1971 (3) TMI 8 - HC - Wealth-tax

High Court has jurisdiction under section 66(4) of Indian Income-tax Act, 1922 and section 27(5) of the Wealth-tax Act to require the Tribunal to give a finding of fact on the issues not considered by it - held that, interest of the assessee in the trust fund amounted to an annuity exempt under section 2(e)(iv)

Summary

Issues Involved:
1. Whether the right of the assessee to receive income from the trust fund constitutes an annuity.
2. Whether the terms and conditions of the trust deed preclude the commutation of any portion of the annuity into a lump sum grant.

Detailed Analysis:

1. Whether the right of the assessee to receive income from the trust fund constitutes an annuity:

The court considered whether the income received by the assessee from the trust fund could be classified as an "annuity" under section 2(e)(iv) of the Wealth-tax Act. The Wealth-tax Act does not define "annuity," so the court referred to legal definitions and precedents. According to Halsbury's Laws of England, an annuity is "a right to receive a definite annual sum of money," which may be charged on personal property or a mixed fund. Jarman on Wills defines an annuity as a "right to receive de anno in annum a certain sum."

The court noted that the Calcutta High Court in Ahmed G. H. Ariff v. Commissioner of Wealth-tax had observed that an annuity is a fixed sum payable annually, not dependent on the variations in the net income of a property. This distinction was approved by the Supreme Court. The Rajasthan High Court in Commissioner of Wealth-tax v. Maharani Gayatri Devi identified the elements of an annuity as: (1) a money payment, (2) made annually, (3) a fixed sum, and (4) usually a charge on the grantor.

In the present case, the trust property consisted of Government securities yielding a fixed income. The court held that the income received by the assessee did not depend on the general income of the estate and was a definite and certain sum. Therefore, it constituted an annuity. The court also noted that minor variations in the net income due to trustee charges and expenses did not affect its character as an annuity.

2. Whether the terms and conditions of the trust deed preclude the commutation of any portion of the annuity into a lump sum grant:

The court examined whether the terms of the trust deed allowed the commutation of the annuity into a lump sum grant. Under the trust deed, the assessee could not require the trustee to pay the value of the annuity in a lump sum. The court referred to section 174 of the Indian Succession Act, which recognizes the right to commutation only if the deed directs that the annuity should be provided out of the proceeds of property or if money had been bequeathed for purchasing an annuity.

The court also noted that the devolution of the trust fund upon the death of the assessee indicated that the annuity could not be commuted. The net income would pass to other beneficiaries as specified in the trust deed. This was incompatible with any claim for commutation into a lump sum grant. The court supported this view with observations from the Gujarat High Court in Dr. E. D. Anklesaria and the Rajasthan High Court in Maharanil Gayatri Devi.

Conclusion:
The court concluded that both conditions under section 2(e)(iv) of the Wealth-tax Act were fulfilled. The right of the assessee to the net income from the trust property constituted an annuity, and the terms of the trust deed precluded its commutation into a lump sum grant. Therefore, the right to the net income could not be treated as an asset for the purposes of the Wealth-tax Act. The question was answered in the affirmative, in favor of the assessee, with costs assessed at Rs. 200.