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TMI Blog1969 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable properties consisting of Government securities the assessee created five different trusts under the trust deeds dated May 28, 1951, February 18, 1952, August 8, 1952, December 9, 1952, and May 13, 1953. Under the terms of these trust deeds the assessee, namely, the settlor himself was to receive payments every year during his lifetime. This interest of the assessee in the trusts was claimed by the assessee as in the nature of " annuity " within the meaning of the provision contained in section 2(e)(iv) of the Act and, therefore, the right of the assessee in the trust properties has to be exempted from his assets and, therefore, from his net wealth for the purpose of charging wealth-tax as provided under section 3 of the Act. The Wealth-tax Officer negatived this contention of the assessee and valued the right of the assessee, which was for life, in the trust properties at Rs. 53,769 and Rs. 51,790 respectively, for the two assessment years 1957-58 and 1958-59 on the basis of the life expectancy of the assessee and included those amounts in the assets of the assessee for the purpose of computing the net wealth of the assessee and assessed the assessee to wealth-tax on that ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of the trust properties and the relevant terms of the trust deeds. The following are the particulars of the trust properties. --------------------------------------------------------------------------------------------------------------------------------------------------S . No. Trust deed Nature of Value of Annual property corpus income --------------------------------------------------------------------------------------------------------------------------------------------------1. Trust created on 28-5-51 3% conversion with Central Bank of loan 47,000 1,410 India 3% Mysore loan 2,500 75 3% Victory loan 1,600 48 2. Trust created on 18-2-52 3% conversion with Central Bank of loan India 30,600 918 3. Trust cerated on 8-2-52 3% N.G.P. notes with Imperial Bank of O.S. India (S.B.I.) 31,000 664 3% N.G.P. notes O.S. 69,000 1,331 4. Trust created on 9-12-52 2 1/2% N.G.P. notes with I.B.I. 11,000 236 3% N.G.P. notes 31,000 797 3% G.O.I. loan 7,100 213 5. Trust created on 13-5-53 3% N.G.P. notes with I.B.I. 10,600 273 2 1/2% N.G.P. notes 25,600 549 2 1/2% N.G.P. notes 28,200 544 3% conversion loan 1,500 45 ------------------------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were described in four schedules. With regard to the properties in schedules 1 and 2 the benefit was created in favour of the grand-children of the settlor. There is also a revertible provision as mentioned in clauses 2 and 3 with regard to the trust properties of these schedules to the effect that in case all the beneficiaries are to die without leaving any issue at the time when the beneficiaries are entitled to the payment of the trust properties as provided therein, the trustees shall stand possessed of the properties in trust for the settlor, his heirs, executors, administrators and assigns absolutely. With regard to the trust properties specified in schedules 3 and 4 it was provided under clause 4 that the net income should be paid to the settlor during his lifetime and after his death to his daughters and grand-children. It was also provided under clause 7 that if both the daughters of the settlor were to die without leaving any issue at the time of their deaths, the trust properties in the hands of the trustees should go to the benefit of the settlor, his heirs, executors, administrators and assigns absolutely. In the fifth and last trust dated May 13, 1953, the trust p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the settlor and, therefore, it could not be said that the corpus of the trust properties was irretrievably lost to the assessee forever. On this premise the Appellate Assistant Commissioner held that the assessee cannot claim the benefit of section 2(e)(iv) of the Act. We fail to understand how the question of genuineness or otherwise of the creation of the trusts would arise. Anyway it is not before us. What is to be considered is the nature of the right created in favour of the assessee under the trusts as they stand. After considering the matter in all its details, the Appellate Tribunal held that the payment receivable by the assessee was of a revenue nature and bears income character and what the assessee was entitled to receive under the various trusts is only an annual sum and the corpus from which it flowed vested only in the trustees. The Appellate Tribunal also held that nowhere the trust deeds provided that the payment made to the assessee could be commuted into a lump sum payment. Accordingly, the Tribunal held that the assessee is entitled to claim exemption as provided under section 2(e)(iv) of the Act. As provided under section 2(e)(iv) of the Act for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etain a proper establishment to look after the property and keep proper accounts thereof. After payment of all necessary outgoings including revenue, taxes, repair charges, etc., the mutawallis were to divide the income of the wakf property in the manner stated, that is to say, pay the wakf Rs. 700 per month, Ibrahim Golam Hossain Ariff Rs. 600 per month for his life, a similar sum to each of his other sons and a sum of Rs. 400 per month to his wife. On the death of any of the beneficiaries the money payable to him was to be paid to and distributed amongst persons entitled to the same according to the Mohammedan law as heirs to the beneficiaries so dying. There was a deed of rectification of the wakf executed on July 5, 1930, by which the payment to the wakf and the first mutawalli as also the other beneficiaries was to be made in a different manner. The wakif was to get for the term of his life 1/5th of the net income of the property by monthly instalments, his sons were each to get 1/6th of the net income for their lives, respectively, and the wife was to get 1/10th of the net income. In the second case the right of the assessee was based on the will of her father. Under clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust fund and not a fixed sum payable periodically as " annuity ". In these two decisions the Calcutta High Court placed reliance on some English decisions in coming to the conclusion that where the right of the assessee created under the trust is an aliquot share of the general income of the trust properties it cannot be termed as " annuity ". In Commissioner of Wealth-tax v. Arundhati Balkrishna, the Gujarat High Court came to consider the nature of the right of an assessee under three deeds of settlement where the assessee claimed exemption under section 2(e)(iv) of the Act. Their Lordships of the Gujarat High Court in that case considered the distinction between a life interest and an annuity. Their Lordships held in that case that the distinction between the life interest and annuity depends upon the determination of the question whether the amount receivable by the beneficiary is dependent upon or related to the general income of the estate and an annuity as well as a life interest may vary from year to year but, whereas in the case of a life interest the variation is dependent on or related to the variation in the general income of the estate, in the case of an annuity th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth-tax v. Mrs. Dorothy Martin, from the terms it appears that the right which the assessee was to get was not a definite share in the income whether the income itself was variable or not. In the Gujarat case, Commissioner of Wealth-tax v. Mrs. Arundhati Balkrishna, the trust properties were shares in companies, the income from which would necessarily be variable. Therefore, though the net income on the trust properties was made the subject-matter of the right in question it would be a variable one. Therefore, the right created was not to receive a certain or definite sum. It is true in that case the Gujarat High Court also held that the amount of annuity may also vary from year to year provided it is not dependent upon the variation of the general income of the estate. But for the facts of this case we do not think it will be necessary to consider that aspect of the matter. In the present case on an examination of the nature of the trust properties and the income they were yielding it appears that the trust properties were getting a fixed income and the payments the assessee was getting also were fixed amounts. A perusal of the list of properties given in the schedules of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trusts property did not happen with regard to any of the properties of the trusts and the assessee was receiving only fixed amounts throughout till the time of his death including the period of the assessment years in question. It was also argued by Sri Ananta Babu that as there are terms in the trust deeds to the effect that on the happening of certain contingencies the trust properties are either to be reverted to the assessee or they are to be held in trust for his estate as the case may be and it would amount to his retaining interest in the corpus and this circumstance also would detract from the right of the assessee in question being an annuity. Under the terms of the trust as mentioned in the trust deeds there is no circumstance which is certain to happen under which either the assessee or his estate was to get back the corpus of the trust properties. It is no doubt true there are provisions under which the trust properties are either to revert to the assessee or to be held in trust for the benefit of his estate on the happening of certain contingencies. When those contingencies are not certain to happen, it is not possible to say that the assessee retained any interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t either by a direction that an annuity of a particular amount shall be provided for the annuitant or by a bequest of that sum of money for being laid out in the purchase of an annuity for the annuitant. It either case the sum of money is to be utilised or exhausted for the benefit of the annuitant by providing an annuity to him. Therefore, the annuitant at his option may either have that sum of money utilised for purchasing an annuity or have that sum of money absolutely in a sum. Section 174 of the Indian Succession Act has no application where there is a single bequest of an annuity without any bequest of the sum of money necessary to purchase the annuity. Applying the same rule of law adopted in section 174 of the Indian Succession Act to our present case in which the right was created by the trust deed, the right created is the annuity itself without grant of a sum of money or property for providing the annuity. There is no question of exhausting any money or property granted for the purpose of providing the annuity. Under the terms of the trust deeds the trustees were not to provide the annuity to the assessee by utilising or exhausting any portion of the trust funds. The in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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