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TMI Blog1972 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that, in the event of the minor son predeceasing the assessee, the estate has to be distributed in the particular manner specified therein. After the death of the testator the trustee entered upon the trust and carried on the testator's business which had been carried on under the name and style of " Chambers and Company " and " The Chrome Leather Company." The assessee who was also one of the trustees appointed under the will was getting a maintenance of Rs. 600 per month which was increased from time to time having regard to the increase in the cost of living, but at no time the entire income was paid out to her as per the direction contained in the will. The assessee therefore filed a suit C.S. No. 165 of 1942 before this court claiming that the entire income due to her under the will should be paid. The said suit ended in a compromise, and the compromise decree dated April 2, 1943, provided that 50% of the profits of the business from the date of the testator's death up to March 31, 1943, is payable to the assessee and the balance 50% was to be added to the capital of the estate, and that the trustees should form a private limited company for taking over the testator's bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady returned by the assessee, the total wealth thus being determined at Rs. 22,31,520. For the assessment year 1960-61 the assessee's life interest in the dividends was evaluated at Rs. 13,22,098 and added to the wealth of Rs. 7,95,127 returned by the assessee, the total wealth thus being determined at Rs. 21,17,225. Finally, for the assessment year 1961-62 the life interest of the assessee in the dividends was evaluated at Rs. 8,82,663 and added to the wealth of Rs. 7,19,103 returned by the assessee, the total wealth thus determined being Rs. 16,01,766. The assessee preferred appeals before the Appellate Assistant Commissioner against the orders of the Wealth-tax Officer evaluating her life interest and including it in her wealth in respect of the assessment years 1958-59 to 1961-62. It was contended by the assessee that her interest in the estate could not be evaluated since it was a contingent interest subject to several conditions such as the company making profits, the board of directors declaring the dividend, etc. It was further contended that the assessee's life interest in the income from the shares of the company should be treated as an annuity and that, in any event, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds in relation thereto and that, therefore, her right to receive dividend cannot be treated as " property " and evaluated for the purpose of bringing it to tax. The Tribunal was also of the view that there is no analogy between annuity and the assessee's right to receive dividends in the matter of valuation. In its view the value of the annuity is worked out on the basis of the actual valuation as the payment of annuity is always on the basis of a fixed capital amount and, therefore, such basis of valuation cannot be adopted for evaluating the assessee's life right in the dividends. The two questions that have been referred to us by the Tribunal at the instance of the revenue are : " 1. Whether, on the facts and in the circumstances of the case, the right of the assessee to receive dividends declared by the Chrome Leather Company (Private) Ltd. was a taxable asset in the hands of the assessee under the Wealth-tax Act, 1957 ? and 2. Whether, on the facts and in the circumstances of the case, the basis for valuation adopted by the Wealth-tax Officer was correct? " Before dealing with the main question as to whether the right to receive dividends during the assessee's lifetim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th-tax Act brings to charge the net wealth of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule to that Act. Section 2(m) defines " net wealth " as the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets belonging to the assessee in excess of the aggregate value of the debts. The word "assets" has been defined under section 2(e) of the Act as including property of every description, movable or immovable. But, certain items of properties have been specifically excluded from the definition of "assets" under clauses (1) and (2). Sub-clause (iv) of clause (1) of section 2(e) excludes a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant from the definition of "assets". The assessee claims that her right to get dividends during her lifetime is an annuity coming within the exceptions contained in the above sub-clause (iv). Though the said sub-clause (iv) of section 2(e)(1) refers to annuity, the term "annuity" has not been defined in the Act. Hence, the term to "annuity" has to be giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t apart in trust for the benefit of the assessee and her two brothers was not an annuity within the meaning of section 2(e)(1)(iv) of the Act and that, therefore, the assessee was not entitled to exemption from payment of wealth-tax in relation to such a right. In this case the Supreme Court referred to with approval the decision of the Calcutta High Court in Commissioner of Wealth-tax v. Mrs. Dorothy Martin, wherein it was held that an assessee's right to receive for her life the annual interest accruing upon her share in the residuary trust fund created under the will of her father was not an annuity so as to entitle the assessee to exclude the same from the computation of her net wealth. In Commissioner of Wealth-tax v. Her Highness Maharani Gayatri Devi, the Supreme Court again considered the scope of the word "annuity" occurring in section 2(e)(1)(iv) of the Wealth-tax Act. In that case the assessee was one of the beneficiaries under a trust, and she was to be paid during her lifetime 50% of the income from the trust fund. The question was whether the assessee had a life interest in the Corpus of the trust and her interest was, therefore, an asset liable to wealth-tax or wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act. But that has no relevance to find out whether it is, a property includible in the term "assets" defined in the Wealth-tax Act. We are, therefore, of the view that the right of the assessee to receive dividends declared by the Chrome Leather Co. Ltd. was a taxable asset in the hands of the assessee under the Wealth- tax Act. Coming to the second question, we find that the Tribunal has not given due consideration to the aspect of valuation. Having held that the right to receive dividends is a right to future maintenance which is personal to the assessee and as such does not come within the definition of "assets", the Tribunal proceeded to state that the capitalisation method cannot be adopted and that no acceptable basis has been given by the department for working out the value of the right in question. We are, therefore, of the view that the Tribunal has to consider the question of valuation afresh, now that we have held that the right to receive dividends is property coming within the definition of "assets" under section 2(e) of the Act and that it is not an annuity coming within the exemption provided in clause (iv) of section 2(e)(1). Though the question of valuation ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above case, even though there was a restriction on the transfer of shares, it has been held that the market value of the shares should be taken into account. Section 7 of the Wealth-tax Act also contemplates a hypothetical open market in which the right in question could be sold. The Supreme Court also has pointed out in Ahmed G. H. Ariff v. Commissioner of Wealth-tax that the words " if sold in the open market " in section 7(1) does not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market, and that it is on that basis, the value of an asset has to be found out. The Tribunal's view that the assessee's life interest in the dividends cannot be transferred and as such it has no market value cannot, therefore, be supported. We, therefore, answer the first question in. favour of the revenue and against the assessee. The second question is answered technically in favour of the revenue leaving the question of valuation to be considered by the Tribunal afresh after giving the parties an opportunity to put forward their case on the question of valuation. The reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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