Full Judgment Text
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PETITIONER:
COMMISSIONER OF WEALTH TAX, PUNJAB, J & K, CHANDIGARH, PATIA
Vs.
RESPONDENT:
YUVRAJ AMRINDER SINGH ETC.
DATE OF JUDGMENT08/10/1985
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
MUKHARJI, SABYASACHI (J)
CITATION:
1986 AIR 959 1985 SCR Supl. (3) 565
1985 SCC (4) 608 1985 SCALE (2)687
ACT:
Wealth Tax Act, 1957, ss. 5 (1) (vi) and 2 (e) (iv) -
"Any policy of insurance" - Interpretation of - Computable
annuities dependent on human life - Whether exempt from
wealth tax.
Insurance Act, 1938, 8. 2 (11) - "Life insurance
business" - Contract of insurance based on human life - How
effected.
Interpretation of statute - Proviso - Effect of.
HEADNOTE:
The two assessees are individually assessed to wealth
tax under the Wealth Tax Act, 1957. They had purchased one
annuity policy each, and claimed exemption of the value
thereof under 8. 5 (1) (vi) of the Act, alleging that the
annuity policies fell within the expression "any policy of
insurance" occurring in that provision.
The Wealth Tax Officer rejected the claim and included
the value of the annuity policies in the assessees’ net
wealth on the ground that the exemption was allowable only
to insurance policy whereas the policy taken out by the
assessee was an annuity policy whereunder the assessee had
made lumpsum payment and he would be getting periodical
returns after the lapse of a number of years and as such
annuity policy could not be considered as insurance policy.
The Appellate Assistant Commissioner allowed the
assessees’ appeals holding that the annuity policies were
covered by the term "any policy of insurance" and,
therefore, they were entitled to exemption under s. 5 (1)
(vi).
This view was confirmed by the Appellate Tribunal in
appeals and in Reference by the High Court.
In the appeals by the Revenue to this Court it was
contended: (1) that a contract for deferred annuity is quite
566
distinct from a "policy of insurance"; an annuity contract
is operative from the date on which annuity vests and
thereafter there is no element of insurance in the contract
covering the risk of human life and, therefore, a contract
for deferred annuity cannot be treated as a policy of
insurance and the value thereof would not be exempted under
s. 5 (1) (vi) of the Act; (2) that the ambit or scope of the
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expression "any insurance policy" occurring in s. 5 (1) (vi)
should be confined to the usual life policies or endowment
policies; (3) that the proviso to sub-clause (vi) suggests
that the legislature intended to confine the expression "any
insurance policy" to the exclusion of annuities on life and
that since non-commutable annuities only have been excluded
from the definition of ’assets’ given in s. 2 (e), the
legislature could not have intended to exempt annuities
based on human life under s. 5 (1) (vi) by bringing them
within the expression "any policy of insurance" and (4) that
it would be incongruous for the legislature to include
commutable annuities on life within the expression assets
under s. 2 (e) on the one hand and at the same time to
exempt such annuities from the charge including them within
the expression "any policy of insurance" under s. 5 (1)
(vi).
Dismissing the Appeals,
^
HELD: 1. Commutable annuities on life, like the ones in
the instant case, would fall under 8.5(1)(vi) of the Wealth
Tax Act 1957 and the value thereof would qualify for the
exemption from the charge. [581 D]
2. The exemption contemplated by 6.5(1)(vi) covers
interests of an assessee in all types of insurance policies
and the expression" any policy of insurance" in that
provision would fortiori attract within its ambit or scope a
deferred annuity policy based on human life, it being a
species of life insurance policies and, therefore, unless
there is some warrant to cut down the ambit or scope of that
expression, the right of interest of an assessee in such a
policy would be exempt from the charge of wealth tax unless
my moneys thereunder have become due and payable to the
assessee on the valuation date. [577 E-G]
3. The definition of "life insurance business" as given
in s.2(11) of Insurance Act, 1938 clearly includes by a
teeming provision, the business of granting of annuities
upon human life within the expression "life insurance
business". [575 F]
4. A contract of insurance based on human life can be
effected in two ways, (a) the insurer, in consideration of
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payment of periodical premia, undertakes to pay the person
for whose benefit the insurance is made a stipulated
lumpsum upon the death of the person whose life is insured
or the happening of any contingency dependent on human life
(e.g. usual life policies or endowment policies) and (b) the
insurer, in consideration of payment of a gross sum premium
undertakes to pay the person for whose benefit the insurance
is made annuity equivalent (either annual or monthly
instalments) after a certain age on the happening of a
contingency depending upon the duration of human life (e.g.
deferred annuity policies). In either case it is insurance
against the risk of penury and as such is a contract of
insurance. [574 D-F]
In the instant case, each annuity policy stipulate that
the monthly payments are guaranteed for a period of 35 years
commencing from 22.1.1984 even if the death occurs before
the expiry of the period but in case the annuitant lives
beyond the period of 35 years the monthly payments shall
continue to be made till he dies . Thus the annuity policies
evidence a contract of insurance covering the risk of human
life and as such would fall with in the expression "policy
of insurance" occurring in s.5 (1) (vi) of the Act. [576 D-
f]
C.I.T. v. General Family Pension Fund, (1952) 22 Com.
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Cas 89, approved.
Chandulal Harjiwandas v. Commissioner of Income Tax,
Gujrat, 63 ITR 627, Halsbury’s Laws of England, Fourth
Edition, Vol. 25, p. 13 and Bouvier’s Law Dictionary
(Rawle’s Third Revision) Vol. 2, p. 1619, relied on.
5. The object of the provision in s. 5 is the
encouragement of thrift which element is present in both
types of life insurance. The provision should hence be
interpreted as not to nullify that object. Moreover, s. 5
deals with exemptions in respect of certain assets and one
of such exempted assets under sub-cl. (vi) in any policy of
insurance before the monies covered by the policy become due
and payable to the assessee". While granting this exemption
the legislature has used the expression "any policy of
insurance" which is of very wide import. The exemption is
not confined to rights or interests in life insurance
policies alone, but extends the rights or interests of an
assessee in other types of insurance policies also, such as
a marine or life insurance policy etc. [577 A-C]
568
6. The proviso to sub-cl. (vi) has the effect of cutting
down the exemption contained in the sub-clause to some
extent. The main provision creates an exemption in respect
of the assessee’s "right or interest in any policy of
insurance" and the proviso seeks to cut down that exemption
to a limited extent, namely, whenever there is a policy of
insurance in respect whereof periodical premia are payable
for a duration of less than 10 years then in such a case a
proportionate Exemption specified therein will be available
to the assessee irrespective of what type of policy it is;
the proviso has no other effect. That such was the object or
purpose of inserting the proviso will be clear if regard is
had to the Notes on Clauses accompanying the Bill and the
speech of the Finance Minister while introducing the Bill.
There 18 therefore, no warrant to put a narrow construction
on the expression "any policy of insurance" occurring in
sub-cl. (vi) of 8. 5 (1). [578 C; 579 A-C; 579 E]
7. The definition of ’assets’ in 8. 2 (e) of the Act is in
two parts; the first part defines assets as including
property of every description moveable or immovable, while
the second part excludes certain items of property from
falling within the expression ’assets’ and one of the item
coming within this esclusionary part 18: "(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 lumpsum grant". This excludes only non-
commutable annuities from ’assets’. Clause (lv) of 8- 2 (e)
does not exhaustively deal with all type of annuities. Two
types of annuities are separately and specifically dealt
with under 8. 5 (i) (vi-a) and 5 (i) (vii). Section 2 (e)
defines ’assets’ to include property of every description
movable or immovable excluding certain items from the
purview of the charge by excluding them from the definition
of ’assets’; while 8. 5 (1) (vi) exempts certain assets from
the tax by declaring that tax will not be payable on them.
in order to be covered by the exemption under 8. 5 (1) (vi)
a property must in the first instance be an asset under 8. 2
(e). The question of exempting commutable annuity policies
of insurance arises only because they fall within the
definition of ’assets’. It is, therefore, fallacious to
contend that because commutable annuity policies fall within
’assets’ they should not be exempted under 8. 5 (1) (vi).
[579 - ; 580 A - H]
8. A reading of 8. 2 (e) together with 8. 5 (1) (vi-a) and
5 (1) (vil) negates the view that legislative intention was
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to deal exhaustively with annuities under s. 2 (e) (iv). A
commutable
569
life annuity received from an employer would undoubtedly be
exempt from the charge of wealth-tax under 8- 5 (1) (vil)-
If 8. 2 (e) 16 construed as confining, by implication, the
exemption from wealth tax to non-commutable annuities alone,
then there would be an obvious conflict between 8. 5 (1)
(vii) and 8. 2 (e). Therefore, a harmonious reading of 8. 2
(e) (iv) with 8. 5 (1) (vi) and 8. 5 (1) (vii) would be that
while non-c . mutable p annuities are wholly outside the
purview of the wealth tax, non-commutable annuities are
exempt under 8. 5 (1) (vi) and 5 (1)(vii) to the limited
extent mentioned in each. [581 A-C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 797-
799 (NT) of 1974.
From the Judgment and Order dated 30.4.1973 of the
Punjab and Haryana High Court in Wealth Tax Reference Nos.
2, 3 and 4 of 1972.
B.B. Ahuja and Miss A. Subhashini for the Appellant.
Harish Salve, P.K.. Ram and Mrs A.K. Verma for the
Respondents.
The Judgment of the Court was delivered by
TULZAPURKAR, J. The common question of law that arises
for our determination in these appeals 16:
Whether on the facts and in the circumstances of
the case, the right or interest of an assessee in
an annuity policy is exempt from wealth tax under
8. 5 (1) (vi) of the Wealth Tax Act, 1957?
The facts giving rise to the question are briefly
these. Yuvraj Arminder Singh and Princess Rupinder Kumari
are individual assessees being assessed to wealth tax under
the Wealth Tax Act, 1957 (hereinafter called the Act). As
regards the former the two assessment years are 1964-65 and
1965-66 for which the respective valuation dates 31.3.1964
and 31.3.1965, whereas the assessment year in the case of
Princess Rupinder Kumari is 1965-66 for which the valuation
date 18 31.3.1965. The two assessees had purchased one
annuity policy each and they claimed exemption in respect of
the value of each policy in each one’s assessment to wealth
tax under 8. 5 (1) (vi) of the Act. The value of the annuity
policy in the case of Yuvraj Amrinder Singh was Rs. 2,13,000
while in
570
the case of Princess Rupinder Kumari lt was Rs. 2,35,176.
Exemption in respect of such value was claimed under 8. 5
(1) (vi) of the Act inasmuch as the annuity policies fell
within the expression" any policy of insurance" occurring
in the said provision.
The Wealth Tax Officer rejected the claim and included
the above mentioned amounts in the assessees’ net wealth for
the concerned assessment years on the ground that the
exemption was allowable only to insurance policy whereas the
policy taken out by the assessee was an annuity policy
whereunder the assessee had made lumpsum payment and he
would be getting periodical returns after the lapse of a
number of years and as such annuity policy could not be
considered as insurance policy. Aggrieved by the orders
passed by the Wealth Tax Officer the assessees preferred
appeals to the Appellate Assistant Commissioner who allowed
their appeals holding them to be entitled to exemption under
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s. 5 (1) (vi) as according to him annuity policies were
covered by the term "any policy of insurance" used in the
said sub-section. This view of the Appellate Assistant
Commissioner was confirmed by the Income Tax Appellate
Tribunal in appeals preferred by the Revenue. In the three
Wealth Tax References nos. 2, 3 & 4 of 1972 made to the High
Court by the Tribunal at the instance of the Revenue the
High Court confirmed the Tribunal’s view and Answered the
question set out above (which arose in each Reference) in
favour of the assessee. The revenue has come up in appeals
challenging the view taken by the High Court.
Since the question raised in these appeals concerns the
proper construction of the expression ’any policy of
insurance’ occurring in s. 5 (l)(vi) of the Act read with
the other connected provisions thereof in relation to the
terms of the annuity policies purchased by the two assessees
it will be desirable to set out the terms of the two annuity
policies. In each the annuitant is the proposer and each
contains provisions for commutation, that is to say, neither
is a non-commutable policy. It may be stated that the terms
and conditions of both the annuity policies are the same and
hence the terms and conditions of one (of Yuvraj Amrinder
Singh) may be set out which are as follows:
"Type of Annuity: Deferred annuity without profits
guaranteed for 35 years.
Date on which the: Twenty-second day of January,
annuity vests: Nineteen Hundred and sixty four.
571
Even on the On expiry of 35 years calculated
happening of which from the date on which the annuity
annuity ceases or vests or at the death of annuitant,
determines: if later.
To whom annuity To the annuitant
payable:
Dates when annuity On the stipulated due date of the
payable 1st Annuity instalment and monthly
thereafter.
Special provisions:
(1) If the annuitant shall die before the date on which
the annuity vests, the amount of the single premium
paid but without any interest shall be returned to the
proposer or in case he shall be then dead to his
Proving Executors or Administrators or other legal
representatives who should take our representation to
his Estate or limited to the moneys payable under this
policy from any Court of any State or Territory of the
Union of India, or in case the Annuitant (provided he
18 also the proposer) shall have appointed any nominee
to receive such money or executed any assignment in
favour of any assignee to such nominee or assignee.
(2) In lieu of the payment of the annuity under this
policy the proposer has the option to be exercised
before the date on which the annuity vests to receive 8
cash payment of RS. 2,88,184 on 22nd January, 1964."
Before dealing with the rival submissions made by the
learned counsel for the parties the relevant provisions of
the Act with which we would be concerned may be referred to.
Under the charging provision contained in s. 3 of the Act
wealth tax is charged, subject to the other provision
contained in the Act, for every assessment year in respect
of the net wealth on the- corresponding valuation date of
every individual, Hindu undivided family and company, at the
rate or rates specified in Schedule I. ’Net Wealth’ is
defined in s. 2 (m) as meaning (so far as is material) the
amount by which the aggregate value of all the assets
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belonging to the assessee on the valuation date is in excess
of the aggregate value of all the debts owed by the assessee
on that date. The expression ’assets’ is defined in s.2 (e)
and the relevant part thereof runs thus :
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2.(e) ’assets’ includes property of every
description, movable or immovable property, but
does not include-
(i) xx xx xx
(ii) xx xx xx
(iii) xx xx xx
(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 lumpsum
grant;
The next material provision is s. 5 (1) (vi) with which we
are directly concerned and it runs thus:
Exemptions in respect of certain assets.
5.(1) Subject to the provisions of sub- section
(1A), wealth-tax shall not be payable by an
assessee in respect of the following assets, and
such assets shall not be included in the net
wealth of the assessee
(vi) the right or interest of the assessee in any
policy of insurance before the moneys covered by
the policies become due and payable to the
assessee:
Provided that in the case of a policy of insurance
the - premium or other payment whereon is payable
during a period of less than ten years, the amount
that shall not be included in the net wealth of
the assessee under this clause shall be a sum that
bears to the value of the right or interest of the
assessee in the policy the same proportion as the
number of years during which the premium or other
payment on the policy is payable bears to ten;
It may be stated that the above proviso was not there at the
relevant time and it has been inserted by Finance Act, 1974
with effect from 1.4.1975 but since an argument was based on
it we have thought fit to reproduce the same. The next
material provisions are s. 5 (1) (vi a) and (vii) which run
thus:
" (vi a) the right of the assessee to receive
any annuity payable by the Central Government under the
provisions of s. 280D of the Income tax Act;
573
(Inserted by Taxation Laws (Amendment) Act, 1970
with retrospective effect from 1.4.1965)
(vii) the right of the assessee to receive a
pension or other life annuity in respect of past
services under an employer;
Since a contention was raised that annuity policies of the
type with which we are concerned in the case cannot be
regarded as life insurance policies it will be necessary to
refer to the definition of life insurance business" given in
s. 2 (11) of the Insurance Act, 1938. Section 2 (11) runs
thus:
2 (11) Life insurance business’ means the business
of effecting contracts of insurance upon human
life, including any contract whereby the payment
of money is assured on death (except death by
accident only) or the happening of any contingency
dependent on human life, and any contract which is
subject to payment of premiums for a term
dependent on human life and shall be deemed to
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include
(a) the granting of disability and double or
triple indemnity accident benefits, if so provided
in the contract of insurance,
(b) the granting of annuities upon human life; and
(c) the granting of superannuation allowances and
annuities payable out of any fund applicable
solely to the relief and maintenance of persons
engaged or who have been engaged in any particular
profession, trade or employment or of the
dependants of such persons;
At the outset we would like to dispose of the initial
contention raised on behalf of the Revenue that a contract
for deferred annuity is quite distinct from a ’policy of
insurance’ the expression used in s. 5 (1) (vi)- since there
is no element of insurance against any risk involved in such
annuity policy - a contention which found favour with the
Wealth Tax Officer but was rejected by the Assistant
Appellate Commissioner, the Tribunal and the High Court. The
contention is that in the case of a deferred annuity policy
the annuitant, on payment of a lumpsum gets the right to the
annuity equivalent in the shape of deferred h annual or
monthly payments guaranteed for a certain period (in
574
the instant case for 35 years), that there is a date on
which the annuity vests in the annuitant (here 22.1.1964),
that usually there is a provision that in the event of the
death of the annuitant before the date of vesting the single
premium paid by him would be returned to the proposer, and
that the proposer may have (as is the case here) the option,
to be exercised before the date on which the annuity vests,
to receive the commuted value in lieu of deferred annual or
monthly payments and such provisions clearly show that the
intention is that in essence the annuity contract is
operative from the date on which the annuity- vests and
thereafter there is no element of insurance in the contract.
It is, therefore, urged that a contract for deferred annuity
cannot be treated as a policy of insurance and as such the
value thereof would not be exempt under s. 5 (1) (vi) of the
Act. The gravamen of the contention is that there is no
element of insurance covering any risk on human life
involved in a deferred annuity policy.
The contention, in our view, proceeds on a
misconception of the true or real nature of a deferred
annuity policy. It is well known that a contract of
insurance based on human life can be effected in two ways,
(a) the insurer, in consideration of payment of periodical
premia, undertakes to pay the person for whose benefit the
insurance is made a stipulated lumpsum upon the death of the
person whose life is insured or the happening of any
contingency dependant on human Life (e.g. usual life
policies or endowment policies) and (b) the insurer, in
consideration of payment of a gross sum premium, undertakes
to pay the person for whose benefit the insurance is made
annuity equivalent (either annual or monthly instalments)
after a certain age on the happening of a contingency
depending upon the duration of human life (e.g. deferred
annuity policies). In either case it is insurance against
the risk of penury and as such is a contract of insurance.
That contracts of insurance based on human life are effected
in one of the two ways mentioned above will be clear from
the manner in which the concept of life insurance is
understood in the legal and commercial world. In Halsbury’s
Laws of England, Fourth Edition Volume 25, page 13, the
following passage occurs in para 7 under the heading ’Main
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types of risk’:
7. Main types of risk. For convenience the
different types of insurance business may be
classified as follows: (1) marine, aviation and
transport insurance (2) ordinary long-term
insurance; (3) personal accident insurance; (4)
property insurance; (5) liability
575
insurance; (6) motor vehicle insurance; (7)
pecuniary 1088 insurance; (8) war risks assurance;
and (93 industrial insurance.
Foot-note 2 deals with ’ordinary long term insurance
business’ and says - ’ordinary long term insurance business’
means the business of effecting and carrying out contracts
of insurance on human life or to pay any annuities on human
life (A. 83 (2) (a) of Insurance Companies Act, 1974)
In Bouvier’s Laws Dictionary (Rawle’s Third Revision)
Vol. 2, at page 1619, the following passages occur under the
caption ’Life Insurance’:
-LIFE INSURANCE. The insurance of the life of a
person is a contract by which the insurer, in
consideration of a certain premium, either in a
gross sum or periodical payments, undertakes to
pay the person for whose benefit the insurance is
made, a stipulated sum, or annuity equivalent,
upon the death of the person whose life is
insured, whenever this shall happen, if the
Insurance be for the whole life or in case this
shall happen within a certain period, if the
Insurance be for a limited time-
An agreement by the insurer to pay to the insured
or his nominee a specified sum of money either on
the death of a designated life, or at the end of a
certain period provided the death does not occur
before, in consideration of the present payment of
a fixed amount, or of an annuity till the death .
curs or the period of Insurance is ended.
The definition of ’life insurance business’ as given in
s. 2 (11) of our Insurance Act, 1938 clearly includes, by a
deeming provision, the business of granting of annuities
upon human life within the expression ’life insurance
business’.
In C.I.T. v. General Family Pension Fund, (1952) 22
Com. Cas 89 the Calcutta High Court has held that if the
right to payment under annuity contract is governed by the
happening of a contingency which depends in any way upon the
duration of human life the business of effecting such a
contract is life insurance business. When the same case came
up in appeal before this Court this Court confirmed that
view by observing that where the
576
business of a company consists exclusively in granting
terminable pensions or annuities dependent on human life in
favour of the subscribers such business is life insurance
business.
In Chandulal Harjiwandas v. Commissioner of Income Tax,
Gujrat, 63 ITR 627 while dealing with a policy called
’Children’s Deferred Endowment Assurance" issued by the Life
Insurance Corporation of India in the context of the
question whether rebate was allowable on the premia paid
during the minority of the life assured under s. 15 (1) of
the Indian Income-tax Act, 1922, this Court at page 631 of
the Report has observed thus:
"Life insurance in a broader sense comprises any
contract in which one party agrees to pay a given
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sum upon the happening of a particular event
contingent upon the duration of human life, in
consideration of the immediate payment of a
smaller sum or certain equivalent periodical
payment by another party (Halsbury’s Laws of
England third edition, volume 22, page 273).
In the instant case in each of the two annuity policies
there is a term stipulating the event on the happening of
which the annuity shall cease or determine and it states
that the annuity shall cease or determine "on the expiry of
35 years calculated from the date on which the annuity vests
(22.1.1964) or at the death of the annuitant, if later." In
other words the monthly payments are guaranteed for a period
of 35 years commencing from 22.1.1964 even if the death
occurs before the expiry of the period but in case the
annuitant lives beyond the said period of 35 years the
monthly payments shall continue to be made till he dies. In
view of this provision which is to be found in each of the
two annuity policies it cannot be gainsaid that the policies
evidence a contract of insurance covering the risk of human
life and such would fall within the expression a ’policy of
insurance’ occurring in . 5 (1) (vi) of the Act. The
contention that no element of insurance covering any risk of
human life was involved after 22.1.1964 (the date of
vesting) was, in our view, rightly rejected by the AAC, the
Tribunal and the High Court.
In the light of the above discussion the position
becomes quite clear that annuities dependent on human life
constitute a species of contracts of life insurance and
would normally fall within the expression "any policy of
insurance" occurring in a. 5
577
(1) (vi) of the Act. The object of enacting the provision is
the encouragement of thrift which element is present in both
types of life insurance and hence the provision should be
interpreted in such a manner as not to nullify that object.
Moreover, s. 5 deals with exemptions in respect of certain
assets and one of such exempted assets under sub-clause (vi)
of sub-s. (1) thereof is "the right or interest of the
assessee in any policy of insurance before the moneys
covered by the policy become due and payable to the
assessee". It is quite clear that while granting chis
exemption the legislature has used the expression "any
policy of insurance" which is a very wide import. The
exemption is not confined to rights or interests in life
insurance policies alone much less any particular species of
life insurance policies but it extends to rights or
interests of an assessee in other types of insurance
policies also, such as a marine or a fire insurance policy,
etc. It cannot be suggested that the right or interest of an
assessee in such other types of policies has no value or
cannot be valued. For instance, a marine or fire insurance
policy may be for three or five years and in such a case the
unexpired value of the premium could be one of the bases for
determining the value of the assessee’s interest in the
policy on the valuation date; similarly it is possible that
the contingent event insured against has occurred, though
the claim is pending determination on adjudication, and in
such a case also the assessee would have a valuable interest
in the policy. In such case the assessee’s interest would be
exempt under the aforesaid clause if the moneys under the
policy have not become due and payable on The valuation
date. It is, therefore clear that the exemption contemplated
by s. 5 (1) (vi) covers interests of an assessee in all
types of insurance policies and the expression ’any policy
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of insurance’ in the said provision would a fortiori attract
within its ambit or scope a deferred annuity policy based on
human life, it being a species of life insurance policies
and, therefore, unless there is some warrant to cut down the
ambit or scope of that expression the right or interest of
an assessee in such a policy would be exempt from the charge
of wealth-tax unless of course any moneys thereunder have
become due and payable to the assessee on the valuation date
Counsel for the revenue urged a two-fold contention in
support of the plea that there is such a warrant to cut down
the ambit or scope of the expression ’any insurance policy’
occurring in s. 5 (1) (vi) and confine it to life insurance
policies of the usual type where in consideration of
periodical premia the stipulated lumpsum becomes payable
upon the death or happening
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of an event dependant upon duration of human life, that is
to say the usual Life Policies or Endowment Policies. In the
first place it was urged that the proviso to sub-clause
(vi), though inserted by Finance Act, 1974 with effect from
1.4.1975, suggests that the legislature intended that the
said expression should be so confined and annuities on life
are excluded and in this behalf reliance was placed on Notes
on Clauses accompanying the relevant Finance Bill as also
the speech of the Hon’ble Finance Minister while introducing
the Bill. Secondly it was urged that since non-commutable
annuities only have been excluded from the definition of
’assets’ given in s. 2(e), the legislature could not have
intended to exempt annuities based on human life under s. 5
(1) (vi) by bringing them within the expression ’any policy
of insurance’ used therein. For the reason which we shall
indicate presently there is no substance in either of the
pleas pressed by Counsel for the Revenue.
The proviso to sub-clause (vi) has been reproduced
above. It has the effect of cutting down the exemption
contained in the sub-clause to some extent. It commences
with the words "Provided that in the case of a policy of
insurance the premium or other payment whereon is payable
during a period of less than 10 years" and the argument is
that the under-lined words suggest that the expression "any
policy insurance" in the main sub-clause must mean. a policy
based on human life and that too where periodical premia are
payable and as such annuity on life which consists of
lumpsum investment followed by deferred annual or monthly
payments is excluded. It is impossible to read the under-
lined words in the proviso in this manner which has the
effect of unduly narrowing down the expression "any policy
of insurance" used in the main sub-clause, which as
indicated earlier, is of very wide import covering all types
of insurance policies like life, marine fire etc. In the
first place the main provision (sub-clause vi) was enacted
in 1957 and continued to operate for 17/18 years till
31.3.1975 without any qualification and as such it will be
absurd to attribute to The legislature, because or the
insertion of the proviso (containing the underlined words)
in 1975, an intention of having used the wide expression
"any policy of insurance" throughout all his period in a
narrow sense as suggested. Secondly if the main provision
and the proviso are read together the underlined words do
not suggest that any narrow construction, much less as
urged, was intended and to say so would be missing the real
object or purpose of the proviso. In our view the proper way
to read the proviso would be to treat the main provision as
creating or granting an exemption and the
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proviso carving out something from the exemption. The main
provision creates an exemption in respect of the assessee’s
right or interest in any policy of insurance and the proviso
seeks to cut down that exemption to a limited extent, namely
whenever there is a policy of insurance in respect whereof
periodical premia are payable for a duration of less than 10
years then in such a case a proportionate exemption
specified therein will be available to the assessee
irrespective of what type of policy it is; the proviso has
no other effect. That such was the object or purpose of
inserting the proviso will be clear if regard is had to
relevant part of notes on Clauses accompanying the Bill and
the relevant portion of the speech of the Finance Minister
while introducing the Bill. We were taken through the
relevant portions of Notes on Clauses [vide 93 ITR 125
(Statutes)] and the speech of the Hon’ble Finance Minister
while introducing the Bill vide [93 ITR 74 (Statutes)] and
in our view far from supporting the contention of counsel
for the Revenue these lend support to the view which we have
just expressed. The relevant portion of ’notes on Clauses’
states that under this amendment (the insertion of proviso)
the value of the taxpayer’s right or interest in a policy of
insurance will be exempt from tax only if the premia are
payable over a period of ten years or more. In cases where
premia are payable over a period of less than ten years,
only a proportionate amount of the value of the taxpayer’s
right or interest in the policy of insurance will be exempt
from wealth-tax. The Finance Minister’s speech though
strictly not relevant as an aid to construction,
substantially reiterates what has been stated in the ’Notes
on Clauses’ accompanying the Bill. On this account
therefore, there is no warrant to put a narrow construction
on the expression any policy of insurance occurring in sub-
clause (vi) of s. 5 (1).
Similarly counsel’s reliance on the definition of
’assets’ given in s. 2 (e) of the Act and particularly the
exclusionary part contained in sub-clause (iv) in relation
to annuities for the purpose of giving a narrow construction
to the expression ’any policy of insurance’ occurring in
sub-clause (vi) of s. 5 (1) is of no avail. We have already
quoted above s. 2 (e) (iv). The definition of ’assets’ is in
two parts; the first part defines assets as including
property of every description, movable or immovable while
the second part excludes certain items of property from
falling within the expression ’assets’ and one of the item
coming within this exclusionary part is: (iv) a right to any
annuity in any case where the terms and conditions
580
relating thereto preclude the commutation of any portion
thereof into a lumpsum grant . In other words non-commutable
annuities only are excluded from ’assets’. The contention
for the Revenue is that if under s. 2 (e) (iv) only non-
commutable annuities have been excluded from the definition
of assets then the legislature could not have intended to
exempt annuities based on human life from wealth-tax charge
under s. 5 (1) (vi); in other words it is urged that it
would be incongruous for the legislature to include
commutable annuities on life within the expression ’assets’
under s. 2 (e) on the one hand and at the same time to
exempt such annuities from the charge by including them
within the expression ’any policy of insurance’ under s.
5(1) (vi). The contention in our view, is entirely
misconceived, for, in the first place it proceeds on a wrong
assumption that the topic of annuities is exhaustively dealt
with under s. 2 (e) (iv) and secondly it ignores the scheme
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of the Act emerging from the relevant provisions. It is
obvious that the postulate of the so called incongruity that
is being suggested on a reading of the two concerned
provisions together must be that the topic of annuities has
been dealt with exhaustively by s. 2 (e) (iv). but the
postulate is non-existent. That clause (iv) of s. 2 (e) is
not exhaustive of all annuities is clear from the fact that
at least 2 types of annuities are separately and
specifically dealt with under s. 5 (1) (vi-a) and 5 (1)
(vii) - the former speaks of the assessee’s right to
receive annuity payable by the Central Government under s.
280D of the Income-tax Act and the latter speaks of the
assessee’s right to receive a pension or other life annuity
in respect of past services under an employer. If that be
so, the argument based on any incongruity arising from
reading of s. 2 (e) (iv) and s. 5 (1) (vi) together must
fall to the ground. Further a careful analysis of the two
relevant provisions shows what is the general scheme of the
Act. Section 2 (e) defines ’assets’ to include property of
every description; it however excludes certain items from
the purview of the charge by excluding them from the
definition of ’assets’, while s. 5 (1) (vi) on the other
hand exempts certain assets from the tax by declaring that
tax will not be payable in respect of such assets. In other
words in order to be covered by the exemption under s. 5 (1)
(vi) a property must in the first instance be an asset under
s. 2 (e). The question of exempting commutable annuity
policies of insurance arises only because they are not
excluded from the definition but because they fall within
the definition of ’assets’. It is therefore, fallacious to
contend that because commutable annuity policies fall within
’assets’ they should not be exempted under s. 5 (1) (vi).
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We have already pointed out that a reading of s. 2 (e)
together with s. 5 (1) (vi-a) and 5 (1)(vii) negates the
view that legislative intention was to deal exhaustively
with annuities under s. 2 (e) (iv). Now, a commutable life
annuity received from an Employer would undoubtedly be
exempt from the charge of wealth-tax under s. 5 (1) (vii).
If s. 2(e) is construed as confining, by implication, the
exemption from wealth tax to non-commutable annuities alone,
then there would be an obvious conflict between s. 5 (1)
(vii) and s. 2 (e). Therefore, a harmonious reading of s.
2(e) (iv) with s. 5 (1) (vi) and s.5 (1) (vii) would be that
while non-commutable annuities are wholly outside the
purview of the wealth-tax, commutable annuities are exempt
under s.5 (1) (vi) and 5 (1) (vii) to the limited extent
mentioned in each. It is well settled that when such a
harmonious construction is possible and which furthers the
object of the Act namely to promote thrift and channelise
private savings for national use, the same must be preferred
to the construction which leads to a conflict between s.2
(e) (iv) and s.5 (1) (vi). The contention that a narrow
construction should be placed on the expression ’any policy
of insurance’ occurring in s. 5 (1) (vi) of the Act, has,
therefore to be rejected. In other words commutable
annuities on life like the ones in the instant case, would
fall under s.5 (1) (vi) of the Act and the value thereof
would qualify for the exemption from the charge.
In the result we decide the point raised in the appeals
in favour of the assessees and confirm the view of the High
Court. The appeals are therefore, dismissed with costs.
A.P.J. Appeals dismissed.
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