{"id":105401,"date":"1980-09-09T00:00:00","date_gmt":"1980-09-08T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-wealth-tax-vs-p-k-banerjee-dead-by-lrs-on-9-september-1980"},"modified":"2018-02-10T05:39:54","modified_gmt":"2018-02-10T00:09:54","slug":"commissioner-of-wealth-tax-vs-p-k-banerjee-dead-by-lrs-on-9-september-1980","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-wealth-tax-vs-p-k-banerjee-dead-by-lrs-on-9-september-1980","title":{"rendered":"Commissioner Of Wealth Tax, … vs P. K. Banerjee (Dead) By Lrs on 9 September, 1980"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Wealth Tax, … vs P. K. Banerjee (Dead) By Lrs on 9 September, 1980<\/div>\n
Equivalent citations: 1981 AIR 401, \t\t 1981 SCR (1) 657<\/div>\n
Author: E Venkataramiah<\/div>\n
Bench: Venkataramiah, E.S. (J)<\/div>\n
           PETITIONER:\nCOMMISSIONER OF WEALTH TAX, LUCKNOW\n\n\tVs.\n\nRESPONDENT:\nP. K. BANERJEE (DEAD) BY LRS.\n\nDATE OF JUDGMENT09\/09\/1980\n\nBENCH:\nVENKATARAMIAH, E.S. (J)\nBENCH:\nVENKATARAMIAH, E.S. (J)\nBHAGWATI, P.N.\n\nCITATION:\n 1981 AIR  401\t\t  1981 SCR  (1) 657\n 1981 SCC  (1)\t63\n CITATOR INFO :\n D\t    1987 SC 522\t (45)\n\n\nACT:\n     Wealth Tax\t Act,  1957,  Section  2(e)(iv),  scope\t of-\nAnnuity-Nature of  the amount  to fall under the annuity, to\nclaim exemption under the Wealth Tax Act, explained. C\n\n\n\nHEADNOTE:\n     The respondent  assessee, under  a deed  of trust dated\nOctober 26,  1937 executed  by his father Pyarey Lal Banerji\nwhich was  modified by\tanother trust  deed dated  April 28,\n1950, received \"the net income of the trust funds\" after the\ndeath of  his father. The assessee treated this amount as an\nannuity and  claimed exemption under section 2(e)(iv) of the\nWealth Tax  Act, 1957. The claim for exemption was negatived\nby all\tthe authorities\t including the\tAppellate  Tribunal,\nAllahabad Bench.  The Tribunal,\t however, holding  that\t the\ninclusion  of\tthe  entire  value  of\tthe  corpus  in\t the\ncomputation of\tnet wealth  was not  correct as the assessee\nhad merely  a life  interest in\t it, directed the Wealth Tax\nOfficer to  modify the assessments valuing the life interest\nof  the\t assessee  according  to  recognised  principles  of\nvaluation. On  a reference,  at the instance of the assesee,\nthe High  Court held  the interest  of the  assessee in\t the\ntrust fund  amounted to\t an  annuity  exempt  under  section\n(e)(iv) of the Wealth Tax Act. E\n     Allowing the  appeal by  special  leave  and  answering\nagainst the assessee, the Court\n^\n     HELD: (I)\tIn order  to claim  that an item of property\nshould not be treated as an asset for purposes of the Wealth\nTax Act,  by virtue of subclause (iv) of section 2(e)(1), it\nhas to be established (a) that it is an annuity and (b) that\ncommutation of\tany portion  thereof into a lumpsum grant is\nprecluded by the terms and conditions thereto. [663 C]\n     (2) It  is true  that the word \"annuity\" is not defined\nin the\tAct. In\t order to constitute an annuity, the payment\nto be  made periodically should be a fixed or pre-determined\none and\t it should  not be liable to any variation depending\nupon or\t any ground  relating to  the general  income of the\nfund or\t estate which  is  charged  for\t such  payment.\t The\nintention of  the settlor  must be  seen, whether  he wanted\nthat the assessee should get a pre-determined sum every year\nor whether  the assessee  should get the whole net income of\nthe trust fund. [665 C, 671 G]\n     In the  instant case, since the interest of the settlor\nwas that the whole net income of the trust fund should go to\nthe assessee, the right of the assessee cannot be treated as\nan annuity.  The fact  that under the trust deed the trustee\nhad been  given the  power to  reinvest the  proceeds of the\nGovernment securities  leads to the possibility of variation\nof the\tincome and Consequently of the amount to be received\nby the\tassessee. make\tit clear that it was not an annuity.\nThe fact  that no  such reinvestment  had taken place during\nthe relevant year is immaterial. [671 H-672 B]\n658\n     Ahmed G.H.\t Ariff & Ors. v. Commissioner of Wealth-tax,\nCalcutta,<\/a> (1970)  76 I.T.R. 471; Commissioner of Wealth-tax,\nGujarat II  v. Mrs.  Arundhati Balkrishna,<\/a>  (1968) 70 I.T.R.\n203, explained and applied.\n     Commissioner of  Wealth-tax, Rajasthan  v. Her Highness\nMaharani Gayatri  Devi\tof  Jaipur<\/a>  (1971)  82\tI.T.R.\t699,\nfollowed.\n     Commissioner of  Wealth-tax, A.P. v. Nawab Fareed Nawaz\nJung & ors. (1970) 77 I.T.R. 180, overruled.\n     In re Duke of Norfolk: Public Trustee v. Inland Revenue\nCommissioners (1950) Ch 467 distinguished.\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 1163 –
\n1167 of 1973.\n<\/p>\n
     Appeal by\tSpecial Leave  from the\t Judgment and order,
\ndated 15-3-1971\t of the\t Allahabad High\t Court in Wealth Tax
\nReference No. 232 of 1964.\n<\/p>\n
     S. T. Desai and Miss A. Subhashini for the Appellant.
\n     S. N.  Kacker, V. K. Pandita and E. C. Agarwala for the
\nRespondent.\n<\/p>\n
     VENKATARAMIAH, J.-These  appeals by special leave under
\nArticle 136  of the  Constitution are  directed against\t the
\njudgment, dated\t March 15,  1971 of the Allahabad High Court
\nin Wealth Tax Reference No. 232 of 1964.\n<\/p>\n
     The facts\tof the\tcase may be briefly stated thus: The
\nIncome tax  Appellate Tribunal,\t Allahabad Bench,  Allahabad
\nreferred under\tsection 27  (1) of  the Wealth-tax Act, 1957
\n(hereinafter referred  to as `the Act’) to the High Court of
\nAllahabad for  its opinion  the following  question  of\t law
\narising out  of the  assessment orders made under the Act in
\nrespect of the assessment years 1957-58 to 1961-62:\n<\/p>\n
\t  Whether the  interest of the assessee in the trust
\n     fund amounted  to an annuity exempt under section 2 (e)\n<\/p><\/blockquote>\n
     (iv) of the Wealth-tax Act?”\n<\/p><\/blockquote>\n
     The assessee  concerned in\t this case  is\tShri  P.  K.\n<\/p><\/blockquote>\n
Banerji. Under\ta deed\tof trust,  dated  October  26,\t1937
\nexecuted by his father, Shri Pyarey Lal Banerji (hereinafter
\nreferred to  as `the  settlor’) the assessee became entitled
\nto receive  the income\tarising out of the trust fund during
\nhis (assessee’s)  life-time after  the death  of the settlor
\nsubject to  the liability  to pay out of such income certain
\nspecified sums\tperiodically as mentioned in the deed to two
\nother persons.\tAfter the  death of the assessee, the income
\nof the trust fund was directed to be paid in equal shares to
\nthe two\t other persons\treferred to  above and\tif either of
\nthem should  die before\t the death  of the  asessee then the
\nwhole of such income had to be paid
\n659<\/span>
\nto the\tsurvivor of  them during his or her life. There were
\ncertain other  directions in  the trust\t deed with regard to
\nthe disposal  of the  income arising  out of  the trust fund
\nwith which we are not concerned in this case. The trust fund
\nconsisted  of\tcertain\t India\t Government  loan  bonds  or
\nsecurities issued  from time  to time  under  which  certain
\nspecified interest was payable. The total face value of such
\nbonds amounted\tto Rs.\t10 lacs. The Imperial Bank of India,
\nCalcutta (hereinafter  referred to  as\t`the  trustee’)\t was
\nappointed as  the trustee  under  the  trust  deed  and\t the
\nGovernment loan\t bonds or  securities referred to above were
\ntransferred and\t endorsed in  favour of\t the trustee  with a
\ndirection to  discharge the  obligations referred  to in the
\ntrust deed.  Under clause (1) of the trust deed, the settlor
\ndirected the  trustee to  retain with it the said Government
\nloan bonds  or securities and upon redemption of any of them
\nto invest  the proceeds thereof in the purchase of three and
\na half\tper cent  Government promissory notes (old issue) or
\nif this\t was not  practicable in  any other  security of the
\nGovernment of  India or if this too was not practicable then
\nin any\tother securities  authorised for  the investment  of
\ntrust funds  by the Indian Trusts Act, 1882 or any statutory
\nmodification thereof  and to hold and stand possessed of the
\nGovernment loan bonds or securities referred to above or any
\nother investments representing the same as the trust fund to
\nbe used\t in accordance\twith the directions contained in the
\ndeed. The  following are  the relevant recitals of the trust
\ndeed, dated October 26, 1937 containing directions regarding
\nthe manner  in which  the income arising from the trust fund
\nshould be appropriated or spent:-\n<\/p>\n
\t  “(a) The  Bank shall\tpay the\t net income  of\t the
\n     Trust Fund\t to the\t settlor during\t his  life  and\t may
\n     instead of\t paying the  same to  him direct, credit the
\n     same to  the current  account of  the settlor  with the
\n     Bank, so  long as\tthere  shall  be  any  such  current
\n     account.\n<\/p><\/blockquote>\n
\t  (b) From  and after  the death of the settlor, the
\n     Bank shall\t pay the net income of the trust fund to the
\n     settlor’s son  Pranab Kumar Banerji during his life, if
\n     he should\tsurvive the  settlor subject  to the payment
\n     there out\tevery six  months on  the thirtieth  day  of
\n     April and\tthirty first day of October in every year of
\n     a sum of Rupees Nine hundred to the settlor’s son Sunab
\n     Kumar Banerji  and a  sum of  Rupees six hundred to the
\n     settlor’s daughter-in-law Purnima Banerji during his or
\n     her life, if he or she shall survive the settlor.\n<\/p><\/blockquote>\n
     (c) If  the said  Pranab Kumar Banerji shall predecease
\n     the settlor  or if\t he should die after having survived
\n     the settlor, then
\n660<\/span>
\n     in the former case on and from the death of the settlor
\n     and in  the latter\t case on  and from  the death of the
\n     said Pranab Kumar Banerji, the income of the trust fund
\n     shall be  paid in\tequal shares to the said Sunab Kumar
\n     Banerji and  Purnima Banerji  (if he  or she  should be
\n     then alive) or the whole of such income to the survivor
\n     of them during his or her life.\n<\/p><\/blockquote>\n
\t  (d) If  the said Pranab Kumar Banerji, Sunab Kumar
\n     Banerji  and   Purnima  Banerji  shall  predecease\t the
\n     settlor or if they or any one or more of them shall die
\n     after having  survived the\t settlor then  in the former
\n     case on  and from\tthe death  of the settlor and in the
\n     latter case  on and  from the  death of the survivor of
\n     the said  Pranab Kumar Banerji, Sunab Kumar Banerji and
\n     Purnima Banerji,  the Bank shall stand possessed of the
\n     trust fund\t and the  income thereof UPON SUCH TRUSTS as
\n     the said  Pranab Kumar Banerji by any deed or deed with
\n     or without\t power of  revocation may appoint or by will
\n     or codicil\t shall at  any time  or times appoint AND IN
\n     DEFAULT of and so far as any such appointment shall not
\n     extend IN\tTRUST for  the settlor’s  nephew Manoj Kumar
\n     Banerji and  the settlor’s\t niece\tJhuni  Banerji\t(now
\n     minors), if they are both alive, or such one of the two
\n     as may  be alive  and in default of both for the person
\n     or persons\t who under  the law  relating  to  intestate
\n     succession would  on the death of the settlor have been
\n     entitled thereto,\tif the\tsettlor had  died  possessed
\n     thereof and intestate.”<\/p><\/blockquote>\n
     In exercise  of the  power\t that  he  had\treserved  to
\nhimself under  the trust  deed, dated  October 26,  1937  to
\nmodify the terms thereof, the settlor executed another trust
\ndeed, dated  April 28,\t1950 by which clauses (b) and (c) of
\nthe trust  deed, dated October 26, 1937 extracted above were
\nsubstituted by the following clauses:\n<\/p>\n
\t  (b) From  and after  the death  of the settlor the
\n     Bank shall pay the net income of the trust funds to the
\n     settlor’s son  Pranab Kumar  Banerji  during  his\tlife
\n     time, if he should survive the settlor.\n<\/p><\/blockquote>\n
\t  (c)  If   the\t said  Pranab  Kumar  Banerji  shall
\n     predecease the  testator or  if  he  should  die  after
\n     having survived  the settlor then in the former case on
\n     and from  the death  of the  settlor and  in the latter
\n     case on  and from\tthe death  of the  said Pranab Kumar
\n     Banerji, the  income of  the trust funds should be paid
\n     in equal  shares to  my son  Sunab Kumar Banerji and my
\n     daughter-in-law Shakuntala Banerji (if he or she should
\n     be then  alive) or\t the whole  of such  income  to\t the
\n     survivor of them during his or her life.”<\/p><\/blockquote>\n
661<\/span><\/p>\n
     The name  ‘Purnima Banerji’  occurring in clause (d) of
\nthe trust  deed, dated\tOctober 26,  1937 was substituted by
\nthe name ‘Shakuntala Banerji’ by the trust deed, dated April
\n28, 1950.  The resulting  position was\tthat the trustee was
\nobliged to  pay the  net income\t of the\t trust fund  to\t the
\nsettlor during his life time and after his death the trustee
\nhad to\tpay the net income of the trust fund to the assessee
\nduring his  life time  if he  should survive the settlor. If
\nthe assessee should pre-decease the settlor then on and from
\nthe death  of the  settlor and\tif the\tassessee should\t die
\nafter the settlor on and from the death of the assessee, the
\nincome of  the trust  fund had to be paid in equal shares to
\nSunab Kumar  Banerji, the  other  son  of  the\tsettlor\t and
\nShakuntala Banerji,  the daugther-in-law  of the settlor (if
\nhe or she should be then alive) and the whole of such income
\nhad to\tbe paid\t to the\t survivor of  them during his or her
\nlife. We  are concerned\t in this  case principally  with the
\ncharacter of the benefit conferred on the assessee by clause\n<\/p>\n
(b) of the trust deed as substituted by the trust deed dated
\nApril 28,  1950. The settlor died sometime in 1952 and since
\nthen the  assessee was\treceiving the  net income  from\t the
\ntrust fund  in accordance  with the  said clause as the sole
\nbeneficiary.\n<\/p>\n
     During  the   assessment  proceedings   under  the\t Act
\nrelating to  the assessment  years in question, the assessee
\ncontended before  the  Wealth-tax  Officer,  Allahabad\tthat
\nsince the corpus of the trust fund was vested in the trustee
\nand not\t in him,  the value  of the trust fund should not be
\nincluded in his total wealth and that in any event as he had
\nonly the  right to  receive an annuity under the trust deed,
\nthe trust fund should not be taken into account by reason of
\nsection 2  (e) (iv)  of\t the  Act.  The\t Wealth-tax  Officer
\nrejected the  contentions of  the assessee  and included the
\nfull market  value of  the trust fund in the total wealth of
\nthe assessee  in all  the five\tassessment orders  passed by
\nhim. The  appeals filed by the assessee before the Appellate
\nAssistant  Commissioner\t  of  Wealth-tax,   Allahabad\twere
\ndismissed.  On\tfurther\t appeal,  the  Income-tax  Appellate
\nTribunal, Allahabad  Bench, Allahabad  confirmed the  orders
\npassed by the Wealth-tax Officer and the Appellate Assistant
\nCommissioner of Wealth-tax in so far as the question of non-
\napplicability of section 2 (e) (iv) of the Act was concerned
\nbut it\theld that  the inclusion  of the entire value of the
\ncorpus in  the computation  of net wealth was not correct as
\nthe assessee  had merely  a life interest in it. Accordingly
\nit directed the Wealth-tax Officer to modify the assessments
\nvaluing the  life interest  of\tthe  assessee  according  to
\nrecognised  principal\tof  valuation.\t Thereafter  at\t the
\ninstance of  the assessee the common question of law set out
\nabove was referred to the High
\n662<\/span>
\nCourt of  Allahabad under section 27 (1) of the Act. All the
\nfive references\t relating to  the five assessment years were
\nheard together by the High Court in the year 1970. Since the
\nHigh Court  was of  the view that it was necessary to direct
\nthe Income-tax\tAppellate Tribunal to submit a supplementary
\nstatement of the case on the following questions:\n<\/p>\n
\t  “(1) Whether the  right of the assessee to receive
\n     the amounts in terms of the deeds of trust, referred to
\n     above is  an annuity”  within the\tmeaning of section 2\n<\/p><\/blockquote>\n
     (e) (iv) of the Act?\n<\/p><\/blockquote>\n
\t  (2)  if  so,\twhether\t the  terms  and  conditions
\n     relating to  such annuity\tpreclude the  commutation of
\n     any portion thereof into a lump sum grant?”\n<\/p><\/blockquote>\n
it directed  the Tribunal  by its  order, dated February 27,
\n1970 to\t submit a supplementary statement of the case on the
\nabove questions.  In accordance\t with the  directions of the
\nHigh Court, the Tribunal submitted a supplementary statement
\nof the\tcase in\t August, 1970  stating\tthat  the  asset  in
\nquestion was  not an  annuity referred\tto in  section 2 (e)\n<\/p>\n
(iv) of\t the Act.  The cases  were there  after heard by the
\nHigh Court.  By its judgment, dated March 15, 1971, the High
\nCourt answered\tthe common question of law referred to it in
\nthe affirmative\t in favour of the assessee, holding that the
\ninterest of  the assessee  in the  trust fund amounted to an
\nannuity\t exempt\t under\tsection\t 2  (e)\t (iv)  of  the\tAct.
\nDissatisfied with  the\tjudgment  of  the  High\t Court,\t the
\nDepartment has come up in appeal to this Court.\n<\/p>\n
     There  is\tno  dispute  that  in  the  case  of  assets
\nchargeable to  tax under the Act which are held by a trustee
\nunder  a   duly\t executed   instrument\tin  writing  whether
\ntestamentary or otherwise, wealth tax can be directly levied
\nupon and  is recoverable from the person on whose behalf the
\nassets are  held. Section  3 of\t the Act  creates  the\tsaid
\ncharge in  respect of  the net\twealth on  the corresponding
\nvaluation date\tof every  individual, Hindu undivided family
\nand Company  at the rate or rates specified in Schedule I to
\nthe Act.  ‘Net wealth’ according to section 2 (m) of the Act
\nmeans the  amount by  which the\t aggregate value computed in
\naccordance with the provisions of the Act of all the assets,
\nwherever located, belonging to the assessee on the valuation
\ndate, including\t assets required  to be\t included in his net
\nwealth as  on that  date under\tthe Act, is in excess of the
\naggregate value of all the debts owed by the assessee on the
\nvaluation  date\t other\tthan  those  debts  referred  to  in
\nsubclauses (i)\tto (iii)  thereof. In  section 2  (e) of the
\nAct,  the   expression\t“assets”  is  defined  as  including
\nproperty of every description,
\n663<\/span>
\nmovable or  immovable but  not including  in relation to the
\nassessment year\t commencing on\tthe 1st\t April, 1969  or any
\nearlier assessment  year those\titems which are mentioned in
\nsub-clauses (i) to (v) of section 2 (e) (1). Sub-clause (iv)
\nof section  2 (e)  (1) of  the Act which is relevant for the
\npurpose of  this case  excludes from  the definition  of the
\nword ‘assets’  a right\tto an  annuity in any case where the
\nterms  and   conditions\t relating   thereto   preclude\t the
\ncommutation of any portion thereof into a lump sum grant. In
\norder to  claim that  an item  of  property  should  not  be
\ntreated as  an asset  for purposes  of the  Act by virtue of
\nsub-clause  (iv)  of  section  2  (e)  (1),  it\t has  to  be
\nestablished  (i)  that\tit  is\tan  annuity  and  (ii)\tthat
\ncommutation of\tany portion thereof into a lump sum grant is
\nprecluded by the terms and conditions relating thereto.\n<\/p>\n
     The property  in question\tis the right of the assessee
\nto receive  the net  income of\tthe trust  funds during\t his
\nlife-time. The\tprimary facts that emerge from the orders of
\nthe Tribunal  are (1) that under the trust deed, the settlor
\nintended that  after the settlor’s death, the assesee should
\nbe the\tsole beneficiary  of the  net income  from the trust
\nfund during his (assessee’s) life-time (2) that the assessee
\nhad been treating himself as the owner of the trust fund for
\npurposes of income tax payable by him and had been declaring
\nthe income  of the  trust as  his own income and claiming in
\nhis own\t income-tax returns deduction for tax paid at source
\nby the\ttrust; (3)  that in  fact the  assessee was the sole
\nbeneficiary of\tthe net\t income derived from trust fund; (4)
\nthat he had under the trust deed the right of appointment of
\nhis successors\tunder certain circumstances and (5) that the
\ntrustees had  the  power  to  invest  the  proceeds  of\t the
\nGovernment loan\t bonds or  securities which  constituted the
\ntrust fund upon their redemption as provided in the deed and
\nthat therefore the net income realisable from the trust fund
\nwas subject to variation. One of the significant features of
\nthe trust  deed, dated\tOctober 26,  1937 is  that what\t was
\npayable to  the assessee  was not  a periodical payment of a
\ndefinite predetermined\tsum of money but only the net income
\nof the trust funds, although it was possible to predicate at
\nany given  point of  time such\tincome with  some  certainty
\nhaving regard to the fact that the trust fund in the instant
\ncase consisted\tof Government  loan bonds or securities, the
\nproceeds of  which on  redemption were liable to be invested
\nin other  securities as\t indicated in  the trust deed, dated
\nOctober 26, 1937.\n<\/p>\n
     The principal  reason given by the High Court to arrive
\nat the\tconclusion that\t the property  in  question  was  an
\nannuity is set out in its judgment thus:\n<\/p>\n
664<\/span><\/p>\n
     “In the  case before  us the property settled under the
\ntrust deed  consists of\t Government securities,\t and  it  is
\napparent from  the schedule  appended to  the deed that they
\nbear interest  at a  fixed and determined rates. The settlor
\nconferred  upon\t  the  trustee\t the  power  to\t redeem\t the
\ngovernment securities  and to  invest the  proceeds  in\t the
\npurchase of  3 1\/2%  Government promissory notes (old issue)
\nor in  any other  securities of\t the Government of India, or
\nthat  if   that\t was  not  practicable\tthen  in  any  other
\nsecurities authorised  for the\tinvestment of the trust fund
\nby the\tIndian Trusts  Act. There  is nothing  on the record
\nbefore us  to show  that the  original securities comprising
\nthe trust  property were converted or replaced by securities
\nnot bearing  a fixed  rate of interest and returning a fixed
\nand definite  income. Proceeding,  therefore, on  the  basis
\nthat a\tdefinite  and  certain\tincome\tis  yielded  by\t the
\nsecurities, we\thave no\t hesitation in holding that what the
\nassessee received was an amount which did not depend upon or
\nwas related to the general income of the estate in the sense
\nthat it\t fluctuated with a fluctuating income. Having regard
\nto the\tcharacter and  nature of  the property settled under
\nthe trust,  no question\t arises of  a rise  or fall  in\t the
\namount\tof  income  produced  by  the  trust  property\tand,
\ntherefore, in  a real sense what the assessee is entitled to
\nis a  definite and  certain sum.  Also, having regard to the
\nterms of  the trust  deed it is not possible to say that the
\ninterest of  the assessee  constitutes an  interest  in\t the
\ncapital of  the trust  fund. Therefore,\t upon the  test laid
\ndown by\t Jenkins L.  J. in  Duke of  Norfolk: In  re: Public
\nTrustee v.  Inland Revenue Commissioner (1950) 1 Ch. 467, it
\ncannot be  described as a life interest. We are fortified in
\nthe  view  we  are  taking  by\tthe  decision,\ton  somewhat
\ncomparable  faces  of  the  Andhra  Pradesh  High  Court  in
\nCommissioner of\t Wealth-tax v.\tNawab Fareed  Nawaz  Jung  &
\nOrs., (1970) 77 I.T.R. 180.\n<\/p>\n
     It is  true that  the assessee  is entitled  to the net
\nincome only  and that  because the  trustee has the right to
\ndeduct from  the gross\tincome its  remuneration, its annual
\nincome fee  and the  expenses in  managing the trust estate,
\nthe net income may vary from year to year. Yet even here the
\nremuneration and the annual income fee can be charged by the
\ntrustee at  a fixed  rate only, and any variation in the net
\nincome may  be attributed  to the varying expenses from year
\nto year\t in managing  the  trust  estate.  We  have  already
\npointed out  that freedom  from variation is not an absolute
\ntest determining  the character\t of an\tannuity. We  are  of
\nopinion that where it varies merely because
\n665<\/span>
\n     of the  charges and  expenses payable on account of the
\n     administration of\tthe  trust  it\tdoes  not  lose\t its
\n     character as an annuity.\n<\/p>\n
\t  Upon the  aforesaid consideration,  it seems to us
\n     that the  right of\t the assessee to the net income from
\n     the  trust\t  property  under  the\ttrust  deed  can  be
\n     described in law as a right to an annuity.”\n<\/p>\n
     The High  Court appears  to have felt that the facts of
\nthe case  were distinguishable from the facts in Ahmed G. H.
\nAriff &\t Ors. v.  Commissioner of Wealth-tax Calcutta<\/a>(1) and
\nthe facts  in Commissioner of Wealth-tax, Gujarat II v. Mrs.
\nArundhati Balkrishna<\/a>(2).  We shall presently deal with these
\ntwo cases.\n<\/p>\n
     The word ‘annuity’ is not defined in the Act. In one of
\nthe earliest legal compilations of the English law, the term
\n‘annuity’ has  been explained  as an  yearly  payment  of  a
\ncertain sum  of money  granted to another in fee or for life
\nor for\ta term\tof years  either payable  under\t a  personal
\nobligation  of\t the  grantor\tor  charged  upon  his\tpure
\npersonality, although  it may  be made\ta  charge  upon\t his
\nfreehold or  leasehold lend  in\t which\tlatter\tcase  it  is
\ncommonly called\t a  rent-charge\t (See  Co.  Litt  144b).  In
\nHalsbury’s Laws of England, Third Edition (Vol. 32, page 534
\npara 899),  the meaning of the said expression is given as a
\ncertain sum  of money  payable yearly  either as  a personal
\nobligation of  the grantor or out of property not consisting
\nexclusively of land; it differs from a rent-charge in that a
\nrent-charge issues  out of  land. In  Bignold  v.  Giles.(3)
\n‘annuity’ is described thus:\n<\/p>\n
\t  “An annuity is a right to receive de anno in annum
\n     a certain\tsum; that  may be  given for  life, or for a
\n     series of\tyears it  may be given during any particular
\n     period, or\t in  perpetuity;  and  there  is  also\tthis
\n     singularity about\tannuities, that although payable out
\n     of the personal assets, they are capable of being given
\n     for the purpose of devolution, as real estate; they may
\n     be given to a man and his heirs, and may go to the heir
\n     as real estate; so an annuity may be given to a man and
\n     the heirs\tof his\tbody; that  does not,  it  is  true,
\n     constitute an estate tail, but that is by reason of the
\n     Statute  De   Donis,  which   contains  only  the\tword
\n     ‘tenements’ and  an annuity,  though a hereditament, is
\n     not a tenement; and an annuity so given is a base fee.”\n<\/p><\/blockquote>\n
666<\/span><\/p>\n
It is further observed in the above decision thus:\n<\/p>\n
\t  “But this  appears to\t me at\tleast clear, that if
\n     the gift of what is called an annuity is so made, that,
\n     on the  face of the will itself, the testator shows his
\n     intention to give a certain portion of the dividends of
\n     a fund, that is a very different thing; and most of the
\n     cases proceed  on that footing. The ground is, that the
\n     court construes  the intention  of the  testator to be,
\n     not merely\t to give  an annuity, but to give an aliquot
\n     portion of\t the income  arising from  a certain capital
\n     fund”.<\/p><\/blockquote>\n
     The three\tillustrations given under section 173 of the
\nIndian\tSuccession   Act,  1925\t dealing  with\tbequests  of
\nannuities also refer to the payment of certain definite sums
\nperiodically and they do not refer to periodical payments of
\nincome arising out of any trust fund.\n<\/p>\n
     It is against this background that this Court proceeded
\nto decide  the case  of Ahmed  G. H.  Ariff (supra). In that
\ncase, the  Court was  called upon  to determine\t whether the
\nbenefits conferred on the appellants under a deed creating a
\nwakf-alal-aulad were  annuities or not. The relevant part of
\nthe deed,  which declared  that the  ultimate benefit in the
\ncase of complete intestacy of the descendants of the settlor
\nwas reserved for poor Musalmans of Sunni community deserving
\nhelp, read thus:\n<\/p>\n
\t  “After payment  of all necessary outgoings such as
\n     establishment  charges,  collections  charges,  revenue
\n     taxes, costs of repairs, law charges and other expenses
\n     for  the\tupkeep\tand  management\t of  the  said\twakf
\n     property, the  mutawalli or  mutawallis shall apply the
\n     net income of the said wakf property as follows, viz.:\n<\/p><\/blockquote>\n
\t       (a) in  payment to  me during  the term of my
\n\t  life of  one-fifth  of  the  said  net  income  by
\n\t  monthly instalments;\n<\/p><\/blockquote>\n
\t       (b) in  payment to each of my sons during the
\n\t  respective terms  of their  lives one-sixth of the
\n\t  said net income by monthly instalments;\n<\/p><\/blockquote>\n
\t       (c) in payment to my wife, Aisha Bibi, during
\n\t  the term  of her  life one-tenth  of the  said net
\n\t  income by monthly instalments.\n<\/p><\/blockquote>\n
\t  The moneys payable as aforesaid to such of my sons
\n     as are  minors shall  until  they\tattain\tthe  age  of
\n     majority be  respectively invested (after defraying the
\n     expenses of  their maintenance and education) in proper
\n     securities or  in landed  property in Calcutta and such
\n     securities or property shall be
\n667<\/span>
\n     made over\tto  the\t said  sons  on\t their\trespectively
\n     attaining the age of majority.”<\/p><\/blockquote>\n
     This Court\t held that  the right  of the beneficiary to
\nreceive an aliquot share of the net income of the properties
\nwas an\tasset covered  by the  definition of section 2(e) of
\nthe Act\t and not  a mere ‘annuity’ and affirmed the decision
\nof  the\t Calcutta  High\t Court\tin  Ahmed  G.  H.  Ariff  v.
\nCommissioner of Wealth Tax Calcutta.<\/a>(1)
\n     In the  case of  Mrs. Arundhati  Balkrishna (supra)  to
\nwhich one of us was a party, under two trusts created by the
\nfather of  the assessee and one trust created by her mother-
\nin-law, she  was to  be paid annually the net income of each
\nof  the\t  trusts  after\t deducting  costs  and\texpenses  of
\nadministration of  the trust. Under the terms of the trusts,
\nafter the life time of the assessee, the corpus of the trust
\nin each case had to be dealt with as provided in them. Since
\nthe assessee was entitled to the whole residue of the income
\nfrom the  trust funds  available after defraying expenses of
\nthe trust  and not  any specified  or pre-determined amount,
\nthe High  Court of  Gujarat  held  that\t the  right  of\t the
\nassessee under\teach of\t the trust  deeds was not an annuity
\nbut only  amounted to  a life  interest. The decision of the
\nHigh Court  of Gujarat\twas later  affirmed by this Court in
\nCommissioner   of    Wealth-tax,   Gujarat    v.   Arundhati
\nBalkrishna<\/a>(2) in which it was observed thus:\n<\/p>\n
\t  “On an  analysis of  the relevant  clauses in\t the
\n     three trust  deeds, it  is clear the assessee was given
\n     thereunder a share of the income arising from the funds
\n     settled on trust. Under those deeds she is not entitled
\n     to any  fixed  sum\t of  money.  Therefore,\t it  is\t not
\n     possible to hold that the payments that she is entitled
\n     to receive\t under those  deeds are\t annuities. She\t has
\n     undoubtedly a life interest in those funds. In Ahmed G.
\n     H. Ariff v. Commissioner of Wealth-tax<\/a> (1966) 59 I.T.R.
\n     230 (Cal.), a Division Bench of the Calcutta High Court
\n     held that the right of a person to receive under a wakf
\n     an aliquot share of the net income of the wakf property
\n     is an “asset” within the meaning of the Wealth-tax Act,
\n     1957,  and\t the  capital  value  of  such\ta  right  is
\n     assessable to  wealth-tax. Therein,  the Court repelled
\n     the contention  that  the\tright  in  question  was  an
\n     “annuity”. This  decision was approved by this Court in
\n     Ahmed G.  H. Ariff v. Commissioner of Wealth-tax<\/a> (1970)
\n     76 I.T.R.\t471 (S.C.)  Civil Appeals  Nos. 2129-2132 of
\n     1968 decided on
\n668<\/span>
\n     August 20,\t 1969) and  the same  is binding  on  us.  A
\n     similar view was taken by another Bench of the Calcutta
\n     High  Court  in  Commissioner  of\tWealth-tax  v.\tMrs.
\n     Dorothy Martin  (1968) 69\tI.T.R. 586  (Cal.). In\tthat
\n     case under\t the  will  of\tthe  assessee’s\t father\t the
\n     assessee was  entitled to\treceive\t for  her  life\t the
\n     annual  interest\taccruing  upon\t her  share  in\t the
\n     residuary trust  fund. The\t Wealth-tax Officer included
\n     the entire\t value of  the said  share in the assessable
\n     wealth of\tthe assessee  and subjected  the same to tax
\n     under section  16 (3)  of the  Wealth-tax,\t 1957.\tThat
\n     order  was\t  confirmed  by\t  the  Appellate   Assistant
\n     Commissioner but  the Tribunal  in appeal\texcluded the
\n     same in  the computation  of  the\tnet  wealth  of\t the
\n     assessee. On a reference made to the High Court, it was
\n     held that,\t on a construction of the various clauses in
\n     the will, the assessee was entitled to an aliquot share
\n     in the  general income  of the residuary trust fund and
\n     not a  fixed sum payable periodically as “annuity” and,
\n     therefore, the  value of  her share  was an asset to be
\n     included in  computing his\t net wealth. These decisions
\n     in our  view correctly  lay down the legal position. In
\n     this view,\t it is not necessary to consider whether the
\n     income receivable\tby the\tassessee under\tthose deeds,
\n     either wholly  or in part, is capable of being commuted
\n     into a lump sum grant.\n<\/p><\/blockquote>\n
\t  For the reasons mentioned above, we agree with the
\n     High Court\t that payments\tto be  made to\tthe assessee
\n     under the\tthree trust  deeds cannot  be considered  as
\n     annuities, and,  hence, she  is  not  entitled  to\t the
\n     benefits of section 2(e) (iv).”<\/p><\/blockquote>\n
     It is,  however, contended on behalf of the assessee in
\nthis case  that since the trust fund consisted of Government
\nsecurities which were yielding definite annual income by way
\nof interest and there was no evidence of the said securities
\nhaving been  converted into other securities yielding higher
\nor lower  income, it  should be\t assumed  that\tthe  benefit
\nconferred on  the assesee  was only  an ‘annuity’  and not a
\nlife interest.\tThis contention\t has to\t be rejected for the
\nvery reason  for which\ta similar contention was rejected by
\nthis Court  in Commissioner  of Wealth-tax, Rajasthan v. Her
\nHighness Maharani Gayatri Devi of Jaipur<\/a>(1) in the following
\nwords:\n<\/p>\n
\t  “From these clauses it is clear that the intention
\n     of the Maharaja was that the assessee should get a half
\n     share in  the income  of the  trust fund.\tNeither\t the
\n     trust fund\t was fixed  nor the  amount payable  to\t the
\n     assessee was  fixed. The only thing certain is that she
\n     is entitled to a 15\/30 share from out
\n669<\/span>
\n     of the  income of\tthe trust fund. That being so, it is
\n     evident that  what she  was  entitled  to\twas  not  an
\n     annuity but an aliquot share in the income of the trust
\n     fund.\n<\/p><\/blockquote>\n
\t  Mr. Setalvad,\t learned counsel  for the  assessee,
\n     contended that  during  the  year\twith  which  we\t are
\n     concerned, there was no change in the trust fund and in
\n     view of  that  fact  and  as  we  are  considering\t the
\n     liability to  pay wealth-tax,  we would be justified in
\n     holding that  the amount  receivable by the assessee in
\n     the year  concerned was  an annuity. We see no force in
\n     this contention.  The  question  whether  a  particular
\n     income is\tan annuity  or not  does not  depend on\t the
\n     amount received  in a  particular year. What we have to
\n     see is  what exactly  was the intention of the Maharaja
\n     in creating  the trust.  Did  he  intend  to  give\t the
\n     assessee a\t pre-determined sum  every year\t or  did  he
\n     intend to\tgive her an aliquot share in the income of a
\n     fund? On  that question,  there can  be only one answer
\n     and that  is that\the intended  to give  her an aliquot
\n     share in the income of the trust fund. An income cannot
\n     be annuity\t in one year and an aliquot share in another
\n     year. It  cannot change  its character year after year.
\n     From the facts found, it is clear that the assessee has
\n     life interest in the trust fund.”<\/p><\/blockquote>\n
     The decision  of the  High Court  of Andhra  Pradesh in
\nCommissioner of Wealth-tax, A. P. v. Nawab Fareed Nawaz Jung
\n &Ors.(1) on which the High Court has relied in this case to
\nthe extent  it takes  a contrary  view must  be held  to  be
\nincorrect.\n<\/p>\n
     We may  now to  consider the  decision in In re Duke of
\nNorfolk: Public Trustee v. Inland Revenue Commissioner(2) on
\nwhich the  High Court  relied heavily  in  arriving  at\t its
\nconclusion. The\t point which  arose for consideration in the
\nabove case was whether, where one continuing annuity for two
\nor more lives was given to two or more persons in succession
\nand charged  on property,  on the  death of  any  annuitant,
\nother than  the last  to die,  estate duly was payable under
\nsection 1  of the  Finance Act,\t 1894 on the footing that it
\nwas the\t annuity which\tpassed on the annuitant’s death. The
\nestate duty  authorities claimed estate duty on the death of
\nan annuitant,  who was not the last of the annuitants to die
\non the slice of the capital required to produce the annuity,
\non the\tfooting that  as  annuitant,  the  deceased  had  an
\ninterest on  the capital  charged with\tthe annuity and that
\ncesser of that interest gave rise to a benefit taxable under
\n670<\/span>
\nsection\t 2(1)(b)  of  the  Finance  Act,  1894.\t The  Public
\nTrustee, in whom the estate vested, claimed that estate duty
\nbecame payable\ton the value of a continuing annuity for the
\nlife of\t the annuitant\twho succeeded  to the annuity on the
\ndeath of  the deceased\tannitant. Jenkins L.J. in the course
\nof his\tjudgment in  the above case explained the difference
\nbetween an annuity and a life interest thus:\n<\/p>\n
\t  “An annuity  charged on property is not, nor is it
\n     in any  way equivalent  to, an interest in a proportion
\n     of the  capital of\t the property  charged sufficient to
\n     produce its  yearly amount.  It is nothing more or less
\n     than a  right to  receive the stipulated yearly sum out
\n     of the income of the whole of the property charged (and
\n     in many  cases out\t of the\t capital in  the event\tof a
\n     deficiency of  income). It\t confers no  interest in any
\n     particular part  of the  property charged, but simply a
\n     security extending\t over the  whole. The  annuitant  is
\n     entitled to  receive no  less  and\t no  more  than\t the
\n     stipulated sum. He neither gains by a rise nor loses by
\n     a\tfall  in  the  amount  of  income  produced  by\t the
\n     property, except in so far as there may be a deficiency
\n     of income\tin a  case in  which recourse  to capital is
\n     excluded.\n<\/p><\/blockquote>\n
\t  On the  other hand,  a life interest in a share of
\n     the income\t of property  is equivalent  to\t and  indeed
\n     constitutes, a  life  interest  in\t the  share  of\t the
\n     capital corresponding  to the share of income. The life
\n     tenant enjoys  the share  of  income  whatever  it\t may
\n     amount to,\t and his interest, viewed as a life interest
\n     in capital,  consists of  a constant  proportion of the
\n     whole property,  whether the  income is great or small,
\n     and whether  the capital value of the property rises or
\n     falls. The\t property which\t changes hands\ton his death
\n     (or in  other words  passed under\ts. 1)  thus  clearly
\n     consists of the designated share of capital, which then
\n     passes  from   his\t beneficial  enjoyment\tto  that  of
\n     another, an  annuity cannot  be so related to any fixed
\n     proportion of  capital: See  De Trafford  v.  Attorney-
\n     General (1935) A. C. 280.”<\/p><\/blockquote>\n
     Evershed M. R. who delivered a separate judgment agreed
\nwith the observation and stated thus:\n<\/p>\n
\t  “In the  case of  one who has enjoyed for his life
\n     (say) one\tfourth of  the income of an estate, it seems
\n     to me in accordance with common sense and a natural use
\n     of language  to say  that he enjoyed for his life, that
\n     he was  life tenant of, a fourth part of the (corpus of
\n     the) estate;  and, accordingly,  that upon\t his death a
\n     fourth part of the estate passed to the next successor.
\n     But no such language can, in my judgment, appropriately
\n     be used  in the  case of  an annuitant. He is in no way
\n     concerned
\n671<\/span>
\n     with changes  in the  yield of the estate; his right to
\n     his annuity  will continue\t whatever income  the estate
\n     may produce  or (unless  he has  a right to look income
\n     only) though the estate produce no income at all.”<\/p><\/blockquote>\n
     The learned Master of the Rolls distinguished the cases
\nof In  re Northcliffe(1)  and Christie\tv. Lord\t Advocate(2)
\nfrom the case before him thus:\n<\/p>\n
\t  “Both the  two last-mentioned cases were instances
\n     of dispositions of aliquot shares of the general income
\n     of an  estate to  be enjoyed in succession, as distinct
\n     from an  annuity or  yearly  sum,\twhich,\teven  though
\n     variable (as  in the  case of In re Cassel (1927) 2 Ch.\n<\/p><\/blockquote>\n
     275) is  in no  way dependent  upon or  related to\t the
\n     general income of the estate.”\n<\/p><\/blockquote>\n
     Accordingly the  contention of  the Crown was rejected.\n<\/p><\/blockquote>\n
On going  through the  above decision  carefully, we  do not
\nfind any  support for  the contention urged on behalf of the
\nassessee in the present case. The decision is quite clear on
\nthe point that when the payment is dependent upon the income
\nof the\tcorpus, it  cannot be  called an annuity and that an
\nannuity even  though it may be variable as in the case of In
\nre Cassel(3)  can in  no way be dependent upon or related to
\nthe general  income of\tthe  estate.  The  High\t Court\twas,
\ntherefore in  error in\trelying upon the decision in Duke of
\nNorfolk: In  re. Public\t Trustee (supra)  for  holding\tthat
\nnotwithstanding\t the   existence  of   the  possibility\t  of
\nvariation in the payment to be made in the above case to the
\nassessee depending  upon the  income of the fresh securities
\nto be  acquired by  the trustee\t on the redemption of any of
\nthe securities\ttransferred at\tthe time of the execution of
\nthe trust deed, the payment would amount to an annuity.\n<\/p>\n
     On a consideration of the decisions cited before us, we
\nfeel that  in order to constitute an annuity, the payment to
\nbe made\t periodically should  be a  fixed or  pre-determined
\none, and  it should not be liable to any variation depending
\nupon or\t on any ground relating to the general income of the
\nfund or\t estate which  is charged  for such  payment. In the
\ninstant case,  as observed  in\tthe  case  of  Her  Highness
\nMaharani Gayatri  Devi of Jaipur (supra) what we have to see
\nis the\tintention of the settlor, whether he wanted that the
\nassessee should\t get a\tpre-determined\tsum  every  year  or
\nwhether the assessee
\n672<\/span>
\nshould get the whole net income of the trust fund. Since the
\nintention of  the settlor  was indisputably  the latter one,
\nthe right  of the  assessee cannot be treated as an annuity.
\nAn additional factor which requires us to take the same view
\nis that under the trust deed the trustees had been given the
\npower to  reinvest the proceeds of the Government securities
\nwhich leads  to the  possibility of  variation of the income
\nand consequently  of  the  amount  to  be  received  by\t the
\nassessee. The fact that no such reinvestment had taken place
\nduring the relevant years is immaterial.\n<\/p>\n
     In view  of the foregoing, the appeals are allowed, the
\njudgment of  the High  Court is\t set aside  and the question
\nreferred to the High Court under section 27(1) of the Act is
\nanswered in  the negative  and against\tthe assessee. In the
\ncircumstances of  the case, the assessee shall pay the costs
\nof the Department. (Hearing fee one set).\n<\/p>\n
\t\t\t\t\t     Appeal allowed.\n<\/p>\n
V.D.K.\n<\/p>\n
673<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Wealth Tax, … vs P. K. Banerjee (Dead) By Lrs on 9 September, 1980 Equivalent citations: 1981 AIR 401, 1981 SCR (1) 657 Author: E Venkataramiah Bench: Venkataramiah, E.S. (J) PETITIONER: COMMISSIONER OF WEALTH TAX, LUCKNOW Vs. RESPONDENT: P. K. BANERJEE (DEAD) BY LRS. DATE OF JUDGMENT09\/09\/1980 BENCH: VENKATARAMIAH, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-105401","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Wealth Tax, ... vs P. K. 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