1970 (9) TMI 15 - HC - Wealth-tax

Assessee s interest in the corpus of trust funds - assessability - whether it is exempt u/s 2(e)(iv), Wealth Tax Act, 1957

Summary

Issues Involved:
1. Whether the assessee had an interest in the corpus of the two trusts on the relevant valuation dates.
2. Whether the value of the assessee's interest in the corpus of the trusts could be any figure other than 'nil'.
3. Whether the right of the assessee to receive income for her life under a third trust deed amounted to an annuity exempt from wealth-tax under section 2(e)(iv) of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Interest in the Corpus of the Trusts:
The primary question was whether the assessee had an interest in the corpus of the trust funds on the relevant valuation dates or merely a spes successionis. The court noted that the assessee was a beneficiary under two trust deeds executed by her maternal uncles. The terms of the trust deeds indicated that the trustees were to hold the trust funds in trust for the assessee absolutely only after the expiration of a specified period, contingent on her being alive at that time. The court emphasized that the intention of the settlor was paramount and must be gathered from the entire document. The court concluded that the interest of the assessee in the corpus of the trust funds was contingent on her being alive at the expiration of the period of distribution and was not a vested interest. Therefore, the assessee had an interest in the corpus, but it was contingent and not vested.

2. Value of the Assessee's Interest:
The second issue was whether the value of the assessee's interest in the corpus of the trusts could be any figure other than 'nil'. The court held that even though the interest was contingent, it still had some value. The court rejected the assessee's contention that the interest was merely a spes successionis with no market value. The court concluded that the interest, being contingent, had a value other than 'nil' and should be included in the net wealth of the assessee.

3. Annuity Exemption under Section 2(e)(iv):
The third issue was whether the right of the assessee to receive income for her life under a third trust deed executed by her grandmother amounted to an annuity exempt from wealth-tax under section 2(e)(iv) of the Wealth-tax Act, 1957. The court referred to a recent Supreme Court decision in Commissioner of Wealth-tax v. Arundhati Balkrishna, which held that a life interest in the corpus of a trust did not constitute an annuity under section 2(e)(iv). Applying this precedent, the court concluded that the assessee's right to receive income for life under the trust deed did not amount to an annuity and was not exempt from wealth-tax.

Conclusion:
The court answered the questions as follows:
1. The assessee did not have a vested interest in the corpus of the two trusts on the relevant valuation dates.
2. The value of the assessee's interest in the corpus of the trusts was not 'nil'.
3. The right of the assessee to receive income for her life under the third trust deed did not amount to an annuity exempt from wealth-tax.

The assessee was directed to pay the costs of the reference to the Commissioner.