of 2.402 for valuation, modifying the orders of the lower authorities. The revenue succeeded partially, and the assessee's appeals were deemed partly successful on merits and partly for statistics.

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