1971 (9) TMI 7 - SC - Wealth-tax

Whether, on a proper construction of the deed of settlement, the assessee has any interest in the corpus of the deed of settlement - Whetherthe right of the assessee derived under the deed of settlement is exempt from wealth-tax by virtue of the provisions of section 2(e)(iv) of the Act - we answer those questions in favour of the department

Summary

Issues:
Wealth-tax assessment on the individual assessee's interest in a trust fund under the Wealth-tax Act, 1957.

Analysis:
The judgment dealt with an appeal arising from the wealth-tax assessment of an individual assessee, who was the wife of the Maharaja of Jaipur, for the year 1959-60. The central issue was whether the assessee's interest in a trust fund, as per a settlement made by the Maharaja, should be included in her total wealth for taxation under the Wealth-tax Act, 1957. The settlement appointed a trustee to manage the trust fund, from which the assessee was entitled to 50% of the income during her lifetime. The Tribunal concluded that the assessee's right was an asset but exempt from wealth-tax under section 2(e)(iv) of the Act, considering it as an annuity. The department challenged this decision, leading to the High Court's involvement. The High Court held that the assessee did not have any interest in the corpus of the trust fund and that her income was in the nature of an annuity, exempt from wealth-tax.

The Supreme Court focused on determining whether the income received by the assessee should be classified as an annuity or an aliquot share in the income of the trust fund under section 2(e)(iv) of the Wealth-tax Act, 1957. The Court referred to previous judgments to establish the distinction between annuities and aliquot shares. Notably, it cited the case of Ahmed G. H. Ariff v. Commissioner of Wealth-tax, recognizing that a beneficiary's right to receive an aliquot share of income from a trust fund constitutes an asset assessable to wealth-tax. Additionally, the Court referred to Commissioner of Wealth-tax v. Arundhati Balkrishna to emphasize the difference between annuities and aliquot shares in income.

The Court delved into the clauses of the trust deed to ascertain the nature of the right conferred on the assessee. It highlighted that the trust fund was not a fixed sum and could be augmented, emphasizing the intention of the Maharaja to provide the assessee with a share in the income of the trust fund. The Court concluded that the assessee's entitlement was an aliquot share in the income, not an annuity, as it was not a predetermined sum but a share in the fund's income. Therefore, the Court allowed the appeal, overturning the High Court's judgment, and ruled in favor of the department, holding that the income received by the assessee was taxable under the Wealth-tax Act, 1957.