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TMI Blog1991 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... per month in terms of the provisions of the deed of settlement dated December 11, 1952, is a right to an annuity within the meaning of section 2(e)(1)(iv)/section 2(e)(2)(iii) of the Wealth-tax Act, 1957 ? (4) If the answer to question No. 3 is in the affirmative, then whether the terms and conditions relating to such annuity preclude the commutation of any portion thereof into a lump sum grant and, as a consequence, its capitalised value had to be excluded from the net wealth of the assessee for the assessment years 1967-68 to 1972-73 ?" Counsel are agreed that question No. 1 pertaining to the assessment years 1967-68 to 1972-73 is covered by the judgment of our court in the case of Smt. Radhadevi Mohatta v. CWT [1981] 129 ITR 229, and the question is required to be answered in the negative and in favour of the Revenue. We, accordingly, answer question No. 1 as aforesaid. As regards question No. 2 pertaining to the assessment years 1967-68 to 1971-72 also, counsel are agreed that the said question is covered by the judgment of our court in the case of CWT v. Godavaribai R. Podar reported in [1988] 169 ITR 245, and the said question is required to be answered in the negative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust deed out of the income of the trust fund. It was provided that the balance of the income shall be accumulated until Mr. Ashok Birla attained the age of 18 years. It was provided by the said clause (1) of the trust deed that the accumulated balance of the income shall be paid over to the said Ashok Birla. It was further provided in the said trust deed that the corpus of the said trust fund was to be handed over to Mr. Ashok Birla only after the death of Mr. Gajanan Birla and the assessee and not earlier. 'thus, it was directed that the corpus of the trust fund be kept intact until the death of Gajanan Birla and Gopykoer Birla (the assessee) who were entitled to receive merely the fixed monthly amounts from the said trustees, during their lifetime as aforesaid. The right of the assessee to receive the periodical amount from the trustees operated as a continuing charge on the income from the trust fund for all time to come so as to ensure payment of the fixed monthly amount to the assessee during her lifetime. Section 3 of the Wealth-tax Act, 1957, hereinafter referred to as "the Act", is the charging section. The said section provides for levy of wealth-tax on the net wealth o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the commutation of any portion thereof into a lumpsum grant. During the assessment years 1964-65 to 1966-67, the Income-tax Appellate Tribunal took the view that the said amount receivable by the assessee from the trustees under the said deed of trust was includible in the net wealth of the assessee as it was not an annuity and as it was not covered by the exemption under the above-referred provision. The Tribunal delivered its judgment in respect of the appeals before it pertaining to the above-referred assessment years on February 27, 1971. The relevant assessment years which are the subject-matter of the present reference are 1967-68 to 1972-73. It is the contention of the assessee that, in matters of this nature, the doctrine of res judicata has no application and the assessee had not pursued the matter further against the order dated February 27, 1971, as all the relevant material could not be adequately brought on record in the proceedings pertaining to earlier years. Whatever may be the reason, we shall have to consider the present reference on its own merits. For the relevant assessment years under consideration, the Wealth-tax Officer came to the conclusion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erji v. CWT [1972] 83 ITR 117, and the judgment of the High Court of Rajasthan in the case of C WT v. Maharani Gayatri Devi [1967] 66 ITR 1, in support of its interpretation of the relevant provisions. Both these judgments are already overruled by the Honourable Supreme Court. The expression "annuity" has not been defined under the Wealth-tax Act, 1957. The said expression "annuity" has been interpreted in various judicial decisions. In several judgments of the Honourable Supreme Court as well as judgments of our High Court and the High Court of Gujarat, the meaning and connotation of the expression "annuity" has been explained at length. It is unfortunate that there is still a controversy between the parties on the meaning of the expression "annuity" as used in the above quoted section as well as on the interpretation of the provision relating to "prevention of commutation of annuity in a lump sum grant". Before we refer to the leading judgments of the Supreme Court and the High Courts on the subject and deal with question No. 3 in the first instance, we would like to formulate the various propositions deduced from the decided cases and standard works relied upon by learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y payable fluctuates or varies depending upon the general income of the estate and its quantum tends to increase or decrease depending upon the quantum of general income of the estate as such, the provision made for payment of such an amount would not partake of the character of an annuity. The above-referred principle, however, has no application to a situation where the annuity may have to abate proportionately by operation of law. (5) Merely because the pre-determined and fixed amount Of annuity is made payable out of the income of the trust which is one of the permissible modes of creating an annuity, it does not follow that the right to receive such sum is "dependent upon or related to the general income of the estate" and the right to receive such pre-determined amount is not an annuity. (6) The terms and conditions precluding commutation of an annuity into a lump sum grant may be express or implied. If the terms and conditions of the trust deed or any other relevant deed provide for payment of continuing annuity to the beneficiary throughout his life and provide for handing over of the entire corpus to another beneficiary on the death of the surviving annuitant, it neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty given in section 173 of the Indian Succession Act also show that it is a right to receive a specified sum and not an aliquot share in the income arising from any fund or property. Ordinarily an annuity is a money payment of a fixed sum annually made and is charge personally on the grantor." In the earlier part of the same judgment, the Honourable Supreme Court approved and adopted the statement of law enunciated in paragraph 899 of Volume 32 (3rd Edition) of Halsbury's Laws of England referred to hereinafter. The Appellate Assistant Commissioner erroneously interpreted the above judgment to mean that unless the fixed sum payable to the assessee was made a charge personally on the grantor, it could not amount to an annuity. The Supreme Court has not laid down in this case that it is an essential characteristic of an annuity that the right to receive the periodical amount must necessarily be charged personally on the grantor. If one refers to paragraphs 899, 900, 904 and 923 of Halsbury's Laws of England, 3rd Edition, Volume 32, and considers the various meanings of the expression "annuity" from any standard work, it will be found that an annuity need not necessarily be charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee would have continued to be entitled to receive the sum of Rs. 1,000 only per month and not a penny more. It is not irrelevant to refer to realities of the situation and extract the figures of the income after payment of expenses during the span of years and the amount of wealth computed by the Wealth-tax Officer in respect of the said trust fund, as set out in the statement of case. The said figures are as under : Trust's Acct. Income after Wealth as per year ending payment of computation expenses made by W. T. 0. Rs. Rs. 31-3-1961 60,993 13,16,219 31-3-1962 69,002 17,21,740 + Capital gain 18,798 31-3-1963 68,851 13,85,133 31-3-1964 45,759 15,16,497 31-3-1965 46,087 14,22,497 31-3-1966 85,629 14,34,043 31-3-1967 1,14,900 18,13,380 31-3-1968 1,00,758 15,65,257 31-3-1969 77,067 15,85,937 31-3-1970 77,152 18,69,653 + Capital gain 57,800 31-3-1971 93,534 21,09,064 31-3-1972 86,756 20,48,814 + Capital gain 5,31,173 31-3-1973 83,793 21,79,215 31-3-1974 1,45,893 26,66,493 31-3-1975 1,03,562 23,40,479 + Capital gain 1,24,171 Shri Gajanan Birla expired in August 1969. As computed by the trust and shown in Part IV of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. Dr. Balasubramaniam, learned counsel for the Revenue, has also referred to and relied upon this very case in support of his submission that the provision for payment of the periodical amount to the assessee could not be considered as an annuity. We have no hesitation in accepting the submission of learned counsel for the assessee and in holding that this case also highlights the concept of a fixed or pre-determined amount as an essential characteristic of the expression "annuity" when contrasted with the concept of an aliquot interest or share in the income of the trust fund generally which may fluctuate in an ordinary course. In the case of Her Highness Maharani Gayatri Devi of Jaipur [1967] 66 ITR 1 (Raj), the assessee was entitled to a half share in the income of the trust fund. Since the assessee was not entitled to any fixed sum under the deed, it could not be considered as an annuity payable out of the trust fund. It was held by the Hon'ble Mr Justice Hegde on behalf of the Bench in the above-referred case reported in CWT v. Her Highness Maharani Gayatri Devi of Jaipur [1971] 82 ITR 699 (at p. 703) as under: "From these clauses, it is clear that the intention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CWT v. Mrs. Aimy N. E. Pandole, (1990) 53 Taxman -Tax Reports, 419 ; [1991] 188 ITR 575 to which one of us (Sugla J.) was a party. In this case also, our court observed that the assessee's right to receive income as contrasted with fixed sum could not be treated as an annuity within the meaning of section 2(e)(iv) and that such an interest was saleable and it could be valued under section 7(1) of the Wealth-tax Act. In the instant case, the assessee has no interest in the corpus but is entitled merely to receive a pre-determined fixed sum periodically during her lifetime. The income from the trust fund merely operates as a security for payment of the said amount. In this case, the assessee has no proprietary or other right, title or interest in the corpus of the trust fund. Merely because the said amount is made payable out of the income and the said income is made a security for ensuring payment of the said amount, it does not follow that the assessee has a life interest in the estate. The assessee has no "interest" in the estate in the legal sense of the term. Thus, the line of cases relied upon by learned counsel for the Revenue where the assessee has a life interest in the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the same was an annuity and the same was not commutable into a lump sum grant. After recording the finding that the said amount was undoubtedly an annuity, the Honourable Supreme Court proceeded to consider the contention of learned counsel for the Revenue that there must be an express provision which must preclude the commutation. It was held by the Honourable Justice Mukharji (as he then was, later on His Lordship became the Hon'ble Chief Justice of India) that there need not be an express provision in the document itself. The Hon'ble Supreme Court then formulated the question in the following words (at p. 903) : "The question is : can, from the circumstances of the case, such an express provision precluding commutation be inferred on the facts and circumstances of this case ?" After examining the facts and circumstances of the case, the Court came to the conclusion that the said annuity could not be commuted and there was an express provision flowing from the circumstances precluding the commutation of the said amount. We are in respectful agreement with the principles laid down in this behalf by the Supreme Court and also with the principles laid down by the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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