Bombay H.C : Whether, on the facts and in the circumstances of the case, the tax liability on the notional capital gains arising on the notional sale, as contemplated under s. 7(1) of the WT Act, 1957, of shares held by the assessee was deductible as debt under s. 2(m) of the said Act while computing her net wealth for the asst. yrs. 1967-68 to 1972-73 ?

High Court Of Bombay

Gopikumari Birla vs. Commissioner Of Wealth Tax

Sections WT 2(e), WT 2(m), WT 7(1)

Asst. Year 1967-68, 1968-69, 1969-70, 1970-71, 1971-72, 1972-73

T.D. Sugla & D.R. Dhanuka, JJ.

WT Ref. No. 1 of 1977

15th March, 1991

Counsel Appeared

P. H. Toprani, for the Assessee : Dr. V. Balasubramanian with J. P. Deodhar & K. C. Sidhwa, for the Revenue

D. R. DHANUKA, J.:

The Tribunal has referred the following questions to this Court under s. 27(1) of the WT Act, 1957. The questions read as under :

“(1) Whether, on the facts and in the circumstances of the case, the tax liability on the notional capital gains arising on the notional sale, as contemplated under s. 7(1) of the WT Act, 1957, of shares held by the assessee was deductible as debt under s. 2(m) of the said Act while computing her net wealth for the asst. yrs. 1967-68 to 1972-73 ?

(2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 16,872 being the value of gold ornaments was includible in the `net wealth’ of the assessee for the asst. yrs. 1967- 68 to 1971-72 ?

(3) Whether, on the facts and in the circumstances of the case, the right of the assessee to receive Rs. 1,000 per month in terms of the provisions of the deed of settlement dt. 11th Dec., 1952, is a right to an annuity within the meaning of s. 2(e)(1)(iv)/s. 2(e)(2)(iii) of the WT 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 asst. yrs. 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 vs. 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 asst. yrs. 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 vs. Godavaribai R. Podar reported in (1988) 169 ITR 245, and the said question is required to be answered in the negative and in favour of the assessee. We, accordingly, answer question No. 2 as aforesaid.

As regards questions Nos. 3 and 4, there is a serious controversy between the parties. The relevant facts concerning questions Nos. 3 and 4 are as under : By a deed of settlement dt. 11ht Dec., 1952, Mr. Rameshwardas Birla created a trust and settled a sum of Rs. 2 lakhs and various shares of limited companies of the aggregate value of Rs. 7,48,437. 8 annas, on trust making a provision for payment of Rs. 1,000 per month-Rs.12,000 per year-from the income of the said trust. Under the said trust, Mr. Rameshwardas Birla appointed himself and several others as trustees of the said trust. By the said trust deed, it was provided that the trustees shall pay a sum of Rs. 2,000 per month to Mr. Gajanan Birla during his lifetime out of the income of the said trust and shall also pay a sum of Rs. 1,000 per month to the assessee for her lifetime out of the income from the said trust fund. Clause (1) of the said trust deed reads as under : “(1) The trustees shall collect the dividend, interest, income and profit of the trust fund (hereinafter for brevity’s sake referred to as”the said income”) and pay out of the said income (1) the sum of Rs.

2,000 (Rupees two thousand) every month to the said Gajanan Birla, son of Rameshwardas Birla, during his lifetime for his absolute use and benefit, and (2) the sum of Rs. 1,000 (one thousand) every month to Gopykoer, wife of the said Gajanan Birla, during her lifetime for her absolute use and benefit and accumulate the balance of the said income until Ashok Birla, son of the said Gajanan Birla and Gopykoer Birla, attains the age of 18 years and upon the said Ashok attaining the age of 18 years, the trustees shall pay to him the accumulations of the balance of the said income made up to his attaining the age of 18 years and, thereafter, after payments of the said sum of Rs. 2,000 and/or Rs. 1,000 per month, as the case may be, pay to the said Ashok Birla, the balance of the said income until the demise of the survivor of the said Gajanan Birla and Gopykoer Birla and upon the demise of such survivor shall hand over the trust fund absolutely to him for his own absolute use and benefit.” Thus, it was provided by and under the said trust deed that the aforesaid fixed amounts shall be payable by the trustees to the beneficiaries named in the trust 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 cl. (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. Sec. 3 of the WT 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 of the assessee at the rate prescribed. The expression “net wealth” has been defined in s. 2(m) of the said Act. In order to compute the net wealth under the said Act, it is necessary to ascertain what assets are includible in the “net wealth”. Sec. 2(e) of the said Act defines the expression “assets”. The said section reads as under : “2. (e) `assets’ includes property of every description, movable or immovable, but does not include, (1) in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year— . . . (iv) 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; … (2) in relation to the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year-… (ii) a right to annuity (not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee) in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant ;” Thus, a right to an annuity is not includible in the net wealth of the assessee for the purpose of wealth-tax where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant. It is the contention of the assessee that the monthly or yearly sum payable to her under the said deed of trust amounts to an annuity and the terms and conditions of the said trust deed precluded commutation of any portion thereof into a lump sum grant. In other words, the assessee contends that the said amount of Rs 1,000 per month payable to the assessee under the said trust deed is not includible in the computation of “net wealth” of the assessee under the provisions of the said Act. As against that, it is the contention of learned counsel for the Revenue that the said amount receivable by the assessee under the said trust deed is not an annuity at all in the legal sense of the term as judicially interpreted. It is also the contention of learned counsel for the Revenue that the above-referred right of the assessee to receive the periodical amount from the trustees was includible in the “net wealth” of the assessee also on the ground that the terms and conditions contained in the deed of trust did not preclude the commutation of any portion thereof into a lumpsum grant. During the asst. yrs. 1964-65 to 1966-67, the 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 27th Feb., 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 dt. 27th Feb.,

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 WTO came to the conclusion that the right to receive the said sum of Rs. 1,000 per month payable to the assessee by the trustees was not an annuity and the same was not exempted from the levy of wealth-tax. The WTO, therefore, added on that score the various amounts computed under rule I B of the WT Rules, 1957, in the net wealth of the assessee. The said amounts included in the net wealth of the assessee for the relevant years are as under :

Years of assessment    Amount . Rs.

1967-68                    95,112

1968-69                    92,664

1969-70 90,216

1970-71  87,720

1971-72  85,188

1972-73 82,656

The AAC took the same view in the matter. The AAC held that the said amount could not be considered as an annuity as no charge was created on the grantor in the matter of payment to the beneficiary. The AAC interpreted the observations of the Supreme Court in the case of CWT vs. Arundhati Balkrishna (1970) 77 ITR 505, to mean and imply that it was an essential characteristic of an annuity that a charge must be created on the grantor in the matter of payment to the beneficiary and in the absence of creation of any such charge, the right to receive the yearly payment could not be characterised as an annuity. With respect, the AAC did not correctly interpret the above-referred judgment of the Supreme Court and did not apply the ratio thereof correctly, as would be apparent from the discussion in the later part of this judgment.

The Tribunal took the same view and held that the right to receive the said amount of Rs. 1,000 per month or Rs. 2,000 per year could not be characterised as an annuity on the ground that the said amount was “not charged personally on the grantor or on the trust fund in question”. According to us, it is not the essential characteristic of an annuity that the periodical amount receivable by the assessee must necessarily be a charge personally on the grantor or on the trust fund and that in the absence thereof, the periodical payment cannot be considered as an annuity. This aspect shall also be discussed in the later part of this judgment to the extent necessary. It may be stated in passing even at this stage that the Tribunal relied on the judgment of the Allahabad High Court in the case of P. K. Banerji vs. CWT (1972) 83 ITR 117, and the judgment of the High Court of Rajasthan in the case of CWT vs. 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 WT 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 counsel on both sides. We do not think it necessary to extract a large number of dictionary meanings of the word “annuity” or passages from standard books on the subject. The propositions deduced from the judgments of the Supreme Court and standard works of authors of repute having bearing on the subject-matter of this reference are as under :— (1) An annuity is a right to receive de anno in annum a certain sum payable by the grantor personally or out of the corpus or income of the estate or a fund specifically set apart. The amount receivable by the annuitant must be a predetermined fixed amount and the variation in the quantum of the said amount, if any, should not be dependent upon the increase or fall in the general income of the estate or the trust fund. (2) Such pre-determined or fixed amount may be payable by the grantor personally, i.e., secured merely by a personal covenant of the grantor. It is not an essential characteristic of an annuity that it must necessarily be charged on the grantor personally. Frequently, it may happen that the grantor personally undertakes to pay the amount of annuity to the annuitant. It is not an invariable rule that the annuity must be secured by a personal grantor. The grantor may create a trust and hand over the trust funds to the trustees on certain conditions. It shall have to be ascertained from the document creating the annuity as to what was the intention of the grantor and as to whether, in a given case, the provision for annuity operated as a charge over the corpus or on the income of the trust fund. It may have to be ascertained in a given case as to whether the charge, if any, created on the annuity is a charge on the income for a particular year or whether the same is a continuing charge for all years to come and even the residuary beneficiary entitled to receipt of the corpus at the end is obliged to take over the corpus subject to discharge of liability on account of arrears of annuity amount, if any. (3) An annuity is a right to receive a specified sum and not an aliquot share in the income arising from any fund. If the beneficiary is entitled to a share in the estate or a share in its income in entirety or in a particular proportion as contrasted with a mere right to receive a predetermined fixed sum per annum, such an interest does not partake of the character of an annuity. (4) If the amount of annuity 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 necessarily follows that the right to receive the periodical amount cannot be commuted into a lump sum grant. At this stage, it shall be convenient to refer to the Supreme Court judgments having a bearing on the subject. In CWT vs. Arundhati Balkrishna (supra), a question arose before the Court as to whether the right to receive a share of the income from the funds settled on trust could be characterised as an annuity. In this case, the trust deed did not provide for payment of any fixed sum of money to the assessee. In this case, the assessee had a life interest in the trust funds. In this case, the assessee was entitled to a share in the income of the trust fund as contrasted with payment of a mere pre-determined fixed amount and being entitled even to call for half of the corpus of the trust fund after the birth of her first child. It was, therefore, held that the receipt of the above-referred amount in the hands of the assessee did not amount to an annuity. The High Court of Gujarat held in CWT vs. Mrs. Arundhati Balkrishna (supra), that the above referred amount was not an annuity and was not exempt from levy of wealth-tax. The Supreme Court held that the right to receive the share of the income was not an annuity but was an aliquot share in the income arising from any fund or property. The Honourable Mr. Justice Hegde, speaking for the Bench of the Honourable Supreme Court, inter alia, observed at page 509 of the report as under : “On an analysis of the relevant clauses in the three trust deeds, it is clear that the assessee was given thereunder a share of the income arising from the funds settled on trust. Under those deeds she is not entitled to any fixed sum of money. Therefore, it is not possible to hold that the payments that she is entitled to receive under those deeds are annuities.” During the course of its judgment, the Honourable Supreme Court referred to the various meanings of the expression “annuity” from standard works like Halsbury’s Laws of England, 3rd Edition, Volume 32, paragraph 899, Jarman on Wills, page 1113, passages from Williams on Executors and Administrators, and the illustrations appended to s. 73 of the Indian Succession Act. After referring to the various definitions and meanings of the expression “annuity”, the Honourable Supreme Court observed as under : “Illustrations of annuity given in s. 73 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 a 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 AAC 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 charged personally on the grantor. It may be charged personally on the grantor or it may be made payable out of the property set apart by the grantor or its income. In the very same judgment, the Hon’ble Supreme Court referred to the meaning of the expression “annuity” as set out in paragraph 899 of Halsbury’s Laws of England, 3rd Edition, volume 32, at page 534, which reads as under (at page 508) : “An annuity is a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consisting exclusively of land.”

It is, therefore, not quite correct to say that the periodical payment of a fixed sum loses its character as an annuity unless it is made a charge personally on the grantor. The significance of the use of expression “ordinarily” or “usually” was missed by the AAC as well as by the Tribunal. It is clear that the judgment in Arundhati Balkrishna (supra) emphasises that the amount payable should be a fixed sum of money, it may be payable by the grantor personally or it may be payable out of the property set apart for the said purpose or out from the income of the specific fund set apart by the grantor. The very judgment has been relied upon by learned counsel for the assessee in support of his contention that the provision for payment of Rs. 1,000 per month by the trustees to the assessee was in the nature of an annuity as it was a provision for payment of a fixed sum.

The trust deed creates charge of the said amount of annuity on the income of the trust fund set apart. The said charge continues throughout the lifetime of the annuitant. In our opinion, this case clearly assists the assessee and not the Revenue.

Learned counsel for the Revenue has also relied upon this case in support of his contention that provision for payment of the periodical sum cannot be characterised as an annuity as the quantum of the amount payable to the assessee is dependent on the amount of income from the trust and it may fluctuate. An annuity may be made payable out of the income of the fund set apart. Merely because it is made payable out of the income, it does not follow that it is variable or its variability depends upon the income of the estate generally. Even if the income of the estate is much more in succeeding years because of larger dividends declared on shares or otherwise, the assessee 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 WTO in respect of the said trust fund, as set out in the statement of case. The said figures are as under :

Trust’s Acct. year ending Income after payment

Wealth as per computation

of expenses made by W. T.O

. 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 their wealth-tax returns. The Hon’ble Supreme Court had also taken the same view in the case of Ahmed G. H. Ariff vs. CWT (1970) 76 ITR 471 (SC). The said judgment was followed by the Supreme Court in the case of Arundhati Balkrishna (supra).

In the case of CWT vs. P. K. Banerjee (1980) 125 ITR 641, the Supreme Court had once again an occasion to consider the same question in a slightly different perspective. In this case, the assessee was entitled to receive the net income of the trust funds from the trust deed and the trust deed did not make provision for payment of a definite pre-determined sum. It was held by the High Court of Allahabad (see (1972) 83 ITR 117) that it was reasonably possible to predict as to what was the income from the trust fund constituted under that case since the trust fund consisted

of Government loan bonds or securities. The High Court of Allahabad, therefore, held that the right of the assessee to receive the amount of income periodically as aforesaid was liable to be considered as an annuity and not includible in the net wealth of the assessee. The Supreme Court reversed this judgment. At page 654 of the report, the Hon’ble Mr. Justice Venkataramiah, speaking for the Bench of the Supreme Court, observed as under: “On a consideration of the decisions cited before us, we feel that in order to constitute an annuity, the payment to be made periodically should be a fixed or pre-determined one, and it should not be liable to any variation depending upon or on any ground relating to the general income of the fund or estate which is charged for such payment. In the instant case, as observed in the case of Her Highness Maharani’ Gayatri Devi of Jaipur (1971) 82 ITR 699 (SC), what we have to see is the intention of the settlor, whether he wanted that the assessee should get a pre-determined sum every year or whether the assessee should get the whole net income of the trust fund. Since the intention of the settlor was indisputably the latter one, the right of the assessee cannot be treated as an annuity.” (emphasis supplied). Mr. Toprani, learned counsel for the assessee, has relied upon the ratio of this case (P. K. Banerjee’s (1980) 125 ITR 641 (SC)), in support of his contention that the periodical amount received by the assessee in this case was of a fixed pre-determined sum and this judgment was clearly helpful to the 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 (supra), 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 vs. Her Highness Maharani Gayatri Devi of Jaipur (supra) (at p. 703) as under:

“From these clauses, it is clear that the intention of the Maharaja was that the assessee should get a half share in the income of the trust fund. Neither the trust fund was fixed nor the amount payable to the assessee was fixed. The only thing certain is that she is entitled to a 15/30 share from out of the income of the trust fund. That being so, it is evident that what she was entitled to was not an annuity but an aliquot share in the income of the trust fund.” Applying the ratio of the above-referred judgment also, we are of the view that, in our case, the right to receive the payment of Rs. 1,000 per month shall have to be considered as an annuity and not as an aliquot share in the estate.

It appears to be appropriate to refer to some of the judgments of the High Courts having a direct bearing on this aspect. Mr. Toprani, learned counsel for the assessee, has relied upon the judgment of the High Court of Gujarat in the case of CWT vs. Dr. E. D. Anklesaria (1964) 53 ITR 393. In this case, the annuity was to be paid, under the terms of the deed, out of the net income of the trust fund. A provision was made under the deed for utilisation of the balance of the amount for charitable purposes. It was held by the High Court of Gujarat that the amount claimed by the assessee was an annuity and the same was liable to be excluded from computation of the net wealth under the provisions contained in s. 2 (e) (iv) of the WT Act. We agree with the

ratio of this judgment. Mr. Toprani has also relied upon a judgment of our High Court in the case of CWT vs. Kali D. Cawasji (1981) 131 ITR 158. In this case, the assessee was entitled to income from the residuary movable estate and the benefit of certain accumulations. It was held that the amount is question was in the nature of a life interest and was not an annuity. In this view of the interpretation of the provisions of the trust deed, relying upon the judgment of the Supreme Court in the case of Arundhati Balkrishna (supra), our Court held that the life interest was not an annuity and the assessee was, therefore, not entitled to exemption under s. 2(e)(iv) of the Act. The concept of life interest is different from the concept of annuity. This case is relied upon by Mr. Toprani in support of his submissions made in this reference. Mr. Toprani, learned counsel for the assessee, has also relied upon another judgment of this Court in the case of CWT vs. 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 a fixed sum could not be treated as an annuity within the meaning of s. 2(e)(iv) and that such an interest was saleable and it could be valued under s. 7(1) of the WT Act. In the instant case, the assessee has no interest in the corpus but is entitled merely to receive a predetermined 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 fund or in the income as contrasted with a mere right to receive a pre- determined sum periodically stands on a different footing and has no application to this case. In the result, we hold that the right of the assessee to receive a sum of Rs. 1,000 per month from the trustees is liable to be considered as an annuity.

We shall now deal with question No. 4. It is required to be considered as to whether the terms and conditions of the trust deed preclude the commutation of any portion thereof into a lump sum grant. Only if there is such a preclusion, the annuity will be excludible from the levy. Learned counsel for the Revenue has submitted that the terms and conditions of the deed of trust did not contain any express provision precluding commutation of the annuity. There need not be an express provision in the deed of trust in this behalf stating in so many words that the commutation of annuity into a lump sum grant was forbidden. If the terms and conditions of the deed of trust are such that it must be implied on a true construction thereof by necessary implication that the annuitant is precluded from commutation of any portion of the annuity into a lump sum grant, it would be enough. It was held by our Court in the case of CWT vs. Bhalchamora D. Jokhakar (1978) 112 ITR 228, that there could be an implied preclusion from commutation of annuity into a lump sum grant. It was held in this case that the recitals in the deed clearly showed that there was such an implied preclusion. In this case, our High Court referred to the judgment of the High Court of Gujarat in the case of CWT vs. E. D. Anklesaria (Dr.) (supra). We agree with the principles laid down in the two cases. There can be no dispute about the proposition. It is not required to be stated in so many words in the deed of trust itself that the annuitant is precluded from commuting the annuity into a lump sum grant. This aspect was recently dealt with by the Honourable Supreme Court in the case of Nawab Sir Mir Osman Ali Khan vs. CWT (1986) 162 ITR 888. In this case, the assessee, the Nizam of Hyderabad, was

entitled to receive a sum of Rs. 25 lakhs per annum from the Government of India in lieu of the previous income of the assessee from Sarf-e-Khas. The question before the Court was whether the said amount was liable to be excluded from the commutation of the net wealth of the assessee on the ground 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 Court of Gujarat in the case of E. D. Anklesaria (supra). The Honourable Mr. Justice P. N. Bhagwati (as His Lordship then was), speaking for the Bench of the High Court of Gujarat in the case of Anklesaria (1964) 53 ITR 393, referred to a large number of English cases during the course of his judgment with approval, wherein the facts were almost identical with the facts of the case before us, including the case of Roper vs. Roper (1876) 3 Ch D 714. We agree with the above-referred analysis and interpretation of the provisions of the High Court of Gujarat and our High Court in the above-referred cases.

Learned counsel for the Revenue submits that the trustees could allow commutation of the annuity at the instance of the annuitant and, if necessary, the trustees could obtain the consent of the residuary beneficiary. With respect, this submission cannot be accepted. The provision for payment of a continuing annuity during the lifetime of Gajanan Birla and the assessee until their death and the payment of the entire corpus only thereafter to Ashok Birla leave no doubt in our mind that the annuity receivable by the assessee in this case could not be commuted and the trust deed, by necessary implication, precluded the commutation thereof into a lump sum grant. If the trustees would have allowed commutation of such an annuity, it would have meant that the corpus was touched and the full amount of corpus would not be available for being handed over to the residuary beneficiary. Unless part of the corpus of the trust fund was utilised, there could be no commutation of the annuity into a lump sum grant. This was forbidden by the trust deed. Thus, the second requirement of the relevant provision of the Act regarding there being a provision in the trust deed preventing commutation of the annuity into a lump sum grant is also satisfied. In this view of the matter, we have no hesitation in holding that the right of the assessee to receive Periodical amount of Rs. 1,000 per month under the trust deed was in the nature of an annuity which was clearly exempt from levy of wealth-tax under the provisions already quoted above.

In view of the above discussion, we answer question No. 3 in the affirtive and in favour of the assessee. We answer question No. 4 also in the affirmative and in favour of the assessee.

There shall be no order as to costs.

[Citation : 192 ITR 318]

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