9911796707
TMI Blog1969 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... executed by him on May 28, 1951, February 18, 1952, August 8, 1952, December 9, 1952, and May 13, 1953, for the assessment years 1957-58 and 1958-59, respectively, constituted part of the net wealth of the assessee ? " The assessee is now dead and his legal representatives were brought on record. The assessee owned movable and immovable properties. With regard to some of his movable properties consisting of Government securities the assessee created five different trusts under the trust deeds dated May 28, 1951, February 18, 1952, August 8, 1952, December 9, 1952, and May 13, 1953. Under the terms of these trust deeds the assessee, namely, the settlor himself was to receive payments every year during his lifetime. This interest of the assessee in the trusts was claimed by the assessee as in the nature of " annuity " within the meaning of the provision contained in section 2(e)(iv) of the Act and, therefore, the right of the assessee in the trust properties has to be exempted from his assets and, therefore, from his net wealth for the purpose of charging wealth-tax as provided under section 3 of the Act. The Wealth-tax Officer negatived this contention of the assessee and valued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption under this clause. The exemption claimed was only under clause (iv). Clause (iv) is in two parts. To get the benefit of that clause it must be shown : (1) that the asset in question is only a right to annuity, and (2) that the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant. At this stage it is convenient to consider the nature of the trust properties and the relevant terms of the trust deeds. The following are the particulars of the trust properties. --------------------------------------------------------------------------------------------------------------------------------------------------S . No. Trust deed Nature of Value of Annual property corpus income --------------------------------------------------------------------------------------------------------------------------------------------------1. Trust created on 28-5-51 3% conversion with Central Bank of loan 47,000 1,410 India 3% Mysore loan 2,500 75 3% Victory loan 1,600 48 2. Trust created on 18-2-52 3% conversion with Central Bank of loan India 30,600 918 3. Trust cerated on 8-2-52 3% N.G.P. notes with Imperial Bank of O.S. India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time and thereafter to his daughters and grand-children. It was also provided under clause 5 that in case the daughters of the settlor should die without leaving any issues at the time of their death, the trust property should be held by the trustees for the benefit of the settlor, his heirs, executors, administrators and assigns absolutely. In the fourth trust deed dated December 9, 1952, the trust properties were described in four schedules. With regard to the properties in schedules 1 and 2 the benefit was created in favour of the grand-children of the settlor. There is also a revertible provision as mentioned in clauses 2 and 3 with regard to the trust properties of these schedules to the effect that in case all the beneficiaries are to die without leaving any issue at the time when the beneficiaries are entitled to the payment of the trust properties as provided therein, the trustees shall stand possessed of the properties in trust for the settlor, his heirs, executors, administrators and assigns absolutely. With regard to the trust properties specified in schedules 3 and 4 it was provided under clause 4 that the net income should be paid to the settlor during his lifetime a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the yield of incomes, and, therefore, it cannot be said that what the assessee was to receive from the trusts are fixed amounts and that apart in the event of all the beneficiaries predeceasing the assessee leaving no heirs, the trustees were to stand possessed of the corpus of the various trusts in trust for the settlor, his heirs, etc, and that in such an event the trust properties would form part of the estate of the settlor and, therefore, it could not be said that the corpus of the trust properties was irretrievably lost to the assessee forever. On this premise the Appellate Assistant Commissioner held that the assessee cannot claim the benefit of section 2(e)(iv) of the Act. We fail to understand how the question of genuineness or otherwise of the creation of the trusts would arise. Anyway it is not before us. What is to be considered is the nature of the right created in favour of the assessee under the trusts as they stand. After considering the matter in all its details, the Appellate Tribunal held that the payment receivable by the assessee was of a revenue nature and bears income character and what the assessee was entitled to receive under the various trusts is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the general income of the trust properties it is not an annuity. In the first case what happened was that one Golam Hossain Cassim Ariff, a Mohammedan, created a wakf on November 19, 1928, of certain lands, hereditaments and premises whereby he appointed himself the sole mutawalli of the property during his life ; after his death his sons and his widow were to be mutawallis jointly. The mutawalli or mutawallis were to retain a proper establishment to look after the property and keep proper accounts thereof. After payment of all necessary outgoings including revenue, taxes, repair charges, etc., the mutawallis were to divide the income of the wakf property in the manner stated, that is to say, pay the wakf Rs. 700 per month, Ibrahim Golam Hossain Ariff Rs. 600 per month for his life, a similar sum to each of his other sons and a sum of Rs. 400 per month to his wife. On the death of any of the beneficiaries the money payable to him was to be paid to and distributed amongst persons entitled to the same according to the Mohammedan law as heirs to the beneficiaries so dying. There was a deed of rectification of the wakf executed on July 5, 1930, by which the payment to the wakf and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being male shall attain that age or eighteen years or being female shall attain that age or marry in equal shares. On the above terms in the will relating to the trusts in question the learned judges of the Calcutta High Court following the earlier case of that High Court mentioned above came to the conclusion that the right of the assessee is not an annuity as it is an aliquot share in the general income of the residuary trust fund and not a fixed sum payable periodically as " annuity ". In these two decisions the Calcutta High Court placed reliance on some English decisions in coming to the conclusion that where the right of the assessee created under the trust is an aliquot share of the general income of the trust properties it cannot be termed as " annuity ". In Commissioner of Wealth-tax v. Arundhati Balkrishna, the Gujarat High Court came to consider the nature of the right of an assessee under three deeds of settlement where the assessee claimed exemption under section 2(e)(iv) of the Act. Their Lordships of the Gujarat High Court in that case considered the distinction between a life interest and an annuity. Their Lordships held in that case that the distinction betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share income of the trust properties, from the nature of the trust properties the income would be a variable one. Therefore, the net income from the trust properties will not be fixed, but variable. Thus though the right in question was a definite share in the net income necessarily it would be a variable amount and not a fixed or certain amount as the net income itself would vary. In the second Calcutta case, Commissioner of Wealth-tax v. Mrs. Dorothy Martin, from the terms it appears that the right which the assessee was to get was not a definite share in the income whether the income itself was variable or not. In the Gujarat case, Commissioner of Wealth-tax v. Mrs. Arundhati Balkrishna, the trust properties were shares in companies, the income from which would necessarily be variable. Therefore, though the net income on the trust properties was made the subject-matter of the right in question it would be a variable one. Therefore, the right created was not to receive a certain or definite sum. It is true in that case the Gujarat High Court also held that the amount of annuity may also vary from year to year provided it is not dependent upon the variation of the general income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an annuity once, it should be an annuity throughout and where there is a chance of its becoming not an annuity at some future time it cannot also be an annuity at any time earlier also. We do not think so at any rate when the contingency of the trust properties setting a variable income is not certain to happen and only it may or may not happen as in the present case. As a matter of fact the variation in the investments of the trusts property did not happen with regard to any of the properties of the trusts and the assessee was receiving only fixed amounts throughout till the time of his death including the period of the assessment years in question. It was also argued by Sri Ananta Babu that as there are terms in the trust deeds to the effect that on the happening of certain contingencies the trust properties are either to be reverted to the assessee or they are to be held in trust for his estate as the case may be and it would amount to his retaining interest in the corpus and this circumstance also would detract from the right of the assessee in question being an annuity. Under the terms of the trust as mentioned in the trust deeds there is no circumstance which is certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be invested in the purchase of any annuity for any person, on the testator's death, the legacy vests in interest in the legatee, and he is entitled at his option to have an annuity purchased for him or to receive the money appropriated for that purpose by the will. " A reading of the sections shows that the case contemplated under that section is that where a sum of money is to be utilised for providing an annuity to an annuitant either by a direction that an annuity of a particular amount shall be provided for the annuitant or by a bequest of that sum of money for being laid out in the purchase of an annuity for the annuitant. It either case the sum of money is to be utilised or exhausted for the benefit of the annuitant by providing an annuity to him. Therefore, the annuitant at his option may either have that sum of money utilised for purchasing an annuity or have that sum of money absolutely in a sum. Section 174 of the Indian Succession Act has no application where there is a single bequest of an annuity without any bequest of the sum of money necessary to purchase the annuity. Applying the same rule of law adopted in section 174 of the Indian Succession Act to our p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into a lump sum grant having regard to the terms and conditions relating to the annuity. In that case also as there is a gift over the trustees cannot touch any part of the corpus of the trust fund and they are to utilise the net income only. Having regard to those terms their Lordships of the Gujarat High Court held that the assessee is precluded from calling upon the trustees to pay him the value of the annuity in a lump sum and if the assessee calls upon the trustees to do any such thing the trustees can immediately rejoin by saying that they are not permitted by the trust to do that and they would be guilty of breach of trust if they apply any part of the corpus of the trust fund for payment of the commuted value of the annuity. We respectfully follow the above decision of the Gujarat High Court. Accordingly, we hold the second point also against the department. The net result is that the right to payments to be made to the assessee as provided in the five trust deeds are annuities answering the description as mentioned in section 2(e)(iv) of the Act, and therefore, the assessee could claim exemption from including the capitalised value of these payments in his net wealt ..... 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