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TMI Blog1967 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets was March 31, 1959. The assessee is the wife of His Highness Maharaja Shri Man Singhji of Jaipur, hereinafter to be referred as the " Maharaja ". On September 9, 1953, the Maharaja made a settlement in respect of certain war bonds of the face value of pound 3 lakhs carrying an interest of 3 1/2 % for the benefit of his wife, the assessee, and his four sons, Maharaj Kumar Bhawani Singh, Maharaj Kumar Jai Singh, Maharaj Kumar Prithviraj and Maharaj Kumar Jagat Singh. According to the deed of settlement, the Maharaja was a party of the first part and one Sir Harold Augustus Werhner Baronet, hereinafter to be referred as the " trustee ", was a party of the other part. The Maharaja made an irrevocable settlement of the war bonds held by him and accordingly transferred them to the name of the trustee. The trustee was to hold them upon trust for the benifit of the five beneficiaries subject to the powers and provisions contained in the deed of settlement. By clause 3 of the deed of settlement the trustee was enjoined to divide the trust fund into 30 equal parts and was to remain in possession of such parts and income thereof respectively upon trust subject to the powers and conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes 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. " The schedule to the deed of settlement mentions the property covered by the deed of settlement as 3 1/2 %. war loans of the face value of pounds 3 lakhs. For the assessment year in question the assessee filed originally a return declaring a total wealth of Rs. 42,22,293, but the same was revised and the total wealth was declared as Rs. 28,22,000. About the difference it was claimed that a sum of Rupees fifteen lakhs seventy-five thousand six hurndred and ninety-four was in respect of the share of interest of the assessee in the U. K. Trust relating to the settlement of the war loans and, according to the assessee, the same was exempt from wealth-tax. It was contended on behalf of the asesssee before the Wealth-tax Officer that 15 out of the 30 shares, the income of which was conferred on the assessee, were exempt as the assessee did not have any absolute interest in the corpus of the trust fund but had only an interest for life. The Wealth-tax Officer did not accept the contention and ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The Appellate Assistant Commissioner did not accept the assessee's contentions. He came to the conclusion that the income that the assessee was receiving was not an annuity. The Appellate Assistant Commissioner also held that, according to the provisions of section 21(2) of the Act, the Wealth-tax Officer had the option to assess the trustee or the beneficiary on whose behalf the settled assets were held by the assessee. The assessee then went up in further appeal to the Income-tax Appellate Tribunal. It was reiterated by the assessee before the Appellate Tribunal that what she was receiving was only 15/30 of the income of the trust fund and the same was in the nature of an annuity. This annuity, according to the assessee, could not be commuted and in this regard, clause 7 of the deed of settlement, it was claimed, did not cover the case of the assessee as the assessee could not claim any commutation of the annuity as of right. In the alternative it was urged that even if the assessee's interest was not an annuity, still the assessee could not be held to be the full owner of the 15/30 parts of the trust fund as she had only a life interest therein. On this basis it was alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity' ...... If the only source from which the money was directed to be paid was personal estate, other than leaseholds, the interest was an annuity and in the nature of personal estate." The Tribunal also observed that the assessee did not even have a life interest in the corpus either. As the war bonds vested in the trustee, the assessee was held entitled only to the income arising therefrom. Then the Tribunal considered whether the annuity could be commuted. It considered the observations made in Roper v. Roper and held that as there was a gift over in respect of the corpus in favour of Maharaj Kumar Jagat Singh as per clause 4 of the deed of settlement, the assessee could not insist on any commutation of her annuity. The Tribunal also examined clause 7 of the deed of settlement on which reliance was placed by the department for showing that commutation of the annual payment was not precluded, but it rejected the contention holding that this power, if at all, could be exercised only by the trustee in his absolute discretion. Accordingly, the Tribunal reached the conclusion that the value of 15/30 parts of the trust fund could not be included in the wealth of the assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or (b) which, although not claimed by the assessee as not being payable by him is nevertheless outstanding for a period of more than twelve months on the valuation date." It will be seen that the basis of taxation under the Act is the net wealth as contemplated in the above definition. It takes in all assets of a person wherever located. This means that even the assets located outside Indiaare liable to to tax under the Act. The important ingredient of "net wealth " is the term "assets" which has been defined in clause (e) of section 2 of the Act, and is as follows : "2. (e) "Assets'includes property of evedry description, movable or immovable,but does not include- (i) agricultural land and growing crops, grass or standing trees on such land; (ii) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land : Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y from time to time according to the investment that the trustee will be making in exercise of his powers under the deed of settlement. According to Mr. Lodha, the assessee had definitely a life interest in the trust fund and the same could be valued according to the Jelicose formula and regarded as her assets for the purpose of assessment under the Act. Mr. H. P. Gupta, appearing for the assessee, controverted the stand taken by Mr. Lodha and while supporting the view that prevailed with the Appellate Tribunal, he submitted that it was the trustee who stood possessed of the settled property and it was the trustee who held it. He was required to pay only the income of 15/30 parts to the assessee and the same was to be held by him for the benefit of Maharaj Kumar Jagat Singh also who was to receive it intact on the death of the assessee. Mr. Gupta contended that the assessee had no interest in the corpus of the property, but was only entitled to receive the income thereof which was in the nature of annuity. Mr. Gupta pointed out that it was not necessary that the income should be received annually. Even though it was not received annually, it was, according to him, an annuity and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sense it has been taken in judicial pronouncements and in standard books. Williamson Executors and Administrators observed at page 503, 12th edition, that annuity is an yearly payment of a certain fixed sum of money granted for life or for years charging the person of the grantor only. According to the observations made in Lady Foley v. Fletcher, " where an income is purchased with a sum of money the capital has gone and ceased to have existence; the principal is converted into an annuity." In other words, it is the sinking of a capital sum in getting back an income in return for that sum. This definition of " annuity " has been followed and applied in a number of later decisions, such as, Coltness Iron Company v. Black Chadwick v. Pearl Life Insurance Company, Gould v. Curtis and Willian John Jones v. Commissioners of Inland Revenue. The various hallmarks of " annuity " are : (i) it is a money payment; (ii) it is made annually; (iii) it is a fixed sum; (iv) usually it is a charge personally on the grantor. Only one case of the Indian High Courts could be brought to our notice and that is Commissioner of Wealth-tax v. Dr. E. D. Anklesaria. Annuity was to be paid in that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be paid to the assessee. No copy of the war bonds has been brought on the record. In the circumstances,we have to go by only what the Tribunal itself has said. In paragraph 7 of its appellate order the Tribunal observed as follows : " What the assessee gets is only a right to an annual payment more or less of a fixed sum payable in accordance with clause 4 of the deed." What has been stated in paragraph 7 of its order has been made a part of the statement of the case (vide paragraph 5 of the statement of the case). Thus we have no reason to think that as the matter stands today the payment of income to the assessee is not an annual payment or that it is not a fixed sum in accordance with clause 4 of the deed of settlement. We are, therefore, not persuaded to examine the case on the footing suggested to us by Mr. Lodha that the sum is not necessarily payable annually or that the amount will be varying. If the department wanted to challenge the conclusion of the Tribunal about the income derived by the assessee from 15/30 parts of the trust fund, being not an annual payment, more or less of a fixed sum, as stated by the Tribunal in its order, then the department should have got ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that absolute discretion has been vested in the trustee alone to make the declaration under clause 7 of the deed of settlement. Existence of gift over in respect of the entire corpus of 15 out of 30 parts in favour of Maharaj Kumar Jagat Singh, in our view, precludes the commutation of the annuity in favour of the assessee into a lump sum grant. Any payment of a lump sum grant is bound to result in reducing of the corpus that was intended to be conveyed to Maharaj Kumar Jagat Singh. Mr. Lodha emphasised the fact that the deed of settlement does not expressly preclude the commutation. He is right to the extent that there is no express provision regarding imposing of any ban against commutation of the annual sum payable to the assessee into a lump sum grant, but it has not been shown that there should be such an express provision under the law. In our view, it is enough if the necessary intendment of a particular provision like clause 4 of the deed of settlement is to preclude commutation of the income to be derived by the assessee into a lump sum grant. As we have already observed, the various clauses of the deed of settlement have to be construed harmoniously and the interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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