TMI Blog1991 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... estion are that the assessee claimed that the amount deposited under the Compulsory Deposit Scheme should not be included in her wealth. The deposit made by the assessee under the Compulsory Deposit Scheme stood at Rs. 4,600 and Rs. 9,950 for the two assessment years, respectively, The claims were disallowed by the Commissioner of Wealth-tax (Appeals). The matter was agitated by the assessee before the Tribunal. Following the order of the Special Bench of the Tribunal in the case of Sushilaben A. Mafatlal v. WTO, the Tribunal rejected the assessee's claim for exclusion of the amounts deposited under the Compulsory Deposit Scheme from her net wealth. The question is whether the repayment of compulsory deposit may be treated as an annuity for the purpose of section 2(e) of the Wealth-tax Act. Dr. Pal, the learned advocate for the assessee, has contended that section 2(e) lays down that an annuity is not an asset within the meaning of the aforesaid provision ; the expression "annuity" has not been defined in the Act ; in the absence of any such statutory definition, one has to consider the said expression as understood in its ordinary meaning. "Annuity" has been defined in the Sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section. On the other hand, the contention of learned counsel for the Revenue is that the compulsory deposit has no similarity with the annuity, Annuity has a different meaning and accordingly this cannot be equated with the compulsory deposit which is made under the specific provision of the Act, We have considered the contentions of learned counsel. Section 2(e)(2)(ii) provides a right to any annuity (not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee) in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant. Annuity has not been defined under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974. Under the Annuity Deposit Scheme, 1964, annuity was defined as in section 280B(4) of the Income-tax Act, 1961, as follows: "'Annuity' means any annual instalment of principal and inter est thereon payable by the Central Government under the provisions of section 280D." This definition, in our view, cannot determine the question whether the compulsory deposit under the Compulsory Deposit Scheme (Income tax Payers) Act (here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in accordance with the scheme. It is the income of the depositor which is refunded by instalments. Annuity means where an income is purchased with a sum of money and the capital has gone and has ceased to exist, the principal having been converted into an annuity (sic). Ordinarily, an annuity is a money payment of a fixed sum annually made and is a charge personally on the grantor. Thus, it is a right to receive a specified sum and not an aliquot share in the income arising from any fund or property. 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 any ground relating to the general income of the fund or estate which is charged for such payment. In, order to constitute an annuity, it is not essential that the payment must be made once a year only and not monthly or quarterly. What is necessary is that the payments made must constitute a certain sum payable in a year to the annuitant. For the assessment years 1957-58 to 1974-75, the definition of the term " assets" in section 2(e) specifically excluded any right to any annuity in any case where the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when used in an Act of Parliament. The first rule is that general statutes should prima facie be presumed to use words in their popular sense.' At page 155, the learned author further says: 'The second rule is that if the statute is one passed with reference to a particular trade, business or transaction, words are used therein which everybody conversant with that trade, business or transaction knows and understands to have a particular meaning in it, the words are to be construed as having that particular meaning which may differ from the ordinary or popular sense.' As regards 'legal terms', the learned author observes at page 158: 'There is a well-known principle of construction, that where the Legislature uses in an Act a legal term which has received judicial interpretation, it must be assumed that the term is used in the sense in which it has been judicially interpreted ... The same rule applies to words with well-known legal meanings, even though they have not been the subject of judicial interpretation.' Now, 'annuity' is a well-known legal term. Instances of annuity appear in the illustration to section 173 of the Indian Succession Act and it is interesting to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trustees were required to pay the income of the trust fund after deducting the expenses to the assessee during her lifetime. The rest of the clauses in that trust deed relate to disposition of the corpus to different beneficiaries after the lifetime of the assessee. It is clear from the terms of the three trust deeds referred to earlier that the assessee had a life interest in each of those funds. Further, under the trust deeds executed by her father, she was also entitled to a portion of the corpus under certain circumstances. The question for decision is, whether benefits obtained by the assessee under those deeds can be held to come within section 2(e)(iv). The Supreme Court observed (at page 508): " The expression 'annuity' is not defined in the Act. In Halsbury's Laws of England, third edition, volume 32, at page 534 (paragraph 899), the meaning of the word 'annuity' is explained thus : 'An annuity is a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consisting exclusively of land.' In Jarman on Wills, at page 1113, 'annuity' is, defined thus : 'An annuity is a right to receive de anno in annum a certain sum.; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear the assessee was given thereunder a share of the income arising from the funds settled on trust. Under those deeds, she is not entitled to any fixed sum of money. Therefore, it is not possible to hold that the payments that she is entitled to receive under those deeds are annuities." In CWT v. P. K Banerjee [1980] 125 ITR 641, the Supreme Court, after considering several decisions including the decisions in Ahmed G. H. Ariff [1970] 76 ITR 471 (SC), Arundhati Balkrishna [1970] 77 ITR 505 (SC) and Dorothy Martin [1968] 69 ITR 586 (Cal) held that, in order to constitute an "annuity", the payment to be made periodically should be a fixed or predetermined 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 was charged for such payment. The Supreme Court again considered the meaning of the word "annuity" in Nawab Sir Mir Osman Ali Khan (Late) v. CWT [1986] 162 ITR 888. In that case, the question was whether the sum of Rs. 25,00,000 paid annually to the assessee in lieu of the income from certain properties was an annuity. There the Supreme Court observed as follows (at page 901) : " It is nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the deposit under the Compulsory Deposit Scheme is an annuity, not purchased by the assessee and is, therefore, exempt. It is not disputed that, unless exemption can be claimed as an annuity under section 2(e)(2)(ii), it would clearly be includible in the net wealth of the assessee for the simple reason that it is a deposit in the name of the assessee in a bank with only the restriction on the right of withdrawal thereof for two years absolutely and, thereafter, the right to withdraw one-fifth thereof for the next five years. Interest runs on the amount in deposit at more or less the higher rate of interest. It has all the attributes of a deposit in a bank because the assessee, when he makes a deposit, gets a pass book in which an entry is made as is made in the case of any other deposit in a bank. Interest is calculated on the balance due every year by the bank and credited in the pass book. The assessee has a right of withdrawing it subject to the restrictions noted earlier. An annuity is generally a fixed sum of money payable periodically and not subject to variation. An annuity cannot be related to a fixed proportion of capital. When an assessee deposited out of his income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of instalment or interest which has become repayable and providing that such deposit could continue to carry interest further shows that this is not an annuity because there is no such option available in the case of an annuity. That the instalment falling due would be treated as a deposit clearly shows that it was akin to an ordinary deposit and not There is another aspect of the matter. Assuming the right to receive the instalment in terms of the Compulsory Deposit Scheme Act is an annuity, a further question still remains as to whether the terms and conditions relating to such annuity preclude the commutation of any portion thereof into a lump sum grant. Section 8(1) of the Compulsory Deposit Scheme Act provides as follows "The amount of compulsory deposit made by or recovered from a depositor in any financial year shall be repayable in five equal annual instalments commencing from the expiry of two years from the end of that financial year, together with the interest due on the whole or, as the case may be, part of the amount of the compulsory deposit which has remained unpaid: Provided that nothing in this section shall prevent earlier repayment of the deposit or any ..... 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