Full Judgment Text
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PETITIONER:
COMMISSIONER OF WEALTH TAX, RAJASTHAN
Vs.
RESPONDENT:
HER HIGHNESS MAHARANI GAYATRI DEVI OF JAIPUR
DATE OF JUDGMENT14/09/1971
BENCH:
ACT:
Wealth Tax Act (27 of 1957), s. 2(e)(iv)-Assessee entitled
to half share of income of trust fund-Trust fund capable of
being augmented If assessee entitled to annuity or interest
in property assessable to wealth tax.
HEADNOTE:
The trust deed executed by the husband of the respondent-
assessee provided that the trustees should pay to the
assessee during her life time 50 per cent of the income of
the trust fund. The settlement was irrevocable and the
properties mentioned in the schedule to the trust deed stood
transferred to the name of the trustees. Under the clauses
of the deed ,the trust fund was not a fixed sum but was
capable of being augmented.
On the question whether the assessee-was entitled only to an
annuity within the meaning of that expression in s. 2(e)
(iv) of the Wealth Tax Act or had an interest in the corpus
of the trust which could be brought to tax under the Wealth-
tax Act.
HELD: The intention of the husband was that the assessee
should get 15130 share from out of the income of the trust
fund. Since neither the trust fund nor the amount payable
to the assessee was a fixed sum, what the assessee was
entitled to was not an annuity but an allquot share in the
income of the trust fund. The fact that in the particular
assessment year there was no change in the trust fund was
irrelevant because the question whether a particular income
is an annuity or not does not depend upon the amount
received in a particular year. [712 D-H]
Hence the assessee had a life interest in the trust fund
which could be brought to tax under the Wealth-tax Act. [713
A-B]
Ahmed G. H. Ariff & Ors. v. Commissioner of Wealth-tax, 76
I.T.R. 471 and Commissioner of Wealth-tax, Gujarat Arundhati
Balkrishna, 77 I.T.R. 505, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2149 of 1968.
Appeal from the judgment and order dated January 3, 1967 of
the Rajasthan High Court in D. B. Wealth Tax Reference No. 6
of 1963.
S. Mitra, O. P. Malhotra, R. N. Sachthey and B. D. Sharma,
for the appellant.
M. C. Setalvad, H. P. Gupta and B. R. Agarwala, for the
respondent.
The Judgment of the Court has delivered by
Hegde, J. This appeal by certificate arises out of the
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wealth tax assessment of the assessee-respondent, an
individual, for the year 1959-60, the corresponding
valuation date being* March
708
31, 1959. The assessee is the, wife of Maharaja of Jaipur.
On September 9, 1953, the Maharaja made a settlement at
London. Under the deed of settlement, he appointed Sir
Harold Augustus Warner as the trustee of the property
detailed in the deed of settlement. The settlement is an
irrevocable one and the properties mentioned in the schedule
to the trust deed stood transferred to the name of the
trustee. The trust deed provides that the trustee should
pay to the assessee during her life time 50 per cent of the
income of the trust fund. The question arose whether the
assessee can be held to have any share in the corpus of the
trust and whether the same can be brought to tax under the
provisions of the Wealth Tax Act, 1957 (to be hereinafter
referred to as the Act). The Wealth-tax Officer came to the
conclusion that the assessee’s interest in U.K. Trust
amounting to Rs. 15,75,694/- plus the income-tax reserve
thereon Rs. 1,75,401/have to be included in the assessee’s
total wealth. This decision was confirmed by the Appellate
Assistant Commissioner in appeal. Thereafter the assessee
took up the matter in second appeal to the Income-tax
Appellate Tribunal. The Tribunal for reasons set out in
paragraphs 6 to 10, 12 and 13 of its order held that the
assessee did not get any life interest in the corpus but it
held that her interest was an interest which was an asset
under the Act, but for S. 2 (e) (iv) of the Act. In other
words, it held that the assessee had only a right to get
annuity from out of the trust fund and as such her right is
exempt from wealth tax in view of s. 2 (e) (iv) of the Act.
In the view it took, the Tribunal considered that it was not
necessary to ascertain the proper and correct method of
valuation of the assessee’s right. It directed that if and
when its conclusion on the interpretation of the clauses
were set aside, the appeal should be posted again before it
for further hearing for ascertaining the correct method, of
valuation.
At the instance of the Department, the Tribunal stated the
case and referred the following two questions to the High
Court of Rajasthan for its opinion.
"(1) Whether on a proper construction of the
deed of settlement the assessee has any
interest in the corpus of the deed of
settlement.
(2) Whether in the facts and circumstances
of this case, the right of the assessee
derived under the deed of settlement is exempt
from wealth-tax by virtue of the provisions of
sec. 2 (e) (iv) of the Act."
A Division Bench of that High Court answered the first
question-in the negative and the second question in the
affirmative both against the Department. The High Court
held
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1. that the assessee was not given any
interest in the corpus of the, property.
2. that the income that the assessee was
receiving on account of the 15/30 parts of the
trust fund was in the nature of an annuity,
and
3. that the terms and conditions relating
to the assessee’s right to annuity preclude
commutation of any portion thereof into a lump
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sum grant.
The only question that arises for decision in this appeal is
whether the share of income to which the assessee is
entitled to receive under the trust deed executed by her
husband can be considered as annuity within the meaning of
that expression in s. 2 (e) (iv). If it is considered as an
annuity, there is no dispute that the, terms and conditions
relating to the assessee’s right relating to annuity
precluded commutation of any part thereof into a lump sum
grant. Therefore all that we have to see is whether the
income received by the assessee was an annuity or an aliquot
share in the income arising from the fund. As seen earlier,
the High Court as taken the view that the income in question
was an annuity. In arriving at that conclusion, it has
referred to various decisions of the English courts as well
as the courts in this country. But in view of the two
recent decisions of this Court, it is not necessary for us
to examine those decisions.
In Ahmed G. H. Ariff and Ors. v. Commissioner of Wealth-
tax(1) one of us (Grover, J.) speaking for the Court
observed that the right of a beneficiary to receive an
aliquot share of the net income of properties comprised in a
wakf-alal-aulad created by a Muslim governed by the Hanifi
school of Mohamedan law is "property" and is covered by the
definition of "assets" in section 2 (e) of the Wealth Tax
Act, 1957 and the capitalised, value of that right is
assessable to wealth tax.
In Commissioner of Wealth Tax, Gujarat v. Arundhati Bal-
krishna, (2) this Court accepted as correct the distinction
brought out between an annuity and an aliquot share in the
income of a fund by Kindersley V. C. in Bignold v. Giles (
3) Therein the learned judge stated the law thus :
"An annuity is a right to receive de anno in
annum a certain sum; that may be given for
life, or for a series of years; it may be
given during any particular period or in
perpetuity and there is also this singularity
(1) 76, I.T.R. 471. (2) 77 I.T.R. 505.
(3) (1859) 4, Drew 345; 113 Revised Reports
390.
710
about annuities, that although payable out of
the personal assets, they are capable of being
given for the purpose of devolution, as real
estate; they may be given to a man and his
heirs, and may go to the heir as real estate;
so an annuity may be given to a man and the
heirs of his body, that does not, it is true,
constitute an estate tail, but that is by
reason of the Statute De which contains only
the word ’tenements’ and’ an annuity, though a
hereditament is not a tenement, and an annuity
so given is a base fee."
Proceeding further the learned judge observed
"But this appears to me at least clear, that
if the gift of what is called an annuity is so
made, that, on the face of the will itself,
the testator shows his intention, to give a
certain portion of the dividend of a fund,
that is a very different thing; and most of
the cases proceed on that footing. The ground
is, that the court construes the intention of
the testator to be, not merely to? give an
annuity, but to give an aliquot portion of the
income arising from a certain capital fund."
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Applying the principles laid down in these decisions, we
have now to see as to what was the nature of the right
conferred on the assessee under the trust deed ?
The trust deed starts by saying that "the settlor is,
absolutely entitled to the investments specified in the
Schedule hereto (hereinafter called "the Scheduled
Property")" and that he is desirous of making an irrevocable
settlement of the Scheduled Property for the benefit of his
wife (the assessee) and his four sons. One of the clauses
in the deed says that
"the settlor has accordingly transferred( or
intends forthwith to transfer the Scheduled
Property into the name of the Trustee to be
held by him upon the trusts and with and
subject to the powers and provisions
hereinafter declared and contained concerning
the same."
"The Scheduled Property and any other invest-
ments or property which may from time to time
be transferred to and accepted by the Trustee
as additions, to the Scheduled Property and
any other capital moneys, which may be
received by the Trustee in respect of the
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trust premises and the investments and
property for the time being representing the
same respectively are together called "the
Trust Fund".
From this clause, it is clear that the "Trust Fund" is not a
fixed sum. It is capable of being augmented in several
ways.. At the time of creation of the trust, the only assets
mentioned in the schedule to the trust deed was pound
300,000 31 War Loan.. But as seen earlier this fund was
capable of being augmented.
Clauses of the trust deed which are relevant for our pre-
sent purpose are clauses 2, 3, 4(1) and 7. They read:
Clause 2 :
The Trustee shall stand possessed of the scheduled property
and any other investments or property which may from time to
time be transferred to and accepted by the Trustee as
aforesaid UPON TRUST that the Trustee may either allow the
same to remain actually invested so long as the Trustee
thinks fit or may at any time or times at his discretion
sell call in or convert into money the same or any part
thereof and shall at his discretion (but subject to the
restriction contained in clause 9 hereof) invest the moneys
produced thereby and any other capital moneys which may be
received by him in respect of the trust premises in the name
or under the legal control of the Trustee in or upon any
investments hereby authorised with power at his discretion
to vary or transpose any investments for or into others of
any nature hereby authorised."
Clause 3 :
The Trustee shall divide the Trust Fund into thirty equal
parts and shall stand possessed of such parts and the income
thereof respectively upon the trusts and, with and subject
to the powers and provisions herein after declared and
contained concerning the same.
Clause 4(1) :
THE TRUSTEE shall stand possessed of fifteen such parts of
the Trust Fund UPON TRUST to pay the income thereof to the
wife during her life and after her death shall hold the said
fifteen such parts of the Trust Fund and the income thereof
Upon the same powers and provisions as are hereinafter
declared and contained concerning the share in the Trust
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Fund which is hereinafter directed to be held in trust for
the said
712
Maharaj Kumar Jagat Singh or as near thereto as cir-
cumstances will admit.
Clause 7.
NOTWITHSTANDING the trusts hereinbefore declared the Trustee
if he in his absolute discretion thinks fit may at any time
by writing under his hand declare that the whole or any part
of the share (whether original or accruing) in the Trust
Fund to the income whereof any Beneficiary shall then be
entitled in possession or any property appropriated in or
towards the satisfaction of such share shall thenceforth be
held IN TRUST for such Beneficiary absolutely and thereupon
the trusts hereinbefore declared concerning such share or
the part thereof or the property to which such declaration
relates shall forthwith determine and the Trustee may at any
time thereafter transfer such share or the part thereof or
the property to which such declaration relates to such
Beneficiary absolutely."
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 shares
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.
Mr. Setalvad, learned Counsel for the assessee contended
that during the year with which we are concerned, there was
no change in the trust fund and in view of that fact and as
we are considering the liability to pay wealth-tax, we would
be justified in holding that the amount receivable by the
assessee in the year concerned was an annuity. We see no
force in this contention. The question whether a particular
income is an annuity or not does not depend on the amount
received in a particular year. What we have to see is, what
exactly was the intention of the Maharaja in creating the
trust. Did he intend to give the assessee a pre-determined
sum every year or did he intend to give her an aliquot share
in the income of a fund ? On that question, there can be
only one answer and that is that he intended to give her an
aliquot share in the income of the trust fund. As income
cannot be an annuity in one year and an aliquot share in
another year. It cannot change its character year after
year. From the facts found, it is clear that the assessee
has a life interest in the trust fund.
713
For the reasons mentioned above, we allow this appeal, set
aside the judgment of the High Court and discharge the
answers given by the High Court to the questions referred to
it by the Tribunal and in its place we answer those
questions in favour of the Department. The Commissioner is
entitled to his costs of this appeal from the respondent,
V.P.S. Appeal allowed.
714