1967 (1) TMI 13 - HC - 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 - held, no - whether the 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) - held yes

Summary

Issues Involved:
1. Whether on a proper construction of the deed of settlement the assessee has any interest in the corpus of the deed of settlement.
2. Whether, on the facts and circumstances of this case, the 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 Wealth-tax Act.

Detailed Analysis:

Issue 1: Interest in the Corpus of the Deed of Settlement
The court examined whether the assessee had any interest in the corpus of the deed of settlement. The deed of settlement made by the Maharaja on September 9, 1953, involved certain war bonds transferred to a trustee for the benefit of the assessee and her four sons. Clause 4 of the deed specified that the trustee would hold fifteen parts of the trust fund and pay the income to the assessee during her lifetime, with the corpus to be held for Maharaj Kumar Jagat Singh after her death. The court concluded that the assessee was not given any interest in the corpus of the property, as the trustee was the one who stood possessed of the scheduled property and was responsible for its management and distribution of income.

Issue 2: Exemption from Wealth-Tax under Section 2(e)(iv)
The court analyzed whether the assessee's right to the income from the trust fund was in the nature of an annuity and whether it was exempt from wealth-tax. The Wealth-tax Officer had included the assessee's interest in the trust fund as part of her wealth, arguing that it was her property. The Appellate Tribunal, however, held that the income received by the assessee was in the nature of an annuity and not subject to wealth-tax.

The court referred to various definitions and judicial pronouncements to determine the nature of "annuity." It noted that an annuity is a yearly payment of a fixed sum of money, typically without the recipient having any interest in the corpus. The court agreed with the Tribunal's observation that the income received by the assessee was an annual payment more or less of a fixed sum, thus qualifying as an annuity.

The court then examined whether the annuity was commutable into a lump sum grant. Clause 7 of the deed of settlement allowed the trustee, at his discretion, to declare that the whole or any part of the share could be taken possession of by the beneficiary. However, the court emphasized that this discretion was vested solely in the trustee and that there was a gift over in favor of Maharaj Kumar Jagat Singh, which precluded the commutation of the annuity. The court concluded that the terms and conditions of the deed of settlement precluded the commutation of the annuity into a lump sum grant, thereby making it exempt from wealth-tax under section 2(e)(iv) of the Act.

Conclusion:
The court answered the first question in the negative, indicating that the assessee had no interest in the corpus of the deed of settlement. The second question was answered in the affirmative, confirming that the right of the assessee derived under the deed of settlement was exempt from wealth-tax by virtue of the provisions of section 2(e)(iv) of the Wealth-tax Act. The parties were left to bear their own costs.