TMI Blog1980 (9) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... essment orders made under the Act in respect of the assessment years 1957-58 to 1961-62 : " Whether the interest of the assessee in the trust fund amounted to an annuity exempt under section 2(e)(iv) of the Wealth-tax Act ? " The assessee concerned in this case is Shri P. K. Banerji. Under a deed of trust dated October 26, 1937, executed by his father, Shri Pyarey Lal Banerji (hereinafter referred to as the "settlor"), the assessee became entitled to receive the income arising out of the trust fund during his (assessee's) lifetime after the death of the settlor subject to the liability to pay out of such income certain specified sums periodically as mentioned in the deed to two other persons. After the death of the assessee, the income of the trust fund was directed to be paid in equal shares to the two other persons referred to above and if either of them should die before the death of the assessee then the whole of such income had to be paid to the survivor of them during his or her life. There were certain other directions in the trust deed with regard to the disposal of the income arising out of the trust fund with which are not concerned in this case. The trust fund consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived the settlor, then in the former case on and from the death of the settlor and in the latter case on and from the death of the said Pranab Kumar Banerji, the income of the trust fund shall be paid in equal shares to the said Sunab Kumar Banerji and Purnima Banerji (if he or she should be then alive) or the whole of such income to the survivor of them during his or her life. (d) If the said Pranab Kumar Banerji, Sunab Kumar Banerji and Purnima Banerji shall predecease the settlor or if they or any one or more of them shall die after having survived the settlor, then in the former case on and from the death of the settlor and in the latter case on and from the death of the survivor of the said Pranab Kumar Banerji, Sunab Kumar Banerji and Purnima Banerji, the bank shall stand possessed of the trust fund and the income thereof UPON SUCH TRUSTS as the said Pranab Kumar Banerji by any deed or deeds with or without power of revocation may appoint or by will or codicil shall at any time or times appoint AND IN DEFAULT of and so far as any such appointment shall not extend IN TRUST, for the settlor's nephew, Manoj Kumar Banerji, and the settlors' niece, Jhuni Banerji (now minors), if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust deed dated April 28, 1950. The settlor died some time in 1952 and since then the assessee was receiving the net income from the trust fund in accordance with the said clause as the sole beneficiary. During the assessment proceedings under the Act relating to the assessment years in question, the assessee contended before the WTO, Allahabad, that since the corpus of the trust fund was vested in the trustees and not in him, the value of the trust fund should not be included in his total wealth and that in any event as he had only the right to receive an annuity under the trust deed, the trust fund should not be taken into account by reason of section 2(e)(iv) of the Act. The WTO rejected the contentions of the assessee and included the full market value of the trust fund in the total wealth of the assessee in all the five assessment orders passed by him. The appeals filed by the assessee before the AAC of Wealth-tax, Allahabad, were dismissed. On further appeal, the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, confirmed the orders passed by the WTO and the AAC of Wealth-tax in so far as the question of non-applicability of s. 2(e)(iv) of the Act was concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , according to s. 2(m) of the Act, means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than those debts referred to in sub-cls. (i) to (iii) thereof. In section 2(e) of the Act, the expression "assets" is defined as including property of every description, movable or immovable, but not including in relation to the assessment year commencing on the 1st April, 1969, or any earlier assessment year those items which are mentioned in sub-cls. (i) to (v) of s. 2(e)(1). Sub-cl. (iv) of s. 2(e)(1) of the Act which is relevant for the purpose of this case excludes from the definition of the word "assets" a right to an annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant. In order to claim that an item of property should not be treated as an asset for purposes of the Act by virtue of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Government securities and to invest the proceeds in the purchase of 3 1/2% Government Promissory notes (old issue) or in any other security of the Government of India, or that if that was not practicable then in any other securities authorised for the investment of the trust fund by the Indian Trusts Act. There is nothing on the record before us to show that the original securities comprising the trust property were converted or replaced by securities not bearing a fixed rate of interest and returning a fixed and definite income. Proceeding, therefore, on the basis that a definite and certain income is yielded by the securities, we have no hesitation in holding that what the assessee received was an amount which did not depend upon or was related to the general income of the estate in the sense that it fluctuated with a fluctuating income. Having regard to the character and nature of the property settled under the trust, no question arises of a rise or fall in the amount of income produced by the trust property and, therefore, in a real sense what the assessee is entitled to is a definite and certain sum. Also, having regard to the terms of the trust deed, it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consisting exclusively of land; it differs from a rent-charge in that a rent-charge issues out of land. In Bignold v. Giles [1859] 4 Drew 343; 113 Revised Reports 390, "annuity" is described 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 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 Donis, 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." It is further observed in the above decision thus: "But this appears to me at least clear, that if the gift of what is called an annuity is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of s. 2(e) of the Act and not a mere "annuity" and affirmed the decision of the Calcutta High Court in Ahmed G. H. Ariff v. CWT [1966] 59 ITR 230. In the case of Mrs. Arundhati Balkrishna [1968] 70 ITR 203 (Guj), to which one of us was a party, under two trusts created by the father of the assessee and one trust created by her mother-in-law, she was to be paid annually the net income of each of the trusts after deducting costs and expenses of administration of the trust. Under the terms of the trust, after the lifetime of the assessee, the corpus of the trust in each case had to be dealt with as provided in them. Since the assessee was entitled to the whole residue of the income from the trust funds available after defraying expenses of the trust and not any specified or pre-determined amount, the High Court of Gujarat held that the right of the assessee under each of the trust deeds was not an annuity but amounted only to a life interest. The decision of the High Court of Gujarat was later affirmed by this court in CWT v. Arundhati Balkrishna [1970] 77 ITR 505, 509, in which it was observed thus: " On an analysis of the relevant clauses in the three trust deeds, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the three trust deeds cannot be considered as annuities, and, hence, she is not entitled to the benefit of section 2(e)(iv)." It is, however, contended on behalf of the assessee in this case that since the trust fund consisted of Government securities which were yielding definite annual income by way of interest and there was no evidence of the said securities having been converted into other securities yielding higher or lower income, it should be assumed that the benefit conferred on the assessee was only an "annuity" and not a life interest. This contention has to be rejected for the very reason for which a similar contention was rejected by this court in CWT v. Her Highness Maharani Gayatri Devi of Jaipur [1971] 82 ITR 699, 703, 704 in the following words: " 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te duty became payable on the value of a continuing annuity for the life of the annuitant who succeeded to the annuity on the death of the deceased annuitant. Jenkins L. J., in the course of his judgment in the above case, explained the difference between an annuity and a life interest thus (3 EDC 109 at pp. 130, 131) : " An annuity charged on property is not, nor is it in any way equivalent to an interest in a proportion of the capital of the property charged sufficient to produce its yearly amount. It is nothing more or less than a right to receive the stipulated yearly sum out of the income of the whole of the property charged (and in many cases out of the capital in the event of a deficiency of income). It confers no interest in any particular part of the property charged, but simply a security extending over the whole. The annuitant is entitled to receive no less and no more than the stipulated sum. He neither gains by a rise nor loses by a fall in the amount of income produced by the property, except in so far as there may be a deficiency of income in a case in which recourse to capital is excluded. On the other hand, a life interest in a share of the income of property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision is quite clear on the point that when the payment is dependent upon the income of the corpus, it cannot be called an annuity and that an annuity, even though it may be variable as in the case of In re Cassel [1927] 2 Ch 275 ; 2 EDC 345 (Ch D), can in no way be dependent upon or related to the general income of the estate. The High Court was, therefore, in error in relying upon the decision in Duke of Norfolk, In re: Public Trustee v. IRC [1950] 1 Ch 467; 3 EDC 109 (CA) for holding that notwithstanding the existence of the possibility of variation in the payment to be made in the above case to the assessee depending upon the income of the fresh securities to be acquired by the trustee on the redemption of any of the securities transferred at the time of the execution of the trust deed, the payment would amount to an annuity. 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 inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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