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TMI Blog1980 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. By a registered deed dated 20th October, 1877, the heirs of Ramchunder Luxmonjee, that is, his son, Vinayakrao, for himself and his minor children, assigned the said annuity in perpetuity in favour of Sir Cowasjee Jehangir Readymoney for a consideration of Rs. 9 lakhs. In 1911, an Act called the Cowasjee Jehangir Baronetcy Act, 1911,came to be passed by the Governor-General of India in Council. The object of the Act was to settle the annuity of Rs. 50,000 payable by the Secretary of State in Council for India in perpetuity being of the value of Rs. 15 lakhs and certain securities of the nominal value of Rs. 10 lakhs and producing a further annual income of about Rs. 40,000 and two mansion houses called Readymoney House and Fort Mansion in the island of Bombay " so as to accompany and support the title and dignity of Baronet " lately conferred on Sir Cowasjee Jehangir Baronet by his late His Majesty King Edward VII. The concluding portion of the preamble of the said Act recited that " the said Sir Cowasjee Jehangir is desirous of settling the said annuity and the said securities and the said mansion-houses and hereditaments so as aforesaid agreed to be settled by him for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect that the right to annuity can in no circumstances be commuted, the annuity should be deemed to be a commutable annuity. The Tribunal took the view that in the absence of any term and condition in the grant recognising the annuitant's right to claim commutation of annuity, such a right should have been held to be clearly barred thereunder. The Tribunal, therefore, excluded the value of the annuity from the net wealth of the assessee in all the years in question. The question reproduced earlier which clearly arises on the facts of the case and the order of the Tribunal is, therefore, required to be answered by this court. Shri Joshi appearing on behalf of the revenue has contended that the terms of the grant of 1867 do not contain any express provision which precludes commutation of the annuity into a lump sum. He has invited our attention to the value of the annuity put at Rs. 15 lakhs in the Act of 1911 and, according to the learned counsel, this figure clearly indicated that the annuity could be commuted and commutation, according to the learned counsel, must be taken to be the normal rule. It was, therefore, contended that unless the terms and conditions of the gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee was liable to pay Habib Hussein a sum of Rs. 3,20,000 within a period of five years by quarterly instalments of Rs. 16,500 each. The original assessee had paid only Rs. 1,90,000 up to May, 1958, leaving a balance of Rs. 1,40,000. A fresh agreement was entered into between the original assessee and Habib Hussein with regard to the payment of the balance amount of Rs. 1,40,000. Under this document Habib Hussein undertook to pay Rs. 1,000 per month to the original assessee for his lifetime and if there was a default of any two instalments for any two months, the original assessee was entitled to recover from Habib Hussein payment at enhanced rate at Rs. 1,500 per month with interest. This agreement was dated 20th May, 1958. The WTO valued the life interest of the original assessee under the agreement dated 20th, May, 1958. The assessee's claim that the payments under the said agreement were annuities which fell under s. 2(e)(1)(iv) in the sense that the terms and conditions pertaining thereto precluded commutation of life interest was rejected. The Tribunal, however, took the view that the annuity under the terms of the agreement dated 20th May, 1958, was covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anklesaria's case [1964] 53 ITR 393. On the authority of that decision the learned counsel has contended that the proper approach to be adopted in deciding the controversy involved in the question posed in the reference must be whether under the grant of 1867 the assessee can legitimately and rightfully ask the Government to pay a lump sum amount in lieu of the annuity. According to the learned counsel the right of the assessee is primarily under the deed of 1954 under which the the right to receive the annuity is assigned to him and the limited right, according to the learned counsel, is to receive the annuity of Rs. 50,000. In other words, the contention appears to be that it is not open to the assessee to ask for the commutation of the annuity into a lump sum grant. The learned counsel has also referred us to the provisions of the Act of 1911 and according to the learned counsel, the assessee was entitled to receive the annuity after the Act of 1911 from the trustees created by the Act, namely, the corporation. An alternative contention was also raised before us that under the Act, the assessee could not ask the trustees for commutation because he has to receive the amount only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is a right of commutation given to the annuitant or that the right of commutation is not precluded. Though the right to claim annuity originally got vested in Sir Cowasjee Jehangir by the document dated 20th October, 1877, the subsequent enactment of the Act of 1911 has, also, in our view, some impact on the question as to whether in the present case, the right of commutation can be said to have been precluded. As already pointed out earlier, Sir Cowasjee Jehangir has acquired the right to claim annuity from the heirs of Ramchunder Luxmonjee on a payment of a sum of Rs. 9 lakhs. The annuity is payable in perpetuity. That fact by itself may not prevent a proper ascertainment of the present value of the annuity. But what s. 2(e)(1)(iv) refers to is not the ascertainment of the present value, but it refers to commutation of the value of the annuity into a lump sum. The commutation of the value of the annuity must necessarily imply that in lieu of the right to receive annuity, the annuitant claims a lump sum payable to him and he gives up his right to receive the annuity. Commutation is, therefore, a bilateral transaction in which the grantee of the annuity gives up his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel, the question of preclusion of commutation has to be decided only with reference to the terms of the grant dated 23rd October, 1867. In aid of this argument, the learned counsel has invited our attention to the arguments advanced before the Appellate Tribunal and, according to the learned counsel, it was never contended before the Tribunal that commutation was precluded by the terms of the 1911 Act. Shri Joshi, however, was fair enough to concede that the arguments in this court need not be restricted only to the arguments advanced before the Tribunal. We are, however, unable to see how a reference to the provisions of the 1911 Act can be avoided in the context of the facts on which the question posed before us has arisen for decision. It is not as if the Act of 1911 is being referred to for the first time. Indeed, in the course of the opening arguments before us, Shri Joshi has himself referred to the provisions of the Act of 1911. The statement of the case also refers to the provisions of the 1911 Act and it is observed in the statement of the case that Sir Cowasjee Jehangir, the second Baronet, was alone entitled to the said annuity of Rs. 50,000 by virtue of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum. " The question as to whether in the case of a bequest of an annuity, the annuity can be said to be capable of commutation has been considered in detail in Dr.E.D.Anklesaria's case [1964] 53 ITR 393 (Guj). Undoubtedly that was a case where a testamentary disposition was being examined under the terms of which an annuity of Rs. 6,000 per month, was to be paid out of the net income of the trust fund and the assessee claimed that the value of the annuity was entitled to exemption under s. 2(e)(1)(iv) of the Act. On the terms of the relevant deed, the Gujarat High Court held that so far as the annuity to the assessee was concerned, it was to be paid only out of the net income of the trust fund and no part of the corpus was at any time to be utilised for the purpose of paying it to the assessee. According to the Division Bench, it was in this context that it was to be seen whether the terms and conditions relating to the annuity permit or prevent the commutation of the annuity into a lump sum grant. It was pointed out by the Division Bench that if the assessee was to call upon the trustees to commute the annuity into a lump sum grant, there would obviously be a breach of trust as ..... 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